Kamm v. Itex Corporation ( 2009 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BRUCE KAMM, an individual; 
INVISION LTD., a New York
corporation, No. 07-35079
Plaintiffs-Appellees,
v.  D.C. No.
CV-06-00943-AJB
ITEX CORPORATION, a Nevada OPINION
corporation,
Defendant-Appellant.

Appeal from the United States District Court
for the District of Oregon
Anna J. Brown, District Judge, Presiding
Argued and Submitted
November 18, 2008—Portland, Oregon
Filed June 15, 2009
Before: William A. Fletcher and Raymond C. Fisher,
Circuit Judges, and Charles R. Breyer,* District Judge.
Opinion by Judge Fletcher
*The Honorable Charles R. Breyer, United States District Judge for the
Northern District of California, sitting by designation.
7105
KAMM v. ITEX 7107
COUNSEL
Stephen A. Redshaw, Stoel Rives LLP, Portland, Oregon, for
the appellant.
Christopher L. Garrett, Perkins Coie LLP, Portland, Oregon,
for the appellees.
OPINION
W. FLETCHER, Circuit Judge:
Bruce Kamm and Invision Ltd. (collectively “Plaintiffs”)
sued ITEX Corporation (“ITEX”) on a contract in Oregon
7108 KAMM v. ITEX
state court. ITEX filed a notice to remove the suit to federal
district court based on diversity of citizenship. Thirty-one
days later, Plaintiffs moved to remand to state court based on
a forum selection clause in the contract. The district court
granted Plaintiffs’ motion to remand.
ITEX appeals, contending that under 28 U.S.C. § 1447(c)
Plaintiffs were required to file their remand motion within
thirty days of the filing of ITEX’s notice of removal. Plain-
tiffs contend that because their motion to remand is based on
a forum selection clause, it is not subject to the thirty-day
requirement of § 1447(c). We agree with Plaintiffs and affirm
the remand to state court.
I. Background
ITEX provides a marketplace for barter transactions. In
February 1992, Plaintiffs entered into an Independent Retail
Brokerage Service Agreement (the “Brokerage Agreement”)
with ITEX under which Plaintiffs were permitted to operate
a brokerage on ITEX’s barter exchange. ITEX terminated the
Brokerage Agreement, and Plaintiffs sued ITEX in Oregon
state court claiming breach of contract and breach of the duty
of good faith and fair dealing.
On July 7, 2006, ITEX filed a notice of removal in the state
court based on diversity jurisdiction. Defendant ITEX is a
Nevada corporation. Plaintiff Kamm is a citizen of New York,
and Plaintiff Invision is a New York corporation. More than
$75,000 is in controversy. Thirty-one days later, on August 8,
2006, Plaintiffs moved in the federal district court to remand
the case to state court based on a forum selection clause in the
Brokerage Agreement. The forum selection clause provides:
10.9 VENUE. Any action brought by any party to
this Agreement shall be filed and venue shall be in
the courts of the State of Oregon.
KAMM v. ITEX 7109
ITEX argued that 28 U.S.C. § 1447(c) required Plaintiffs to
file their remand motion within thirty days of the filing of
ITEX’s motion to remove. It is undisputed that Plaintiffs filed
their remand motion thirty-one days after the filing of ITEX’s
motion to remove. The district court held that § 1447(c) and
its thirty-day time limit do not apply to motions to remand
based on a forum selection clause. The district court granted
Plaintiffs’ motion to remand, and ITEX timely appealed.
II. Standard of Review
“We review de novo a district court’s decision to remand
a removed case. . . . We also review de novo a district court’s
interpretation and construction of a federal statute.” Lively v.
Wild Oats Markets, Inc., 456 F.3d 933, 938 (9th Cir. 2006)
(citations omitted).
III. Discussion
[1] This appeal involves two closely related subsections of
28 U.S.C. § 1447. Section 1447(d) provides, “An order
remanding a case to the State court from which it was
removed is not reviewable on appeal or otherwise . . . .” The
Supreme Court has held that the prohibition against review in
§ 1447(d) applies only to the two grounds specified in
§ 1447(c). Thermtron Prods., Inc. v. Hermansdorfer, 423 U.S.
336, 342-43 (1976), superseded by statute on other grounds,
28 U.S.C. § 1447(c). Those grounds are a lack of subject mat-
ter jurisdiction and a “defect.” Section 1447(c) provides, in
relevant part:
A motion to remand the case on the basis of any
defect other than lack of subject matter jurisdiction
must be made within 30 days after the filing of the
notice of removal under section 1446(a). If at any
time before final judgment it appears that the district
court lacks subject matter jurisdiction, the case shall
be remanded.
7110 KAMM v. ITEX
There is no suggestion in the case before us that the district
court did not have subject matter jurisdiction. It is undisputed
that there is diversity jurisdiction under 28 U.S.C. § 1332.
Further, the Supreme Court has held that a forum selection
clause does not deprive a federal court of subject matter juris-
diction. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12
(1972).
[2] The only question is whether a forum selection clause
that requires that an action be brought in state rather than fed-
eral court is a “defect” within the meaning of § 1447(c). If the
forum selection clause is a “defect,” we have no jurisdiction
to review the district court’s remand order, and a motion to
remand based on that defect must be made within thirty days
of filing the notice of removal in state court. To state the mat-
ter the other way around, if the forum selection clause is not
a “defect,” we have jurisdiction to review the district court’s
order despite § 1447(d), and a motion to remand based on the
forum selection clause is not subject to the thirty-day time
limit of § 1447(c).
For the reasons that follow, we hold that a forum selection
clause is not a “defect” within the meaning of § 1447(c). We
therefore hold that we have jurisdiction over this appeal, and
we affirm the district court’s remand order.
Before 1996, § 1447(c) provided,
A motion to remand the case on the basis of any
defect in removal procedure must be made within 30
days after the filing of the notice of removal under
section 1446(a). If at any time before final judgment
it appears that the district court lacks subject matter
jurisdiction, the case shall be remanded.
§ 1447(c) (1995) (emphasis added). We have held that the
pre-1996 version of § 1447(c) did not apply to motions to
remand based on forum selection clauses. See Ferrari, Alva-
KAMM v. ITEX 7111
rez, Olsen & Ottoboni v. Home Ins. Co., 940 F.2d 550, 553-
54 (9th Cir. 1991); Pelleport Investors, Inc. v. Budco Quality
Theaters, Inc., 741 F.2d 273, 276-77 (9th Cir. 1984).
An amendment adopted in 1996 changed “any defect in
removal procedure” to simply “any defect.” We have not
revisited whether § 1447(c) applies to motions to remand
based on forum selection clauses since it was amended. How-
ever, at least four other circuit courts have determined that a
forum selection clause is not a “defect” within the meaning of
the current version of § 1447(c). See Am. Soda, LLP v. U.S.
Filter Wastewater Group, Inc., 428 F.3d 921, 924 (10th Cir.
2005); Cruthis v. Metropolitan Life Ins. Co., 356 F.3d 816,
818 n.1 (7th Cir. 2004); Autoridad de Energia Electrica de
P.R. v. Ericsson Inc., 201 F.3d 15, 17 (1st Cir. 2000); Snap-
per, Inc. v. Redan, 171 F.3d 1249, 1260 (11th Cir. 1999); see
also Cook v. Wikler, 320 F.3d 431, 435 n.5 (3d Cir. 2003)
(stating that the Third Circuit’s pre-1996 holding that forum
selection clauses are not subject to § 1447(c) “does not appear
to [be] disturb[ed]” by the 1996 amendment).
[3] Our analysis of the current version of § 1447(c) starts
with the statute’s plain language. See Tahara v. Matson Ter-
minals, Inc., 511 F.3d 950, 953 (9th Cir. 2007). The term “de-
fect” is not defined in § 1447(c) or associated statutory
provisions dealing with removal. The sixth edition of Black’s
Law Dictionary, which was the current version when the stat-
ute was amended, defines “defect” as “[t]he want or absence
of some legal requisite; deficiency; imperfection; insufficien-
cy.” Black’s Law Dictionary 418 (6th ed. 1990). Webster’s
Third New International Dictionary defines “defect” as “want
or absence of something necessary for completeness, perfec-
tion, or adequacy in form or function.” Webster’s Third New
International Dictionary 591 (1993).
ITEX argues that we must read “defect” broadly because
Congress amended § 1447(c) to cover a “defect,” not merely
a “defect in removal procedure.” We recognize that Congress
7112 KAMM v. ITEX
in 1996 intended to broaden § 1447(c), but we do not read the
term “defect” as broadly as ITEX would have us do. Congress
could have changed § 1447(c) to cover a motion to remand
the case on “any basis” or “any ground,” but instead kept the
narrower term “defect.”
[4] It is relatively clear from context that “defect” refers to
a failure to comply with the statutory requirements for
removal provided in 28 U.S.C. §§ 1441-1453. In three cases,
we have held that the failure to comply with removal require-
ments in these sections is a “defect” under § 1447(c). In
Schmitt v. Insurance Co. of North America, 845 F.2d 1546,
1549, 1551 (9th Cir. 1988), superseded by statute on other
grounds, 28 U.S.C. § 1447(c), we held that failure to comply
with the time limit provided in § 1446(b) for filing a petition
for removal in state court is a defect under § 1447(c). In
Vasquez v. Northern County Transit District, 292 F.3d 1049,
1062 (9th Cir. 2002), we held that removal in violation of the
prohibition in § 1445(c) against removing workers’ compen-
sation claims arising under state law is a defect under
§ 1447(c). Finally, in Wild Oats Markets, 456 F.3d at 939, we
held that a failure to comply with the requirement of
§ 1441(b) that a removing defendant not be a citizen of the
state in which the state court suit is filed is a defect under
§ 1447(c).
A forum selection clause operates outside of the various
requirements for removal specified in §§ 1441-1453. The
existence of such a clause does not render removal “defec-
tive” as we have understood that term in our cases decided
under § 1447(c). Instead, a forum selection clause is similar
to other grounds for not exercising jurisdiction over a case,
such as abstention in favor of state court jurisdiction under
Younger v. Harris, 401 U.S. 37 (1971), and related abstention
cases, or a refusal to exercise supplemental jurisdiction and a
resulting remand to state court under 28 U.S.C. § 1367(c).
The Supreme Court has explicitly held that remands based on
abstention and a refusal to exercise supplemental jurisdiction
KAMM v. ITEX 7113
are not covered by § 1447(c). See Quackenbush v. Allstate
Ins. Co., 517 U.S. 706, 711-12 (1996) (abstention); Carnegie-
Mellon Univ. v. Cohill, 484 U.S. 343, 355 n.11 (1988) (sup-
plemental jurisdiction); see also Kircher v. Putnam Funds
Trust, 547 U.S. 633, 640 (2006) (discussing Quackenbush
without stating that it is no longer good law following the
1996 amendment of § 1447(c)).
[5] Shortly after the passage of the 1996 amendment, the
Eleventh Circuit engaged in a careful extended analysis of
§ 1447(c). See Snapper, 171 F.3d at 1254-59. The court con-
cluded that Congress did not intend “defect” to include a
forum selection clause that specified a state rather than a fed-
eral court. It noted that courts had stretched the meaning of
“procedure” in the pre-1996 version of § 1447(c) to cover
rules traditionally not categorized as procedural, such as the
forum defendant rule of § 1441(b). Id. at 1258. By removing
the qualifying term “procedure” in 1996, Congress freed
courts to read the term “defect” to cover motions to remand
based on non-procedural statutory requirements for removal
such as the forum defendant rule. As we stated in Wild Oats
Markets, “by substituting ‘defect other than lack of subject
matter jurisdiction,’ for ‘defect in removal procedure,’ Con-
gress sought to ensure that even the ‘more substantive’
removal defects, such as [forum defendant] § 1441(b) viola-
tions, were subject to the 30-day time limit.” 456 F.3d at 939.
There is little legislative history on the 1996 amendment,
probably because the House Judiciary Committee “viewed the
bill as technical and noncontroversial, and it received broad
bipartisan support.” H.R. REP. No. 104-799, at 2 (1996)
(“House Report”). The House Report merely stated that the
earlier version of § 1447(c) was “not entirely clear,” and that
the 1996 amendment “clarifies the intent of Congress.” Id. As
the Eleventh Circuit noted in Snapper, if Congress intended
“defect” to cover all grounds for remand other than subject
matter jurisdiction, the 1996 amendment would have been a
“radical departure from well-established law and practice.”
7114 KAMM v. ITEX
171 F.3d at 1259; see also id. at 1256-57 & nn.15, 16 & 17
(collecting cases showing courts’ unanimous holdings that
forum selection clauses, abstention, and supplemental juris-
diction were not covered by the pre-1996 version of
§ 1447(c)). Indeed, if the word “defect” in the post-1996 ver-
sion of § 1447(c) includes all grounds for remand other than
lack of subject matter jurisdiction, the post-1996 version
would have overruled two then-recent Supreme Court cases,
Quackenbush and Carnegie-Mellon University. There is abso-
lutely no indication in the legislative history of the 1996
amendment that Congress intended such a result.
[6] We therefore hold that a forum selection clause is not
a “defect” within the meaning of § 1447(c) and that the thirty-
day statutory time limit does not apply to a motion to remand
based on a forum selection clause. This is not to say, however,
that a district court lacks the discretion to deny such a motion
if it is not raised on a timely basis. As the Eleventh Circuit
observed in Snapper, “[p]rior to the enactment of the statutory
limitation, motions to remand were required to be brought
within a reasonable time frame.” 171 F.3d at 1257 n.18. We
agree with the Eleventh Circuit that this rule still applies to
remand motions not governed by § 1447(c). See id.; see also
Foster v. Chesapeake Ins. Co., Ltd., 933 F.2d 1207, 1213 n.8
(3d Cir. 1991) (“[A] district court in the proper exercise of its
discretion may deny as untimely a non-procedural-defect,
non-jurisdictional motion to remand if made at an unreason-
ably late stage of the federal litigation.”).
In our view, there are good policy reasons to impose a stat-
utory time limit on a motion to remand based on a forum
selection clause, whether that limit be thirty days or some
other period. The parties are, or should be, aware of a forum
selection clause at the outset of the litigation. There are good
reasons to resolve early in the litigation the question of what
forum will decide the case, and there are equally good rea-
sons, where practicable, to have a bright-line rule prescribing
the time within which a motion to remand should be filed. But
KAMM v. ITEX 7115
we may not rewrite § 1447(c) to suit our own view of good
policy. That is, of course, a task for Congress. As § 1447 is
now written, it simply does not contain a time limit for a
motion to remand to state court based on a forum selection
clause.
Conclusion
[7] We hold that we have jurisdiction under § 1447(d) to
hear ITEX’s appeal of the district court’s remand order. We
further hold that the thirty-day time limit of § 1447(c) does
not apply to a motion to remand based on a forum selection
clause specifying state rather than federal court as the appro-
priate forum. Plaintiffs’ motion to remand was therefore not
untimely. We affirm the district court’s order remanding this
case to Oregon state court.
AFFIRMED.