Severonickel v. Gaston Reymenants ( 1997 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
SEVERONICKEL,
Plaintiff-Appellee,
v.
No. 96-1000
GASTON REYMENANTS; KOLA
INTERNATIONAL LIMITED
ESTABLISHMENT,
Defendants-Appellants.
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Andre M. Davis, District Judge.
(CA-95-448-AMD)
In Re: GASTON REYMENANTS; KOLA
INTERNATIONAL LIMITED
No. 96-1240
ESTABLISHMENT,
Petitioners.
On Petition for Writ of Mandamus.
(CA-95-448-AMD)
Argued: January 28, 1997
Decided: June 11, 1997
Before HALL, LUTTIG, and WILLIAMS, Circuit Judges.
_________________________________________________________________
Dismissed by published opinion. Judge Luttig wrote the majority
opinion, in which Judge Williams concurred. Judge Hall wrote a dis-
senting opinion.
COUNSEL
ARGUED: Michael Evan Jaffe, ARENT, FOX, KINTNER, PLOT-
KIN & KAHN, Washington, D.C., for Appellants. Richard Edwin
Dunne, III, HOGAN & HARTSON, L.L.P., Baltimore, Maryland, for
Appellee. ON BRIEF: Melissa Callahan Lesmes, ARENT, FOX,
KINTNER, PLOTKIN & KAHN, Washington, D.C., for Appellants.
John G. Roberts, Jr., Amy Folsom Kett, HOGAN & HARTSON,
L.L.P., Washington, D.C., for Appellee.
_________________________________________________________________
OPINION
LUTTIG, Circuit Judge:
Defendants Gaston Reymenants and Kola International Limited
Establishment appeal the district court's order remanding plaintiff
Severonickel's breach of contract action to Maryland state court.
Because the district court remanded the case to the state tribunal
because it appeared to the court that it lacked federal subject matter
jurisdiction, we in turn lack jurisdiction over the appeal from that
order. 28 U.S.C. § 1447(d). We therefore dismiss.
I.
Pursuant to an oral contract entered by the Russian corporation
Severonickel and the Liechtenstein business organization Kola Inter-
national, which is managed and controlled by the Belgian citizen Gas-
ton Reymenants, Reymenants and/or Kola was to serve as
Severonickel's broker for the sale of approximately 800 tons of
Severonickel's nickel powder warehoused in Baltimore. In November
1994, believing that Reymenants and Kola (hereinafter "Reyme-
nants") had failed to pay Severonickel for approximately $3 million
worth of nickel powder and to account for sales and return any unsold
powder, Severonickel filed a breach of contract claim against Reyme-
nants and Kola in Maryland Circuit Court. After several months of
discovery disputes, Reymenants removed the case to the United States
District Court for the District of Maryland under 9 U.S.C. § 205,
which authorizes removal of state court actions"relat[ing] to an arbi-
2
tration agreement . . . falling under" the Convention on the Recogni-
tion and Enforcement of Foreign Arbitral Awards, 9 U.S.C. §§ 201-
208.
Severonickel thereafter moved for a remand to state court, arguing
that the underlying dispute arose out of an oral nickel powder contract
which did not itself include an arbitration clause and which was not
subject to any arbitration agreement, and therefore that there was no
federal jurisdiction over the breach of contract claim. Reymenants
conceded that the nickel powder contract between Severonickel and
Reymenants did not itself include an arbitration provision. Reyme-
nants contended, however, that the dispute was nonetheless subject to
the arbitration clause in an April 22, 1992, "tolling contract" between
the parties, by operation of a September 9, 1993, Protocol
("Protocol") between Reymenants and a subsidiary of Severonickel,
which incorporated the nickel powder agreement and made the Proto-
col an "integral part" of the tolling contract. Thus, Reymenants argued
that disputes under the nickel powder contract are governed by the
arbitration agreement because the Protocol incorporates the nickel
powder agreement, the Protocol is part of the tolling contract, and the
tolling contract provides for arbitration of disputes arising under the
tolling contract.
The validity of both the tolling contract and the Protocol, as well
as the relationship among the agreements, was contested before the
district court. The tolling contract, which allegedly includes the arbi-
tration clause, was never introduced into evidence because Reyme-
nants argued that a "confidentiality agreement" prevented its
introduction, and Severonickel declined to stipulate even to the con-
tract's existence, much less to its validity. The validity of the Protocol
was drawn into question because it was never signed by Severonickel.
Reymenants asserted that Kola ABC, which did sign the Protocol,
was an agent of Severonickel, but he based that alleged agency rela-
tionship in part on the tolling contract, which he refused to introduce
into evidence.
Following a full hearing at which these issues were argued, the dis-
trict court granted Severonickel's motion to remand to state court,
reciting that the court lacked subject matter jurisdiction over the dis-
pute. The district court remanded the case without prejudice, so as, in
3
its view, not to foreclose removal to federal court in the future should
it appear that federal jurisdiction would lie. Reymenants appealed.
II.
Appellate review of district court orders remanding removed cases
to state courts is barred by 28 U.S.C. § 1447, which provides inter
alia that such orders are "not reviewable on appeal or otherwise" if
the district court remanded the case on the ground that "it appear[ed]
[to the district court] that the district court lack[ed] subject matter
jurisdiction." 28 U.S.C. § 1447(c) & (d); see Thermtron Products,
Inc. v. Hermansdorfer, 423 U.S. 336, 346 (1976) (limiting section
1447(d) to "remand orders issued under § 1447(c) and invoking the
grounds specified therein").1
Here, it cannot reasonably be disputed that the district court
remanded this case to state court because it appeared to the court that
it lacked subject matter jurisdiction over the controversy. The court's
short, one-page written order reads as follows:"[T]his Court con-
cludes that the removal of this action was demonstrably improvident,
and that therefore subject matter jurisdiction is lacking in this case."
J.A. at 124 (emphasis added). The order further recites that "this case
is REMANDED, without prejudice, to the Circuit Court for Baltimore
City, for lack of jurisdiction." Id . (emphasis added). And the court
ordered that "the CLERK of the court CLOSE [the] case." Id.
Were there any doubt that the district court dismissed the case
because it appeared to the court that it lacked subject matter jurisdic-
tion, such doubt is put to rest upon even a cursory review of the
court's comments from the bench during the hearing on the motion
to remand. At the hearing, the court derided Reymenants' jurisdic-
tional argument as resting on "what appears to be just the thinnest of
_________________________________________________________________
1 28 U.S.C. § 1447(d) provides in full: "An order remanding a case to
the State court from which it was removed is not reviewable on appeal
or otherwise, except that an order remanding a case to the State court
from which it was removed pursuant to section 1443 of this title shall be
reviewable by appeal or otherwise." We are not concerned in this case
with section 1447(d)'s exception for cases removed pursuant to section
1443.
4
conceivable bases," "far too thin a basis for this Court to exercise
jurisdiction," J.A. at 117 -- namely, the "rather maze like" relation-
ship between the "secret arbitration agreement," which Reymenants
refused to proffer, and the other agreements, "one of which [was] not
even signed" by Severonickel. J.A. at 93. The court concluded that
"federal jurisdiction, frankly, doesn't seem close on the record as it
now exists, doesn't seem close. Doesn't seem close." J.A. at 93; see
also id. at 115 ("[T]he jurisdictional basis is, at best, thin and ethe-
real."). The court even said that it was "able to say[,] on the basis of
the record as it now exists[,] with fair assurance, [that] there is no
binding arbitration agreement" between the parties. J.A. at 117.
Thus, contrary to Reymenants' suggestion, it is apparent that the
express language of the district court's order that it was dismissing
the case for lack of subject matter jurisdiction was anything but "rote
incantation," see Reply Br. at 7. Quite clearly, "the actual ground[ ]
or basis upon which the district court considered[that] it was empow-
ered to remand," see Mangold v. Analytic Services, Inc., 77 F.3d
1442, 1450 (4th Cir. 1996), was that it appeared to the court that it
lacked subject matter jurisdiction.
Notwithstanding the clarity of the district court's order, the equally
unambiguous confirmation of the court's intention in its remarks from
the bench, and the fact that the district court nowhere even so much
as mentions abstention, Reymenants argues that the court actually did
not dismiss the case for lack of subject matter jurisdiction; rather, it
"abstained" from exercising its "jurisdiction" to decide whether it had
subject matter jurisdiction,2 as evidenced by the fact that it did not
_________________________________________________________________
2 Because Reymenants must argue not only that we have appellate
jurisdiction, but also that the district court erred in its remand, in order
to prevail, it repeatedly casts this argument as one that the district court
"failed to exercise its jurisdiction to determine" whether the dispute was
arbitrable. This formulation preserves Reymenants' argument that the
district court had jurisdiction under section 205 immediately upon the
removal; that it was required to exercise that jurisdiction to decide the
arbitrability question because there were no permissible grounds for
abstention; and that, because the court did not decide arbitrability, its
remand was in error. This formulation also has the incidental (or, per-
haps, not-so-incidental) effect of misfocusing the dispositive inquiry
5
decide whether in fact the nickel powder dispute was arbitrable and
even suggested that Reymenants might establish arbitrability on
remand and then reattempt removal.
Were we forced to decide, as Reymenants would have us do,
whether the district court decided to abstain altogether from address-
ing the question of the nickel powder agreement's arbitrability or
whether the court instead decided that in fact no arbitration agreement
exists, we would unhesitatingly conclude, from its order and bench
comments, that the court decided that no arbitration agreement exists.
This is a false choice, however, because the district court actually
decided neither, at least in the sense urged by Reymenants. It is clear
from the court's order and comments that it did not simply "decline
to exercise its jurisdiction . . . in the interest of ``judicial economies
and efficiencies that cannot otherwise be achieved,'" see Appellant's
Br. at 11; indeed, for the reasons explained, it is plain that the court
exercised its jurisdiction to determine whether it had jurisdiction over
this dispute. It is just as clear from the court's comments concerning
the possibility of a later removal attempt that the court did not deter-
mine that in fact no arbitration agreement exists. 3 Rather, the court
decided based upon the record then before it, and by resolving all
_________________________________________________________________
from the actual basis for the district court's remand, to the arbitrability
vel non of the contractual dispute. Because, in this context, arbitrability
is determinative of federal jurisdiction, however, the questions of
whether the court abstained from exercising conceded jurisdiction to
determine arbitrability and whether the court abstained from exercising
jurisdiction to determine whether it had subject matter jurisdiction, are
one in the same.
3 The district court may well have been mistaken in its observation that
Reymenants might be able to remove the case again, following additional
discovery in state court. See, e.g., Appellant's Reply Br. at 2 ("[I]f the
court had made the arbitrability determination, then Reymenants . . .
would not have the opportunity to petition for a second removal; the case
would either be in arbitration or in state court, to remain in state court.");
see also St. Paul & Chicago Railway Co. v. McLean, 108 U.S. 212, 217
(1883); S.W.S. Erectors, Inc. v. Infax, Inc., 72 F.3d 489, 492 (5th Cir.
1996). Whether the court was correct on this score or not, however, has
no bearing on the question of the court's basis for remanding the case to
state court.
6
doubts as to its jurisdiction in favor of remand as required, only that
Reymenants failed to carry his burden of establishing the existence of
a valid and applicable arbitration agreement which would support fed-
eral jurisdiction. This was the question the court was required to
decide, and the only question it was required to decide. And at least
in this case, where the party upon whom the burden of establishing
federal jurisdiction rests refused to proffer the document that he con-
tended established federal jurisdiction and the second document pur-
portedly necessary to that jurisdiction was not even signed by the
opposing party, that decision, even in the absence of further discov-
ery, is unassailable. Cf. In re Business Men's Assurance Co., 992 F.2d
181, 183 (8th Cir. 1993) (holding that district court did not abuse its
discretion in ordering remand without sua sponte granting a hearing
to determine whether there was an ERISA plan triggering federal
jurisdiction).4
Even had the court not determined the arbitrability of the dispute
(in the only sense that mattered), we still would be without jurisdic-
tion to review the district court's order of remand. For, in that event,
_________________________________________________________________
4 Contrary to Reymenants' argument, 9 U.S.C. § 4 did not require the
district court to hold a trial on the arbitrability of the parties' dispute.
Section 4, which provides that "[i]f the making of [an] arbitration agree-
ment or the failure, neglect, or refusal to perform the same be in issue,
the court shall proceed summarily to the trial thereof," applies, as the dis-
trict court below noted, only where the district court would have jurisdic-
tion over the dispute even in the absence of the arbitration agreement. As
the first sentence of the section provides:
A party aggrieved by the alleged failure, neglect, or refusal of
another to arbitrate under a written agreement for arbitration may
petition any United States district court which, save for such
agreement, would have jurisdiction under Title 28 , in a civil
action or in admiralty of the subject matter of a suit arising out
of the controversy between the parties, for an order directing that
such arbitration proceed in the manner provided for in such
agreement.
9 U.S.C. § 4. Here, absent the arbitration agreement alleged to exist by
Reymenants, there would be no possible basis for federal jurisdiction, as
the underlying breach of contract claim raised no federal question and
the parties agree that there is no diversity jurisdiction.
7
it would not follow that the court did not dismiss the action on the
ground that it appeared to the court that it lacked subject matter juris-
diction, as Reymenants vigorously asserts. It would follow, at most,
only that the court erred in its determination that it lacked subject
matter jurisdiction (or more precisely, that it erred in the manner in
which it undertook the jurisdictional inquiry). However, as the
Supreme Court has made clear, and as we have held,"[w]here the
order is based on one of the enumerated grounds[in section 1447(c)],
review is unavailable no matter how plain the legal error in ordering
the remand." Briscoe v. Bell, 432 U.S. 404, 414 n.13 (1977); see
Mangold, 77 F.3d at 1450 (stating that if the district court invoked the
grounds specified in § 1447(c), the order is unreviewable "even if it
be manifestly, inarguably erroneous"). Were it otherwise, there would
occur the very "delay in the trial of remanded cases by protracted liti-
gation of jurisdictional issues," see Thermtron, 423 U.S. at 351 (cita-
tion omitted), which it was Congress' purpose in enacting section
1447(d) to avoid.
The district court having remanded this case on the ground that it
appeared to that court that it lacked subject matter jurisdiction, we are
without jurisdiction over this appeal. Accordingly, the appeal is dis-
missed for lack of appellate jurisdiction.
DISMISSED
HALL, Circuit Judge, dissenting:
I believe that we have jurisdiction to review this remand order and
that the remand was in error. Accordingly, I respectfully dissent.
I.
In deciding whether 28 U.S.C. § 1447(d) deprives us of jurisdiction
to review a remand order, our focus must be on what the district court
actually did, and not just on what it says it did.
[P]owerful policy considerations and persuasive decisional
authority support our power -- and responsibility-- to look
past contextually ambiguous allusions and even specific
8
citations to § 1447(c) to determine by independent review of
the record the actual grounds or basis upon which the dis-
trict court considered it was empowered to remand. ...
[Here], despite evident confusion and some backing and
filling during the process, the district court remanded in the
end not on the assumption that there was a "lack of jurisdic-
tion" so that a remand was compelled, but that though there
was jurisdiction, there was discretion to remand. It is settled
that when a district court remands on such a basis,§ 1447(d)
does not bar appellate review.
Mangold v. Analytic Services, Inc., 77 F.3d 1442, 1450-1451 (4th Cir.
1996). See also Quackenbush v. Allstate Insurance Co., 116 S. Ct.
1712, 1718-1720 (1996) (abstention-based remands are appealable
"collateral orders").
The majority exaggerates the "clarity" of the district court's written
order. Here is that order in its entirety, with my emphasis added:
For the reasons stated on the record in open court after
a hearing on December 13, 1995, this Court concludes that
the removal of this action was demonstrably improvident,
and that therefore subject matter jurisdiction is lacking in
this case. The Court expresses no view as to whether further
proceedings in state court might disclose a plausible basis
for the removal of this action to federal court pursuant to 9
U.S.C. §205 (authorizing removal "at any time before the
trial thereof" of any case involving [an] international com-
mercial dispute subject to [the] "Convention on the Recog-
nition and Enforcement of Foreign Arbitral Awards").
Accordingly, it is this 14th day of December, 1995, by the
United States District Court for the District of Maryland,
ORDERED:
1) That this case is REMANDED, without prej-
udice, to the Circuit Court for Baltimore City, for
lack of jurisdiction;
9
2) That the CLERK of the court CLOSE this
case;
3) That the CLERK of the court MAIL copies
of this order to counsel of record.
Thus, the district court invited scrutiny of its remarks in open court,
and it "expresse[d] no view" about whether there actually is an agree-
ment to arbitrate subject to the Convention.
The hearing had been scheduled to resolve competing motions con-
cerning a discovery deadlock. At the hearing, the district court
abruptly changed the subject to whether the case should be remanded
immediately, without resolving the question of arbitrability. Counsel
for Severonickel expressed doubts:
[Mr. DUNNE, counsel for Severonickel:] Let me begin,
if you don't mind, with the last thing you and Mr. Jaffe
[counsel for Reymenants/Kola] were discussing, and I am
not trying to be flip[pant], but it may be the only thing that
Mr. Jaffe and I seem to agree on because I am inclined to
agree with his point of view on the question of his right to
a trial and the obligation of the federal court in circum-
stances like this to have a trial, if there are legitimate dis-
putes of fact, on the question of whether or not a contract
to arbitrate exists.
And there is a very clear dispute on that. Mr. Jaffe says
there was and points to a couple of things. We say there was
not and say that those things don't apply to this particular
arrangement. And there are clear, sharp disputes of fact. If
when we are applying conventional summary judgment
standards, I think it would be difficult on the record before
us at this point, which ... doesn't even include the Tolling
agreement, to rule one way or the other. And I think the stat-
ute does grant jurisdiction to the federal court, and indeed
requires the federal court to exercise jurisdiction at a mini-
mum to decide the question of whether there is a contract --
10
THE COURT: You read the statute to require the fed-
eral court to exercise jurisdiction to the extent of having a
trial?
MR. DUNNE: On the very narrow issue, is there an
agreement --
THE COURT: On the issue of whether there is an
agreement to arbitrate?
MR. DUNNE: Written agreement to arbitrate.
A few moments later, counsel reiterated:
So Mr. Jaffe and I agree on this point. If there is a dis-
puted fact on that, it would perhaps be error for the Court
to decline to resolve it. And if it requires discovery, both
sides should have access to it.
Nonetheless, the district court declined to resolve the arbitrability
issue:
[H]ere we sit a year ... after the case has been filed when
apparently, according to [Severonickel's] argument, the
matter was moving to a posture in state court where things
were going to start happening on the merits. And when I say
the merits, I mean a decision was going to be made whether
or not this case is one for judicial determination or arbitral
determination. And so all of these factors, it seems to me,
suggest[ ] that we don't throw open the federal courts on
this kind of basis for use by a party not in any manner
[a]ffected with the federal interest to employ the courts in
its processes through some tactical strategic way to gain
advantage in litigation.
And so I sit here as a judge, a trustee of a precious public
resource, this courtroom, that must be available to all liti-
gants, however far they come to get here who properly are
here. And Congress has made it very clear. I don't see any-
11
thing in the cases or in the statute affording this rather curi-
ous open-ended removal right to suggest we are to throw
open the doors to the federal courts for this kind of use on
these kinds of facts. And I suggest that my earlier observa-
tion that the fact of the matter is discovery is going to take
place in this case. It is either going to take place in federal
court or state court. If, in fact, despite Mr. Jaffe's legitimate
concerns about such things, it turns out that [Severonickel]
is bound by that arbitration provision, what is going to hap-
pen is that the case is either going to go to arbitration from
state court or it will take a short and quick detour back to
this court and then go to arbitration.
Later, the court mused that "federal jurisdiction, frankly, doesn't seem
close on the record as it now exists," but "[t]hat is not to say that
when discovery is completed, in fact there won't be a determination
properly made that indeed [Severonickel] is bound by this secret arbi-
tration agreement[.]"
Though counsel for the parties continued to attempt to dissuade the
district court, the court stated that it believed it had the discretion to
remand the case.1 The court announced that it intended to remand, and
the short written order already quoted was entered.
On the whole record, I think it quite clear that the court declined
to exercise jurisdiction in its discretion, i.e. it abstained. Abstention-
based remands are appealable "collateral orders." Quackenbush, 116
S. Ct. at 1718-1720.
_________________________________________________________________
1 The court stated:
[Counsel] are suggesting that I don't have the discretion to
[remand] short of discovery, and I am suggesting to you that I
very much have the discretion to determine on a case-by-case
basis the propriety under this peculiar provision of the removal
law whether that discovery will take place in this court or in state
court.
12
II.
I now turn to the merits of the remand order. Because of the pecu-
liar interplay between arbitrability and jurisdiction here, several of the
points already discussed are again relevant.
Under the Federal Arbitration Act, a district court that would other-
wise have jurisdiction under Title 28 over litigation between the par-
ties may, on application of one of them, enter an order compelling
arbitration. If the arbitrability of the dispute is at issue -- on either
the ground that the parties have no arbitration agreement or that the
dispute is not within the agreement's scope --"the court shall pro-
ceed summarily to the trial thereof." 9 U.S.C.§ 4 (emphasis added).
Ordinarily, there is no jurisdiction in federal court over an action
between foreign entities. However, if the parties have agreed to arbi-
trate the dispute, the Convention applies, and Congress has provided
a federal forum:
An action or proceeding falling under the Convention
shall be deemed to arise under the laws and treaties of the
United States. The district courts of the United States ...
shall have original jurisdiction over such an action or pro-
ceeding, regardless of the amount in controversy.
9 U.S.C. § 203. Furthermore, there is a broad provision allowing for
the removal of suits brought in state court, even those, like this one,
in which a good deal of litigation has already taken place:
Where the subject matter of an action or proceeding pend-
ing in a State court relates to an arbitration agreement or
award falling under the Convention, the defendant or the
defendants may, at any time before the trial thereof, remove
such action or proceeding to the district court of the United
States for the district and division embracing the place
where the action or proceeding is pending. The procedure
for removal of causes otherwise provided by law shall
apply, except that the ground for removal provided in this
section need not appear on the face of the complaint but
may be shown in the petition for removal. ...
13
9 U.S.C. § 205. Finally, the general provisions of the Federal Arbitra-
tion Act apply to actions under the Convention except where they
conflict with it. 9 U.S.C. § 208.
Kola/Reymenants argues that 9 U.S.C. § 4 therefore applies, and
the district court must exercise jurisdiction to determine whether the
dispute is subject to arbitration. As I quoted in the fact section above,
Severonickel agreed with this position below. It now has "seen the
light." Severonickel now argues that because the district court would
not otherwise have jurisdiction of the suit under Title 28, it need not
decide arbitrability.2 This ends up being a chicken-and-egg problem.
If the dispute is subject to the Convention, then 9 U.S.C. § 203 pro-
vides that it arises under the laws and treaties of the United States, i.e.
there is federal question jurisdiction. If the dispute is not subject to
the Convention, there is no such jurisdiction. In other words, unlike
the typical Federal Arbitration Act case, arbitrability is the basis for
jurisdiction.
Consequently, it cannot be said that the district court has jurisdic-
tion under Title 28 until it is first decided that the dispute is arbitrable,
but 9 U.S.C. § 4 would literally require this jurisdiction to be present
before the court decides arbitrability.
I think that the only way to harmonize these statutes in a way that
makes any sense is to require the district court to decide arbitrability,
i.e. to recognize that it has the mandatory jurisdiction to examine its
own jurisdiction. The Convention, at 9 U.S.C. § 208, incorporates the
provisions of the Arbitration Act "to the extent that [they are] not in
conflict" with it. I would deem § 4's requirement of a federal jurisdic-
tional basis independent of arbitrability to be just such a conflict.
I would vacate the order of the district court and remand with
instructions to permit discovery on and resolve the question of arbitra-
bility.
_________________________________________________________________
2 The majority espouses this position in dicta. Supra at 7 n.4.
14