Commercial Litigation and Arbitration

Removal — While Post-Removal Amendment May Cure Defective Jurisdictional Allegations, It Can’t Create Jurisdiction Where None Existed at Filing and Case Hasn’t Been Tried — Rule 12 Dismissal ≠ Trial (Good Quote)

Camsoft Data Sys., Inc. v. S. Elec. Supply, Inc., 2014 U.S. App. LEXIS 11596 (5th Cir. June 19, 2014):

IV. Remand

Our analysis does not end with the improper removal, however, because Appellants argue that the subsequently pleaded federal causes of action preclude remand. This court is, of course, bound by its own precedent. United States v. Guanespen-Portillo, 514 F.3d 393, 402 n.4 (5th Cir. 2008). We do not generally recognize post-filing or post-removal amendment as cure for jurisdictional defect. "Although 28 U.S.C. § 1653 and [Rule] 15(a) allow amendments to cure defective jurisdictional allegations, these rules do not permit the creation of jurisdiction when none existed at the time the original complaint was filed" or removed.  [*24] Arena v. Graybar Elec. Co., Inc., 669 F.3d 214, 218 (5th Cir. 2012) (referring to Fed. R. Civ. P. 15(a)); see also In re Katrina Canal Breaches Litig., 342 F. App'x 928, 931-32. (5th Cir. 2009) (unpublished) (collecting authorities). Appellants nevertheless point to a well-established exception for cases in which removal was improper but the claims subsequently tried would otherwise give rise to subject matter jurisdiction. In these cases, remand is not necessary because "considerations of finality, efficiency, and economy" prevail over the prior removal deficiency. Caterpillar, 519 U.S. at 75. Here, Camsoft's federal causes of action could have properly been brought in district court. Yet because Camsoft's claims have not yet been tried on the merits, the case does not fall into the exception asserted by Appellants, and instead must be remanded to Louisiana.

In arguing for and against remand, both parties rely heavily on Caterpillar, Inc. v. Lewis, 519 U.S. 61 (1996). Caterpillar involved state claims removed on the basis of diversity jurisdiction. Id. at 64. The plaintiff vigorously opposed removal, but its motion to remand was denied. Id. Later, the undisputed facts indicated that  [*25] diversity had not existed at the time of removal. Id. at 70. But prior to final judgment, the plaintiff had voluntarily settled with the sole non-diverse defendant, thereby creating the diversity necessary to give rise to federal jurisdiction. Id. at 64. After a jury returned a verdict in favor of the defendant, the plaintiff appealed on the ground that the district court had never entertained jurisdiction over the case. Id. at 66-67. After acknowledging that the jurisdictional challenge had been preserved and holding that removal had been improper, the Supreme Court explained that the removal defect was cured via the dismissal of the lone non-diverse defendant. Id. at 73. The Court then declined to remand for a new trial in state court, noting that where a removal defect has been cured and a case has proceeded to trial on the merits, "considerations of finality, efficiency, and economy" are "overwhelming." Id. at 75, 77-78.

So Caterpillar analysis involves three considerations: first, whether a meritorious removal challenge has been preserved; second, whether a post-removal development cured the defect that existed at removal; and third, whether the case was tried on the merits such  [*26] that finality and economy preclude remand. See Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 572 (2004) (explaining that whether the defect is cured and whether economy precludes remand are distinct inquiries). Remand is proper here because there has been no trial on the merits, as required by Caterpillar's third analytical prong. Courts have long made an exception to the time-of-filing and time-of-removal jurisdictional rules for cases tried on the merits. See Grubbs v. Gen. Elec. Credit Corp., 405 U.S. 699, 702-03 (1972) (tracing the distinction back to 1900). As the Supreme Court observed in Grubbs, "where after removal a case is tried on the merits without objection and the federal court enters judgment, the issue in subsequent proceedings on appeal 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 [at the time of judgment]." Id. (emphasis added). The Caterpillar Court merely extended that rule by holding that even where a timely and meritorious objection was raised, remand is no longer necessary once the case has been tried on the merits. 519 U.S. at 77-78.  [*27] Here, there has been no trial on the merits, so the case must be remanded.

Appellants disagree, arguing that the district court's Rule 12 dismissals are the functional equivalent of trial on the merits. This court, however, has already held that claim dismissal does not forestall remand under Caterpillar. See Waste Control Specialists, L.L.C. v. Envirocare of Tex., Inc., 199 F.3d 781 (5th Cir. 2000), opinion withdrawn and superseded in part, 207 F.3d 225 (5th Cir. 2000) (superseding allocation of attorney's fees). In Waste Control, we relied on the Supreme Court's reasoning in Caterpillar to analyze facts similar to those of the instant case. The district court had allowed removal after erroneously concluding that federal anti-trust law preempted the plaintiff's claims. Id. at 782-84. After its motion to remand was denied, the plaintiff added a federal cause of action. But when the entire case was dismissed on a Rule 12(b)(6) motion, the plaintiff appealed, arguing that the case must be remanded because the district court never had jurisdiction over the case. Id. at 782-83. After finding that removal had been improper and that the jurisdictional argument had been preserved, we held  [*28] that remand was not precluded by Caterpillar. Id. at 787. In reaching that conclusion, we emphasized that whereas Caterpillar had been tried to verdict, Waste Control involved "no trial on the merits." Id. at 786. Before instructing the district court to remand the case, we explicitly stated that Caterpillar's reach "stops short of a Rule 12(b)(6) dismissal." Id. In fact, we are aware of no improperly removed case in which this court denied remand following a Rule 12 dismissal.

Appellants nevertheless contend that we once anticipated an untried case that had "remain[ed] in the federal court system for [such] a significant length of time" that "considerations of finality and economy [would] result in affirming a judgment." McAteer v. Silverleaf Resorts, Inc., 514 F.3d 411, 416 (5th Cir. 2008). First of all, it is not clear exactly what the McAteer court intended with that comment, as that language was not explained and was not used to resolve the case. Id. That case--much like this one--involved the improper removal of claims that were later dismissed under Rule 12(b)(6). Id. at 414. On appeal from that dismissal, we vacated the dismissal and instructed the district court to remand to  [*29] the state, notwithstanding the fact that a post-removal development resulted in a case that could have been filed in federal court. Id. at 416. So McAteer is not a particularly strong case for Appellants. On the contrary, it only serves to illustrate this court's consistent treatment of 12(b)(6) adjudication as insufficient to forestall an otherwise proper remand.

Regardless, to whatever extent McAteer implies that some improperly removed cases must remain in federal court based solely on considerations of finality and economy, we are not persuaded that this is such a case. There is no finality here, as this is an interlocutory appeal. In fact, the heart of this dispute--Camsoft's original breach of contract claim against Southern Electronics and Active Solutions--has not been adjudicated at all. Nor is there a prevailing economy interest in retaining the case. Although the case has been pending in the district court for several years, it was stayed twice due to ongoing litigation in state court. Consequently, relatively little progress has been made on the merits, and the potential loss of economy is not as significant as the timeline alone might suggest. And while Appellants argue that  [*30] remand will result in four wasted years of litigation, the Supreme Court has expressly rejected such arguments. "When the stakes remain the same and the players have been shown each other's cards, they will not likely play the hand all the way through just for the sake of the game." Grupo Dataflux, 541 U.S. at 581. The Court further reasoned that upon remand the case, "having been through [ ] years of discovery and pretrial motions, . . . would most likely proceed promptly to trial." Id. (punctuation revised).

In fact, due to the related cases, the Louisiana bench may be able to handle this litigation more efficiently than the federal court. The Louisiana courts have already presided over multiple cases involving the same parties and arising out of the same set of underlying facts, so the state court may be better positioned to efficiently discern the merits of Camsoft's allegations, which are based largely on facts already litigated. Indeed, the intensely local nature of this litigation only underscores the propriety of remand. After all, improper removal undermines federalism by depriving a sovereign state of the right to adjudicate its own cases and controversies. Gasch v. Hartford Accident & Indem. Co., 491 F.3d 278, 281 (5th Cir. 2007).  [*31] For that reason, this court resolves any jurisdictional doubt "in favor of remand." Id. at 281-82.

In any event, there is little doubt that remand will result in a certain degree of inconvenience. Yet we must respect the outer limit of our jurisdiction "regardless of the costs" imposed. Grupo Dataflux, 541 U.S. at 571. As one of our brothers observed, "the so-called 'waste' of judicial resources that occurs when we dismiss a case for lack of jurisdiction is the price that we pay for federalism." Atlas Global Group, L.P. v. Grupo Dataflux, 312 F.3d 168, 177 (5th Cir. 2002) (Emilio Garza, J., dissenting to cure of defective diversity removal, and anticipating the Supreme Court's eventual reversal). In Grupo Dataflux, the Supreme Court cautioned this court against creating new jurisdictional exceptions for the sake of immediate judicial economy. 541 U.S. at 580-81. We had established a new rule whereby defective diversity jurisdiction is cured when a lone non-diverse party establishes new citizenship. 312 F.3d at 171 (majority opinion). The Supreme Court rejected the rule, explaining that even a significant investment of judicial resources will not preclude an otherwise proper remand. 541 U.S. at 571, 577-78.  [*32] The Court further emphasized the short-sightedness of establishing a new jurisdictional exception for the sake of a case immediately at bar: "the policy goal of minimizing litigation over jurisdiction is thwarted whenever a new exception to the time-of-filing rule is announced." Id. at 580-81. Consequently, rules introduced to avoid immediate jurisdictional implications serve only to undermine judicial economy rather than to facilitate it.

Returning to the case at hand, Appellants propose a new rule whereby 12(b)(6) adjudication sometimes constitutes "trial on the merits" such that remand is precluded by Caterpillar and Grubbs. Given that the Supreme Court has expressly discouraged this court from creating new jurisdictional exceptions, and given that jurisdictional rules "of indeterminate scope" are disfavored, we decline the invitation. Id. at 575, 582. We therefore hold that because there has been no trial on the merits, any interest in economy or finality is not sufficient to override Camsoft's timely and meritorious challenge to removal. Accordingly, the case must be remanded to the state of Louisiana. Because the case should have been remanded for the reasons stated herein, we  [*33] affirm the remand order in judgment only. The court's discussion and reasoning are vacated. See In re Golden Rests., Inc., 402 F. App'x 5, 10 (5th Cir. 2010) (unpublished) ("The district court lacked jurisdiction to make any decisions beyond the remand . . . .").

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