# Opposition Brief — Atlantic Lloyd's Insurance Co. of Texas v. Zurich Insurance

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1999
- **Citation:** 525 U.S. 1121

## Text

ane

Supreme Court, U.S.
eS Fe Bs

DEC 21 1998

IN THE

Supreme Court of the United States

OCTOBER TERM, 1998

RR eR aT

ATLANTIC LLOYD’S INSURANCE COMPANY OF TEXAS,
ATLANTIC MUTUAL INSURANCE COMPANY, CENTENNIAL
INSURANCE COMPANY, H.R. MANAGEMENT COMPANY,
HARRY W. REED, and GRAYSTAR MANAGEMENT,

Petitioners,
VS.
THE ZURICH INSURANCE COMPANY and
DIANNE THOMPSON,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

RESPONDENTS’ BRIEF IN OPPOSITION

WERNER A. POWERS
Counsel of Record
ALAN WRIGHT
HAYNES & BOONE, L.L.P.
Attorneys for Respondents
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
(214) 651-5000

@) Counsel Press LLC
FORMERLY LUTZ APPELLATE SERVICES

(800) 274-3321 * (800) 359-6859

i

PARTIES TO THE PROCEEDING AND
STATEMENT PURSUANT TO RULE 29.6

The petition accurately lists the parties to the proceeding.

The parent of Respondent The Zurich Insurance Company
is Zurich Insurance Company. There are no nonwholly owned
subsidiaries of Respondent The Zurich Insurance Company.

il

TABLE OF CONTENTS

Page
Parties to the Proceeding and Statement Pursuant to Rule
29 O ivor etait eee eee i
ladle of Contents 355 ice oe eee ii
Table of Cited Authorities (i... 5 ...54sveeuesinee. iV
statement of the Case. 205 Uo oe ee l
A. The Parties and the Underlying Cases. ........
B. Course of Proceedings Below. ............... 2
C, Statemett OF Peete os so vyalets 5
1. Sie Coles Cie = oo 55 ae 6
6. FOC POE Ce oe ei a eee 7 '
‘
Summary of Atgumient ooo co 8
Reasons for Denying the Writ .................... 1]
I. This Appeal Is An Improper Attempt To Obtain
Appellate Review Of The District Court’s Remand
fo Mpa tS sp wgey wae na SY ye A doe 1]

If. The Court Of Appeals Correctly Ruled That There
Is No Federal Question Jurisdiction In This Case.

ee

ui
Contents

Page

A. Petitioners misstate the record and rely on
inapposite authority. .............. i 12
1. Petitioners misstate the record. ..... 12

2. Petitioners rely on inapposite authority

in an attempt to create a conflict among
a GENE. ok abds caNece eink ss 13
3. The All Writs Act does not apply. .. 14

B. There is no original or removal federal
question jurisdiction in this case. ....... 15

1. Rivet and Alleged Attacks on Federal
PES Son on. 6 w'h eo ks Wow ee 16

2. “Artful Pleading” Does Not

Apply: Rule 60, Rule 82, and the
Preemption Doctrime. ..........66. 18

C. There is no supplemental federal jurisdiction
PY 5S bee days cree oe eke ees 21

Ill. The Court Of Appeals Did Not Exceed Its

Jurisdiction In Ruling On Respondents’
| ey Poe ey Por ey 22
Ne SAO 6 Wi ano ep hoe oo Nae RE Dee ees 25

TABLE OF CITED AUTHORITIES

Page
Cases:
ALFAB, Inc. v. CNA Financial Corp., 877 F. Supp. 1538
aitpitchina tess eee a aa, 20
Avco Corp. y. Machinists, 390 U.S. $57 gh > Spee 18
Bender v. illiamsport Area School Dist., 475 U.S. 534
sigs bE ET POP ee Aaa 24
Capital Cities Cable. Inc. v. Crisp, 467 U.S. 69] (1984)
Soe eA ROCA A Re aN gad Ue ake ee ae 14
Carpenter v. Wichita Falls Indep. School Dist., 44 F.3d
362 (Sth Cir. sf ED Pane ENS ES 16
Caterpillar, Inc. y. Williams, 482 U.S. 386 (1987) ... 16
Covington & Cincinnati Bridge Co. y. Hager, 203 U.S.
iD yi sacas PORE CET ON oe 15
Cresswell v. Sullivan & Cromwell, 668 F. Supp. 166 (S.D.
eh acid CV oe Pee TC ena DE Anne, 20
Dobberowsky y. Cryogenic T; ransportation, Inc., 989 F.
Supp. 848 (E.D. Mich. aS EE Oe Rone 18
Franchise Tax Bd. y. Construction Laborers Vacation
Trust, 463 U.S. ] ROPOE Aegon 16

v
Cited Authorities
Page
In re Terra Int'l, Inc., 134 F.3d 302 (Sth Cir. 1998) .. 23
Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S.
SER CIS EE USO ERE a be eee een 3, 9, 40, bd, 14, ¥9, 21, 22
Merrill Dow Pharmaceuticals, Inc. v. Thompson, 478
RL. Ue CASO) 6 avo any oe bears bal ye uee 16
Metropolitan Life Ins.Co. v. Taylor, 481 U.S. 58 (1987)
ghee ahns RD AE REDE CAG KES RASS ee 18
Mitchell v. Maurer, 293 U.S. 237 (1934) ........... 24
Musson Theatrical, Inc. v. Federal Express Corp., 89 F.3d
Saree Ce Gs BOON 5 ooo ha eee oe, 18
New Orleans Public service, Inc. v. Majoue, 802 F.2d
FOO Le GA SPOON bho kk Fae Reha eee ae 1]
Oklahoma Tax Comm'n v. Graham, 489 U.S. 838 (1989)
CF de dae 4 a eals ee AE ek we ae 16

Rivet v. Regions Bank, 108 F.3d 576 (Sth Cir. 1997),
POU, TAS BG. SEL ALGO) coxa oko i sea ee
SES e NAT ERS be eS ee ee 3, 9, 10, 12, 14, 16, 17, 18

Seedman v. United States Dist. Court, 837 F.2d 413 (9th
Ries AED sks wk veo as ee Re ee ee 1]

Stern v. South Chester Tube Co., 390 U.S. 606 (1968)
MENDES EMO EUS ESEREDD AEE Ee 15

vi

Cited Authorities

Page
Telecommunications Research and Action Center vy.
P.C.C., 190 Fe POOL. Ce 1968... 15
Verlinden B.V. v. Central Bank. 461 U.S. 480 (1983)
a ake wees 15
Statutes:
28 U.S.C. § 1331 a re ae SP aN 15, 16
ys BOS Foe eS Pr Ce Pigs ee ts eo 16
28 U.S.C. § 1447(d) ae : ine bea nial ll
29 U.S.C. § 1144(a) aud So 5 oe eae a Taney 18
28 Ui © SERS bet tac eee = 13
Rules:
Feo. R. Civ. P. 60 ace .3, 4, 10, 14, 18, 19
Fep. R. Civ. P. 60(b) ot a 13, 19, 20, 22
Fep. R. Civ. P. 60(b)(3) Ji dh cee wee Tey 23 19

Fep. R. Crv. P. &2 10,18, 19

l

STATEMENT OF THE CASE
A. The Parties and the Underlying Cases.

This proceeding arises from two consolidated toxic tort
cases (the “Chlordane Case”) brought in 1988 and 1989 in state
court in Houston, Texas, which were removed to the United
States District Court for the District of Columbia in 1990 and
then transferred to Judge John Rainey in the Southern District
of Texas, Houston Division, in 1991. The Chlordane Case,
which involved many parties who settled at different points in
time, concluded with a final judgment entered March 23, 1993.

Thereafter, in 1996, Respondents and others brought suit
in state court in Harris County, Texas, complaining of fraud
arising out of the settlement reached in the Chlordane Case
(the “Fraud Case”). Petitioners’ removal of the Fraud Case gave
rise to the appellate ruling here in issue.

The parties to the final judgment in the Chlordane Case,
which was entered pursuant to a settlement, included
Respondent Dianne Thompson and Petitioner H.R. Management
Company (“HRM”).

The Atlantic Insurance Companies were insurers, not
parties, in the Chlordane Case and are defendants in the Fraud
Case and Petitioners herein. The other defendants in the Fraud
Case are Petitioners HRM, Harry Reed (HRM’s owner), and
Graystar Management (HRM’s successor in interest).
Respondent The Zurich Insurance Company (“Zurich”) was an
insurer, not a party, in the Chlordane Case on behalf of HRM
and others, and Zurich joined Respondent Dianne Thompson
and others as a plaintiff in the Fraud Case.

:
emer menses i TI A I I I I

2

B. Course of Proceedings Below.

The Respondents, along with the other plaintiffs, filed the
Fraud Case in state court in Harris County, Texas, on or about
October 4, 1996. Substantially all of the plaintiffs were citizens
of Texas. Named as defendants were Petitioners Atlantic,
Centennial, and Atlantic Lloyd’s. Also named as defendants in
the Fraud Case were HRM, HRM’s owner, Harry Reed, and
HRM’s successor in interest, Graystar Management. All of the
defendants in the Fraud Case were citizens of Texas except for
Atlantic and Centennial. The plaintiffs alleged a number of state
law claims. No federal claims were asserted. See generally
Petition, App. H at 27a-49a (Plaintiffs’ First Amended Original
Petition in the Fraud Case).

This jurisdictional dispute arose because of Count One of
the Original Petition. By Count One, Respondents alleged that
the Petitioners had fraudulently induced them to settle the
Chlordane Case for at least $15 million less than its settlement
value. No equitable relief was sought in Count One. only
damages. Petition, App. H at 36a.

On or about November 1, 1996, Petitioners removed the
Fraud Case to the United States District Court for the Southern
District of Texas. The removal] papers claimed, inter alia, that
Count One by the Respondents was barred by an earlier federal
judgment entered pursuant to a settlement in the Chlordane
Case. The Fraud Case was assigned to Judge Melinda Harmon.
Judge Harmon did not transfer the Fraud Case to Judge John
Rainey, who had presided over the earlier Chlordane Case. Nor
was the Chlordane Case administratively reopened and
consolidated with the Fraud Case!

ests

|. Respondents note that, were supplemental jurisdiction the
Operative concept, then the state law claims alleged in the Fraud Case
(Cont'd)

On November 27, 1996, Respondents filed a Motion and
Brief to Remand in the Fraud Case. Respondents alleged, inter
alia, that they were not seeking to set aside a federal settlement
or a federal judgment; that, under Kokkonen v. Guardian Life
Ins. Co. of America, 511 U.S. 375 (1994), the Southern District
had no supplemental jurisdiction over settlements in the
Chlordane Case; that ALFAB, Inc. v. CNA Financial Corp.,
877 F. Supp. 1538 (M.D. Ala. 1995), decided post-Kokkonen,
was directly on point; that no federal question was alleged in
the Fraud Case; and that there_was no diversity jurisdiction.

On April 21, 1997, the district court entered its order
denying remand. See Petition, App. B at Sa-9a. The district
court found that Count One was an “artful” attempt to attack a
federal judgment; that an action in state court attacking a federal
judgment involves a “federal question” invoking the original
jurisdiction of federal courts; that there is no discernable
difference between an action for fraud seeking damages and an
action seeking to set aside a judgment; and that Kokkonen limits
the jurisdiction of courts to enforce settlements but is
inapplicable to fraud cases, where “[f]ederal jurisdiction is even
more essential.” /d. at 7a-8a. The district court also, sua sponte,
ordered Respondents to replead under Rule 60, Fen. R. Civ. P.,
within 15 days or face dismissal of their claims.

Respondents refused to replead because they would not be
forced to plead into the jurisdiction of the district court and

(Cont'd)

should have been appended to the Chlordane Case before Judge Rainey.
Presumably this would have required a transfer and consolidation of the
Fraud Case with the closed Chlordane Case. By attempting to maintain
jurisdiction over the state law claims in her court, Judge Harmon relied
solely on original, federal question jurisdiction over the state law claims
in the Fraud Case. See discussion of Rivet v. Regions Bank of La., __
U.S. _, 118 S. Ct. 921 (1998) and the well-pleaded complaint rule,
infra.

4

because they believed that Rule 60 was an optional remedy
even if the district court had original jurisdiction. Further, Rule
60 would have required a motion to be filed in Judge Rainey’s
Court in the Chlordane Case, which had never been reopened
or consolidated with the Fraud Case. The district court, on
August 6, 1997, entered an order that summarily disposed of
all of the claims then alleged in Respondents’ state court
petition. Of particular importance to this proceeding, the district
court, acting without motion, notice, hearing or evidence,
dismissed with prejudice Zurich’s fraud claim under Count One
of the Petition. The sole reason given was that Respondents
had failed to replead Count One under Rule 60. Zurich was not
a party to the Chlordane Case, or to the HRM settlement and
judgment in the Chlordane Case, and, therefore, could not
possibly seek relief under Rule 60.

After the district court denied remand, Respondents sought
mandamus relief in the court of appeals, seeking (1) the reversal
of the district court’s April 21, 1997 order denying remand and
(ii) an order of remand from the court of appeals. In its June 2,
1998 order reversing and vacating the district court’s order
denying remand, the court of appeals noted the following key
facts of importance to this appeal:

1. The district court’s order of dismissal in the
Chlordane Case “did not adopt or approve the
terms of the settlement” entered into by the
parties;

2. The fraud alleged in the Fraud Case “was
practiced upon the parties, not upon the court;”

and

3. The plaintiffs in the Fraud Case seek “damages
for fraudulent inducement in making the

i ee IS oe! ee ata Se ee a

settlement” at issue and do not attempt to
“circumvent the order of dismissal” in the
Chiordane Case.

Petition, App. A at 2a, 3a. The following language from the
court of appeals’ order is instructive:

The present suit is one for damages for fraud. It
does not seek to reopen the dismissed case nor does
it question the validity of the judgment dismissing
that case. It claims that the fraud was practiced upon
the parties, not upon the court. Thus, our decision
in Villareal v. Brown Express, Inc., 529 F.2d 1219
(Sth Cir. 1976) is not applicable. There we upheld
removal because plaintiff was using the second state
court suit to increase his personal injury recovery
and to circumvent two orders of the federal court.
Here plaintiffs are not trying to circumvent the order
of dismissal. Rather, they allege a separate state law
cause of action for which they seek damages. The
issue of the first suit (whether spraying the chemical
caused injury) is not at issue in the present suit for
fraud.

Id. at 3a-4a. The court of appeals vacated the district court’s
order denying remand, but did not remand the case to state
court because the question of diversity jurisdiction had not been
addressed by the district court. Jd. 7t 4a.

C. Statement of Facts.
The sole basis for sustaining subject matter jurisdiction in
the district court was the alleged nexus between the Chlordane

Case and the Fraud Case. In its order denying remand, the
district court concluded that the claims in the Chlordane Case

a eer ee eee

6

and the claims in the Fraud Case “involve the same inquiry on
the same facts and seek essentially the same damages.” See
Petition, App. B at 8a. A brief examination of the factual
grounds underlying the two Suits shows the error in this
conclusion.

l. The Chlordane Case

The plaintiffs in the Chlordane Case, including Respondent
Thompson, were former residents or employees at the Fondren

substance of which the use is strictly controlled by both state
and federal authorities. See Petition, App. H at 31a, 33a-34a.

A description of the Operative facts in the Chlordane Case
is set forth in portions of a confidential status report by Vial,
Hamilton, Koch & Knox, lawyers for HRM and Atlantic.
Portions of this report are excerpted in the plaintiffs’ petition
in the Fraud Case. See Petition, App. H at 33a-34a, 47a. In
evaluating the Chlordane Case, the lawyers for Atlantic made

the following conclusions:

I. Clara Tanner, the H.R. Management employee
responsible for choosing the chlordane, knew
before any was applied in the apartments that
it was improper and even criminal to use the
substance indoors.

-: He Management obtained the Chlordane for
use in the apartments by affirmatively lying
to the supplier, Wolf Nursery, as to how the
material was to be used.

7

3. Federally imposed labeling guidelines for
chlordane products would have disclosed that
H.R. Management’s method for application of
the product was improper and that the material
was dangerous and poisonous.

4. Under applicable regulations, the chlordane,
once obtained, should only have been applied
by licensed pesticide applicators and not by
the untrained, unsupervised workers that H.R.
Management actually used.

Id. at 47a.

The analysis by Vial, Hamilton also contained an estimated
range of damages sustained by the various plaintiffs in the
Chlordane Case. At that time, the total range of damages
exceeded $22,000,000. Jd. at 46a, 48a-49a.

2. The Fraud Case.

The question of the existence of federal jurisdiction in the
Fraud Case is determined by reference to the factual allegations
of the plaintiffs’ petition in the Fraud Case, which states:

Petitioner HRM had disclosed three insurance policies that
were potentially applicable to the claims in the Chlordane Case.
All policies were issued by the Atlantic Group. These three
policies were a $300,000 policy by Atlantic Lloyd's, a
$16,000,000 policy by Centennial, and an earlier $15,000,000
policy by Centennial. /d. at 31a. In order to induce the plaintiffs
in the Chlordane Case to settle for policy limits, lawyers for
the insurance carriers and HRM represented that Centennial
had denied coverage under the $15,000,000 policy, that the
$300,000 policy had been exhausted by earlier settlements, and

8

that something slightly less than $10,000,000 of policy benefits
remained. /d. at 31a, 32a.

Years after the conclusion of the Chlordane Case, lawyers
for the plaintiffs in the Chlordane Case learned that the
representations on which the plaintiffs had relied were false.
Centennial had not rejected coverage under the $15,000,000
policy. Indeed, the $10,000,000 used to settle the Chlordane
Case on behalf of HRM was paid under the $15,000,000 policy.
Id. at 32a.

Thus, as the court of appeals correctly noted, “[t]he issue
of the first suit (whether spraying the chemical caused injury)
is not at issue in the present suit for fraud.” Petition, App. A at
3a-4a. The district court’s contrary conclusion was clearly
wrong.

SUMMARY OF ARGUMENT

Federal courts must trust state courts to respect federal
judgments. Simply because a cause of action or an item of
damage pled in state court might tread upon a prior federal
judgment is no excuse for inventing federal jurisdiction. State
judges are competent to apply defenses of res judicata and
collateral estoppel, and their decisions in this regard are
ultimately subject to review by this Court. Indeed, in an extreme
case, a federal court may issue an injunction to stop a state
court from disobeying a federal judgment. Dislike or distrust
of state courts does not give a federal district court the right to
enlarge upon the constitutional limits of its power.

Federal jurisdiction falls into two categories: original and
supplemental. Original, federal question jurisdiction is subject
to the well-pleaded complaint rule in all cases except where
legislation enacted by Congress has completely preempted a

9

field of law. Where supplemental jurisdiction exists, it
necessarily comes to an end not later than the date on which
the trial court loses jurisdiction over its judgment, except in
those rare cases where the trial court expressly retains
jurisdiction over settlements. In the case at bar, the Southern
District’s supplemental jurisdiction over the earlier Chlordane
Case came to an end not later than thirty days after the entry of
final judgment.’ Even had Respondents wanted to invoke federal
jurisdiction, they were powerless to do so. See Kokkonen, 511
U.S. at 378.

However, this is all irrelevant because Respondents chose
to invoke only state law, as was their right. No federal question
was pled, and diversity was completely lacking. If the case pled
by Respondents represents an attack on a federal judgment,
which clearly it does not, Petitioners are protected by
affirmative defenses of res judicata or collateral estoppel in
the state court. See Rivet, U.S.__,118S. Ct. at 926.

Even if attacks on federal judgments were removable,
which they are not, this was not an attack on a federal judgment.
Respondents did not file suit in state court in an effort to
relitigate the claims alleged in the Chlordane Case. Rather, they
filed suit in state court seeking damages for an alleged fraud
committed by the insurance carriers who defended the
Chlordane Case. Respondents did not seek to set aside a federal
judgment. They did not ask for rescission of the settlement that
gave rise to the federal judgment. They only asked for damages
equal to the difference between what the insurance carriers paid
in settlement and what they would have paid but for their fraud.

2. The district court in the Chlordane Case did not reserve
jurisdiction to enforce the parties’ settlement agreement. Petition, App.
J at 54a-56a. To the contrary, as the court of appeals concluded, the
order “did not adopt or approve the terms of the settlement.” Petition,
App. A at 2a.

10

Nor can it be contended, as did the district court, that Rule
60 is the sole remedy for fraudulently induced settlements. The
common law of Texas Provides Respondent Thompson with a
remedy for fraudulently induced contracts, and a settlement.
even one in federal court, is a contract. Rule 60 cannot preempt
the common law of Texas. Only Congress can Pass legislation
that preempts state law. Certainly, this Court, through its rule
making authority, cannot preempt state law. Indeed. Federal
Rule of Civil Procedure 82 expressly provides that the Federal]
Rules of Procedure cannot increase the jurisdiction of federal
courts. Fep. R. Civ. P, 82.

The questions Petitioners present for this Court’s review
must be answered against them. The first question, whether
federal courts have jurisdiction over independent actions
seeking damages for fraud arising from the settlement and
dismissal of a prior federal action such that removal of such an
action from state court is proper, ts controlled by this Court’s
decisions in Kokkonen and Rivet.

Petitioners’ second question, whether the court of appeals
exceeded its jurisdiction in ruling, as part of its decision on
Respondents’ mandamus petition, that the district court erred
in finding federal question jurisdiction of a removed case, is
answered by reference to settled precedents of this Court
holding that appellate courts have a special obligation to Satisfy
themselves of appellate and district court jurisdiction. The court
of appeals’ ruling that there is no federal question Jurisdiction
was proper, and the petition for writ of certiorari should be
denied.

1]

REASONS FOR DENYING THE WRIT

THIS APPEAL IS AN IMPROPER ATTEMPT TO
OBTAIN APPELLATE REVIEW OF THE DISTRICT
COURT’S REMAND ORDER.

After the court of appeals issued the ruling challenged by
Petitioners, the district court ordered the Fraud Case remanded
to state court. Petition, App. F at 15a-24a. Under 28 U.S.C.
§ 1447(d), remand orders in cases other than civil rights cases
are not “reviewable on appeal or otherwise.” The district court’s
order of remand forecloses appellate review of pre-remand
jurisdictional rulings in the Fraud Case and moots Petitioners’
appeal.’

The Petition is an exercise in futility. There is no relief to
be granted to Petitioners because the Fraud Case has already
been remanded and cannot be “unremanded.” Even if the court
could somehow “unremand” the Fraud Case, then the court
would be doing indirectly what the law prohibits it from doing
directly — reviewing an order of remand. Were the Petitioners
sincere about having the opinion of the court of appeals
reviewed by this Court, they could have easily moved the
district court to delay its decision on whether to remand the
Fraud Case pending this Court’s certiorari review of the court
of appeals’ decision. This they did not do.

3. Seedman v. United States Dist. Court, 837 F.2d 413, 414 (9th
Cir. 1988) (after certification to state court, a federal court cannot vacate
a remand order issued under section 1447(c)); New Orleans Public
Service, Inc. v. Majoue, 802 F.2d 166, 167-68 (Sth Cir. 1986) (same)

12

THE COURT OF APPEALS CORRECTLY RULED THAT
THERE IS NO FEDERAL QUESTION JURISDICTION
IN THIS CASE.

A. Petitioners misstate the record and rely on inapposite
authority.

1. Petitioners misstate the record.

In an attempt to distance themselves from this Court’s
rulings in Kokkonen and Rivet, Petitioners misstate the record
in this case in at least two material respects. As will be seen,
these factual misstatements significantly affect the analytical
framework to be applied to the legal questions presented in the
Petition. Under a proper factual and legal analysis, which
necessarily requires consideration of Kokkonen and Rivet,
Petitioners’ claims are without merit.

First, notwithstanding the plain language of the plaintiffs’
petition in the Fraud Case, Petitioners describe Respondents’
claims in the Fraud Case as a collateral attack on the dismissal
order in the Chlordane Case. E.g., Petition at 4 (“on its face
Plaintiffs’ suit is a collateral attack on the earlier federal court
judgment of dismissal”); Petition at 19 (“regardless of how
Plaintiffs denominate their claims, their suit is an independent
action for relief contemplated by Rule 60(b)”). The court of
appeals correctly held that Respondents “are not trying to
circumvent the order of dismissal” and instead “allege a separate
State law cause of action for which they seek damages.” Petition.
App. A at 3a.

Second, disregarding the unambiguous terms of the order
dismissing the Chlordane Case, Petitioners attempt to categorize

13

the order as a consent decree by alleging that the district court
“approved” Respondents’ settlement in the Chlordane Case.
E.g., Petition at 5 (“Judge John D. Rainey entered an order
approving the settlement”); Petition at 19 (“before seeking an
additional monetary award, Plaintiffs here must set aside the
court approved settlement and federal judgment of dismissal”)
(emphasis supplied). The dismissal order in the Chlordane Case
was accurately characterized by the court of appeals in its
finding that the order “did not adopt or approve the terms of
the settlement.” Petition, App. A at 2a.

2. Petitioners rely on inapposite authority in an attempt
to create a conflict among the circuits.

Petitioners’ factual mischaracterizations lead them to
proffer improper legal analyses of their claims. The heart of
Petitioners’ argument is that there is a conflict among the
circuits regarding “whether state court actions collaterally
attacking the validity of a federal judgment can be removed.”
Petition at 9, 10. No such conflict is presented in this case, as
there is no collateral attack by Respondents on a federal
judgment. Petitioners’ argument is thus factually insupportable.

In an attempt to create a conflict among the circuits
justifying this Court’s attention to this case, Petitioners cite to
two general classes of cases. First, Petitioners cite numerous
consent decree and class action settlement cases analyzing
jurisdiction under the All Writs Act, 28 U.S.C. § 1651(a).
Petition at 12-14. Second, Petitioners cite decisions in which
federal judgments are directly attacked, typically under Rule
60(b), for alleged fraud on the court. Petition at 14-15. Neither
class of cases is applicable to the straightforward facts of this
case.

14

Petitioners’ efforts at conjuring up a conflict among the
circuits fails. The conflict alleged by Petitioners requires a
collateral attack on a federal judgment. The court of appeals
correctly held, consistent with Kokkonen and Rivet, that there
is no collateral attack. Moreover. it is undisputed that
Respondents did not plead under Rule 60 and refused to so
plead despite an order to do so from the district court in the
Fraud Case

3. The All Writs Act does not apply.

The All Writs Act does not apply in this case for two
reasons. First, the Act is not at issue in this case. Petitioners
belatedly raise the argument for the first time in this Court.
They did not argue the Act’s application in any of their filings
in the district court or the court of appeals, and the Act is not
mentioned in, and does not form the basis of. any ruling by the
district court or the court of appeals. There is no reason for the
Court to consider the Act in this case. See, e.g., Capital Cities
Cable, Inc. v. Crisp, 467 U.S. 691. 697-98 (1984) (Supreme
Court does not ordinarily consider questions not specifically
passed on by the lower court; question considered when raised
in Petitioners’ complaint, acknowledged by district court and
court of appeals, and district court made findings on all factual
issues necessary to resolve the question).

Second, the All Writs Act is inapplicable because (i) the
dismissal order in the Chlordane Case is not a consent decree
or an order over which the district court retained jurisdiction
and (11) Respondents’ claims in the Fraud Case do not constitute
a collateral attack on the dismissal order in the Chlordane Case.
The court of appeals found that the district court in the
Chlordane Case did not adopt or approve the terms of the
settlement. Petition, App. A at 2a. Nor is there any language in
the dismissal order to suggest that the district court reserved

15

jurisdiction to enforce the terms of the settlement. As a result,
the many “consent decree” and “class action settlement” cases
relied on by Petitioners, in which the district court retained
jurisdiction over a federal judgment pursuant to the All Writs
Act, are inapplicable.

The All Writs Act is not an independent grant of jurisdiction
to a court. Rather, it “merely permits a court to issue writs in
aid of jurisdiction acquired to grant some other form of relief.”
Telecommunications Research and Action Center v. F.C.C., 750
F.2d 70, 77 (D.C. Cir. 1984), citing Stern v. South Chester Tube
Co.. 390 U.S. 606, 608 (1968) and Covington & Cincinnati
Bridge Co. v. Hager, 203 U.S. 109, 110 (1906). Unless federal
jurisdiction over the case otherwise exists, the All Writs Act
does not independently confer jurisdiction. Even if it did,
however. Petitioners did not invoke it at any point in the
proceedings below and may not now do so.

B. There is no original or removal federal question
jurisdiction in this case.

The scope of statutory federal question jurisdiction under
28 U.S.C. § 1331 is narrower than the constitutional grant. See
Verlinden B.V. v. Central Bank, 461 U.S. 480, 493 (1983).
Federal question jurisdiction is analyzed under the mandates
of the “well-pleaded complaint” rule:

Whether a case is one arising under the Constitution
or a law or treaty of the United States, in the sense
of the jurisdictional statute, . . . must be determined
from what necessarily appears in the plaintiff's
statement of his own claim in the bill or declaration,
unaided by anything alleged in anticipation or
avoidance of defenses which it is thought the
defendant may interpose.

tt il Nl i Ol el al,

16

Franchise Tax Bd. v. Construction Laborers Vacation Trust,
463 U.S. 1, 10 (1983); see also Rivet, 118 S. Ct. at 925. The
existence of a federal defense to a state law claim does not
confer federal jurisdiction. Oklahoma Tax Comm'n y. Graham,
489 U.S. 838, 840-41 (1989). Instead, a suit arises under federal
law for purposes of 28 U.S.C. § 1331 only “if there appears on
the face of the complaint some substantial, disputed question
of federal law.” Carpenter v. Wichita Falls Indep. School Dist.,
44 F.3d 362, 366 (Sth Cir. 1995). Jurisdiction may not be
sustained on a theory that the plaintiff has not advanced. See
Merrill Dow Pharmaceuticals, Inc. v. T. hompson, 478 U.S. 804,
809 n.6 (1986).

The same basic tenets apply to federal question removal
jurisdiction. A defendant may only remove an action from state
court on federal question grounds if the action could have been
brought originally in federal court. 28 U.S.C. § 1441. A plaintiff
may thus generally defeat removal by choosing to base his
action solely upon state law, even if the allegations of the
complaint could support a claim under federal law. Caterpillar,
Inc. v. Williams, 482 U.S. 386, 392 (1987). A defendant may
not remove an action from state court based upon a federal
defense. Oklahoma Tax Comm'n y. Graham, 489 U.S. at 840-
41. The defendant can only remove a case to federal court if
the plaintiff must “establish both the correctness and
applicability to his case of a proposition of federal law.”
Franchise Tax Bd. v. Construction Laborers Vacation T; rust,
463 US. at 9.

|. Rivet and Alleged Attacks on Federal Judgments.
In Rivet, this Court clarified that state suits alleging claims
inconsistent with federal judgments do not create a federal

question. There, this Court held that removal may not be
predicated on a defendant’s assertion that a prior federal

17

judgment had disposed of the entire matter and thus barred the
plaintiffs from later pursuing a state-law based claim. Rivet,
118 S. Ct. at 926. The plaintiff in Rivet had filed a state court
lawsuit to foreclose on certain real property. The defendants
removed the case to federal court, asserting that the plaintiff's
suit was preempted by a prior federal judgment. The district
court failed to remand the case, instead granting summary
judgment to the defendants based on the prior federal judgment.
Id. at 924. The Fifth Circuit affirmed, holding that removal
was proper “where a plaintiff files a state cause of action
completely precluded by a prior federal judgment on a question
of federal law.” Rivet v. Regions Bank, 108 F.3d 576, 586 (Sth
Cir. 1997), rev'd, 118 S. Ct. 921 (1998).

This Court reversed. The Court analyzed the citizenship
of the parties and the claims the plaintiff had advanced in the
state court and determined that no federal jurisdiction existed.
Rivet, 118 S. Ct. at 925-26. The Court held that the fact that the
plaintiff's claim may relate closely to the subject matter of a
prior federal judgment does not give rise to federal question
removal jurisdiction. Jd. at 926. The fact that the state court
claim may seek relief that a federal court has already considered
and ruled upon does not turn the suit into a federal lawsuit. /d.

The Court acknowledged the “artful pleading doctrine,”
pursuant to which removal may be upheld even if no federal
question appears on the face of the plaintiffs complaint. /d. at
925. That doctrine allows removal where federal law completely
preempts a plaintiff's state law claim. Id. Federal preemption
is ordinarily merely a defense which will not support removal.
Id. Once an area of state law has been completely preempted,
however, any claim purportedly based on that preempted state
law claim is considered, from inception, a federal claim that
arises under federal law. Jd. The Court held that no complete
preemption obtains even when a party seeks to relitigate a matter
previously decided by a federal court. Id. at 926.

18

The present case does not raise a federal question. The
original state court petition in the Fraud Case raised only state
law claims of fraud, conspiracy to defraud, subrogation,
wrongful inducement to breach fiduciary duty, and unlawful
trade practices. See Petition, App. H. The Plaintiffs in the Fraud
Case did not plead “res judicata,” “collateral estoppel” or “Rule
60.” No federal question appears on the face of the petition.
The Fraud Case, like Rivet, was not removable.

2. “Artful Pleading” Does Not Apply: Rule 60, Rule 82,
and the Preemption Doctrine.

This case, like Rivet, is not a case of artful pleading. Before
the “artful pleading” doctrine is invoked, federal law must
“completely preempt” an area of State law. Rivet, 118 S. Ct. at
925.

The “artful pleading” doctrine applies only where Congress
has so completely preempted a particular area of the law that
any civil complaint raising the select group of claims is
necessarily federal in characier. Metropolitan Life Ins. Co. y.
Taylor, 481 U.S. 58, 63-64 (1987). Complete preemption
applies only in the extraordinary circumstances when Congress
intends, not merely to preempt state law, but to transfer
jurisdiction to decide the preemption question from state to
federal courts. Musson Theatrical, Inc. v. Federal Express
Corp., 89 F.3d 1244, 1253 (6th Cir. 1996). This Court has been
So reluctant to find complete preemption that it has limited
complete preemption to two federal statutes — the Labor
Management Relations Act (LMRA) and the Employee
Retirement Income Security Act, 29 U.S.C. § 1144(a) (ERISA).
See, e.g., Dobberowsky v. C ryogenic Transportation, Inc., 989
F. Supp. 848, 852-53 (E.D. Mich. 1997); Metropolitan Life Ins.
Co., 481 US. at 65-66; Avco Corp. vy. Machinists, 390 U.S.
557, 560 (1968). No federal law “completely preempts” any of
the claims in the Fraud Case.

19

Federal Rule of Civil Procedure 60 does not preempt the
common law of Texas. Rule 60 is not legislation. It does not
reflect Congress’ intent to preempt a body of state law. Instead
it is a rule adopted by this Court setting forth procedures
applicable to federal courts. The rule does not purport to govern
the conduct of state court litigants. Federal jurisdiction is not
derived from Rule 60(b) itself. See, e.g., In re Hunter, 66 F.3d
1002, 1005 (9th Cir. 1995). Indeed Rule 82 specifically
mandates that Rule 60(b) and all other federal rules “shall not
be construed to extend . . . the jurisdiction of the United States
district courts.” Fep. R. Civ. P. 82. For a federal court to have
jurisdiction over a suit that might fit with the framework of
Rule 60(b), some independent statutory or constitutional basis
for jurisdiction must exist. Jn re Hunter, 66 F.3d at 1005. As
the court of appeals correctly held, no independent statutory or
constitutional basis for federal jurisdiction exists in the Fraud
Case.

If the plaintiffs in the Fraud Case had filed a motion
pursuant to Rule 60(b)(3), there may have been federal
jurisdiction as part of the original case. Jn re Hunter, 66 F.3d
at 1005. They did not do so. If the Fraud Case plaintiffs had
alleged “fraud on the court,” federal supplemental jurisdiction
may have been available to the court to “vindicate its authority,
and effectuate its decrees.” Kokkonen, 511 U.S. at 380. They
made no such allegation.

Instead, however, the Fraud Case plaintiffs asserted a
garden variety state law fraud claim which, at best, may fit
within Rule 60’s broad catch-all “independent action.” As such,
however, no independent federal jurisdictional basis exists. /n re
Hunter, 66 F.3d at 1005-06.

Even if Rule 60 were substantive federal law, Rule 60 does
not completely preempt all state law cases that include fraud
counts and that relate to prior federal settlements.

20

[NJothing in the language of Rule 60(b) supports
the defendants’ contention that it precludes an action
for fraud in connection with a settlement. Rule 60(b)
denotes instances when a court “may relieve a party
... from a judgment,” but it does not purport to
cover damages actions for fraud and seek to affirm
or ratify a judgment rather than seek relief from a
judgment. Its focus is on a specific remedy —
obtaining relief from a judgment — not on all
available remedies for fraud.

Cresswell v. Sullivan & Cromwell, 668 F. Supp. 166, 169 (S.D.
N.Y. 1987). See also In re Hunter, 66 F.3d 1002 (9th Cir. 1995).

In Cresswell, defendants argued that the plaintiffs’ common
law fraud claim fell within Rule 60(b) and created federal
question jurisdiction. Defendants also argued that plaintiffs
were required to reopen the judgment and put both parties back
in the position they were in prior to settlement. Cresswell, 668
F. Supp. at 171. The Court rejected this argument, and held:

If this were the rule, few plaintiffs would choose to
enforce their claim for fraud in connection with a
settlement, no matter how valid their cause of action.
A plaintiff who must give up any benefit he has
gained and risk receiving nothing in return would
be reluctant to enforce his rights as a fraud
victim. ... Because the relief sought falls outside
the reach of Rule 60, that rule cannot be said to
require the plaintiffs to tender back their settlement
and sue to reopen the earlier judgment. Plaintiffs
may instead affirm the earlier settlement and seek
damages for the alleged fraudulent inducement of
the settlement.

Id. at 172.

21

C. There is no supplemental federal jurisdiction in this
case.

In Kokkonen, this Court specifically held that the concept
of supplemental jurisdiction cannot be stretched far enough to
include jurisdiction over suits relating to prior federal
settlements. Kokkonen, 511 U.S. at 380. The Court held that
when parties to a federal court lawsuit settle and jointly move
to dismiss a case, the federal court does not retain supplemental
jurisdiction over disputes arising out of that settlement
agreement unless the district court has expressly reserved the
right in its order to enforce the settlement agreement. /d. at
381-82. In the present case, the order dismissing the Chlordane
Case did not retain jurisdiction over settlement disputes. See
Petition, App. J.

Whether the dispute is one for breach of contract or fraud,
there is no supplemental jurisdiction. Following this Court's
decision in Kokkonen, a federal district court applied the
appropriate analysis and remanded a case removed on the
grounds that fraud claims arising out of a settlement in federal
court created federal question jurisdiction. ALFAB, Inc. v. CNA
Financial Corp., 877 F. Supp. 1538 (M.D. Ala. 1995). In
ALFAB, parties to a federal lawsuit executed a settlement
stipulation resolving the action; the district court adopted the
settlement stipulation and dismissed the case with prejudice.
Over a year later, the plaintiffs sued the same defendants in the
Alabama state court alleging that the defendants acted
fraudulently in procuring the settlement agreement reached in
the previous action, misrepresented the material information
during settlement negotiations and wrongfully canceled certain
insurance policies. /d. at 1539.

|
eS ci cai

22

The defendants removed the case and contended that the
federal court had supplemental jurisdiction pursuant to
Rule 60(b) because the plaintiff's fraud action necessarily
questioned the validity of the settlement agreement in federal
court. Relying on Kokkonen, the court remanded the case.‘ /d.
at 1540. Similarly, remand was required in the case at bar.

The district court in the instant case attempted to distinguish
Kokkonen by recharacterizing the claims asserted in the Fraud
Case as an attack ona prior federal judgment. It is not such a
case, however, and the district court had no authority to violate
the well-pleaded complaint doctrine. Respondents do not seek
to undo the prior judgment or settlement. This case is a
Straightforward suit for fraud in settlement negotiations, and
Kokkonen applies and resolves the issue. Supplemental
jurisdiction does not exist.

Iil.

THE COURT OF APPEALS DID NOT EXCEED ITS
JURISDICTION IN RULING ON RESPONDENTS’
MANDAMUS PETITION.

The court of appeals acted within its jurisdiction when it
reversed the district court’s decision and vacated the district
court's order denying remand. Petitioners argue that, because
the court of appeals denied the specific mandamus relief of
ordering the remand of the Fraud Case, it was without appellate
jurisdiction to reverse and vacate the district court’s order
denying remand. Petition at 21-22. In making this argument,
Petitioners mischaracterize the court of appeals’ ruling on
Respondents’ petition for writ of mandamus.

4. The ALFAB court also rejected the defendants’ reliance upon
previous cases upholding federal jurisdiction over settlement disputes
decided prior to this Court's decision in Kokkonen. Id. at 1540.

23

In their petition for writ of mandamus, Respondents asked
the court of appeals to (i) issue a writ of mandamus directing
the district court to vacate her Order Denying Motion to Remand
entered April 21, 1997, and (ii) to enter an order remanding the
Fraud Case to state court in Harris County, Texas. Instead of
issuing a writ of mandamus directing the district court to vacate
its order denying Respondents’ motion to remand, the court of
appeals vacated that order itself. By doing so, the court of
appeals granted Respondents part of the mandamus relief they
sought —- a reversal and vacation of the district court’s order
denying remand. Accordingly, this critical mandamus relief
sought by Respondents was granted by the court of appeals —
not denied.

The relief denied by the court of appeals was Respondents’
request that the case be remanded to state court. Rejecting that
request, the court of appeals instead remanded the case to the
district court so it could consider for the first time the issue of
diversity jurisdiction. Petition, App. A at la.

In sum, the court of appeals granted in part and denied in
part Respondents’ petition for writ of mandamus. Petitioners’
argument that the court of appeals acted without jurisdiction,
therefore, rests on the premise that the court of appeals has no
jurisdiction to grant part, but not all, of the relief requested in
a mandamus petition. This premise is legally incorrect, as
federal law does not preclude a court of appeals from partially
granting mandamus relief, and courts of appeals, including the
Fifth Circuit Court of Appeals, routinely grant such relief. See
In re Terra Int'l, Inc., 134 F.3d 302, 303 (Sth Cir. 1998)
(granting in part and denying in part request for mandamus
relief).

Notably, Petitioners do not contend that the court of appeals
lacked jurisdiction to consider the merits of Respondents’

24

mandamus petition. They argue only that, as a result of the
denial of mandamus relief, the court of appeals lacked
jurisdiction to reverse and vacate the district court’s order
denying remand to state court. As demonstrated above, the
denial of mandamus relief was only partial. The court of appeals
granted Respondents part of the relief they requested in their
petition for writ of mandamus regarding the district court’s
order denying remand. The court of appeals had the jurisdiction
to do so, and Petitioners’ argument to the contrary is without
merit.

In any event, all federal courts have a continuing obligation
to examine the basis for their jurisdiction, and that issue may
be raised by the parties or by the court sua sponte at any time
Bender v. Williamsport Area School Dist., 475 U.S. 534, 54]
(1986) (“every federal appellate court has a special obligation
to ‘satisfy itself not only of its own jurisdiction, but also that
of the lower courts in a cause under review.’ ”) (quoting
Mitchell v. Maurer, 293 U.S. 237, 244 (1934). The court of
appeals acted within its jurisdiction when it determined. in
reversing and vacating the district court’s order denying
remand, that there is no federal question jurisdiction in the Fraud
Case.

25

—

CONCLUSION
For the reasons given above, the petition should be denied.
Respectfully submitted,

WERNER A. POWERS
Counsel of Record

ALAN WRIGHT

HAYNES & BOONE, L.L.P
Attorneys for Respondents
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
(214) 651-5000

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386003_1162%3A2. Public record. Not legal advice.