Overlook Gardens Props., LLC v. Orix United States, L.P.

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 17-14967
________________________
D.C. Docket No. 4:17-cv-00101-CDL
OVERLOOK GARDENS PROPERTIES LLC,
a Georgia limited liability company,
CREEKWOOD APARTMENTS, LLC,
a Georgia limited liability company,
IVERNESS II, LLC,
a Georgia limited liability company,
GREYSTONE FARMS APARTMENT COMMUNITY, LLC,
a Georgia limited liability company,
Plaintiffs - Appellees,
versus
ORIX USA, L.P.,
a Delaware limited partnership,
RED CAPITAL GROUP, LLC,
a Delaware limited liability company,
RED MORTGAGE CAPITAL, LLC,
a Delaware limited liability company,
RED CAPITAL MARKETS, LLC,
a Delaware limited liability company,
RED CAPITAL PARTNERS, LLC,
an Ohio limited liability company,
Defendants - Appellants.
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________________________
Appeal from the United States District Court
for the Middle District of Georgia
________________________
(June 25, 2019)
Before ED CARNES, Chief Judge, JULIE CARNES and CLEVENGER, ∗ Circuit
Judges.
CLEVENGER, Circuit Judge:
In this diversity jurisdiction case, the United States District Court for the
Middle District of Georgia remanded the case to the Georgia state court from
which it was removed by the defendants. This appeal questions our jurisdictional
authority to review the remand order.
I
A
Overlook Gardens Properties, LLC, Creekwood Apartments, LLC, Inverness
II, LLC, and Greystone Farms Apartment Community, LLC (collectively, “the
Developers”) develop large-scale apartment complexes in Georgia. They finance
their developments using loans federally insured by the United States Department
of Housing and Urban Development (“HUD”) through its Multifamily Accelerated
∗
Honorable Raymond C. Clevenger, III, United States Court of Appeals for the Federal Circuit, sitting by
designation.
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Processing (“MAP”) program. They chose Red Mortgage Capital, LLC as their
MAP-approved lender for assistance in
applying for and securing HUD-guaranteed financing through the MAP program.
The Developers each signed an application letter with Red Mortgage
preliminarily agreeing that Red Mortgage has the exclusive right to fund and
service their loans in exchange for certain fees and compensation. When HUD
agreed to insure the loans, the Developers each signed a commitment letter with
Red Mortgage. In those commitment letters, Red Mortgage quoted each of the
Developers an interest rate that Red Mortgage allegedly represented was the best
rate it thought it could obtain for the Developers. The Developers then signed
agreements locking in their quoted interest rates. Red Mortgage worked to secure
the quoted interest rates, issued confirmation letters to the Developers that it
secured those rates, and proceeded to close on the loans based on the agreed upon
terms. At closing, the Developers each executed with Red Mortgage a note and a
security instrument (collectively, “the loan documents”). In the notes, the
Developers agreed to repay their loans at the interest rates and on the terms they
agreed to in their commitment letters. In the security instruments, the Developers
pledged their property and rents as collateral against the debt.
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The commitment letters and the loan documents contain different forum
selection clauses. The commitment letters for three of the four Developers recite
the following forum selection clause:
By its acceptance of the Lender’s Commitment, the Borrower agrees
that (a) it was negotiated, made and issued by the Lender in the State of
New York; (b) any action brought hereunder shall only be brought in
the federal or local courts of Dallas County, Texas; and (c) the rights
and obligations of the parties shall be determined in accordance with
applicable federal law and, to the extent that State law applies, the law
of New York.
Dist. Ct. Dkt. No. (“Doc.”) 6–2 at 30, 56–58, 74–75. One of the four
Developers—Greystone Farms—signed a commitment letter containing a
substantially similar forum selection clause, except that it provides the agreement
was made in Ohio, any applicable federal and Ohio law governs, and any action
brought under the letter must be litigated in the Ohio federal or state courts.
The loan documents for all four Developers recite the following forum
selection clause: 1
Borrower agrees that any controversy arising under or in relation to this
Note or the Security Instrument shall be litigated exclusively in the
Property Jurisdiction [i.e., Georgia] except as, so long as the Loan is
insured or held by HUD and solely as to rights and remedies of HUD,
federal jurisdiction may be appropriate pursuant to any federal
requirements. The state courts, and with respect to HUD’s rights and
remedies, federal courts and Governmental Authorities in the Property
Jurisdiction, shall have exclusive jurisdiction over all controversies
which shall arise under or in relation to this Note, any security for the
1
While we rely on the forum selection clause in the notes, it is identical in all material respects
to the clause in the security instruments.
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Indebtedness, or the Security Instrument. Borrower irrevocably
consents to service, jurisdiction, and venue of such courts for any such
litigation and waives any other venue to which it might be entitled by
virtue of domicile, habitual residence or otherwise.
Doc. 11–1 Note at 7.
Fortunately, the commitment letters guarded against inconsistencies between
clauses in the commitment letters and clauses in the loan documents. The
commitment letters state that the terms of the loan documents supersede the terms
of the commitment letters in the event of any inconsistencies.
B
The Developers filed a complaint against Red Mortgage in Georgia state
court. They also sued various companies related to Red Mortgage, including
ORIX USA, L.P., Red Capital Group, LLC, Red Capital Markets, LLC, and Red
Capital Partners, LLC (together with Red Mortgage, “the Defendants”). Among
the Defendants, only Red Mortgage signed the commitment letters and loan
documents. The remaining defendants are not bound by any forum selection
clauses. In their complaint, the Developers asserted various state law causes of
action, including breach of contract, fraud, and violation of the Georgia Racketeer
Influenced and Corrupt Organizations Act. The essence of their complaint is that
the Defendants intentionally and deceptively persuaded the Developers to accept
high interest rates, not because they were the best market rates available, but
instead to secretly pad their compensation and associated profits.
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The Defendants removed the case to the United States District Court for the
Middle District of Georgia based on diversity. They then moved to transfer venue,
to dismiss for lack of personal jurisdiction, and to dismiss for failure to state a
claim. In their transfer motion, the Defendants argued that the forum selection
clause in the commitment letters requires the Developers to litigate their disputes
in the federal or state courts in Dallas County, Texas.
The Developers responded by moving to remand the case to state court and
moving to stay the Defendants’ motions to dismiss and to transfer. In their motion
to remand, the Developers argued that the forum selection clause in the loan
documents supersedes the forum selection clause in the commitment letters
because of the inconsistencies clause in the commitment letters. They contended
that the forum selection clause in the loan documents provides that the Georgia
state courts are the exclusive jurisdiction for litigating their claims.
The district court stayed the motions to dismiss while it considered the
remand and transfer motions. It then issued a single order remanding the case to
Georgia state court. The district court first held that the Developers’ claims arise
under and relate to both the commitment letters and the loan documents. It
concluded that, even though the interest rates at the heart of the disputes were set
in the commitment letters during the loan origination process, it was only after the
loan documents were executed that the Developers became obligated to pay the
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agreed upon interest rates. It therefore determined that the Developers’ “claims are
inextricably intertwined with both agreements,” and that the commitment letters
and loan documents “are not separate and distinct.” Doc. 31 at 13–14. The district
court then noted that the inconsistencies clause in the commitment letters required
it to enforce the forum selection clause in the loan documents. The district court
held that the forum selection clause in the loan documents bound both Red
Mortgage and the Developers to litigate the Developers’ claims in Georgia state
court. The district court concluded that “Red Mortgage waived any right it had to
remove this action to federal court” based on the forum selection clause in the loan
documents. Id. at 16–17. It then held, citing 28 U.S.C. § 1446(b)(2)(A) and our
decision in Russell Corp. v. American Home Assurance Co., 264 F.3d 1040 (11th
Cir. 2001), that “Red Mortgage could not validly consent to the removal of this
action, so the unanimity requirement is not met and this action must be remanded.”
Id. at 17.
The district court denied the Defendants’ transfer motion. It also denied the
Defendants’ provisional motion to stay any potential remand until the Defendants
have had an opportunity to appeal the decision. While the district court recognized
that our decision in Russell would permit appellate review of its remand order, it
expressed its confidence “that its decision is correct.” Id. at 18.
The Defendants appeal the district court’s remand order.
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II
We have a duty to assure ourselves of our jurisdiction at all times in the
appellate process. Jara v. Núñez, 878 F.3d 1268, 1271 (11th Cir. 2018). We
review our appellate jurisdiction de novo. Id.
III
A
Section 1447(d) of Title 28 of the U.S. Code provides in relevant part for
purposes of this appeal that “[a]n order remanding a case to the State court from
which it was removed is not reviewable on appeal or otherwise . . . .” 2
Notwithstanding that apparent bar to appellate review, the Supreme Court held in
Thermtron Products, Inc. v. Hermansdorfer that paragraph (d) of § 1447, which
bars appellate review of a remand order, must be read “in pari materia” with
paragraph (c), which specifies that the grounds for remanding include defects in
the removal process and lack of subject matter jurisdiction. 423 U.S. 336, 345–46,
96 S. Ct. 584, 590, 46 L. Ed. 2d 542 (1976), abrogated in part on other grounds by
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 714–15, 116 S. Ct. 1712, 1720,
135 L. Ed. 2d 1 (1996). Consequently, the restriction in paragraph (d) must be
2
Section 1447(d) excepts from the general bar on appellate review of remand orders “an order
remanding a case to the State court from which it was removed pursuant to section 1442 or 1443
of this title . . . .” Section 1442, which relates to actions or prosecutions of federal officers or
agencies, and § 1443, which relates to civil rights cases, are not applicable here.
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understood to bar appellate review of remand orders only when the order is based
on the improvidence of the removal or a lack of jurisdiction. Id. at 346, 96 S. Ct. at
590. Since then, the Supreme Court has repeatedly held that only remands based
on either a defect in the removal process or a lack of jurisdiction are excluded from
appellate review by § 1447(d). Carlsbad Tech., Inc. v. HIF Bio, Inc., 556 U.S.
635, 638, 129 S. Ct. 1862, 1865–66, 173 L. Ed. 2d 843 (2009); Quackenbush, 517
U.S. at 711–12, 116 S. Ct. at 1718; Things Remembered, Inc. v. Petrarca, 516 U.S.
124, 127–28, 116 S. Ct. 494, 497, 133 L. Ed. 2d 461 (1995).
In 2001, this Court decided Russell Corp. v. American Home Assurance Co.,
264 F.3d 1040 (11th Cir. 2001). In that case, a group of insurance companies
removed an action from Alabama state court to federal court based on diversity
jurisdiction. Id. at 1042. The district court remanded the case to state court,
however, because it held that one of the insurers was bound by a forum selection
clause to litigate the dispute in state court, it could not consent to removal, and
therefore the requirement for unanimous consent to removal was not satisfied. Id.
at 1042–43. The insurance companies appealed the district court’s remand order.
Id. at 1043.
While a remand based on interpretation and enforcement of a valid forum
selection clause is neither a defect in the removal process nor a jurisdictional flaw,
Snapper, Inc. v. Redan, 171 F.3d 1249, 1253 (11th Cir. 1999), a lack of unanimous
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consent to removal is a defect in the removal process, Hernandez v. Seminole
County, 334 F.3d 1233, 1237 (11th Cir. 2003). Nevertheless, in Russell, we held
that § 1447(d) did not preclude us from reviewing the district court’s remand order.
264 F.3d at 1046. We reasoned that we should disregard the district court’s
characterization of its remand order as one based on a procedural defect in favor of
a different identifiable ground following our own independent analysis of what the
order was “premised upon.” Id. Looking behind the district court’s perceived
procedural defect, we instead credited as the true premise for the remand the
district court’s decision on the merits to enforce the contractual provision binding
one of the insurers to litigate the dispute in state court, which resulted in the
subsequent lack of unanimity. Id. We concluded that, because interpretation and
enforcement of a contractual provision like a forum selection clause is “completely
external to the removal process,” § 1447(d) did not bar our jurisdiction to review
such remand orders. Id.
In 2007, the Supreme Court returned to the question of appellate authority
over remand orders in Powerex Corp. v. Reliant Energy Services, Inc., 551 U.S.
224, 127 S. Ct. 2411, 168 L. Ed. 2d 112 (2007). In that case, the State of California
and some of its private and corporate citizens sued a number of companies in the
California energy market, who in turn filed cross-claims seeking indemnity from
additional entities. Id. at 226–27; 127 S. Ct. at 2414; see also In re Wholesale
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Elec. Antitrust Cases I & II (“Powerex Dist. Ct.”), Nos. CV 02-0990-RHW, CV
02-1000-RHW, CV 02-1001-RHW, 2002 WL 34165887, at *1 (S.D. Cal. Dec. 17,
2002). The cross-defendants removed the entire case to federal court, some under
28 U.S.C. § 1441(d) based on their alleged foreign state status, and others under 28
U.S.C. § 1442 based on their status as a federal agency. Powerex Dist. Ct., 2002
WL 34165887, at *1. California and its citizens who brought the suit in state court
moved to remand the case because one of the cross-defendants was not a foreign
state and the cross-claims against the other cross-defendants were barred by
sovereign immunity. Id. at *1–2, *8, *11.
The district court agreed that one of the cross-defendants was not entitled to
foreign state status, another of the cross-defendants was immune from suit in
federal court, and the remaining cross-defendants were immune from suit in state
court. Id. at *9–11, *15. The district court therefore concluded that it lacked
jurisdiction over the claims and remanded the entire case. Id. at *15. The cross-
defendant that the district court held lacked foreign state status, among other
parties, appealed. Powerex, 551 U.S. at 228; 127 S. Ct. at 2415; see also
California v. NRG Energy Inc. (“Powerex Cir. Ct.”), 391 F.3d 1011, 1022 (9th Cir.
2004).
The Court of Appeals for the Ninth Circuit noted that § 1447(d) bars it from
reviewing “issues of jurisdictional or procedural defects leading [a district court] to
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remand.” Powerex Cir. Ct., 391 F.3d at 1023. But it held that § 1447(d) did not
deprive it of jurisdiction to review the district court’s remand order because the
district court had jurisdiction over the case, given that three of the four cross-
defendants properly removed the case from state court. Id. The Ninth Circuit held
that “[s]uch a removal removes the entire case, not merely the portion affecting the
removing sovereign.” Id. As a result, it concluded that the district court “did not
lack jurisdiction to decide the issues of immunity . . . and . . . [foreign] sovereign
status.” Id. The Ninth Circuit proceeded to affirm on the merits that one of the
cross-defendants was not a foreign state and that the other cross-defendants
retained sovereign immunity. Id. at 1023–27. The cross-defendant that had then
been adjudged by two courts to lack foreign state status sought certiorari review in
the Supreme Court. Powerex, 551 U.S. at 228; 127 S. Ct. at 2415.
The Supreme Court granted certiorari to address whether the cross-defendant
is entitled to foreign state status, but it “asked the parties to address in addition
whether the Ninth Circuit had jurisdiction over [the cross-defendant’s] appeal
notwithstanding § 1447(d).” Id. The Supreme Court held “that § 1447(d) bars
appellate consideration of [the cross-defendant’s] claim that it is a foreign state.”
Id. at 239; 127 S. Ct. at 2421. It reasoned that the district court purported to
remand based on a lack of subject matter jurisdiction, and to the extent appellate
courts can look behind the district court’s characterization of the basis for its
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remand order, its review is “limited to confirming that that characterization was
colorable.” Id. at 233–34; 127 S. Ct. at 2417–18. The Supreme Court held “that
when, as here, the [d]istrict [c]ourt relied upon a ground that is colorably
characterized as subject-matter jurisdiction, appellate review is barred by
§ 1447(d).” Id. at 234; 127 S. Ct. at 2418. It reasoned that “[l]engthy appellate
disputes about whether an arguable jurisdictional ground invoked by the district
court was properly such would frustrate the purpose of § 1447(d) quite as much as
determining whether the factfinding underlying that invocation was correct.” Id.
It noted that “the line between misclassifying a ground as subject-matter
jurisdiction and misapplying a proper ground of subject-matter jurisdiction is
sometimes elusively thin.” Id.
Therefore, after Powerex, it is clear that paragraph (d) restricts the scope of
appellate review of a district court’s jurisdiction-based remand order to looking
behind the face of that order for the limited and sole purpose of determining
whether the reason stated is colorable.
B
In this case, the district court was required to decide whether the claims
arose under or related to the commitment letters or the loan documents, and then to
interpret the applicable forum selection clause. It concluded that the claims arose
under and related to both the commitment letters and the loan documents, which
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led it to conclude that the forum selection clause in the loan documents applied
given the inconsistencies clause in the commitment letters. It then interpreted that
forum selection clause as binding both the Developers and Red Mortgage to
litigate their disputes in Georgia state court. Having concluded that Red Mortgage
was bound by the forum selection clause to litigate the case in state court, it held
that Red Mortgage could not consent to and join in the removal. Finally, the
district court expressly concluded that, because “Red Mortgage could not validly
consent to the removal of this action, . . . the unanimity requirement is not met and
this action must be remanded.” Doc. 31 at 17.
The question before this Court is whether this case can be decided as
prescribed by Russell, or whether Powerex has abrogated Russell in any way to
limit its application in deciding this appeal.
The Defendants argue that Powerex does not affect Russell. They first assert
that Powerex did not render remand orders based on forum selection clauses
unreviewable. They contend that is so because Powerex did nothing to undermine
the rule in Thermtron that remand orders based on neither a defect in the removal
process nor a lack of jurisdiction are reviewable on appeal, and it did nothing to
undermine the fact that a remand order based on a forum selection clause simply
enforces the terms of a contractual agreement between two or more parties and is
thus not a defect in the removal process. We agree with the Defendants that
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Powerex did not alter the long-held view in this Court, as well as the view in every
other circuit court to have addressed the issue, that remand orders based on
interpretation and enforcement of a forum selection clause are reviewable on
appeal. Snapper, 171 F.3d at 1253; Florida Polk County v. Prison Health Servs.,
Inc., 170 F.3d 1081, 1083 (11th Cir. 1999); see FindWhere Holdings, Inc. v. Sys.
Env’t Optimization, LLC, 626 F.3d 752, 755 (4th Cir. 2010) (listing cases); Ocwen
Orlando Holdings Corp. v. Harvard Prop. Tr., LLC, 526 F.3d 1379, 1380–81 (11th
Cir. 2008) (implying through exercise of jurisdiction that we have appellate
authority to review remand orders based on interpretation and enforcement of a
forum selection clause); see also Pub. Sch. Ret. Sys. of Mo. v. State St. Bank & Tr.
Co., 640 F.3d 821, 825 (8th Cir. 2011) (joining other circuit courts by holding that
“[a] remand order based upon a contractual forum-selection clause is not a remand
based upon a procedural defect or lack of subject-matter jurisdiction,” and is thus
reviewable on appeal). But those cases involved a forum selection clause that
bound all the defendants, either because there was only one defendant or all the
defendants were signatories to an enforceable contractual provision. The rule we
stated in those cases, while unaffected by Powerex, does not resolve the
circumstances presented both here and in Russell, wherein there are multiple
defendants and enforcement of a forum selection clause against one defendant
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leads to a defect in the removal process due to a lack of unanimous consent to
removal among all the defendants.
The Defendants also argue that the Supreme Court’s decision in Powerex is
limited to remand orders based on a lack of subject matter jurisdiction because that
was the basis for the remand order it dealt with in that case. Appellants’ Reply Br.
at 4. They would have us believe that Powerex must be limited to its facts and
therefore has no bearing on remand orders that are premised on a defect in the
removal process. Id. We disagree. We see no logical or prudential reason for
restricting the Supreme Court’s discussion in Powerex of the scope of § 1447(d)’s
jurisdictional bar on appellate review of remand orders to only those based solely
on a lack of subject matter jurisdiction. See Atl. Nat’l Tr. LLC v. Mt. Hawley Ins.
Co., 621 F.3d 931, 937 (9th Cir. 2010) (“Although Powerex involved a remand
based on subject matter jurisdiction under § 1447(c), the Court’s reasons for
holding that ‘review of the District Court’s characterization of its remand . . .
should be limited to confirming that that characterization was colorable’ are
equally applicable to remands relying on a non-jurisdictional defect. Neither the
plain language of § 1447(d) nor Thermtron’s gloss on that section distinguishes
between orders based on jurisdictional and non-jurisdictional grounds.” (citation
omitted)).
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While we must follow a decision of a prior panel of this Court even when a
subsequent Supreme Court case weakens that decision, see Inversiones y
Procesadora Tropical INPROTSA, S.A. v. Del Monte Int’l GmbH, 921 F.3d 1291,
1301 (11th Cir. 2019), we are bound to follow a Supreme Court decision that
undermines our circuit precedent to the point of abrogation, see Tobinick v.
Novella, 884 F.3d 1110, 1118 (11th Cir. 2018).
In Russell, we held that we should disregard a district court’s
characterization of the basis for its remand order, and instead look behind a district
court’s labels at the reasons supporting its decision to remand. But the Supreme
Court squarely held in Powerex that we cannot disregard the district court’s
characterization of its basis for remanding a case. Instead, Powerex instructs that
we must accept the district court’s colorable characterization of the basis for its
remand. Therefore, to the extent Russell held otherwise, that part of our decision
in Russell has been undermined to the point of abrogation. 3 We now hold that,
under Powerex, § 1447(d) strips us of jurisdiction to review a remand order that a
district court colorably characterizes as based on a lack of subject matter
jurisdiction or a defect in the removal process—even if that characterization is
3
Russell otherwise remains good law, at least insofar as it allows us to review a remand order
based on a forum selection clause that the district court did not colorably characterize as being
based on a lack of subject matter jurisdiction or a defect in the removal process, such as a lack of
unanimous consent to removal.
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driven by a decision to enforce a forum selection clause on a single defendant in a
multi-defendant suit.
Applying that rule here, we conclude that the district court characterized the
basis for its remand order as a lack of unanimous consent to removal. Because that
characterization logically follows from the district court’s interpretation and
enforcement of the forum selection clause in this case involving multiple
defendants, the district court’s characterization is colorable and must be credited in
this appeal. “The failure to join all defendants in the petition is a defect in the
removal procedure.” Hernandez, 334 F.3d at 1237 (quoting In re Bethesda Mem’l
Hosp., Inc., 123 F.3d 1407, 1410 n.2 (11th Cir. 1997)). Consequently, we lack
jurisdiction pursuant to § 1447(d) to review the district court’s remand order.
The Defendants make three arguments attempting to undermine that
conclusion. First, they assert that the district court’s order is appealable because,
after it concluded its analysis, it cited our decision in Russell and indicated that it
thought its order was appealable. Oral Arg. 4:54–5:42,
http://www.ca11.uscourts.gov/system/files_force/oral_argument_recordings/17-
14967.mp3. But the district court did not have the benefit of our decision here
holding that Powerex at least partially abrogated our decision in Russell. And its
statement about the appealability of its remand order appeared only in its analysis
of whether to stay the remand, which necessarily followed its decision to remand
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the case. Moreover, the district court’s conclusion about our jurisdiction is not
binding on us. See Jara, 878 F.3d at 1271 (“This Court is under a duty to review
its jurisdiction of an appeal at any point in the appellate process, and we review our
subject matter jurisdiction de novo.” (brackets, internal quotation marks, and
citations omitted)).
Second, the Defendants argue that the district court premised its remand
order on its enforcement of the forum selection clause, not on a lack of unanimity,
because it cited Russell as the basis for remanding. Oral Arg. 7:50–8:27. They
contend that the district court, in citing Russell, was attempting to characterize the
basis for its remand order as the substantive decision it made about the forum
selection clause rather than either of the two grounds recited in § 1447(c). Id.
That argument is unpersuasive. The district court cited Russell not for the
proposition that it was remanding based on a forum selection clause, but rather for
the proposition that enforcement of a forum selection clause can lead to a lack of
unanimous consent to removal in cases involving multiple defendants. As we
noted in Russell, which the district court correctly pointed out in its thorough
remand order, that latter flaw is a defect in the removal process. 264 F.3d at 1044.
Last, the Defendants contend that “the district court never stated that it was
remanding based on a ‘defect’ in the removal process.” Appellants’ Reply Br. at 4.
They argue that the district court instead colorably characterized the basis for its
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remand order as enforcement of a valid forum selection clause. Id. at 4–5. But
that argument misses the mark. Although the district court did not explicitly label
its conclusion as a “defect in the removal process” requiring remand, it is enough
that such a label necessarily is implied from its express conclusion that the basis
for its remand order was a lack of unanimous consent to removal.
IV
Because the district court colorably characterized the basis for its remand
order as a lack of unanimous consent to removal, § 1447(d) precludes us from
reviewing that order. We therefore lack jurisdiction and must dismiss this appeal.
DISMISSED.
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