Korea Exchange v. Trackwise

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit

9-14-1995

Korea Exchange v Trackwise
Precedential or Non-Precedential:

Docket 94-5672

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 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

_______________

NO. 94-5672
_______________

KOREA EXCHANGE BANK, NEW YORK BRANCH

v.

TRACKWISE SALES CORP.; MOO SUNG KO; and
YOUNG S. KO,

Appellants

_______________

On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil No. 0312-2 : 94-cv-00437)

_______________

Argued July 21, 1995

Before: SLOVITER, Chief Judge, SCIRICA, and
McKEE, Circuit Judges

(Opinion filed September 14, 1995)
_______________

Michael S. Kimm (Argued)
Hackensack, New Jersey 07601

Attorney for Appellants

Benjamin P. De Sena (Argued)
Wayne, New Jersey 07470

Attorney for Appellee

1
 OPINION OF THE COURT

SLOVITER, Chief Judge.
In this case, we consider a challenge to a district

court's order remanding a diversity case as improperly removed by

a defendant who was a citizen of the forum state. Under the

facts of this case, our jurisdiction to consider this appeal is

inextricably intertwined with the district court's authority to

remand this action to state court, and thus we consider them

together.

I.

Facts and Procedural History
On September 28, 1993, plaintiff Korea Exchange Bank,

New York Branch, a citizen of New York State, filed a complaint

against defendants Trackwise Sales Corporation, Moo Sung Ko, and

Young S. Ko in the Superior Court of New Jersey, Bergen County,

Law Division. All three defendants are citizens of New Jersey.

In the complaint, Korea Exchange sought to recover on loans it

made to defendant Trackwise and to enforce personal guarantees

made by the two individual defendants. According to the

complaint, the amount in dispute exceeds $300,000.

The complaint was served on Trackwise on December 28,

1993. On January 27, 1994, Trackwise filed a Notice of Removal

in the United States District Court for the District of New

Jersey, alleging diversity jurisdiction pursuant to 28 U.S.C.

§1332. The other two defendants were served after the removal.

It appears that thereafter the case lay dormant in the district

2
court for seven and one-half months, although there is a docket

entry by a magistrate judge setting a scheduling conference for

September 30, 1994. On September 23, 1994, however, the district

court sua sponte issued an order summarily remanding the case to

state court. In that order, the court stated that "pursuant to

28 U.S.C. [§] 1441(b)" the case was "improperly removed because

the defendant is a citizen of the State in which the action was

originally brought," and "this deficiency clearly appears on the

face of the defendant's Notice of Removal." The court concluded

that "pursuant to 28 U.S.C. [§] 1441(c)(4), this court should

make an Order for Summary Remand . . . ." Defendants filed a

notice of appeal.

II.

Discussion

Korea Exchange contends that we lack jurisdiction over

defendants' appeal. It relies primarily on 28 U.S.C. § 1447(d),

which provides that "[a]n order remanding a case to the State

court from which it was removed is not reviewable on appeal or

otherwise . . . ." In adopting 28 U.S.C. § 1447(d), "Congress

sought to make the judgment of a district court remanding a case

final and conclusive in order to avoid the delay caused by

appellate review of remand decisions." Liberty Mut. Ins. Co. v.
Ward Trucking Corp., 48 F.3d 742, 745 (3d Cir. 1995).

The leading case on the preclusion of review effected

by section 1447(d) is Thermtron Products, Inc. v. Hermansdorfer,

423 U.S. 336, 346 (1976). A district judge had remanded a

properly removed diversity case because of an overcrowded docket,

3
rather than because the "case was removed improvidently and

without jurisdiction," the grounds for remand set forth in 28

U.S.C. § 1447(c) at that time. In Thermtron, the Court rejected

a challenge to the right of an appellate court to review the

remand order, because it construed section 1447(d) as applicable

only to those remand orders that rely upon the grounds contained

in 28 U.S.C. § 1447(c). Remands issued for reasons "not

recognized by the controlling statute," such as the reason given

by that district judge, were not insulated from review by section

1447(d). Thermtron, 423 U.S. at 351.

Section 1447(c) was amended by the Judicial

Improvements and Access to Justice Act of 1988 to impose a 30-day

limit on the time the plaintiff has to file a motion "to remand

the case on the basis of any defect in removal procedure." At

the same time Congress deleted the "remand improvidently"

language from section 1447(c). Thus, the relevant portion of

section 1447(c) now reads:
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).

In Air-Shields, Inc. v. Fullam, 891 F.2d 63 (3d Cir.
1989), the defendant had filed an untimely removal petition and

had failed to accompany it with the required surety bond. More

than 30 days after the notice of removal was filed, the district

4
court sua sponte remanded the case as having been "improvidently

removed," language no longer in the statute. Id. at 65. We

first considered whether we had jurisdiction to consider a

petition for mandamus challenging that remand, and held that,

under Thermtron, section 1447(d) did not preclude review under

these circumstances. We concluded that section 1447(d) does not

bar review where a district court issues an untimely order of

remand pursuant to section 1447(c) due to a "procedural defect"

in removal, because "[b]y remanding the case for procedural

defects after the thirty day limit imposed by the revised Section

1447(c) had expired, the district court 'exceeded [its]

statutorily defined power.'" Id. at 66 (quoting Thermtron, 423

U.S. at 351); accord Hamilton v. Aetna Life & Cas. Co., 5 F.3d

642, 644 (2d Cir. 1993), cert. denied, 114 S. Ct. 1100 (1994); In

re Shell Oil Co., 932 F.2d 1518, 1520-21 (3d Cir. 1991), cert.

denied, 502 U.S. 1049 (1992).

Thus, under this court's prior interpretation of

Thermtron, we are precluded by section 1447(d) from reviewing

remand orders based on "routine jurisdictional determinations,"

Liberty Mutual, 48 F.3d at 749; see also Carr v. American Red
Cross, 17 F.3d 671, 682 (3d Cir. 1994), but we may review

untimely remand orders that are based on "procedural defects."

Air Shields, 891 F.2d at 66.

There is no dispute that defendants' removal of this

case did not comply with 28 U.S.C. § 1441(b), which provides that

actions not involving federal questions "shall be removable only

if none of the parties in interest properly joined and served as

5
defendants is a citizen of the State in which such action is

brought." 28 U.S.C. § 1441(b). Because defendants are citizens

of New Jersey and the case was originally filed in New Jersey

state court, the action was not removable.

The question before us then is whether this was a

"jurisdictional" defect, which would bar our jurisdiction to

review, or whether it was a "procedural" defect, which Air-

Shields holds is reviewable. Korea Exchange argues that because

the district court's "jurisdiction" is based upon the removal

statute, the court lacks "jurisdiction" over any diversity case

that is removed by a defendant who is a citizen of the forum

state.

Neither of the parties cites controlling Supreme Court

precedent, but we are informed by a series of cases in which the

Supreme Court consistently refused to treat the removal statute

as imposing independent jurisdictional requirements. For

example, in Baggs v. Martin, 179 U.S. 206 (1900), a receiver for

a railroad appointed by a federal court was sued in state court

for injuries and death of a passenger. The receiver removed the

action, alleging a federal question because a federal court had

appointed him. After the receiver lost on the merits, he

appealed, contending, inter alia, that the federal court had not
acquired jurisdiction through the removal because his federal

appointment did not create a federal question. The Supreme Court

assumed that there was no federal question supporting the

original removal, but noted that the federal court would have had

subject matter jurisdiction over any action brought by the

6
injured party affecting the railroad and its property in the

hands of the receiver. Therefore, according to the Baggs Court,

the federal court "plainly had jurisdiction to entertain and

determine the controversy, whether that jurisdiction was invoked

by the parties seeking redress, or, as in this case, by the

receiver." Id. at 209. The distinction between subject matter

jurisdiction and the detail as to which party may or did bring

the case to federal court is an important one, because it arises

in the case before us as well.

A comparable issue involving a removed case was

presented in Mackay v. Uinta Dev. Co., 229 U.S. 173 (1913). A

Wyoming plaintiff filed an action in state court against a

citizen of Utah for less than the amount required for diversity

jurisdiction in federal court, but the defendant's related

counterclaim was for an amount that exceeded the jurisdictional

threshold. After the defendant removed the action to federal

court, the case was tried without objection. On appeal, the

court of appeals certified to the Supreme Court the question

whether the manner in which the jurisdiction of the federal court

had been invoked by removal undermined its jurisdiction.

The Supreme Court responded that where "there was the

requisite amount and the diversity of citizenship necessary to

give the United States circuit court [then the trial court]

jurisdiction of the cause . . . [t]he case . . . resolves itself

into an inquiry as to whether, if irregularly removed, it could

be lawfully tried and determined." Id. at 176. The Court

concluded that there was no jurisdictional defect, noting that

7
"[r]emoval proceedings are in the nature of process to bring the

parties before the United States court." Id. (emphasis added).

The Mackay Court therefore recognized a clear

distinction between the removal "process" and restrictions on the

subject matter jurisdiction of the federal court over the case.

The Court analogized the issue of which party brought the case to

federal court to the type of waivable defect such as "any

irregularity in docketing the case or in the order of pleadings,"

and distinguished that type of defect from one affecting the

subject matter jurisdiction of the court, which was not waivable.

The rule emerging from these cases was followed in

Grubbs v. General Elec. Credit Corp., 405 U.S. 699 (1972), yet

another case in which the Supreme Court was presented with the

effect of a removal unauthorized by the governing statute.

General Electric Credit Corporation (GECC) sued Grubbs in a Texas

state court. There was both diversity and the requisite amount

in controversy. Grubbs filed a "cross-action" which named the

United States as a defendant. The United States filed a petition

for removal, and all of the parties treated the effect of the

removal petition as placing the entire action in the federal

district court. The case proceeded to trial and the district

court ruled against GECC on its promissory note claim, awarded

Grubbs $20,000 on one of his tort theories, and dismissed all

claims by Grubbs against the United States. On GECC's appeal,

the court of appeals, on its own motion, determined that the

United States' removal of the action had not been authorized

under 28 U.S.C. § 1444, and it ordered that the case be remanded

8
to state court because the district court had lacked subject

matter jurisdiction over the case.

The Supreme Court reversed. Relying upon Baggs and

Mackay, the Court reasoned that where a case has been tried on

the merits without objection and judgment has been entered, the

relevant issue "is not whether the case was properly removed, but

whether the federal district court would have had original

jurisdiction of the case had it been filed in that court."

Grubbs, 405 U.S. at 702. Noting that the original action

involved a dispute between diverse parties regarding an amount

over the jurisdictional limit, the Court concluded that the

district court would have had jurisdiction under 28 U.S.C. § 1332

if the action had originally been brought in federal court. Id.

at 704.

Unlike this case, all three cases considered by the

Supreme Court had already been tried before the removal to

federal court was questioned. Nonetheless, the Supreme Court

clearly suggested, even if it did not directly hold, that it does

not view the removal statute as imposing independent

jurisdictional restrictions on the federal courts. Rather, in

considering whether jurisdictional defects existed, the relevant

inquiry is whether the case could have been filed originally in

federal court. See, e.g., id. at 704.
A similar approach was endorsed in Thermtron, where the

Court suggested that courts determining whether a removal defect

is jurisdictional for purposes of precluding review under 28

U.S.C. § 1447(d) should look to "whether the District Court would

9
have had jurisdiction of the case had it been filed initially in

that court . . . ." Thermtron, 423 U.S. at 344 & n.8; see also

Allbritton Communications Co. v. N.L.R.B., 766 F.2d 812, 820 (3d

Cir. 1985) (citing Grubbs and reiterating that in determining

whether a defect is waivable, courts should consider whether the

federal court would have had original jurisdiction over the case

if it had initially been filed in federal court), cert. denied,

474 U.S. 1081 (1986).

We conclude therefore that an irregularity in removal

of a case to federal court is to be considered "jurisdictional"

only if the case could not initially have been filed in federal

court. In this case, there is diversity of citizenship between

the parties and the amount in controversy is in excess of

$50,000. Thus, there is no dispute that this case could have

been filed originally in federal court on the basis of diversity

jurisdiction pursuant to 28 U.S.C. § 1332. The invocation of the

removal machinery by a citizen of the forum state, while error,

is not a "jurisdictional" defect under relevant Supreme Court

precedent. Rather, it is a "defect in removal procedure" which

can be waived.

Our conclusion that section 1441(b)'s bar against

removal by a forum-state citizen is not jurisdictional is

consistent with the conclusions reached by almost every other

court of appeals that has addressed the issue. See, e.g., In re

Shell Oil Co., 932 F.2d 1518, 1522 (5th Cir. 1991), cert. denied,

502 U.S. 1049 (1992); Hartford Accident & Indem. Co. v. Costa
Lines Cargo Serv. Inc., 903 F.2d 352, 358-60 (5th Cir. 1990);

10
Farm Constr. Serv., Inc. v. Fudge, 831 F.2d 18, 21-22 (1st Cir.

1987); Woodward v. D.H. Overmyer Co., 428 F.2d 880, 882 (2d Cir.

1970), cert. denied, 400 U.S. 993 (1971); Handley-Mack Co. v.

Godchaux Sugar Co., 2 F.2d 435, 436-37 (6th Cir. 1924); see also

Bregman v. Alderman, 955 F.2d 660, 663 (11th Cir. 1992); contra

Hurt v. Dow Chemical Co., 963 F.2d 1142, 1145-46 (8th Cir. 1992).

This same position is endorsed by several leading commentators.

See 1A James W. Moore, et al., Moore's Federal Practice

¶0.157[11.-4], at 173 (2d ed. 1990) (noting that "an irregularity

in removal is waivable" and citing as an example "where there is

diversity but the defendant is a citizen of the state in which

the action is brought"); William W Schwarzer, et al., Federal

Civil Procedure Before Trial, ¶ 2:629 (1994) (noting that the

"no-local-defendant" limitation of 28 U.S.C. § 1441(b) is not

jurisdictional and may be waived).

Because removal by a forum defendant in noncompliance

with section 1441(b) does not deprive a federal court of subject

matter jurisdiction, it is clear under section 1447(c) that this

irregularity must be the subject of a motion to remand within 30

days after filing the notice of removal. See, e.g., Shell Oil,
932 F.2d at 1522-23. We have held that the 30-day time limit of

section 1447(c) applies not only to motions brought by a party,

but also to sua sponte orders of remand. See Air-Shields, 891

F.2d at 65. It follows ineluctably that the district court in

this case had no statutory authority to issue the remand order

after the 30-day period because the defect was in the removal

procedure rather than a lack of subject matter jurisdiction,

11
which could be raised at any time. For the same reason, our

review of the remand order is not barred by section 1447(d). Id.

at 66.

Korea Exchange emphasizes, but we find irrelevant, that

in ordering the remand the district court erroneously cited to 28

U.S.C. § 1441(c)(4), a non-existent subsection, in support of its

order of remand. It appears that the district court intended to

rely upon 28 U.S.C. § 1446(c)(4), which provides:
The United States district court in
which such notice is filed shall examine the
notice promptly. If it clearly appears on
the face of the notice and any exhibits
annexed thereto that removal should not be
permitted, the court shall make an order for
summary remand.

Korea Exchange contends that because the defect in the removal by

the forum-state citizen defendants "clearly appeared on the face

of the notice," section 1446(c)(4) provided authority for the

remand. We believe defendants are probably correct that section

1446(c)(4) applies only to removals of criminal prosecutions, but

even if it applies to civil cases, that section must be read in

conjunction with the 30-day time limit imposed by section

1447(c).

Thus we conclude that our review is not barred, if it

was properly invoked. Defendants in this case filed a notice of

appeal. In Thermtron, the Court suggested that where review is
not precluded, issuance of a writ of mandamus is the "appropriate

remedy to require the District Court to entertain the remanded

action," because "an order remanding a removed action does not

12
represent a final judgment reviewable by appeal."1 Id. at 352-53

(quotations omitted). There is ample support for the proposition

that this court may treat a notice of appeal as a mandamus

petition. See United States v. Bertoli, 994 F.2d 1002, 1014 (3d

Cir. 1993); Allegheny Int'l, Inc. v. Allegheny Ludlum Steel

Corp., 920 F.2d 1127, 1133 (3d Cir. 1990); In re Pruitt, 910 F.2d

1160, 1167 (3d Cir. 1990).

Use of mandamus is appropriate "to confine an inferior

court to a lawful exercise of its prescribed jurisdiction or to

compel it to exercise its authority when it [has the] duty to do

so." Roche v. Evaporated Milk Ass'n, 319 U.S. 21, 26 (1943).

Because the court improperly remanded a case over which it had

subject matter jurisdiction, mandamus is the appropriate

mechanism to compel the district court to exercise its

jurisdictional authority.

III.

Conclusion

To reiterate, if the removal by a citizen of the forum

state meant that the district court lacked subject matter

jurisdiction, the district court would not have been subject to

the 30-day limit on remanding the case to the state court, and
1
Our decision in Foster v. Chesapeake Ins. Co., 933 F.2d
1207 (3d Cir.), cert. denied, 502 U.S. 908 (1991), where we
reviewed under 28 U.S.C. § 1291 as a collateral order a district
court order remanding that case to state court, is not to the
contrary when examined closely. Foster is inapplicable because
it falls within the line of cases where, unlike here, the removal
was alleged to be in violation of a forum selection clause of a
contract. Accord Pelleport Investors, Inc. v. Budco Quality
Theatres, Inc., 741 F.2d 273, 277 (9th Cir. 1984); Regis Assoc.
v. Rank Hotels Mgmt. Ltd., 894 F.2d 193, 194 (6th Cir. 1990).

13
this court would have been barred from reviewing its action.

Because the irregularity as to the party that removed the case

that fell within the district court's diversity jurisdiction was

a procedural defect, the district court was limited by the

statutory 30-day time period on remand, and our review is not

barred.

For the foregoing reasons, we will exercise our

discretion to treat defendants' appeal as a petition for a writ

of mandamus and will issue a writ requiring the district court to

vacate its order of remand.

14