State v. Real Parties in Interst

• Decision Date: 23 July 2001
• Docket Number: No. 00-40999,00-40999
• Citation: 259 F.3d 387,2001 WL 826688
• Parties: (5th Cir. 2001) STATE OF TEXAS,Petitioner-Appellant, v REAL PARTIES In Interest, Including Walter Umphrey, John O'Quinn, John Eddie Williams, Wayne Reaud and Harold Nix, Respondents-Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

Page 387

259 F.3d 387 (5th Cir. 2001)

STATE OF TEXAS,Petitioner-Appellant, v REAL PARTIES In Interest, Including Walter Umphrey, John O'Quinn, John Eddie Williams, Wayne Reaud and Harold Nix, Respondents-Appellees.

No. 00-40999

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

July 23, 2001

William Andrew Taylor, First Asst. Atty. Gen., Jeffrey Scott Boyd, Brent Alan Benoit, Special Asst., Atty. Gen., John Cornyn, Atty. Gen., Gregory Scott Coleman (argured), Julie Caruthers Parsley, Asst. Solicitor Gen., Austin, TX, for Petitioner-Appellant.

Michael E. Tigar (argued), The Tigar Law Firm, Washington, DC, David Grant Kaiser, Kaiser & Morrison, Houston, TX, for Respondents-Appellees.

Appeal from the United States District Court for the Eastern District of Texas, Texarkana

Before GARWOOD, JOLLY, and DeMOSS, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

The district court entered a final judgment, incorporating a settlement agreement that supposedly ended the litigation between the State of Texas and the tobacco industry. It should have been expected that, when attorney's fees are in the billions, a string of disputes would follow. This appeal arises from the post-settlement controversy questioning the legitimacy of the contingency fees awarded to counsel representing the state ("Private Counsel"). Texas instituted this pre-litigation discovery proceeding in state court for the purpose of investigating possible fraud and breach of fiduciary duty claims against Private Counsel. Private Counsel removed the action to federal court, claiming federal jurisdiction on the basis of the settlement agreement and further arguing that the All Writs Act, 28 U.S.C. § 1651, was applicable to protect the integrity of the court's judgment from a collateral assault. Texas moved to remand, asserting, inter alia, the absence of federal jurisdiction based on the Eleventh Amendment. The district court, concluding that Texas had submitted itself to the jurisdiction of the federal court, denied the motion and Texas has appealed. We find no basis in this case for removal jurisdiction under the All Writs Act. We further conclude that the Texas Rule 202 discovery proceeding presents a premature basis for asserting the district court's jurisdiction to protect the settlement agreement. We therefore reverse with instructions to remand this action to the state court from whence it came.

I

Taking a cue from sister states that targeted the tobacco industry, the State of Texas hired Private Counsel to file suit in federal court against several tobacco companies to recover medical costs and other expenditures associated with tobacco use. See Texas v. American Tobacco Co., No. 5:96-CV-91 (E.D.Tex. 1996). Suit was filed in March 1996. After 18 months of pre-trial activities, the State and the tobacco companies entered into a Comprehensive Settlement and Release Agreement in January 1998. Under the settlement, Texas agreed to dismiss its claims and the tobacco companies agreed to pay $15.3 billion in damages. The district court entered a final judgment incorporating prior orders. The paragraphs relevant to this appeal state that the district court would retain exclusive jurisdiction over the provisions of the settlement and final judgment.¹ The final judgment specifically stated that all persons "who seek to raise any objections or challenges in any forum to any provision of this judgment are hereby enjoined from proceeding in any other state or federal court." The settlement agreement also stated that "[t]he settlement negotiations resulting in this Settlement Agreement have been undertaken by the parties hereto in good faith." Finally, the settlement provided for the payment of attorney's fees by the defendants to Private Counsel upon presentation of Private Counsel's estimate of reasonable costs and expenses.² Ruling on Private Counsel's motion for approval of their attorney's fees, the district court determined that the 15 percent contingency fee--provided for by contract between the Attorney General and Private Counsel at the outset of the litigation and totaling $2.3 billion--was reasonable.

Thereafter, on January 30, 1998, several Texas legislators filed a mandamus action in Texas state court, which was removed by Private Counsel and then-Attorney General Dan Morales to federal court. This mandamus action challenged Morales's authority to bind the State to a contingency fee arrangement. Once removed to federal court, the legislators asserted that the fee agreement dispute could not be heard by the federal court because of Texas's Eleventh Amendment immunity.³ See In re Senator Troy Fraser, No. 5:98-CV-45 (E.D. Tex 1998).

In June 1998, the parties to the fee arrangement dispute reached a Severance and Standstill Agreement. The agreement gave Private Counsel the choice of either attempting to enforce the original contingency fee arrangement or accepting a fee to be determined by an arbitration panel. The agreement, adopted by the court, severed the fee dispute from the tobacco litigation. See In re Private Counsel Fee Agreement, No. 5:98-CV-270 (E.D. Tex. 1998).

In December 1998, the arbitration panel upped the ante when it awarded Private Counsel nearly $3.3 billion in fees. In the meantime, the Texas political stage was being rearranged. The following month, before Private Counsel had accepted the panel's award, the new Texas Attorney General, John Cornyn, moved to dismiss In re Private Counsel and moved to remand In re Fraser based on the State's Eleventh Amendment immunity.⁴ On November 5, 1999, the district court ruled on several outstanding motions and issued a memorandum opinion. See In re Fraser, 75 F.Supp.2d 572 (E.D. Tex. Nov. 5, 1999). The court denied the State's motion to dismiss and the legislators' motion to remand, finding that Texas waived its Eleventh Amendment immunity from claims regarding the attorney's fees agreement by filing the initial tobacco litigation in federal court. See also In re Private Counsel, 1999 WL 1022131 (E.D. Tex. Nov. 5, 1999).

Two weeks later, Private Counsel deftly elected to accept the arbitration award and, under the agreement, waived their right to sue under the initial fee arrangement. Texas soon appealed the district court's November 5 jurisdictional rulings to the Fifth Circuit, and this court granted Private Counsel's motion to dismiss for mootness and vacated the district court's underlying jurisdictional decisions. Fraser v. Real Parties, Nos. 00-40024, 00-40036, 00-40038 (5th Cir. July 10, 2000).

On April 27, 2000, the State filed the instant Rule 202 proceeding⁵ in state court seeking to depose Private Counsel to "investigate potential claims it believes it may possess for conversion and breach of fiduciary duty."⁶ Private Counsel immediately removed the action to federal court and filed a motion for summary judgment.⁷ Texas filed an emergency motion to remand, arguing that the Eleventh Amendment barred adjudication of the Rule 202 proceeding in federal court. On August 15, 2000, the district court, in a very thorough and well-considered opinion, denied the motion to remand and, treating the case as removed from state court, found specifically that (a) the Rule 202 proceeding was a "civil action" for removal purposes under 28 U.S.C. § 1441; (b) the issues in the petition, however, were not supplemental or ancillary to the tobacco litigation;⁸ (c) but nevertheless the court could exercise jurisdiction over the Rule 202 petition under the All Writs Act, 28 U.S.C. § 1651, to protect its judgment; because, inter alia, (d) the Eleventh Amendment was no bar to the proceeding because the State had waived its immunity as to the tobacco litigation and "all of its outgrowths." The district court therefore denied Texas's motion to remand. This appeal of the order denying the remand followed.

II

Ordinarily, we have appellate jurisdiction only over final judgments, which the district court's order denying remand is not. We therefore must first address this court's authority to hear this appeal of a non-final ruling. Private Counsel argues that we lack jurisdiction over this appeal because a district court's remand order is not appealable. B., Inc. v. Miller Brewing Co., 663 F.2d 545, 548 (5th Cir. 1981) ("Ordinarily, a district court's refusal to remand an action is not in and of itself a final order and cannot be reviewed unless and until a final judgment has been entered."). However, the Supreme Court held in Puerto Rico Aqueduct & Sewer Authority v. Metcalf & Eddy, Inc., 506 U.S. 139, 143-45 (1993), that States "may take advantage of the collateral order doctrine to appeal a district court order denying a claim of Eleventh Amendment immunity." Given that the denial of Texas's Eleventh Amendment immunity is a non-frivolous issue in this case, Puerto Rico Aqueduct fully supports this court's jurisdiction over the present appeal.

With appellate jurisdiction established, we now turn to address the primary jurisdictional inquiry in this appeal: whether the district court erred by exercising removal jurisdiction over this state court action under the All Writs Act.

III

The All Writs Act, 28 U.S.C. § 1651 (a), provides:

The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.

After acknowledging that it could not assert supplemental or ancillary jurisdiction over the Rule 202 proceeding, the district court found that the All Writs Act authorized it to assert jurisdiction over the Rule 202 state proceeding, despite no independent basis for federal jurisdiction over that proceeding. The court reasoned that, particularly because it had retained jurisdiction over the settlement agreement, it could assert its jurisdiction under the All Writs Act in order to protect and effectuate its final judgment, which incorporated the settlement...