Korea Exchange v. Trackwise

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
9-14-1995
Korea Exchange v Trackwise
Precedential or Non-Precedential:
Docket 94-5672
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1995
Recommended Citation
"Korea Exchange v Trackwise" (1995). 1995 Decisions. Paper 258.
http://digitalcommons.law.villanova.edu/thirdcircuit_1995/258
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 1995 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
_______________
NO. 94-5672
_______________
KOREA EXCHANGE BANK, NEW YORK BRANCH
v.
TRACKWISE SALES CORP.; MOO SUNG KO; and
YOUNG S. KO,
Appellants
_______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil No. 0312-2 : 94-cv-00437)
_______________
Argued July 21, 1995
Before: SLOVITER, Chief Judge, SCIRICA, and
McKEE, Circuit Judges
(Opinion filed September 14, 1995)
_______________
Michael S. Kimm (Argued)
Hackensack, New Jersey 07601
Attorney for Appellants
Benjamin P. De Sena (Argued)
Wayne, New Jersey 07470
Attorney for Appellee
1
OPINION OF THE COURT
SLOVITER, Chief Judge.
In this case, we consider a challenge to a district
court's order remanding a diversity case as improperly removed by
a defendant who was a citizen of the forum state. Under the
facts of this case, our jurisdiction to consider this appeal is
inextricably intertwined with the district court's authority to
remand this action to state court, and thus we consider them
together.
I.
Facts and Procedural History
On September 28, 1993, plaintiff Korea Exchange Bank,
New York Branch, a citizen of New York State, filed a complaint
against defendants Trackwise Sales Corporation, Moo Sung Ko, and
Young S. Ko in the Superior Court of New Jersey, Bergen County,
Law Division. All three defendants are citizens of New Jersey.
In the complaint, Korea Exchange sought to recover on loans it
made to defendant Trackwise and to enforce personal guarantees
made by the two individual defendants. According to the
complaint, the amount in dispute exceeds $300,000.
The complaint was served on Trackwise on December 28,
1993. On January 27, 1994, Trackwise filed a Notice of Removal
in the United States District Court for the District of New
Jersey, alleging diversity jurisdiction pursuant to 28 U.S.C.
§1332. The other two defendants were served after the removal.
It appears that thereafter the case lay dormant in the district
2
court for seven and one-half months, although there is a docket
entry by a magistrate judge setting a scheduling conference for
September 30, 1994. On September 23, 1994, however, the district
court sua sponte issued an order summarily remanding the case to
state court. In that order, the court stated that "pursuant to
28 U.S.C. [§] 1441(b)" the case was "improperly removed because
the defendant is a citizen of the State in which the action was
originally brought," and "this deficiency clearly appears on the
face of the defendant's Notice of Removal." The court concluded
that "pursuant to 28 U.S.C. [§] 1441(c)(4), this court should
make an Order for Summary Remand . . . ." Defendants filed a
notice of appeal.
II.
Discussion
Korea Exchange contends that we lack jurisdiction over
defendants' appeal. It relies primarily on 28 U.S.C. § 1447(d),
which provides that "[a]n order remanding a case to the State
court from which it was removed is not reviewable on appeal or
otherwise . . . ." In adopting 28 U.S.C. § 1447(d), "Congress
sought to make the judgment of a district court remanding a case
final and conclusive in order to avoid the delay caused by
appellate review of remand decisions." Liberty Mut. Ins. Co. v.
Ward Trucking Corp., 48 F.3d 742, 745 (3d Cir. 1995).
The leading case on the preclusion of review effected
by section 1447(d) is Thermtron Products, Inc. v. Hermansdorfer,
423 U.S. 336, 346 (1976). A district judge had remanded a
properly removed diversity case because of an overcrowded docket,
3
rather than because the "case was removed improvidently and
without jurisdiction," the grounds for remand set forth in 28
U.S.C. § 1447(c) at that time. In Thermtron, the Court rejected
a challenge to the right of an appellate court to review the
remand order, because it construed section 1447(d) as applicable
only to those remand orders that rely upon the grounds contained
in 28 U.S.C. § 1447(c). Remands issued for reasons "not
recognized by the controlling statute," such as the reason given
by that district judge, were not insulated from review by section
1447(d). Thermtron, 423 U.S. at 351.
Section 1447(c) was amended by the Judicial
Improvements and Access to Justice Act of 1988 to impose a 30-day
limit on the time the plaintiff has to file a motion "to remand
the case on the basis of any defect in removal procedure." At
the same time Congress deleted the "remand improvidently"
language from section 1447(c). Thus, the relevant portion of
section 1447(c) now reads:
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.
28 U.S.C. § 1447(c).
In Air-Shields, Inc. v. Fullam, 891 F.2d 63 (3d Cir.
1989), the defendant had filed an untimely removal petition and
had failed to accompany it with the required surety bond. More
than 30 days after the notice of removal was filed, the district
4
court sua sponte remanded the case as having been "improvidently
removed," language no longer in the statute. Id. at 65. We
first considered whether we had jurisdiction to consider a
petition for mandamus challenging that remand, and held that,
under Thermtron, section 1447(d) did not preclude review under
these circumstances. We concluded that section 1447(d) does not
bar review where a district court issues an untimely order of
remand pursuant to section 1447(c) due to a "procedural defect"
in removal, because "[b]y remanding the case for procedural
defects after the thirty day limit imposed by the revised Section
1447(c) had expired, the district court 'exceeded [its]
statutorily defined power.'" Id. at 66 (quoting Thermtron, 423
U.S. at 351); accord Hamilton v. Aetna Life & Cas. Co., 5 F.3d
642, 644 (2d Cir. 1993), cert. denied, 114 S. Ct. 1100 (1994); In
re Shell Oil Co., 932 F.2d 1518, 1520-21 (3d Cir. 1991), cert.
denied, 502 U.S. 1049 (1992).
Thus, under this court's prior interpretation of
Thermtron, we are precluded by section 1447(d) from reviewing
remand orders based on "routine jurisdictional determinations,"
Liberty Mutual, 48 F.3d at 749; see also Carr v. American Red
Cross, 17 F.3d 671, 682 (3d Cir. 1994), but we may review
untimely remand orders that are based on "procedural defects."
Air Shields, 891 F.2d at 66.
There is no dispute that defendants' removal of this
case did not comply with 28 U.S.C. § 1441(b), which provides that
actions not involving federal questions "shall be removable only
if none of the parties in interest properly joined and served as
5
defendants is a citizen of the State in which such action is
brought." 28 U.S.C. § 1441(b). Because defendants are citizens
of New Jersey and the case was originally filed in New Jersey
state court, the action was not removable.
The question before us then is whether this was a
"jurisdictional" defect, which would bar our jurisdiction to
review, or whether it was a "procedural" defect, which Air-
Shields holds is reviewable. Korea Exchange argues that because
the district court's "jurisdiction" is based upon the removal
statute, the court lacks "jurisdiction" over any diversity case
that is removed by a defendant who is a citizen of the forum
state.
Neither of the parties cites controlling Supreme Court
precedent, but we are informed by a series of cases in which the
Supreme Court consistently refused to treat the removal statute
as imposing independent jurisdictional requirements. For
example, in Baggs v. Martin, 179 U.S. 206 (1900), a receiver for
a railroad appointed by a federal court was sued in state court
for injuries and death of a passenger. The receiver removed the
action, alleging a federal question because a federal court had
appointed him. After the receiver lost on the merits, he
appealed, contending, inter alia, that the federal court had not
acquired jurisdiction through the removal because his federal
appointment did not create a federal question. The Supreme Court
assumed that there was no federal question supporting the
original removal, but noted that the federal court would have had
subject matter jurisdiction over any action brought by the
6
injured party affecting the railroad and its property in the
hands of the receiver. Therefore, according to the Baggs Court,
the federal court "plainly had jurisdiction to entertain and
determine the controversy, whether that jurisdiction was invoked
by the parties seeking redress, or, as in this case, by the
receiver." Id. at 209. The distinction between subject matter
jurisdiction and the detail as to which party may or did bring
the case to federal court is an important one, because it arises
in the case before us as well.
A comparable issue involving a removed case was
presented in Mackay v. Uinta Dev. Co., 229 U.S. 173 (1913). A
Wyoming plaintiff filed an action in state court against a
citizen of Utah for less than the amount required for diversity
jurisdiction in federal court, but the defendant's related
counterclaim was for an amount that exceeded the jurisdictional
threshold. After the defendant removed the action to federal
court, the case was tried without objection. On appeal, the
court of appeals certified to the Supreme Court the question
whether the manner in which the jurisdiction of the federal court
had been invoked by removal undermined its jurisdiction.
The Supreme Court responded that where "there was the
requisite amount and the diversity of citizenship necessary to
give the United States circuit court [then the trial court]
jurisdiction of the cause . . . [t]he case . . . resolves itself
into an inquiry as to whether, if irregularly removed, it could
be lawfully tried and determined." Id. at 176. The Court
concluded that there was no jurisdictional defect, noting that
7
"[r]emoval proceedings are in the nature of process to bring the
parties before the United States court." Id. (emphasis added).
The Mackay Court therefore recognized a clear
distinction between the removal "process" and restrictions on the
subject matter jurisdiction of the federal court over the case.
The Court analogized the issue of which party brought the case to
federal court to the type of waivable defect such as "any
irregularity in docketing the case or in the order of pleadings,"
and distinguished that type of defect from one affecting the
subject matter jurisdiction of the court, which was not waivable.
The rule emerging from these cases was followed in
Grubbs v. General Elec. Credit Corp., 405 U.S. 699 (1972), yet
another case in which the Supreme Court was presented with the
effect of a removal unauthorized by the governing statute.
General Electric Credit Corporation (GECC) sued Grubbs in a Texas
state court. There was both diversity and the requisite amount
in controversy. Grubbs filed a "cross-action" which named the
United States as a defendant. The United States filed a petition
for removal, and all of the parties treated the effect of the
removal petition as placing the entire action in the federal
district court. The case proceeded to trial and the district
court ruled against GECC on its promissory note claim, awarded
Grubbs $20,000 on one of his tort theories, and dismissed all
claims by Grubbs against the United States. On GECC's appeal,
the court of appeals, on its own motion, determined that the
United States' removal of the action had not been authorized
under 28 U.S.C. § 1444, and it ordered that the case be remanded
8
to state court because the district court had lacked subject
matter jurisdiction over the case.
The Supreme Court reversed. Relying upon Baggs and
Mackay, the Court reasoned that where a case has been tried on
the merits without objection and judgment has been entered, the
relevant issue "is not whether the case was properly removed, but
whether the federal district court would have had original
jurisdiction of the case had it been filed in that court."
Grubbs, 405 U.S. at 702. Noting that the original action
involved a dispute between diverse parties regarding an amount
over the jurisdictional limit, the Court concluded that the
district court would have had jurisdiction under 28 U.S.C. § 1332
if the action had originally been brought in federal court. Id.
at 704.
Unlike this case, all three cases considered by the
Supreme Court had already been tried before the removal to
federal court was questioned. Nonetheless, the Supreme Court
clearly suggested, even if it did not directly hold, that it does
not view the removal statute as imposing independent
jurisdictional restrictions on the federal courts. Rather, in
considering whether jurisdictional defects existed, the relevant
inquiry is whether the case could have been filed originally in
federal court. See, e.g., id. at 704.
A similar approach was endorsed in Thermtron, where the
Court suggested that courts determining whether a removal defect
is jurisdictional for purposes of precluding review under 28
U.S.C. § 1447(d) should look to "whether the District Court would
9
have had jurisdiction of the case had it been filed initially in
that court . . . ." Thermtron, 423 U.S. at 344 & n.8; see also
Allbritton Communications Co. v. N.L.R.B., 766 F.2d 812, 820 (3d
Cir. 1985) (citing Grubbs and reiterating that in determining
whether a defect is waivable, courts should consider whether the
federal court would have had original jurisdiction over the case
if it had initially been filed in federal court), cert. denied,
474 U.S. 1081 (1986).
We conclude therefore that an irregularity in removal
of a case to federal court is to be considered "jurisdictional"
only if the case could not initially have been filed in federal
court. In this case, there is diversity of citizenship between
the parties and the amount in controversy is in excess of
$50,000. Thus, there is no dispute that this case could have
been filed originally in federal court on the basis of diversity
jurisdiction pursuant to 28 U.S.C. § 1332. The invocation of the
removal machinery by a citizen of the forum state, while error,
is not a "jurisdictional" defect under relevant Supreme Court
precedent. Rather, it is a "defect in removal procedure" which
can be waived.
Our conclusion that section 1441(b)'s bar against
removal by a forum-state citizen is not jurisdictional is
consistent with the conclusions reached by almost every other
court of appeals that has addressed the issue. See, e.g., In re
Shell Oil Co., 932 F.2d 1518, 1522 (5th Cir. 1991), cert. denied,
502 U.S. 1049 (1992); Hartford Accident & Indem. Co. v. Costa
Lines Cargo Serv. Inc., 903 F.2d 352, 358-60 (5th Cir. 1990);
10
Farm Constr. Serv., Inc. v. Fudge, 831 F.2d 18, 21-22 (1st Cir.
1987); Woodward v. D.H. Overmyer Co., 428 F.2d 880, 882 (2d Cir.
1970), cert. denied, 400 U.S. 993 (1971); Handley-Mack Co. v.
Godchaux Sugar Co., 2 F.2d 435, 436-37 (6th Cir. 1924); see also
Bregman v. Alderman, 955 F.2d 660, 663 (11th Cir. 1992); contra
Hurt v. Dow Chemical Co., 963 F.2d 1142, 1145-46 (8th Cir. 1992).
This same position is endorsed by several leading commentators.
See 1A James W. Moore, et al., Moore's Federal Practice
¶0.157[11.-4], at 173 (2d ed. 1990) (noting that "an irregularity
in removal is waivable" and citing as an example "where there is
diversity but the defendant is a citizen of the state in which
the action is brought"); William W Schwarzer, et al., Federal
Civil Procedure Before Trial, ¶ 2:629 (1994) (noting that the
"no-local-defendant" limitation of 28 U.S.C. § 1441(b) is not
jurisdictional and may be waived).
Because removal by a forum defendant in noncompliance
with section 1441(b) does not deprive a federal court of subject
matter jurisdiction, it is clear under section 1447(c) that this
irregularity must be the subject of a motion to remand within 30
days after filing the notice of removal. See, e.g., Shell Oil,
932 F.2d at 1522-23. We have held that the 30-day time limit of
section 1447(c) applies not only to motions brought by a party,
but also to sua sponte orders of remand. See Air-Shields, 891
F.2d at 65. It follows ineluctably that the district court in
this case had no statutory authority to issue the remand order
after the 30-day period because the defect was in the removal
procedure rather than a lack of subject matter jurisdiction,
11
which could be raised at any time. For the same reason, our
review of the remand order is not barred by section 1447(d). Id.
at 66.
Korea Exchange emphasizes, but we find irrelevant, that
in ordering the remand the district court erroneously cited to 28
U.S.C. § 1441(c)(4), a non-existent subsection, in support of its
order of remand. It appears that the district court intended to
rely upon 28 U.S.C. § 1446(c)(4), which provides:
The United States district court in
which such notice is filed shall examine the
notice promptly. If it clearly appears on
the face of the notice and any exhibits
annexed thereto that removal should not be
permitted, the court shall make an order for
summary remand.
Korea Exchange contends that because the defect in the removal by
the forum-state citizen defendants "clearly appeared on the face
of the notice," section 1446(c)(4) provided authority for the
remand. We believe defendants are probably correct that section
1446(c)(4) applies only to removals of criminal prosecutions, but
even if it applies to civil cases, that section must be read in
conjunction with the 30-day time limit imposed by section
1447(c).
Thus we conclude that our review is not barred, if it
was properly invoked. Defendants in this case filed a notice of
appeal. In Thermtron, the Court suggested that where review is
not precluded, issuance of a writ of mandamus is the "appropriate
remedy to require the District Court to entertain the remanded
action," because "an order remanding a removed action does not
12
represent a final judgment reviewable by appeal."1 Id. at 352-53
(quotations omitted). There is ample support for the proposition
that this court may treat a notice of appeal as a mandamus
petition. See United States v. Bertoli, 994 F.2d 1002, 1014 (3d
Cir. 1993); Allegheny Int'l, Inc. v. Allegheny Ludlum Steel
Corp., 920 F.2d 1127, 1133 (3d Cir. 1990); In re Pruitt, 910 F.2d
1160, 1167 (3d Cir. 1990).
Use of mandamus is appropriate "to confine an inferior
court to a lawful exercise of its prescribed jurisdiction or to
compel it to exercise its authority when it [has the] duty to do
so." Roche v. Evaporated Milk Ass'n, 319 U.S. 21, 26 (1943).
Because the court improperly remanded a case over which it had
subject matter jurisdiction, mandamus is the appropriate
mechanism to compel the district court to exercise its
jurisdictional authority.
III.
Conclusion
To reiterate, if the removal by a citizen of the forum
state meant that the district court lacked subject matter
jurisdiction, the district court would not have been subject to
the 30-day limit on remanding the case to the state court, and
1
Our decision in Foster v. Chesapeake Ins. Co., 933 F.2d
1207 (3d Cir.), cert. denied, 502 U.S. 908 (1991), where we
reviewed under 28 U.S.C. § 1291 as a collateral order a district
court order remanding that case to state court, is not to the
contrary when examined closely. Foster is inapplicable because
it falls within the line of cases where, unlike here, the removal
was alleged to be in violation of a forum selection clause of a
contract. Accord Pelleport Investors, Inc. v. Budco Quality
Theatres, Inc., 741 F.2d 273, 277 (9th Cir. 1984); Regis Assoc.
v. Rank Hotels Mgmt. Ltd., 894 F.2d 193, 194 (6th Cir. 1990).
13
this court would have been barred from reviewing its action.
Because the irregularity as to the party that removed the case
that fell within the district court's diversity jurisdiction was
a procedural defect, the district court was limited by the
statutory 30-day time period on remand, and our review is not
barred.
For the foregoing reasons, we will exercise our
discretion to treat defendants' appeal as a petition for a writ
of mandamus and will issue a writ requiring the district court to
vacate its order of remand.
14