Reply Brief — Foxmeyer Drug Co. v. Coopers & Lybrand, 115 S. Ct. 296 (1994) (No. 93-2014)

No. 93-2014

IN THE Om

Supreme Court Of Che United States

OCTOBER TERM, 1993

FOXMEYER DRUG COMPANY,

Petitioner,

V.

COOPERS & LYBRAND,

Respondent.

In re FOXMEYER DRUG COMPANY,

Petitioner.

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

and in the alternative

FOR COMMON-LAW WRIT OF CERTIORARI

AND WRIT OF MANDAMUS

TO HONORABLE DONALD E. ZIEGLER,

UNITED STATES DISTRICT JUDGE

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

REPLY BRIEF IN SUPPORT OF PETITION

MARVIN S. SLOMAN

Counsel of Record

WILLIAM B. DAWSON

KAREN L. HIRSCHMAN

WILLIAM D. UNDERWOOD

CARRINGTON, COLEMAN, SLOMAN

& BLUMENTHAL, L.L.P.

200 Crescent Court, Suite 1500

Dallas, Texas 75201

214/855-3000

Telecopier: 214/855-1333

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TABLE OF CONTENTS

Page

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I. Mandamus is the Only Available

Means to Effectively Review the

po eg 08 | l

II. The District Court’s Refusal to Abstain

Undermines a Significant Congressional

Restriction on the Exercise of Federal

Bankruptcy Jurisdiction. ............... 3

III. No Substantial Federal Interest Justified

the Exercise of Jurisdiction by the

eaten Rah oF ne Le 5

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TABLE OF AUTHORITIES

Cases

Page

Gully v. First Nat'l Bank, 299

CF Oe S555 ees hae eon ees 7

Louisville & Nashville Railroad v. Mottley,

BLE SZ SO CO MOd 05 ewe Sein eda 7

Osborn v. Bank of the United States,

pre Me | ee eee 5

Pacor, Inc. v. Higgins, 743 F.2d 984

Fo | wn anne rrr 7, 8

Textile Workers Union v. Lincoln Mills,

Rae Sh WE SEOMED gnc ecw Racecar es 5, 6

Thermtron Products, Inc. v. Hermansdorfer,

AROS RE 2 | nr er ee 2

United States Alkali Exp. Ass'n v. United

Seaiek 325 Wie. 1 CIPRO) ook cnkin cave 2

United States Constitution

U. S. Comet., Asie Tih, © 2S nce esccseuass a re 3

Statutes

yr BUR Se ere eee 3,8

pe ae eT et eer ae oe

WUE 2 aah See 2

iil

Other Authorities

13A Wnight, Miller & Cooper, FEDERAL

PRACTICE AND PROCEDURE § 3536

SEES ES

130 ConG. REc. S17152 (June 19, 1984) ...

S. Rep. No. 98-55, 98th Cong.,

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Page

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No. 93-2014

IN THE

Supreme Court Of Che United States

OCTOBER TERM, 1993

FOXMEYER DRUG COMPANY,

Petitioner,

Vv.

COoPERS & LYBRAND,

Respondent.

In re FOXMEYER DRUG COMPANY,

Petitioner.

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

and in the alternative

FoR COMMON-LAW WRIT OF CERTIORARI

AND WRIT OF MANDAMUS

TO HONORABLE DONALD E. ZIEGLER,

UNITED STATES DISTRICT JUDGE

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

REPLY BRIEF IN SUPPORT OF PETITION

I. Mandamus is the Only Available Means to Effec-

tively Review the District Court’s Order.

Coopers is simply wrong in its assertion that mandamus

is inappropriate because the district court’s order refusing

to remand, or alternatively to abstain, can be reviewed

following appeal from a final judgment. 28 U.S.C.

§ 1334(c)(2) expressly precludes review of mandatory

abstention determinations through ordinary avenues of

2

appeal. Under § 1334(c)(2), mandamus is the only

vehicle for obtaining review of mandatory abstention

orders, either in the court of appeals or in this Court. This

lack of opportunity for appellate review itself justifies

exercising the Court’s authority pursuant to 28 U.S.C.

§ 1651 to resolve the important federalism issues raised by

the district court’s order. Thermtron Products, Inc. y.

Hermansdorfer, 423 U.S. 336 (1976). Coopers itself

recognizes that the absence of “opportunity for appellate

review” justifies mandamus. (Brief in Opposition at 11-

12)

It is true that the portion of the district court’s order

refusing to remand the action despite the absence of

federal jurisdiction is reviewable on appeal from a final

judgment. And, as Coopers points out, mandamus is

ordinarily not available simply because a lower court has

improperly exercised jurisdiction. (Brief in Onposition at

9-12) This is hardly the ordinary case, however. Here the

jurisdictional error both subjects FoxMeyer (and the

federal judicial system) to the extraordinary expense of a

wholly unnecessary MDL proceeding, and, when coupled

with the abstention ruling, turns the important congres-

sional policy favoring state-court resolution of local (i.e.

nonfederal) disputes on its head. The need to preserve

this important policy justifies review of the district court’s

order by mandamus. United States Alkali Exp. Ass'n v.

United States, 325 U.S. 196, 203-204 (1945).

Perhaps more importantly, given that a portion of the

district court’s order can only be reviewed by mandamus,

the policy against piecemeal review of trial court determi-

nations would not be implicated by also reviewing on

mandamus the rest of the order at issue — especially

when the rulings are so closely related as here. For these

3

reasons, review should be granted with respect to the

entirety of the district court’s order.

Il. The District Court’s Refusal to Abstain Under-

mines a Significant Congressional Restriction on

the Exercise of Federal Bankruptcy Jurisdiction.

The district court ignored its mandatory obligation to

abstain under 28 U.S.C. § 1334(c)(2). Section

1334(c) (2) was enacted in 1984 to limit expansive exer-

cises of “related to” bankruptcy jurisdiction under

28 U.S.C. § 1334(b). The possibility that courts might

exercise “related to” jurisdiction over actions only tangen-

tially related to pending bankruptcies raised concerns over

“a super court bankruptcy system... able to supersede

any State court in this country.” 130 ConG. Rec. S17152

(June 19, 1984); S. Rep. No. 98-55, 98th Cong., Ist

Sess. 1, 18 (1983). Unable to agree on language that

would expressly restrict “related to” jurisdiction, Con-

gress instead enacted § 1334(c)(2) to protect against

federal intervention in state court matters where no fed-

eral interest was implicated.’

The only federal interest that could justify an assertion

of “related to” bankruptcy jurisdiction over state-law

claims pending between nondiverse parties in state court

is the interest in orderly administration of a pending

bankruptcy. That interest would only be implicated if an

untimely state-court adjudication of the action would

'Of course requiring the district court to abstain would not correct an

unconstitutional assumption of jurisdiction by the court. (See Brief in

Opposition at 27) While this metaphysical point may have been lost on

Congress in enacting § 1334(c)(2), Congress did recognize that an

order abstaining in deference to state-court adjudication would have the

same functional impact on an action as an order remanding or dis-

missing the action for lack of federal jurisdiction.

4

disrupt or delay the bankruptcy. If, however, the state

court can promptly adjudicate the action, there can be no

federal interest to justify the exercise of federal court

authority. Section 1334(c)(2) thus provides that if the

action “can be timely adjudicated, in a State forum of

appropriate jurisdiction,” the court’s obligation to abstain

is mandatory. FoxMeyer established in the district court

that this case can be timely adjudicated in the state court

where it was properly commenced, and neither the district

court nor Coopers has ever contested the point.” Because

the state court can timely adjudicate FoxMeyer’s action

against Coopers, there is absolutely no federal interest in

preempting that adjudication. The district court thus had

a mandatory obligation to abstain.

Coopers’ Brief in Opposition largely ignores the absten-

tion issue. Though Coopers states without analysis that

mandatory abstention under § 1334(c) (2) does not apply

in removed cases, the circumstances requiring abstention

arise almost exclusively in the context of removed cases.

The petition demonstrates that Coopers’ interpretation in

effect renders § 1334(c) (2) always inapplicable (Petition

at 22). Rather than arguing the applicability of

§ 1334(c) (2), Coopers’ principal response is instead that

requiring abstention is a bad idea. (Brief in Opposition at

28-29) Congress thought differently, however, and

Coopers’ argument is addressed to the wrong forum. If

§ 1334(c)(2) is to be repealed, that is a decision for

*Coopers now suggests, however, that because state and federal suits

have been filed against it in seven jurisdictions, none of the state actions

could be timely adjudicated. (Brief in Opposition at 28-29 n.12) This

bizarre suggestion is flatly wrong on the record in this case, and is utterly

at odds with the express language and manifest purpose of

§ 1334(c) (2).

5

Congress alone to make by new legislation, not the district

court by vitiating the statute.

Ill. No Substantial Federal Interest Justified the

Exercise of Jurisdiction by the District Court.

The same absence of any federal interest in this action

that requires abstention also compels the conclusion that

there is no basis for the exercise of federal subject-matter

jurisdiction. Though Coopers suggests that the existence

of a federal interest is irrelevant to whether federal

question jurisdiction exists under Article III, section 2 of

the Constitution (Brief in Opposition at 22), the Court

has insisted from its earliest days of interpreting Arti-

cle III that an action must implicate a substantial federal

interest for such jurisdiction to exist. Osborn v. Bank of

the United States, 22 U.S. 738 (1824). As Justice Frank-

furter has written, “[i]f there is in the phrase ‘arising

under the laws of the United States’ leeway for expansion

of our concepts of jurisdiction, the history of Article 3

suggests that the area is not great and that it will require

the presence of some substantial federal interest, one of

greater weight and dignity than questionable doubt con-

cerning the effectiveness of state procedure.” Textile

Workers Union v. Lincoln Mills, 353 U.S. 488, 483-84

(1957) (Frankfurter, J. dissenting) .°

Even if the state court were unable to timely adjudicate

the present action, there would nonetheless be no federal

interest sufficient to support jurisdiction given the remote

connection between this action and the pending Phar-Mor

bankruptcy. The adjectives “‘hypothetical,” “indirect,”

*Though included in a dissenting opinion on an issue not reached by

the majority, Justice Frankfurter’s discussion of federal jurisdiction

provides a particularly illuminating explanation of the limits of Arti-

cle III federal question jurisdiction.

OO EEE Eee lee

6

and “contingent” pose far more than a semantical dispute,

as Coopers suggests (Brief in Opposition at 20-21) —

they quite clearly describe why there is no substantial

federal interest in this action. FoxMeyer’s case against

Coopers will have no direct effect on the Phar-Mor

bankruptcy. A judgment in favor of Coopers would have

no impact whatsoever, and a judgment in favor of

FoxMeyer would not necessarily affect the bankruptcy.

Phar-Mor is not a party to the action, nor is the status of

any property of the estate being adjudicated here. The

judgment ultimately entered in this action will have

absolutely no direct impact on the Phar-Mor bankruptcy.

Coopers attempts to obscure this issue by reciting

FoxMeyer’s activities in the Phar-Mor bankruptcy and by

confusing FoxMeyer’s claims against Coopers in this

action with Phar-Mor’s separate claims against Coopers

(Brief in Opposition at 2-5), along with vague predictions

that timely state proceedings will somehow “frustrate”

resolution of the Phar-Mor bankruptcy (Brief in Opposi-

tion at 29 n. 12). But ultimately Coopers can locate only

one possible indirect impact a judgment in this action

could have on the Phar-Mor bankruptcy: the possibility

that a judgment in favor of FoxMeyer may satisfy

FoxMeyer’s bankruptcy claim against Phar-Mor. (Brief

in Opposition at 18) For this indirect impact to occur,

however, several contingencies must first occur (see Peti-

tion at 6). Although it is certainly conceivable that these

contingencies might occur, not just any “conceivable”’

federal interest will suffice. Federal jurisdiction requires

more than the “remote possibility” of a federal interest.

Lincoin Mills, 353 U.S. at 482 (Frankfurter, J., dissent-

ing).* For federal jurisdiction to exist a significant federal

“This constitutional restriction on federal jurisdiction is not altered by

the fact that several circuits have adopted an “any conceivable effect”

interest must be directly implicated by the action. Gully v.

First Nat'l Bank, 299 U.S. 109 (1936). In the present

case there would be no direct effect.

Coopers concedes that any impact this action might

have on the Phar-Mor bankruptcy is indeed subject to

several contingencies, but argues that “sound jurisdic-

tional doctrine” should not demand inquiry into the possi-

bility of these contingencies arising (Brief in Opposition

at 21). FoxMeyer agrees that the focus of the jurisdic-

tional inquiry should not (and need not) be a detailed

determination of the likelihood of these contingencies

arising. But the solution is not, as Coopers suggests, to

extend federal Jurisdiction no matter how remote the

federal interest.” Instead, mere hypothetical possibilities

of effect should never suffice to satisfy the Article III,

section 2 requirement of a substantial federal interest in

an action. Cf. Louisville & Nashville Railroad v. Mottley,

211 U.S. 149 (1908). Only if the outcome of an action

test for “related to” bankruptcy jurisdiction — a test apparently created

by the authors of the Collier bankruptcy treatise without any considera-

tion of constitutional limitations. Several lower courts, though acknowi-

edging the any-conceivable-effect analysis, have limited “related to”

jurisdiction to circumstances where an action will directly impact a

pending bankruptcy. See, e.g., Pacor, Inc. v. Higgins, 743 F.2d 984, 994-

96 (3d Cir. 1984).

‘Opening the jurisdictional inquiry to the type of remote effect

suggested by Coopers would lead to an unthinkable expansion of federal

judicial authority. For example, Coopers suggests that returning this

action to state court (where it properly belongs) would distract Phar-

Mor officials called to testify in the state-court action and thereby affect

the pending bankruptcy. (Brief in Opposition at 28) Were this so-called

“federal interest” sufficient to support federal jurisdiction, however,

every state court action where an official of a bankrupt party might be a

mere witness could be removed as “related to” a pending bankruptcy.

Under no legitimate constitutional philosophy can Article III, section 2

federal question jurisdiction extend this far.

8

would directly (and thus necessarily) impact a pending

bankruptcy can the action “relate to” the bankruptcy

within the meaning of 28 U.S.C. § 1334(b) as limited by

Article III, section 2 of the Constitution.

Coopers also asserts that the Article III, section 2

jurisdictional inquiry is not ripe because “neither of the

Courts below has addressed the constitutional arguments

now put forward.” (Brief in Opposition at 15) This

assertion is incorrect for two reasons. First, as Coopers

recognizes, where jurisdiction is questioned courts have

“the power and the duty, subject to review to determine

the jurisdictional issue.” See Brief in Opposition at 10

(citing 13A Wright, Miller & Cooper, FEDERAL PRAC-

TICE AND PROCEDURE § 3536 at 535 (2d ed. 1984)).

Second, the lower courts have necessarily addressed the

jurisdictional question, because in the Third Circuit “re-

lated to’ bankruptcy jurisdiction has been treated as

extending to the limits imposed by Article III, section 2.

See Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.

1984). These constitutional limits were thus considered

when the lower courts decided whether this case “related

to” the Phar-Mor bankruptcy within the meaning of 28

U.S.C. § 1334(b).

9

For the foregoing reasons, and for the reasons set forth

in FoxMeyer’s petition, the relief requested in the petition

should be granted.

Respectfully submitted,

MARVIN S. SLOMAN

Counsel of Record

WILLIAM B. DAWSON

KAREN L. HIRSCHMAN

WILLIAM D. UNDERWOOD

CARRINGTON, COLEMAN, SLOMAN

& BLUMENTHAL, L.L.P.

200 Crescent Court, Suite 1500

Dallas, TX 75201

Phone: (214) 855-3000

Telecopier: (214) 855-1333

Counsel for Petitioner, FoxMeyer

Drug Company

August 8, 1994