Marathon Oil Co. v. Ruhrgas

• Decision Date: 22 June 1998
• Docket Number: No. 96-20361,96-20361
• Citation: 145 F.3d 211
• Parties: MARATHON OIL COMPANY, Marathon International Oil Company, and Marathon Petroleum Norge A/S, Plaintiffs-Appellants/Cross-Appellees, v. A.G. RUHRGAS, Defendant-Appellee/Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 211

145 F.3d 211

MARATHON OIL COMPANY, Marathon International Oil Company, and Marathon Petroleum Norge A/S, Plaintiffs-Appellants/Cross-Appellees, v. A.G. RUHRGAS, Defendant-Appellee/Cross-Appellant.

No. 96-20361.

United States Court of Appeals,

Fifth Circuit.

June 22, 1998.

Clifton T. Hutchinson, J. Gregory Taylor, David John Schenck, Hughes & Luce, Dallas, TX, for Plaintiffs-Appellants-Cross-Appellees.

Ben H. Sheppard, Jr., Guy Stanford Lipe, Michael John Mucchetti, Harry M. Reasoner, Vinson & Elkins, Houston, TX, Charles Alan Wright, University of Texas Law School, Austin, TX, for Ruhrgas.

Peter Heidenberger, Thomas G. Corcoran, Jr., Berliner, Corcoran & Rowe, Washington, DC, for Federal Republic of Germany, Amicus Curiae.

Ralph S. Hubbard, III, Celeste Virginia Darmstadter, Lugenbuhl, Burke, Wheaton, Peck, Rankin & Hubbard, New Orleans, LA, James Elmer Rocap, III, Scott Lawrence Nelson, Miller, Cassidy, Larroca & Lewin, Washington, DC, Michael W. Adley, Judice & Adley, Lafayette, LA, Kimball Ann Lane, Christine M. Megna, Mitchell L. Lathrop, Julie Beth Holden, Luce, Forward, Hamilton & Scripts, New York City, Lynette Norton, Alan S. Miller, Picadio, McCall, Kane & Norton, Pittsburgh, PA, for Certain Insurer Defendants in Louisiana Tobacco Litigation.

Edward F. Sherman, Luther L. McDougal, Appellate Advocacy Program Tulane Law School, New Orleans, LA, R. Lea Brilmayer, Ruth Wedgwood, New Haven CT, Thomas Carbonneau, Tulane Law Clinic, New Orleans, LA, Siegfried Wiessner, St. Thomas University School of Law, Miami, FL, Hans Smit, Columbia University School of Law, New York City, Harold Maier, Vanderbilt University School of Law, Nashville, TN, for Law Professors Concerned with Intern. Arbitration, Amicus Curiae.

Jesse R. Adams, Jr., Jesse Roland Adams, III, Adams & Johnston, New Orleans, LA, for International Group of P&I Clubs, Amicus Curiae.

Anthony J. Mormino, Debra J. Hall, Washington, DC, for Reinsurance Ass'n of America, Amicus Curiae.

Appeal from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, and KING, JOLLY, HIGGINBOTHAM, DAVIS, JONES, SMITH, DUHE, WIENER, BARKSDALE, EMILIO M. GARZA, DeMOSS, BENAVIDES, STEWART, PARKER and DENNIS, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Today we decide whether, on removal from a state court, a district court has discretion to resolve a challenge to personal jurisdiction before ruling on a legally more difficult question concerning its alleged lack of subject-matter jurisdiction. We conclude that, at least in removed cases, district courts should decide issues of subject-matter jurisdiction first and, only if subject-matter jurisdiction is found to exist, reach issues of personal jurisdiction. Accordingly, we vacate the judgment and remand with instruction to rule on the motion to remand to state court for lack of subject-matter jurisdiction.

I.

Marathon Oil Company, Marathon International Oil Company, and Marathon Petroleum Norge A/S (collectively "Marathon") sued Ruhrgas, a German gas supplier, under various tort theories in Texas state court. The alleged torts arose from Ruhrgas's relationship with Marathon Petroleum Company Norway ("MPCN"), a Marathon affiliate that is the equitable owner of a portion of the Heimdal natural gas field in the North Atlantic. Marathon Petroleum Norge A/S ("Norge"), as a Norwegian company, is required by law to hold legal title to MPCN's interest in the field.

MPCN entered into a sale agreement with Ruhrgas and other gas buyers whereby, for a premium price, the buyers would purchase MPCN's gas from the Heimdal field. This agreement provides that any disputes between MPCN and the buyers will be resolved through arbitration in Sweden.

At some point after the agreement was signed, the price of gas fell, and the buyers, including Ruhrgas, refused to pay MPCN the premium contract price. MPCN instituted arbitration proceedings in Sweden, whereupon MPCN's affiliates ¹ instituted these tort suits against Ruhrgas in Texas state court. They allege that Ruhrgas conspired to monopolize the gas market, tortiously interfered with MPCN's business opportunities, and committed other, similar torts, which had the effect of harming them, as lenders to MPCN.

Ruhrgas removed the case to federal court, asserting diversity jurisdiction under 28 U.S.C. § 1332(a), federal arbitration jurisdiction under 9 U.S.C. § 205, and federal question jurisdiction under 28 U.S.C. § 1331 based on the federal common law of international relations. Ruhrgas moved to dismiss for lack of personal jurisdiction and, in the alternative, requested a stay of proceedings pending arbitration. Marathon moved to remand to state court, asserting a lack of federal subject-matter jurisdiction, and opposed compelled arbitration.

The district court determined that, under the caselaw of this circuit, it had discretion to address personal jurisdiction before reaching the legally more difficult subject-matter jurisdiction issue. Finding personal jurisdiction lacking, the court dismissed the action and otherwise denied Ruhrgas's motion to compel arbitration. Marathon appealed, arguing that, on a motion to remand, the district court should have considered subject-matter jurisdiction before deciding personal jurisdiction. ²

A panel of this court determined that the district court lacked subject-matter jurisdiction, and thus it vacated the dismissal for lack of personal jurisdiction and remanded with instruction to remand to state court. Although acknowledging that "in some instances we have permitted the dismissal of an action for lack of personal jurisdiction without considering the question of subject matter jurisdiction," ³ the panel concluded that "[t]he appropriate course [for a federal court] is to examine for subject matter jurisdiction constantly and, if it is found lacking, to remand to state court if appropriate, or otherwise dismiss." ⁴

After the Supreme Court denied certiorari, we granted en banc review. ⁵ We now take this opportunity, as an en banc court, to reconcile the conflicting circuit precedent cited by the panel and to explain a district court's obligation concerning which challenge it should decide first when confronted with a removed case in which the existence of subject-matter jurisdiction is questionable and personal jurisdiction is contested. We conclude that the court should proceed to consider the issue of subject-matter jurisdiction (even if that is the more legally difficult issue) before proceeding to address whether it (or, for that matter, the state court) would have personal jurisdiction over the protesting defendant.

II.

"[F]ederal courts, as opposed to state trial courts of general jurisdiction, are courts of limited jurisdiction marked out by Congress." Aldinger v. Howard, 427 U.S. 1, 15, 96 S.Ct. 2413, 2420, 49 L.Ed.2d 276 (1976). The Constitution provides that "[t]he judicial Power of the United States, shall be vested in one supreme court, and in such inferior Courts as the Congress may from time to time ordain and establish." U.S. CONST. art. III, § 1. "This language reflects a deliberate compromise[, known as the Madisonian Compromise,] reached at the Constitutional Convention between those who thought that the establishment of lower federal courts should be constitutionally mandatory and those who thought there should be no federal courts at all except for a Supreme Court with, inter alia, appellate jurisdiction to review state court judgments." RICHARD H. FALLON, ET AL., HART & WECHSLER'S THE FEDERAL COURTS AND THE FEDERAL SYSTEM 348 (4th ed.1996).

The effect of the compromise is this: "Only the jurisdiction of the Supreme Court is derived directly from the Constitution. Every other [federal] court ... derives its jurisdiction wholly from the authority of Congress. That body may give, withhold or restrict such jurisdiction at its discretion, provided it be not extended beyond the boundaries fixed by the Constitution." Kline v. Burke Constr. Co., 260 U.S. 226, 234, 43 S.Ct. 79, 82, 67 L.Ed. 226 (1922). Accordingly, "we should proceed with caution in construing constitutional and statutory provisions dealing with the jurisdiction of the federal courts," Victory Carriers, Inc. v. Law, 404 U.S. 202, 212, 92 S.Ct. 418, 425, 30 L.Ed.2d 383 (1971), because the Constitution leaves Congress the policy choice concerning how far the federal courts' jurisdiction should extend.

Under our federal constitutional scheme, the state courts are assumed to be equally capable of deciding state and federal issues. ⁶ To the extent that Congress elects to confer only limited jurisdiction on the federal courts, state courts become the sole vehicle for obtaining initial review of some federal and state claims. Cf., e.g., Victory Carriers, 404 U.S. at 212, 92 S.Ct. at 425. Where Congress has given the lower federal courts jurisdiction over certain controversies, " '[d]ue regard for the rightful independence of state governments, which should actuate federal courts, requires that they scrupulously confine their own jurisdiction to the precise limits which [a federal] statute has defined.' " Id. (quoting Healy v. Ratta, 292 U.S. 263, 270, 54 S.Ct. 700, 703, 78 L.Ed. 1248 (1934)).

The importance of both the lower federal courts' constitutional and statutory subject-matter jurisdiction should not be underestimated. "Because of their unusual nature, and because it would not simply be wrong but indeed would be an unconstitutional invasion of the powers reserved to the states if federal courts were to entertain cases not within their jurisdiction, the rule is well settled that the party seeking to invoke the jurisdiction of a federal court must demonstrate that the case is within the competence of that court." 13 CHARLES A. WRIGHT, ARTHUR R. MILLER & EDWARD H. COOPER, FEDERAL PRACTICE AND PROCEDURE § 3522, at 61-62 (2d ed.1984) (emphasis added). ⁷

When a federal court acts outside its...