Palmer v. City Nat. Bank, of West Virginia

• Decision Date: 16 August 2007
• Docket Number: No. 06-1151.,06-1151.
• Citation: 498 F.3d 236
• Parties: John PALMER; Stacey Palmer, Plaintiffs-Appellees, and United States Department of Agriculture, Farm Service Agency, Third Party Defendant-Appellee, v. CITY NATIONAL BANK, OF WEST VIRGINIA, Defendant-Appellant, and Stuart Kaufmann; Bank One, N.A., Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

498 F.3d 236

John PALMER; Stacey Palmer, Plaintiffs-Appellees, and United States Department of Agriculture, Farm Service Agency, Third Party Defendant-Appellee, v.CITY NATIONAL BANK, OF WEST VIRGINIA, Defendant-Appellant, and Stuart Kaufmann; Bank One, N.A., Defendants.

No. 06-1151.

United States Court of Appeals, Fourth Circuit.

Argued: May 23, 2007.

Decided: August 16, 2007.

ARGUED:

Ancil Glenn Ramey, Steptoe & Johnson, Charleston, West Virginia, for Appellant.Isaac J. Lidsky, Appellate Staff, Civil Division, United States Department of Justice, Washington, D.C., for Appellees.

ON BRIEF:

Scott E. Johnson, Steptoe & Johnson, Charleston, West Virginia, for Appellant.Peter D. Keisler, Assistant Attorney General, Gary Call, United States Attorney, Michael S. Raab, Appellate Staff, Civil Division, United States Department of Justice, Washington, D.C., for Appellees.

Before NIEMEYER and GREGORY, Circuit Judges, and DAVID C. NORTON, United States District Judge for the District of South Carolina, sitting by designation.

Affirmed by published opinion.Judge GREGORY wrote the opinion, in which Judge NIEMEYER and Judge NORTON joined.

OPINION

GREGORY, Circuit Judge:

The doctrine of derivative jurisdiction requires that a federal court's jurisdiction over a removed case mirror the jurisdiction that the state court had over the action prior to removal.In this appeal, the district court applied the doctrine and dismissed a removed third-party claim against federal agency defendants because the state court did not possess jurisdiction over those defendants.Derivative jurisdiction has been frequently criticized and Congress has eliminated the doctrine for cases removed under 28 U.S.C. § 1441, the general removal statute.This abrogation, however, did not extend to cases removed under other provisions.Thus, our precedent, in accord with the statutory removal scheme, dictates the application of the derivative-jurisdiction doctrine in cases removed under the federal-officer removal statute, 28 U.S.C. § 1442.No authority exists for creating an exception to the doctrine that would apply in this case.Furthermore, application of derivative jurisdiction in this case does not violate the Equal Protection or Due Process Clauses of the Constitution.Accordingly, we affirm the district court's dismissal of the third-party claim.

I.

The facts of this appeal are straightforward.City National Bank of West Virginia issued a series of three loans to John and Stacey Palmer.City National alleges that the loans were made in reliance upon the guarantee of the Farm Service Agency("FSA") of the U.S. Department of Agriculture("USDA").After City National issued the loans, the Palmers became delinquent with their payments, and the FSA did not make payment on the loans.City National then foreclosed on the Palmers' farm.Thereafter, the Palmers brought suit in the Circuit Court of Kanawha County, West Virginia, against City National, alleging, inter alia, fraud and breach of contract.City National moved for leave to file a third-party complaint against the FSA and USDA (the "federal defendants").The motion was granted, and City National served a third-party complaint upon the federal defendants, alleging that the FSA failed to honor the loan guarantees and seeking indemnity and contribution.

Pursuant to 28 U.S.C. § 1442(a)(1)(2000), the federal defendants filed a notice of removal, based on their status as federal agencies.After removal to the United States District Court for the Southern District of West Virginia, the federal defendants filed a motion to dismiss the third-party complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) and to remand the remaining claims to state court.The federal defendants argued that in cases removed under § 1442(a)(1) the doctrine of derivative jurisdiction applied and the district court's jurisdiction was identical to the state court's jurisdiction prior to removal.Because the United States had not waived its sovereign immunity to contract and tort suits in state court, the state court lacked jurisdiction over the federal defendants.Thus, the federal defendants argued, the district court also lacked jurisdiction.Relying on the derivative-jurisdiction doctrine, the district granted the motion to dismiss, holding that the state court did not have jurisdiction over the third-party claim and thus the district court lacked jurisdiction over the claim as well.The district court remanded the remaining claims.This appeal followed.

II.

Whether at the suggestion of the parties or otherwise, this Court has an obligation to verify the existence of appellate jurisdiction before considering the merits of an appeal.SeeHyman v. City of Gastonia,466 F.3d 284, 286-87(4th Cir.2006).28 U.S.C. § 1447(d) prohibits this Court from exercising appellate jurisdiction over an order remanding a removed case to state court for lack of subject-matter jurisdiction.See28 U.S.C. § 1447(c), (d);Thermtron Prods., Inc. v. Hermansdorfer,423 U.S. 336, 346, 96 S.Ct. 584, 46 L.Ed.2d 542(1976), overruled on other grounds byQuackenbush v. Allstate Ins. Co.,517 U.S. 706, 714-15, 116 S.Ct. 1712, 135 L.Ed.2d 1(1996).In this case, because both the stated reason and the only plausible legal explanation for the remand order was the district court's lack of subject-matter jurisdiction over the case following the dismissal of the federal defendants, the remand was made pursuant to 28 U.S.C. § 1447(c).SeePowerex Corp. v. Reliant Energy Servs., Inc.,551 U.S. ___, ___, 127 S.Ct. 2411, 2417-18, 168 L.Ed.2d 112(2007).As such, this case falls within the ambit of the § 1447(d) bar on appellate review."Several cases, however, provide for limited exceptions to the reach of § 1447(d)."Nordan v. Blackwater Sec. Consulting, LLC(In re Black-water),460 F.3d 576, 582(4th Cir.2006).The exception fashioned by City of Waco v. U.S. Fidelity & Guaranty Co.,293 U.S. 140, 55 S.Ct. 6, 79 L.Ed. 244(1934), allows for limited review of collateral issues, even if the remand order itself is insulated from review under § 1447(d).See, e.g., In re Blackwater,460 F.3d at 586.

In Waco,a third-party defendant removed a state case on the grounds of diversity.293 U.S. at 141, 55 S.Ct. 6.Following removal, the district court determined that the third-party defendant had not been impleaded properly, and dismissed the third-party claim.Id. at 141-42, 55 S.Ct. 6.The dismissal destroyed diversity jurisdiction and, accordingly, the district court remanded the remaining claims to state court.Id. at 143, 55 S.Ct. 6.Viewing the district court's decree as embodying three separate orders, the Supreme Court held that the City of Waco could appeal from the order dismissing the third-party claim.Id.The Court noted that the remand itself could not be appealed, but that "in logic and in fact the decree of dismissal preceded that of remand and was made by the District Court while it had control of the cause."Id.Furthermore, if the dismissal were not appealable, it would be conclusive upon the City of Waco.Id.This Court restricts the applicability of the Waco exception to purportedly reviewable orders that (1) have a preclusive effect upon the parties in subsequent proceedings and (2) are severable, both logically and factually, from the remand order itself.In re Blackwater,460 F.3d at 586.

After oral argument in this case, the Supreme Court issued its opinion in Powerex,551 U.S. ___, 127 S.Ct. 2411, 168 L.Ed.2d 112, clarifying the scope of the Waco exception.Accordingly, we must consider Powerex to decide whether we continue to possess appellate jurisdiction in this matter before considering the merits of City National's appeal.Cf.Hyman,466 F.3d at 286-87(concluding after oral argument that court lacked appellate jurisdiction).

Powerex concerned a suit by various plaintiffs in state court against certain energy companies, alleging that the companies conspired to fix prices in violation of California law.See127 S.Ct. at 2414.In turn, the energy defendants filed cross-claims for indemnity against, among others, two federal government agencies, a Canadian governmental entity (BC Hydro), and Powerex, a wholly owned subsidiary of BC Hydro.Id.The cross-defendants removed to federal court, with the federal agencies relying on § 1442(a) and BC Hydro and Powerex relying on § 1441(d) and their status as foreign states under the Foreign Sovereign Immunities Act of 1976("FSIA"), 28 U.S.C. § 1603(b)(2).Id.

The plaintiffs moved to remand the case to state court, arguing that Powerex was not a foreign state and that the cross-claims against the U.S. agencies and BC Hydro were barred by sovereign immunity.Id.The district court concluded that (1) the federal agencies were immune from suit in state court; (2) BC Hydro enjoyed sovereign immunity under the FSIA; and (3) Powerex did not qualify as a foreign state under the FSIA.Id. at 2414-15.The district court then remanded the entire case to state court.Id. at 2415.The federal agencies and Powerex appealed.The former argued that the district court should have dismissed them outright because of sovereign immunity.Powerex argued that it was a foreign state under the FSIA and thus entitled to remove.The plaintiffs argued that § 1447(d) barred both appeals.The Ninth Circuit rejected the invocation of § 1447(d), concluding that the provision did not bar it from reaching issues of law decided by the district court prior to remand.Id.

After concluding that § 1447(d) applies to remands for lack of subject-matter jurisdiction even where the removal itself was proper, and that the remand of the district court was based on a lack of subject-matter jurisdiction, the Supreme Court noted that the Ninth Circuit relied upon the Waco exception in rejecting the application of § 1447(d).Id. at 2419.The Court held that Waco"does not permit an appeal when there is no order separate...