Carlsbad Technology, Inc. V. HIF Bio, Inc.

Issues 

Whether a district court's order to remand a case to state court after declining supplemental jurisdiction is properly considered a remand for lack of subject matter jurisdiction under 28 U.S.C. §1447(c), therefore preventing a court of appeals from reviewing the remand order under 28 U.S.C. § 1447(d).

Oral argument: 
February 24, 2009

Respondents HIF Bio, Inc. and BizBiotech Company, Ltd. sued petitioners Carlsbad Technology, Inc. ("CTI") and others in state court. CTI removed the case to a federal district court, which soon after granted a motion to dismiss a federal Racketeer Influenced and Corrupt Organizations Act claim. The district court then remanded the case back to state court after declining to exercise supplemental jurisdiction over the remaining  state law  claims. On appeal, the United States Court of Appeals for the Federal Circuit declined to review the matter, asserting it lacked jurisdiction to do so. In this case, the United States Supreme Court considers whether a district court's order to remand a case to state court after declining to exercise supplemental jurisdiction under 28 U.S.C. § 1367 is a remand for lack of subject matter jurisdiction under 28 U.S.C. § 1447(c), thus barring the order from appellate review under 28 U.S.C. § 1447(d). This case will address a procedural issue that the Supreme Court's decisions in Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 357 (1988) and Powerex Corp. v. Reliant Energy Servs., Inc., 127 S. Ct. 2411, 2416 (2007) left open to conflicting interpretations by the courts of appeals.

Questions as Framed for the Court by the Parties 

In Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 357 (1988), this Court held that district courts could remand removed claims upon deciding not to exercise supplemental jurisdiction under 28 U.S.C. § 1367(c). However, in Powerex Corp. v. Reliant Energy Servs., Inc., 127 S. Ct. 2411, 2416 (2007), the Court stated that "it is far from clear . . . that when discretionary supplemental jurisdiction is declined the remand is not based on lack of subject-matter jurisdiction for purposes of § 1447(c) and § 1447(d)" and noted that "[w]e have never passed on whether Cohill remands are subject-matter jurisdictional for purposes of post-1988 versions § 1447(c) and § 1447(d)." Construing Powerex as leaving the question open, the Federal Circuit held that a remand based on declining supplemental jurisdiction can be colorably characterized as a remand based on lack of subject matter jurisdiction, thus disagreeing with the nine other federal courts of appeals that have construed Cohill as distinguishing between remands for lack of subject matter jurisdiction and remands based on declining to exercise subject matter jurisdiction that already exists. Thus, this petition presents the question posed but left unanswered in Powerex that is now the subject of a direct conflict among the circuits:

1. Whether a district court's order remanding a case to state court following its discretionary decision to decline to exercise the supplemental jurisdiction accorded to federal courts under 28 U.S.C. § 1367(c) is properly held to be a remand for a "lack of subject matter jurisdiction" under 28 U.S.C. § 1447(c) so that such remand order is barred from any appellate review by 28 U.S.C. § 1447(d).

Facts 

From 1999 to 2001, Korean researchers Jong-Wan Park ("Park") and Yang-Sook Chun ("Chun") studied a potential cancer-fighting chemical compound.  Park and Chun eventually filed a Korean patent application on an invention related to the compound's cancer-fighting properties, and also sent their study results and other data to Fang-Yu-Lee ("Lee"), president of Taiwan-based Yung Shin Pharmaceuticals Industrial Co. ("Yung Shin"), and to Che-Ming Teng.  By 2003, Lee, Teng, and Yung Shin had filed U.S. patent applications and a Patent Cooperation Treaty application covering an invention related to the compound.  Park and Chun also filed U.S. patent applications for inventions related to the same cancer-fighting compound, and assigned their rights related to the compound to BizBiotech Company Ltd. and HIF Bio, Inc. ("HIF"). 

In September 2005, HIF and BizBiotech filed a complaint against Yung Shin, Lee, Teng and CTI- a U.S. subsidiary of Yung Shin that allegedly agreed to work with Lee, Teng, and Yung Shin to develop, sell, and market the compound for its cancer-fighting properties-in the Los Angeles Superior Court.  CTI removed the case to the United States District Court for the Central District of California in November 2005.  A defendant in a civil state court case involving any cause of action over which the federal courts have subject matter jurisdiction may remove the case to the district court.   Federal courts, including district courts, have limited jurisdiction and only have power to adjudicate the types of cases listed in Article III Section 2 of the Constitution and those brought under statutes passed by Congress. 

After removal, HIF and BizBiotech filed an amended complaint listing twelve causes of action, including federal Racketeer Influenced and Corrupt Organizations Act ("RICO") violations and two causes of action "seek[ing] a declaratory judgment for ownership and inventorship" of the anticancer compound invention.  The district court granted CTI's motion to dismiss the federal RICO claim.  In addition, the district court determined that the claims for invention ownership and inventorship were state law claims, not federal law claims as CTI had maintained. After the district court dismissed the federal RICO claim and determined that state law covered the invention-related claims, only state law claims remained. The district court declined to exercise supplemental jurisdiction, and remanded the remaining eleven claims to state court.  Supplemental jurisdiction, codified at 28 U.S.C. § 1367, allows the court to choose to exercise jurisdiction over the other claims in civil actions where the district court has subject matter jurisdiction over at least one of the claims.  Courts have discretion in deciding whether to exercise supplemental jurisdiction, and may choose to decline supplemental jurisdiction after dismissing all claims, such as RICO claims, over which it has federal subject matter jurisdiction. 

CTI appealed the remand order, but the United States Court of Appeals for the Federal Circuit concluded that it lacked jurisdiction over the appeal and dismissed the case. The Federal Circuit, writing in light of the Supreme Court's recent decision in Powerex Corp. v. Reliant Energy Servs, 391 F. 3d 1011 (2007), reasoned that every decline of supplemental jurisdiction implicitly states that the court lacks subject matter jurisdiction over the remaining claims. Therefore, the court determined, a remand based on a refusal to exercise supplemental jurisdiction "can be colorably characterized as a remand based on lack of subject matter jurisdiction." Finally, the Federal Circuit noted that under 28 U.S.C. § 1447(d), appeals courts cannot review a remand based on a lack of subject matter jurisdiction.  CTI appealed this decision to the United States Supreme Court, which granted certiorari on October 14, 2008.

Analysis 

Under 28 U.S.C. § 1447(d), "an order remanding a case to the State court from which it was removed is not reviewable on appeal."  The broad wording of 1447(d) seems to indicate that all remands to state court are barred from appellate review.  In Thermtron Products, Inc. v. Hermansdorfer, however, the U.S. Supreme Court held that § 1447(d) must be read in light of the rest of the statute.  In other words, a federal court's order remanding a case to state court is barred from appellate review only if the remand is due to reasons listed in § 1447, such as a remand due to lack of subject matter jurisdiction mentioned in § 1447(c)

The issue in this case is whether the district court's decision to decline exercising supplemental jurisdiction under 28 U.S.C. § 1367 and remand the claims to state court constitutes a lack of subject matter jurisdiction for purposes of § 1447(c).  If it does, then § 1447(d) would bar the district court's remand from appellate review. 

Is a Federal Court's Decision to Decline to Exercise Supplemental Jurisdiction Equivalent to a Lack of Subject Matter Jurisdiction?

The respondents HIF Bio, Inc. and BizBiotech Company Ltd. ("HIF") argue that the federal court's decision not to exercise supplemental jurisdiction under § 1367 amounts to a lack of subject matter jurisdiction, and is, therefore, barred from appellate review under § 1447(d).  HIF explains that a federal court which declines supplemental jurisdiction over certain claims essentially indicates that those claims lack their own basis for subject matter jurisdiction.The language of § 1367, HIF claims, supports this view.  Section 1367(a) grants supplemental jurisdiction to the district courts "[e]xcept as provided in subsection . . . (c)," which lists the circumstances in which federal courts can choose not to exercise supplemental jurisdiction.  HIF argues that § 1367(a) explicitly refers to § 1367(c) as an exception to jurisdiction.  Therefore, HIF claims, a court's decision to decline to exercise supplemental jurisdiction under § 1367(c) is tantamount to a lack of subject matter jurisdiction.  

Petitioner Carlsbad Technology, Inc. ("CTI") counters that a court's decision not to exercise supplemental jurisdiction over certain claims is not equivalent to a lack of subject matter jurisdiction, and that the court's decision is therefore appealable.  CTI argues that the district court's power to decide to the claims establishes the court's subject matter jurisdiction over such claims.  The court, however, merely chooses not to exercise that power in certain cases. 

CTI contends that the Supreme Court's decision in Quackenbush v. Allstate Ins. Co. supports this reasoning.  In Quackenbush, the Supreme Court held that the district court's abstention based remand was reviewable on appeal.  The district court in Quackenbush had the power to hear the state claim but used its discretion to remand it because it considered the state court to be the appropriate forum for the claim.  CTI argues that, as in Quackenbush, the district court's remand in the current case should be reviewable on appeal because the court had the power to hear the state claim under supplemental jurisdiction but merely decided not to. 

Prior Supreme Court Decisions: Cohill and Powerex

CTI argues that the Supreme Court's decision in Carnegie Mellon Univ. v. Cohill supports its view that a federal court's decision to decline to exercise supplemental jurisdiction and instead order a remand under § 1367 is not equivalent to a lack of subject matter jurisdiction for purposes of § 1447.  The Court in Cohill differentiated between § 1447(c) remands, including remands due to lack of subject matter jurisdiction, and § 1367 remands. According to the Court, "Section . . . 1447(c) . . . do[es] not apply to cases over which a federal court has [supplemental] jurisdiction. Thus, the remand authority conferred by [§ 1447(c)] and the remand authority conferred by the doctrine of [supplemental] jurisdiction overlap not at all."  Therefore, CTI argues, Cohill stands for the proposition that remands based on declining supplemental jurisdiction are "not within the class of remands in § 1447(c)."  Once that is the case, CTI claims, the bar of appellate review on § 1447 remands does not apply to remands that result from declining supplemental jurisdiction. 

HIF counters that Cohill's reasoning is no longer compelling because it was decided before the 1988 amendments to § 1447(c).  Prior to 1998, § 1447(c) permitted federal courts to remand cases that were "removed improvidently and without jurisdiction."  Therefore, HIF explains, when Cohill was decided, only cases that had been improperly removed could be remanded under § 1447(c).  District courts "that unquestionably had jurisdiction over [supplemental] claims at the time of removal," however, "would have lacked authority to remand the case under § 1447(c) based on developments following removal."  The Court in Cohill therefore explained that the power to remand claims after a court declines to exercise supplemental jurisdiction stems not from § 1447(c), but from § 1367.  In 1988, however, Congress amended § 1447(c) and permitted district courts to remand cases where jurisdiction was found to be lacking "at any time before final judgment."  Under this amendment, HIF argues, § 1447(c) permitted district courts to remand properly removed cases over which they subsequently decided not to exercise supplemental jurisdiction.  Declining to exercise supplemental jurisdiction consequently falls within the scope of the amended § 1447(c) and the appellate review bar of § 1447(d).  Therefore, HIF claims, Cohill's reasoning is no longer controlling. 

Furthermore, HIF argues, the Supreme Court expressly said as much in 2007 in Powerex Corp. v. Reliant Energy Servs.  The Court there said, "It is far from clear . . . that when discretionary supplemental jurisdiction is declined the remand is not based on lack of subject-matter jurisdiction for purposes of § 1447(c) and § 1447(d)." According to HFI, the decision in Powerex indicates that the issue remained open despite the reasoning in Cohill

CTI counters that although the Court in Powerex left this question open, the reasoning underlying Cohill still applies.  CTI explains that "given that . . . Cohill . . . holds that the remands specified in § 1447(c) do not stem from the same authority as the remands authorized by § 1367(c) [which authorizes federal courts to remand claims over which they decline to exercise supplemental jurisdiction], then the question reserved in Powerex over whether or how post-Cohill amendments to § 1447(c) may have altered the scope of remands encompassed by § 1447(c) could not have affected a district court's unrelated authority to remand upon declining supplemental jurisdiction."  Therefore, according to CTI, the scope of § 1447(c) cannot include remands based on declining supplemental jurisdiction, and the appellate review bar of § 1447(d) does not apply. 

Should the Thermtron Rule Still Apply?

CTI argues that even if a court's decision not to exercise supplemental jurisdiction is not tantamount to a lack of subject matter jurisdiction, it should still be barred from review because the Thermtron rule-that only remands falling within the scope of § 1447 are barred from appellate review-should be expanded.  CTI claims that the history of the appellate review ban supports an expansive reading.  Furthermore, CTI explains that the Court's restrictive reading of § 1447(d) "was not necessary to the holding in Thermtron."  In Thermtron, the district court remanded the case to state court because it had a "heavy caseload" and thought the state court would decide the case earlier.  The district court, however, was not permitted to order such a remand, even under its discretion.  Therefore, CTI claims, Thermtron's holding leaves "open the question whether appellate review, in light of the unconditional language of § 1447(d), need be preserved for any reason other than correcting the actions of a district court that are beyond the scope of any remand power."  CTI argues that remands within the district court's discretion, as in the current case, should be barred from appellate review under § 1447(d). 

HIF counters that the Supreme Court has said, as recently as its 2007 Powerex decision, that the Thermtron rule still applies.  Therefore, HIF argues, only remands for lack of subject matter jurisdiction are barred from appellate review.  Because the district court's remand in this case is not, according to HIF, the equivalent of a lack of subject matter jurisdiction, the remand should not be barred from review. 

Discussion 

If a federal court declines to exercise supplemental jurisdiction over certain claims and instead remands them to state court, can that decision be reviewed on appeal? The answer to this question hinges on whether a district court's remand based on a refusal to exercise supplemental jurisdiction is tantamount to a remand based on lack of subject matter jurisdiction. If the two are equivalent, then the district court's decision is barred from appellate review. In this case, the Supreme Court will address and clarify this issue.

Petitioner Carlsbad Technology, Inc. ("CTI") argues that a district court's refusal to exercise supplemental jurisdiction is a discretionary decision that declines existing jurisdiction, not a determination that the court lacks the jurisdictional power to decide the claims.   Therefore, CTI argues, the district court's decision to remand its case is not based on a lack of subject matter jurisdiction and thus not barred from review in a federal court.  Respondents HIF Bio, Inc. and BizBiotech Company Ltd. ("HIF"), however, argue that whenever a district court declines supplemental jurisdiction over state law claims, the court is also finding that the claims lack their own basis for subject matter jurisdiction.  Therefore, HIF maintains that when a federal court remands a case to state court, it is a remand due to lack of subject matter jurisdiction and thus beyond the powers of federal appellate review. 

Supreme Court ruling in favor of HIF could result in longer, more protracted litigations, despite eliminating the initial appeal from a district court's decision to decline to exercise supplemental jurisdiction and remand the case to state court. CTI explains that prolonged litigation can result where federal courts remand to state court claims which fall exclusively within federal jurisdiction (as CTI claims the federal court did in this case with regard to the inventorship and ownership claims).   When this occurs, CTI points out that the state court is not required to accept the federal court's remand and can instead decide that the claims fall exclusively within federal jurisdiction.  This decision can then be appealed within the state court system, resulting in prolonged litigation.  Furthermore, CTI explains, if the state court accepts the remand and ultimately adjudicates those federal claims, its judgment will subsequently be subject to collateral attack "on grounds of lack of jurisdiction."  Therefore, CTI contends, federal courts' remand orders should be reviewable immediately to prevent wasting time and money in the ensuing challenges.    

A decision in favor of CTI permitting appellate review of remands after a court declines supplemental jurisdiction, HIF counters, is unnecessary to protect federal interests and would contradict congressional policy. HIF maintains that barring review of remand orders in this particular case would not "compromise[]" previous Supreme Court decisions regarding the appealability of remands in other situations. In addition, HIF argues that the ability to review remand orders is not required to "curb district court abuses," because cases where state courts find abuses of discretion from district court remand orders are "extremely rare." Furthermore, HIF contends that congressional policy disfavors appellate review of remands. This policy of limiting appellate review arose from the congressional goals of both avoiding "shuttling" cases back and forth between federal and state courts and a desire to avoid the protracted litigation that could arise from the extra level of review. 

The United States Court of Appeals for the Federal Circuit created a circuit split by determining that a district court's remand to state court based on a refusal to exercise supplemental jurisdiction is a remand based on lack of subject matter jurisdiction and therefore barred from appellate review. In fact, the Federal Circuit noted that the United States Courts of Appeals for the FourthFifthSixthSeventhEighthNinthTenth, and Eleventh Circuits have previously held that such remand orders are not barred from appellate review.  The decision of the Supreme Court in this case may resolve this recent disagreement among the circuits.

Conclusion 

The Supreme Court will decide in this case whether a federal court's decision to decline exercising supplemental jurisdiction under 28 U.S.C. § 1367 is equivalent to a lack of subject matter jurisdiction for purposes of 28 U.S.C. § 1447(c) and, consequently, barred from appellate review under 28 U.S.C. § 1447(d). Respondents HIF Bio, Inc. and BizBiotech Company Ltd. argue that the two are equivalent. Petitioner Carlsbad Technology, Inc., on the other hand, argues that the two are not equivalent, because federal courts have the power to exercise supplemental jurisdiction but merely choose not to do so in certain cases. In deciding this case, the Supreme Court will clarify its prior statements in Carnegie Mellon Univ. v. Cohill and Powerex Corp. v. Reliant Energy Servs.

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Acknowledgments