Holmstrom v. Peterson, 05-3670.

Citation492 F.3d 833
Decision Date03 July 2007
Docket NumberNo. 05-3670.,05-3670.
PartiesGlen HOLMSTROM, derivatively on behalf of OfficeMax, Incorporated, Plaintiff-Appellee, v. Gary PETERSON, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Marc M. Umeda (argued), Robbins, Umeda & Fink, San Diego, CA, Patrick Sherlock, Chicago, IL, for Plaintiff-Appellee.

Patrick T. Stanton, Schwartz, Cooper, Greenberger & Krauss, Chicago, IL, Mitchell G. Blair (argued), Calfree, Halter & Griswold, Cleveland, OH, for Defendant-Appellant.

Before BAUER, RIPPLE and WILLIAMS, Circuit Judges.

RIPPLE, Circuit Judge.

Glen Holmstrom, a citizen of New Jersey, brought this shareholder derivative action in Illinois state court against officers and directors of OfficeMax, Incorporated. The suit was removed to federal court by one of those directors, Gary Peterson, an Ohio citizen, based on diversity of citizenship. Mr. Holmstrom then moved to remand the case to state court. The district court granted the motion to remand, and Mr. Peterson appealed the district court's decision. For the reasons set forth in this opinion, we dismiss the appeal for lack of appellate jurisdiction.

I BACKGROUND

After Mr. Holmstrom brought this shareholder derivative action in Illinois state court, Mr. Peterson removed the action to the United States District Court for the Northern District of Illinois on the basis of diversity of citizenship. Now in district court, Mr. Holmstrom moved to remand the case because the complaint also named an Illinois citizen as a defendant, and, thus, removal was barred by the forum defendant rule. See 28 U.S.C. § 1441(b). Mr. Peterson contended, however, that § 1441(b) only precluded removal when a resident of the forum state actually is joined and served as a defendant at the time of removal. Here, at the time Mr. Peterson removed the case, the Illinois citizen had not been properly joined and served.

The district court recognized that the language of § 1441(b) only prohibits removal in diversity cases when one of the "parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." Id. (emphasis added). Thus, literally applied, the forum defendant rule, as embodied in § 1441(b), would not preclude Mr. Peterson's removal because, at the time he removed the case, no Illinois defendant had been joined and served. However, the district court concluded that the reason for limiting the forum defendant rule to situations where a citizen of the forum state is properly joined and served is to ensure that parties do not name citizens of the forum state solely for the purpose of preventing removal, without any intention of effecting service on the forum-state defendant. Because there was no indication that Mr. Holmstrom had named the Illinois defendant in his complaint only to prevent removal, the district court held that literal application of the forum defendant rule in this case would defeat the purpose of the statute. The district court, therefore, granted Mr. Holmstrom's motion to remand. Mr. Peterson appealed.

II DISCUSSION

Mr. Peterson asserts that the district court erred when it determined that the forum defendant rule barred removal of this case even though, at the time of removal, no citizen of the forum state properly had been joined and served in this action. Mr. Peterson claims that the district court's application conflicts with the plain language of § 1441(b) and constitutes an impermissible, judicially crafted exception to the forum defendant rule. However, before we may proceed to the merits of Mr. Peterson's appeal, we must determine whether we have appellate jurisdiction.

Section 1447(d) of Title 28 of the United States Code1 prohibits review of a district court's order remanding a case to state court subject only to one exception not relevant here. 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 or otherwise . . . ."). Although the language of the statute appears absolute, the Supreme Court held in Thermtron Products, Inc. v. Hermansdorfer, 423 U.S. 336, 96 S.Ct. 584, 46 L.Ed.2d 542 (1976), that § 1447(d) must be read in pari materia with § 1447(c). Id. at 345-46, 96 S.Ct. 584. Thus, the review prohibition is limited to remand orders based on those grounds specified in § 1447(c). Id. The two grounds specified in § 1447(c) are: (1) any defect other than lack of subject matter jurisdiction and (2) lack of subject matter jurisdiction. 28 U.S.C. § 1447(c). Because failure to comply with § 1441(b)'s forum defendant rule does not result in a lack of subject matter jurisdiction, see Hurley v. Motor Coach Indus., Inc., 222 F.3d 377, 380 (7th Cir.2000), the issue before this court is whether failure to satisfy the forum defendant rule constitutes a defect other than lack of subject matter jurisdiction for purposes of § 1447(c). If it does, 28 U.S.C. § 1447(d) bars appellate review of a remand order based on such a failure.

A. History of § 1447(c)2

As set forth above, § 1447(c) provides that:

A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction 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). The language of § 1447(c), however, has changed several times over the years, and the courts' current interpretation of § 1447(c) reflects this history.

At the time the Supreme Court decided Thermtron Products, § 1447(c) read in pertinent part:

If at any time before final judgment it appears that the case was removed improvidently and without jurisdiction, the district court shall remand the case, and may order the payment of just costs.

Thermtron Prods., 423 U.S. at 342, 96 S.Ct. 584. Although this version of § 1447(c) spoke in terms of "improvident" removal, it was construed by the courts to mean removals that were defective in terms of the statutory conditions that Congress had placed on removal. A removal was improvident if there was a "legal defect in the removal." Sheet Metal Workers Int'l Ass'n v. Seay, 693 F.2d 1000, 1005 (10th Cir.1982). As this court explained, it was "logical and reasonable to interpret the term to mean noncompliance with Congress' specific and detailed statutory provisions." Rothner v. City of Chicago, 879 F.2d 1402, 1411 (7th Cir.1989). On the other hand, removal and remand orders based on doctrines such as forum non conveniens, abstention or supplemental jurisdiction were held to be outside of § 1447(d)'s prohibition because they were not tied to the statutory criteria for removal. See Snapper, Inc. v. Redan, 171 F.3d 1249, 1255 (11th Cir.1999).

Section 1447(c) was amended in 1988. The new language provided:

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) (1994). The 1988 amendments sought to confirm the courts' narrow reading of § 1447(c) by replacing the term "improvidently" with "defect in the removal procedure." Thus, under this version, courts uniformly continued to consider remands based on forum selection clauses, abstention and supplemental jurisdiction to be beyond the statute's ambit. See Snapper, 171 F.3d at 1256-57. However, the primary importance of the 1988 amendment lay in the establishment of a time limit for bringing nonjurisdictional motions to remand, not in defining the breadth of remand decisions falling within the scope of § 1447(c). See Snapper, 171 F.3d at 1256 n. 13.

As noted by the Eleventh Circuit, "[a]lthough the 1988 language of § 1447(c) worked well in the contexts of forum selection clauses, abstention, and supplemental jurisdiction, the language proved more troublesome for the courts in another context," specifically, application of the forum defendant rule. Id. at 1257. Some courts believed that failure to comply with the forum defendant rule was substantive in nature. However, "[r]ecognizing that it would make little sense to exempt such a remand from the 30-day time limit of § 1447(c), most courts held that the 30-day time limit of § 1447(c) did apply." Id. at 1258. Other courts, however, refused to follow this path, resulting in a conflict among the circuits. "It is in this context," the Eleventh Circuit explains, that the next amendment to § 1447(c) "must be understood." Id.

The statute was amended in 1996 to produce the current version:

A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction 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). The committee report accompanying the 1996 amendments to § 1447(c) noted that the intent of the 1988 amendment to § 1447(c) "was to impose a 30-day limit on all motions to remand except in those cases where the court lacks subject matter jurisdiction." H.R.Rep. No. 104-799, 104th Cong. 2nd Sess. (1996), U.S. Code cong. & Admin.News at 2. The report noted that the wording of the 1988 amendment had not expressed this intent clearly enough, and that the lack of clarity had led to different interpretations by different courts. Id. Presumably the lack of clarity to which the report referred was the phrase "defect in removal procedure," as that was the only language removed by the 1996 amendment. Thus, it would appear that the 1996 amendment was designed to ensure that all remand motions based on defects other than lack...

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