Pub. Sch. Ret. System of Mo. v. State St. Bank & Trust Co.

• Decision Date: 28 June 2011
• Docket Number: 10–2674.,Nos. 10–1244,s. 10–1244
• Court: U.S. Court of Appeals — Eighth Circuit
• Parties: PUBLIC SCHOOL RETIREMENT SYSTEM OF MISSOURI; Public Education Employee Retirement System of Missouri, Plaintiffs–Appellees,v.STATE STREET BANK & TRUST COMPANY, Defendant–Appellant.

640 F.3d 821

267 Ed. Law Rep. 518

51 Employee Benefits Cas. 1001

PUBLIC SCHOOL RETIREMENT SYSTEM OF MISSOURI; Public Education Employee Retirement System of Missouri, Plaintiffs–Appellees,

v.STATE STREET BANK & TRUST COMPANY, Defendant–Appellant.

Nos. 10–1244

10–2674.

United States Court of Appeals, Eighth Circuit.

Submitted: Jan. 11, 2011.Filed: May 23, 2011.Rehearing and Rehearing En Banc Denied June 28, 2011.*

Lori A. Martin, argued, New York, NY, Charles A. Weiss, Herbert R. Giorgio, Jr., St. Louis, MO, Peter K. Vigeland, New York, NY, Paul R.Q. Wolfson, Washington, D.C., on the brief, for Appellant.Lawrence C. Friedman, argued, Allen D. Allred, on the brief, St. Louis, MO, for Appellee.Before MURPHY, BYE, and MELLOY, Circuit Judges.MELLOY, Circuit Judge.

State Street Bank & Trust Company (“State Street”) agreed to manage and invest some of the assets of the Public School Retirement System of Missouri (“PSRS”) and of the Public Education Employee Retirement System of Missouri (“PEERS”). (We collectively refer to PSRS and PEERS as the “Retirement Systems” or “Systems.”) The Retirement Systems allege that State Street violated a number of its statutory and common-law duties while managing the Systems' assets. The Retirement Systems sought relief by filing an action in Missouri state court against State Street. State Street twice removed this case to the U.S. District Court for the Western District of Missouri, and the district court ¹ twice remanded this case to state court. State Street appeals both orders. We have consolidated the appeals, and we now affirm.

I. Background

The State of Missouri created PSRS and PEERS in 1946 and 1965, respectively, “[f]or the purpose of providing retirement allowances and other benefits” to public-school employees who work in districts with populations of less than 400,000 people.² Mo.Rev.Stat. §§ 169.020(1), .610(1). The Retirement Systems are funded by contributions from public-school employees and their employers, which are generally local school districts. §§ 169.030(1), .620(1). A seven-member board of trustees (“Board”) operates the Retirement Systems and is responsible for investing the Systems' assets. §§ 169.020(2), .040(2), .610(2), .630(2). Pursuant to this statutory obligation, the Board entered into multiple agreements with State Street in 1995 to provide for the management and investment of the Retirement Systems' assets.

In 2008, over $7 billion of the Retirement Systems' assets were invested in one of State Street's investment vehicles called the Quality D Fund. Between October 31, 2008, and May 29, 2009, the Board withdrew much of the Retirement Systems' assets from the fund. State Street claimed this withdrawal was wrongful, so in September of 2009 it ordered the Board to transfer much of the withdrawn funds back into the Quality D Fund. The Board refused to make the transfer, however, claiming that doing so would have resulted in a $125 million loss to the Retirement Systems. In response, State Street devalued the Retirement Systems' remaining interest in the Quality D Fund. According to the Board, this devaluation resulted in a loss of nearly $100 million to the Retirement Systems.

The Retirement Systems brought an action in Missouri state court on October 16, 2009, alleging that State Street violated its fiduciary and contractual obligations to the Systems. That same day, State Street filed a notice of removal with the U.S. District Court for the Western District of Missouri, arguing that the diversity-of-citizenship-jurisdiction statute, 28 U.S.C. § 1332(a)(1), gave the district court original jurisdiction over the action. On October 28, 2009, the Retirement Systems filed a motion to remand on the grounds that (1) a forum-selection clause in one of their agreements with State Street gave them the right to litigate the case in state court and (2) the district court did not have original jurisdiction over the action because neither PSRS nor PEERS is a “citizen” of Missouri for purposes of § 1332(a)(1). The district court granted the Retirement Systems' motion to remand on January 21, 2010. The district court “assume[d], without deciding,” that it had original jurisdiction over the case pursuant to § 1332(a)(1), but it found that State Street's agreements with the Retirement Systems gave the Systems the right to litigate the case in state court.

Following the district court's remand, the Retirement Systems amended their petition on April 1, 2010. In addition to their previous allegations, the Systems alleged, among other things, that State Street violated its duties of good faith and fair dealing, violated Missouri's Merchandising Practices Act, and committed negligence. On the same day that the Retirement Systems amended their petition, State Street filed a second notice of removal with the U.S. District Court for the Western District of Missouri, again arguing that the district court had original jurisdiction over the action pursuant to § 1332(a)(1). On April 13, 2010, the Retirement Systems filed a second motion to remand, arguing that remand was proper for the same reasons they argued the first remand was proper. On July 1, 2010, the district court granted the Systems' second motion to remand, again finding that State Street's agreements with the Retirement Systems gave the Systems the right to litigate the case in state court.

State Street appeals both of the district court's remand orders. State Street argues that the district court erroneously remanded the case because the forum-selection clause upon which the district court twice remanded the case does not give the Retirement Systems the right to litigate this case in state court. In response, the Retirement Systems argue that 28 U.S.C. § 1447(d) precludes our review of the district court's remand orders. Alternatively, the Systems argue that if we do have jurisdiction to review the orders, we should affirm, either because the district court properly found that a contractual forum-selection clause gives the Retirement Systems the right to litigate this case in state court, or because the district court lacked original jurisdiction over this case.

II. Discussion

A.

The Retirement Systems first argue that 28 U.S.C. § 1447(d) prohibits our review of the district court's remand orders. Section 1447(d) generally provides that “[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise.” Despite this broadly worded prohibition, the Supreme Court has held that § 1447(d) only bars appellate review of a district court's remand order that is “based on a ground specified in [28 U.S.C.] § 1447(c).” Carlsbad Tech., Inc., v. HIF Bio, Inc., ––– U.S. ––––, 129 S.Ct. 1862, 1866, 173 L.Ed.2d 843 (2009) (citing Thermtron Prods., Inc. v. Hermansdorfer, 423 U.S. 336, 345–46, 96 S.Ct. 584, 46 L.Ed.2d 542 (1976)). This means that “remand orders based on a procedural defect or lack of subject matter jurisdiction are unreviewable.” Carlson v. Arrowhead Concrete Works, Inc., 445 F.3d 1046, 1050 (8th Cir.2006).

The Retirement Systems argue that § 1447(d) bars our review because the district court “assume[d], without deciding,” that it had subject-matter jurisdiction. The Systems do not dispute, however, that the actual grounds for the district court's remand order was the presence of a forum-selection clause in an agreement between the Retirement Systems and State Street. Nearly every circuit has held that § 1447(d) does not prohibit appellate review of a district court's remand order based upon a forum-selection clause. See FindWhere Holdings, Inc. v. Sys. Env't Optimization, LLC, 626 F.3d 752, 755 (4th Cir.2010) (citing cases from every circuit except the Eighth Circuit and D.C. Circuit and noting that “[e]very circuit to have considered the issue has held that a remand order based on a forum selection clause is reviewable on appeal”). We agree with our sister circuits. A remand order based upon a contractual forum-selection clause is not a remand based upon a procedural defect or lack of subject-matter jurisdiction. Therefore, since the district court's remand order was not based upon a ground “specified in § 1447(c),” Carlsbad Tech., Inc., 129 S.Ct. at 1866, § 1447(d) does not prohibit our review of the district court's orders, even though the district court assumed without deciding that it had subject-matter jurisdiction over the case.

B.

Next, we turn to State Street's argument that the district court erred in remanding this case to state court. After the district court “assume[d], without deciding,” that it had original jurisdiction over this case, the district court remanded the case based upon a forum-selection clause in an agreement between the Retirement Systems and State Street. We have stated, however, that “a court may not assume ‘hypothetical jurisdiction’ to decide ‘contested questions of law when its jurisdiction is in doubt.’ ” Ark. Blue Cross & Blue Shield v. Little Rock Cardiology Clinic, P.A., 551 F.3d 812, 816 (8th Cir.2009) (quoting Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 101, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998)). Instead, we have noted that “jurisdiction is a threshold question and must be answered before all other questions.” Ginters v. Frazier, 614 F.3d 822, 826 (8th Cir.2010). Therefore, rather than considering whether the district court correctly remanded this case based upon a forum-selection clause in an agreement between the Retirement Systems and State Street, we first address whether State Street, as the removing party, has established by a preponderance of the evidence that the district court had original jurisdiction over this case. Altimore v. Mount Mercy Coll., 420 F.3d 763, 768 (8th Cir.2005).

In removing this case pursuant to 28 U.S.C. § 1441(a), State Street alleged that the district court had original jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)(1). Section 1332(a)(1)...