Commercial Litigation and Arbitration

District Court Cannot Dismiss with Prejudice under Rule 12(b)(1) Because by Definition It Lacks Jurisdiction over the Claim — Court May Dismiss with Prejudice under 12(b)(6) for Lack of Statutory, But Not Article III, Standing

Cox, Cox, Filo, Camel & Wilson, L.L.C. v. Sasol N. Am., Inc., 2013 U.S. App. LEXIS 10572 (5th Cir. May 24, 2013):

This case presents the question whether, under Federal Rule of Civil Procedure 12(b)(1), a district court may dismiss a claim with prejudice to the merits of that claim. We hold that it may not, and therefore VACATE and REMAND.***

Plaintiff ("Cox") sued defendants in Louisiana State Court, alleging violations of the Louisiana Racketeering Act. Defendants removed to federal court. There they moved, among other things, to dismiss Cox's suit under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The district court found that Cox lacked "standing" and dismissed "with prejudice" under Rule 12(b)(1). Cox appeals.***

Rules 12(b)(1) and 12(b)(6) provide distinct grounds for dismissal of a claim for relief. Rule 12(b)(6) applies when a plaintiff "fail[s] to state a claim upon which relief can be granted." Rule 12(b)(1) applies to claims over which a federal district court "lack[s] . . . subject-matter jurisdiction."

Cox contends that the district court erred by dismissing with prejudice under Rule 12(b)(1), rather than remanding to the state court. Cox points to 28 U.S.C. § 1477(c), which provides that while "[a] motion to remand the case on the basis of any defect other than subject matter jurisdiction must be made within 30 days after the filing of the notice of removal," "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded."

Defendants reply in two ways. First, they claim that Cox waived this argument by failing to raise it in the district court. We disagree, because this claim of error cannot be waived. A dismissal under Rule 12(b)(1) is a dismissal for lack of subject-matter jurisdiction. "A dismissal with prejudice is a final judgment on the merits." Accordingly, to dismiss with prejudice under Rule 12(b)(1) is to disclaim jurisdiction and then exercise it. Our precedent does not sanction the practice, and we will not do so here.

Footnote 6. Defendants argue that a removal error is waivable even when a contemporaneous objection would have prompted remand. They err by conflating "removal jurisdiction" with subject-matter jurisdiction. In the cases on which they rely, while removal was improper, the exercise of subject-matter jurisdiction was not. See Denman by Denman v. Snapper Div., 131 F.3d 546, 548 (5th Cir. 1998); In re Digicon Marine, Inc., 966 F.2d 158, 160 (5th Cir. 1992) (discussing In re Shell Oil, 932 F.2d 1518, 1519 (5th Cir. 1991)); Baris v. Sulpicio Lines, Inc., 932 F.2d 1540, 1543-46 (5th Cir. 1991).

Second, defendants contend that the district court's order should be understood as holding that Cox lacked statutory standing--not Article III standing--and that the district court therefore did not lack subject-matter jurisdiction. They ask us to affirm under Rule 12(b)(6), arguing that Cox failed to state a claim upon which relief could be granted. This argument has some force. The district court did, of course, explain that because it found "there is no standing, there is no jurisdiction and the court will grant the Motion to Dismiss pursuant to [Rule] 12(b)(1)." We agree with defendants, however, that the court's analysis more closely tracked an inquiry into whether plaintiff stated a claim under Louisiana's Racketeering Act--a Rule 12(b)(6) question. 8 But instead of rewriting the district court's order to affirm on the merits, we VACATE and REMAND for further proceedings not inconsistent with this opinion.

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