Certain Underwriters at Lloyd's v. Warrantech Corp.

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
August 17, 2006
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 04-11168

Certain Underwriters at Lloyd’s, London
and Other Insurers Subscribing to
Reinsurance Agreements F96/2922/00 and No. F97/2992/00
Plaintiff-Appellee,

versus

Warrantech Corp.; Warrantech Consumer Products Services, Inc.;
Warrantech Help Desk, Inc.; Joel San Antonio
Defendant-Appellant.

Appeal from the United States District Court
For the Northern District of Texas

Before REAVLEY, HIGGINBOTHAM, and GARZA, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

This case brings questions of our jurisdiction to review an

order remanding the case to state court after its removal as a case

that “relates to” an earlier arbitration proceeding. Certain

Underwriters at Lloyd’s, London and Other Insurers Subscribing to

Reinsurance Agreements F96/2922/00 and No. F97/2992/00 seek

dismissal for lack of jurisdiction of the appeal filed by

Warrantech Corporation and Joel San Antonio (collectively,

“Appellants”). Appellants appeal (1) the district court’s order

remanding all “unresolved” issues back to state court; (2) the

district court’s order granting Underwriters partial summary

judgment on Appellants’ res judicata and collateral estoppel
affirmative defenses; and (3) the district court’s order dismissing

with prejudice Warrantech’s counterclaims.1

I

This case arises out of the administration of consumer

warranties and extended service plans on computers, printers, and

related items sold by CompUSA, a national electronics retailer.

CompUSA contracted with Warrantech to administer the warranties on

CompUSA’s consumer goods. The contract required Warrantech to

obtain insurance to cover the cost of paying warranty claims, which

Warrantech did with Houston General Insurance Company, a nonparty

to this litigation. Houston General, in turn, reinsured a portion

of the risk with Underwriters.

After approximately one year, Underwriters contended that

Warrantech was paying unauthorized claims and refused to reinsure

Houston General for any unauthorized amounts. Houston General

instituted arbitration proceedings to determine Underwriters’

obligations, which took place under the Convention on the

Recognition and Enforcement of Foreign Arbitral Awards

(hereinafter, “the New York Convention”).2 After five weeks of

hearings, the arbitration panel ordered Underwriters to pay Houston

1
Both Warrantech and San Antonio assert affirmative defenses based on the
arbitration award. Only Warrantech asserts various state-law counterclaims
against Underwriters. As such, when discussing the affirmative defenses, we
refer to “Appellants” and when discussing the counterclaims, we refer only to
“Warrantech.”
2
See 9 U.S.C. §§ 201-208 (2000).

2
General $39 million, and the order was confirmed by the United

States District Court for the Southern District of New York.3

On September 19, 2002, one month after the arbitral panel’s

decision, Underwriters filed the instant lawsuit against Warrantech

in Texas state court, seeking to recoup as damages the reinsurance

payments that Underwriters was ordered to pay Houston General.4

Warrantech filed counterclaims, asserting causes of action for

fraud, unfair and deceptive insurance practices in violation of

Article 21.21 of the Texas Insurance Code,5 and violation of the

duty of good faith and fair dealing.6 After Underwriters added San

Antonio to the litigation, the case was removed under 9 U.S.C. §

205,7 with Appellants asserting res judicata and collateral

3
Houston General Ins. Co. v. Certain Underwriters at Lloyd’s London, No.
02 Civ. 7559 JSR, 2003 WL 22480058 (S.D.N.Y. Oct. 31, 2003).
4
Underwriters asserts causes of action against Warrantech for fraud and
negligent misrepresentation, alleging that they are subrogated to all rights
Houston General may have to seek damages from defendants concerning claims
wrongfully submitted and paid under the insurance policies. Underwriters also
seeks to recover for spoilation, alleging that Warrantech destroyed certain
evidence during the course of the arbitration proceeding.
5
Article 21.21 of the Texas Insurance Code was repealed by Acts 2003, 78th
Leg., ch. 1274, § 26(a) (effective Apr. 1, 2005). It was replaced by Tex. Ins.
Code Ann. tit. 5, § 541.001 et seq. The recodification does not affect the
issues in this appeal.
6
Warrantech’s counterclaims arise from Underwriters’ alleged discovery
conduct during the arbitration proceedings and the failure of Underwriters to
voluntarily make payment of warranty claims.
7
Section 205 provides:

Where the subject matter of an action or proceeding pending in a
State court relates to an arbitration agreement or award falling
under the Convention, the defendant or the defendants may, at any
time before the trial thereof, remove such action or proceeding to
the district court of the United States for the district and
division embracing the place where the action or proceeding is

3
estoppel affirmative defenses based on the arbitration award to

Houston General.

Underwriters moved to remand the matter to state court. In

consideration of its jurisdiction, the district court, relying upon

Beiser v. Weyler,8 stated that its only task was to determine

whether Appellants’ arbitration-related affirmative defenses were

“facially frivolous.”9 Concluding that they were not, the district

court denied Underwriters’ motion to remand. In its order, the

court supplied a caveat: “If the court later makes a summary ruling

that the arbitration award does not provide a defense to any of

[Underwriters’] claims, the court will then consider whether the

action should be remanded to the state court.”10

Subsequently, Underwriters moved for partial summary judgment

on Appellants’ res judicata and collateral estoppel affirmative

defenses and on Warrantech’s state-law counterclaims. On August

24, 2004, the district court granted summary judgment for

Underwriters, concluding that the affirmative defenses were without

merit and dismissing Warrantech’s counterclaims with prejudice.

pending. The procedure for removal of causes otherwise provided by
law shall apply, except that the ground for removal provided in this
section need not appear on the face of the complaint but may be
shown in the petition for removal.

9 U.S.C. § 205.
8
284 F.3d 665 (5th Cir. 2002).
9
Order Denying Remand (May 13, 2004), at 4.
10
Order Denying Remand (May 13, 2004), at 4.

4
After determining that “there [was] no just reason for delay,” the

district court entered final judgment dismissing Warrantech’s

counterclaims.11 That decision forms the basis of part of this

appeal.

After its August 24 order, the district court requested

additional briefing on whether Underwriters’ remaining state-law

claims should be remanded to state court given that the issues

related to the arbitration award were no longer part of the

lawsuit. After briefing, the district court granted Underwriters’

motion to remand, concluding that Appellants were not asserting any

“non-frivolous” defense based on the arbitration award.12 Finding

no “policy” reasons in support of exercising jurisdiction over this

case and concluding that there were “no other grounds for federal

jurisdiction,” the district court remanded all “unresolved claims

and causes of action” to state court.13

II

We must first decide what we can decide. Prior to remanding

all “unresolved” matters to the Texas state court, the district

court granted Underwriters’ motion for partial summary judgment on

Appellants’ res judicata and collateral estoppel affirmative

defenses and Warrantech’s state-law counterclaims. Appellants seek

11
Summary Judgment Order (Aug. 24, 2004), at 13.
12
Remand Order (Sept. 23, 2004), at 3.
13
Remand Order (Sept. 23, 2004), at 3-6.

5
merits review of each of the district court’s orders. Underwriters

seeks dismissal for lack of appellate jurisdiction.

A

1

Our analysis of the district court’s remand order begins with

28 U.S.C. § 1447(d): “An order remanding a case to the State court

from which it was removed is not reviewable on appeal or

otherwise.”14 The Supreme Court instructs that § 1447(d) must be

read in pari materia with § 1447(c),15 which provides two bases for

remanding cases to state court: (1) a defect in the removal

procedure (which must be made within 30 days of the date of

removal) and (2) the lack of subject matter jurisdiction.16

It is plain that with any remand based on the enumerated

grounds of § 1447(c), the clear language of § 1447(d) is an

absolute bar to appellate review.17 Since there is no contention,

here, of a defect in the removal procedure, we only lack appellate

jurisdiction to review the district court’s remand order if it is

based on a lack of subject matter jurisdiction.

14
28 U.S.C. § 1447(d) (2000).
15
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 711 (1996); Things
Remembered, Inc. v. Petrarca, 516 U.S. 124, 127-28 (1995); Thermtron Prods., Inc.
v. Hermansdorfer, 423 U.S. 336, 345-46 (1976).
16
28 U.S.C. § 1447(c) (2000).
17
Gravitt v. Southwestern Bell Tel. Co., 430 U.S. 723, 723 (1977) (per
curiam) (noting that § 1447(d) gives an “unmistakable command” so as to preclude
review of remands for grounds stated in § 1447(c) “by appeal, mandamus, or
otherwise”); see also Thermtron Prods., 423 U.S. at 343.

6
 Our analysis is complicated by the Supreme Court’s

recognition, in a narrow category of cases,18 that a district court

can remand a case to state court on the basis of a non-§ 1447(c)

ground.19 In Carnegie-Mellon University v. Cohill, the Supreme

Court held that where all federal claims have been eliminated a

federal district court “has discretion to remand to state court a

removed case involving pendent claims upon a proper determination

that retaining jurisdiction over the case would be inappropriate.”20

To the Court, under limited circumstances “a remand may best

promote the values of economy, convenience, fairness, and comity.”21

Thus, it is also plain that with any remand based on the policy

considerations offered in Carnegie-Mellon, § 1447(d) is no longer

a bar to appellate review.22 Should we find jurisdiction to review

the district court’s remand order, our review is for an abuse of

discretion.23

So framed, we must determine whether the district court’s

order remanding all “unresolved” matters to state court was based

18
See Angelides v. Baylor Coll. of Medicine, 117 F.3d 833, 836 (5th Cir.
1997) (noting that the Thermtron Court carved out only a “narrow exception to the
strict bar to appellate review of remand orders”).

19
Thermtron Prods., 423 U.S. at 343 (finding jurisdiction review remand
order expressly based on the district court’s crowded docket).
20
484 U.S. 343, 357 (1988).

21
Id. at 353.

22
See Bogle v. Phillips Petroleum Co., 24 F.3d 758, 761 (5th Cir. 1994);
Burks v. Amerada Hess Corp., 8 F.3d 301, 304 (5th Cir. 1993).
23
Giles v. NYLCare Health Plans, Inc., 172 F.3d 332, 339 (5th Cir. 1999).

7
on jurisdictional grounds, i.e., § 1447(c), which bars appellate

review, or nonstatutory grounds, i.e., Carnegie-Mellon, which

allows for discretionary review. Our inquiry is guided by a clear

statement requirement: for a remand order to be reviewable on

appeal, the district court must “clearly and affirmatively” state

a non-§ 1447(c) ground for remand.24 Our clear-statement

requirement allows a quick inquiry into jurisdiction, preventing

delay through protracted litigation of jurisdictional issues,25 and

it avoids having this Court decipher the tea-leaves of a district

court’s remand order to determine whether it was “jurisdictional”

or not. When the matter is remanded to state court (often

following removal from state court initially), the district court

has determined that the plaintiff’s choice of forum should stand.

Our clear-statement requirement best serves this policy.

Moreover, our clear-statement requirement focuses our inquiry

away from the merits of the district court’s decision. Section

1447(d) precludes examination of the merits of the district court’s

24
Heaton v. Monogram Credit Card Bank of Georgia, 231 F.3d 994, 997 (5th
Cir. 2000); Copling v. Container Store, Inc., 174 F.3d 590, 596 (5th Cir. 1999);
Giles, 172 F.3d at 336; Soley v. First Nat’l Bank of Commerce, 923 F.2d 406, 408
(5th Cir. 1991); Royal v. State Farm Fire & Cas. Co., 685 F.2d 124, 126 (5th Cir.
1982); In re Weaver, 610 F.2d 335, 337 (5th Cir. 1980); see also In re Merrimack
Mutual Fire Ins. Co., 587 F.2d 642, 648 (5th Cir. 1978).

25
See United States v. Rice, 327 U.S. 742, 751 (1946) (noting that Congress
opposes “interruption of the litigation of the merits of removed cause by
prolonged litigation of questions of jurisdiction of the district court to which
the cause is removed”); Soley, 923 F.2d at 408 (citing Thermtron Prods., 423 U.S.
at 251) (noting that the purpose of § 1447(d) is “to prevent delay through
protracted litigation of jurisdictional issues”). As a result, “the district
court is the final arbiter of whether it has jurisdiction to hear the case.”
Smith v. Texas Children’s Hosp., 172 F.3d 923, 925 (5th Cir. 1999).

8
actions; we only must determine what the district court perceived

it was doing, as “no matter how erroneous,”26 a remand order based

on a § 1447(c) ground precludes review on appeal. A contrary

rule––one requiring a thorough and exhaustive examination of the

district court’s reasons for remand––risks tainting the limited,

jurisdictional-inquiry mandated by § 1447(d) with a merits-inquiry,

a process that, as noted, would only lead to a lengthier appeals

process. Although we are not in search of magic words, our clear-

statement requirement carefully delimitates our

jurisdiction––neither expanding it beyond statutorily imposed

limits, nor eschewing it when matters are appropriately before us.

Nothing in the Supreme Court’s recent decision in Kircher v.

Putnam Funds Trust requires us to back away from our clear

statement requirement. There, the Court held that § 1447(d)’s ban

on appellate review of remand orders applied to cases removed under

the Securities Litigation Uniform Standards Act of 1998.27 The

Court had no reason to consider a clear statement requirement, as

the district court plainly indicated that it remanded the case for

a lack of subject matter jurisdiction.28

We recognize that there is some disagreement among the

26
Arnold v. State Farm Fire & Cas. Co., 277 F.3d 772, 775 (5th Cir. 2001);
State of Rio de Janeiro of Federated Republic of Brazil v. Phillip Morris, 239
F.3d 714, 716 (5th Cir. 2001).
27
Kircher v. Putnam Funds Trust, 126 S. Ct. 2145, 2153-55 (2006).
28
Id. at 2158 (Scalia, J., concurring) (quoting the district court).

9
circuits regarding the methodology for reviewing remand orders. We

apply a clear-statement requirement; others do not, opting instead

to analyze a remand order for what the district court did rather

than what the district court said it did. The Supreme Court

recognized but did not resolve this dispute in Kircher. Justice

Scalia would stop with the district court’s words, forgoing any

examination of the merits; the majority passed on the issue, noting

that the result was the same under either approach. As the

Solicitor General recently recognized, this type of “methodological

dispute may have more impact on how district court judges draft

remand orders than on the rights of the parties.”29 The validity

of our methods for reviewing remand orders is not before us, so we

need say no more.

2

With these principles in mind, our analysis requires

examination of the text of the district court’s remand order.30

After concluding that Appellants were not “asserting any non-

frivolous defense to [Underwriters’] claims based on the

arbitration award,” the court made passing reference to policy

29
Brief for the United States as Amicus Curiae, No. 05-107, Davis v. Int’l
Union, United Automobile, Aerospace & Agricultural Implement Workers of Am.
(UAW), at 9-11 (2006) (filed in response to invitation from Supreme Court).
30
See McDermott Int’l, Inc. V. Lloyds Underwriters of London, 944 F.2d
1199, 1201 n.1 (5th Cir. 1991) (directing district courts to “take care to
explain their reasons for remanding cases” because “the availability of appellate
review turns exclusively on the district court’s reason for remand”); Tillman v.
CSX Transp., Inc., 929 F.2d 1023, 1026 (5th Cir. 1991) (“Reviewability of a
remand order depends entirely upon the trial court’s stated grounds for its
decision to remand.”).

10
considerations:

No policy evidenced by the federal arbitration statutes
would be advanced in the slightest by the exercise by
this court of subject matter jurisdiction over the issues
that remain to be resolved in this case. . . . There is
no reason from a policy standpoint for this court to
further entertain jurisdiction over this case, bearing in
mind that there is no claim of arbitrability, and that
the only issues which implicate the arbitration award
itself have been summarily removed from the case.31

Appellants contend that the order’s reference to “policy” indicates

that the remand was based, not on a lack of subject matter

jurisdiction, but on the efficiency and economy considerations

guiding courts under Carnegie-Mellon. Underwriters point to

subsequent language in the remand order, which, they contend,

indicates the remand was based on a lack of subject matter

jurisdiction. Specifically,

[N]ow that the arbitration award issues have been removed
from this case by a summary ruling, and there being “no
other grounds for federal jurisdiction” in this case, the
case should be remanded to the state court.
Therefore, [t]he court ORDERS that all unresolved
claims and causes of action in the above-captioned action
be, and are hereby, remanded to the state court from
which this action was removed.32

With only this language before us, we conclude that the district

court did not “clearly and affirmatively” state a non-§ 1447(c)

ground for remand. To be sure, Appellants’ contentions are not

without merit, as this presents a close case: both parties can

point to language in the remand order supporting their position.

31
Remand Order (Sep. 23, 2004), at 5 (emphasis added).
32
Remand Order (Sep. 23, 2004), at 6 (emphasis added).

11
Appellants’ argument falls short however, following a closer

examination of the district court’s language and upon application

of the clear-statement requirement embraced by this Court.

The district court’s first reference to “policy” is to that

“evidenced by the federal arbitration acts,” and not the concerns

animating discretionary remands.33 The second reference to “policy”

considerations is essentially a single sentence, with no citation

to Carnegie-Mellon, Thermtron Products, or any of the efficiency

and economy factors guiding courts in making discretionary remands.

Any conclusion that this was a discretionary remand, on the basis

of references to policy, is militated by the subsequent discussion

by the district court suggesting that it perceived itself to lack

subject matter jurisdiction. As the district court concluded its

remand order, it stated that there are “no other grounds for

jurisdiction,” language we read to mean the court perceived it

lacked subject matter jurisdiction. Moreover, the court also

states that the case “should”––a derivative of the imperative

“shall”; although “must” might have been a more emphatic indication

of a jurisdictional remand, so too would “may” be more probative of

a discretionary remand. As such, we cannot say that the district

court “clearly and affirmatively” stated a non-§ 1447(c) ground for

33
See Carnegie-Mellon, 484 U.S. at 353 (“[A] remand may best promote the
values of economy, convenience, fairness, and comity.”).

12
remand.34

3

Unclear remand orders are not a new thing in this Court, even

give our strict adherence to a clear-statement requirement. We

have confronted situations before in which a district court’s

remand order offered language supporting both a statutory and a

nonstatutory remand. In Bogle v. Phillips Petroleum Co., various

plaintiffs injured in a chemical-plant explosion brought state-law

claims against Phillips for their injuries as well as a claim for

wrongfully denied medical benefits, which Phillips used to remove

the case alleging that the Employee Retirement Income Security Act

preempted the litigation.35 The district court ruled on the

asserted ERISA-preemption defense, finding no preemption, and

granted plaintiffs’ motion to remand, stating that “[t]his case

does not contain a federal claim” and applying the discretionary

factors from Carnegie-Mellon.36 On appeal, we dismissed for lack

of jurisdiction, concluding that “[t]he district court’s discussion

[of the Carnegie-Mellon factors], although improper surplusage,

[did] not taint its ultimate conclusion that it lacked subject

34
We do not decide today whether, had the district court omitted the
language indicating a perceived lack of subject-matter jurisdiction, the passing
reference to “policy” considerations would be sufficient to satisfy our clear-
statement requirement.
35
24 F.3d 758, 760-61 (5th Cir. 1994).
36
Id. at 762.

13
matter jurisdiction.”37

The district court’s reliance on Beiser v. Weyler does not

alter our conclusion. Reading “relates to” very broadly,38 Beiser

suggests that in cases removed under 9 U.S.C. § 205, the district

court, as here, should initially deny remand as long as the

defendant’s asserted, arbitration-related defenses are not

“facially frivolous.”39 That is precisely what the district court

did here, initially denying Underwriters’ motion to remand, and no

contention is raised on appeal that this decision was error.40 We

37
Id.
38
Beiser relies, in part, on the expansive definition of “relates to” in
Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983), an ERISA preemption
case. Beiser v. Weyler, 284 F.3d 665, 669 (5th Cir. 2002); see also Acosta v.
Master Maintenance and Const. Inc., ___ F.3d ___, 2006 WL 1549959, *3 (construing
“relates to” under § 205 and again relying on Shaw). We do not revisit Beiser’s
construction of “relates to” here, but we do note, as did the district court
here, that subsequent ERISA preemption cases have recognized some limits on the
reach of “relates to.” See, e.g., New York State Conference of Blue Cross & Blue
Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 654 (1995).
39
Beiser v. Weyler, 284 F.3d 665, 669 (5th Cir. 2002) (holding that a
dispute “relates to” an arbitration clause “whenever the clause could conceivably
have an affect on the outcome of the case”). We continued,

As a result, absent the rare frivolous petition for removal, as long
as the defendant claims in its petition that an arbitration clause
provides a defense, the district court will have jurisdiction to
decide the merits of the claim. This approach honors the statute’s
command that we treat defenses based on arbitration clauses under
the Convention in the same way that we treat removal generally. It
allows the district court to determine its jurisdiction from the
petition for removal, without taking evidence and without a merits-
like inquiry.

Id. at 671-72 (internal footnote omitted).
40
As the question is not presented, we do not decide whether the district
court’s decision was correct. We do recognize, however, that Warrantech’s
affirmative defenses in the present litigation are rather tangentially related
to the arbitration award between Houston General and Underwriters.

14
do not depart from Beiser’s insistence on easy removal of causes

whenever a defendant can assert a nonfrivolous connection to an

arbitration award under the New York Convention.

Moreover, nothing in Beiser alters our analysis of the

district court’s order. The mere citation of dicta in Beiser

suggesting a discretionary remand cannot serve to satisfy our

clear-statement requirement,41 and nothing in Beiser suggests that

we should not apply our clear-statement requirement within the

context of § 205 removals. Application of our clear-statement

requirement is consistent with the plain text of § 205, which

provides that, although allowing removal on the basis of a federal

defense presented in the petition for removal, “[t]he procedure for

removal of causes otherwise provided by law shall apply.”42 This

“procedure for removal” incorporates § 1447(d)’s absolute bar to

appellate review,43 as well as our insistence that a district court

“clearly and affirmatively” state a non-§ 1447(c) ground for

remand. As we find no clear statement in this case, our appellate

41
Cf. Giles, 172 F.3d at 335 (finding a discretionary remand where the
district court stated that “[t]his is an appealable order because the basis of
my ruling is an exercise of discretion to remand pendent state law claims”).

42
9 U.S.C. § 205; cf. 28 U.S.C. § 1441(a) (2000) (“[A]ny civil action
brought in a State court of which the district courts of the United States have
original jurisdiction, may be removed by the defendant or the defendants, to the
district court of the United States for the district and division embracing the
place where such action is pending.”).
43
Dahiya v. Talmidge Int’l, Ltd., 371 F.3d 207, 209 (5th Cir. 2004) (citing
Transit Cas. Co. v. Certain Underwriters at Lloyd’s of London, 119 F.3d 619, 624-
25 (8th Cir. 1997); LaFarge Coppee v. Venezolana De Cementos, S.A.C.A., 31 F.3d
70, 71-72 (2d Cir. 1994); In re Amoco Petroleum Additives Co., 964 F.2d 706, 712-
13 (7th Cir. 1992)).

15
jurisdiction is precluded by § 1447(d).44

B

Although we lack jurisdiction to review the district court’s

remand order, we still must consider whether we can review the

district court’s grant of partial summary judgment to Underwriters

on Appellants’ res judicata and collateral estoppel defenses.

District court determinations accompanying remand orders are

reviewable despite § 1447(d) if they meet the requirements of City

of Waco, Texas v. United States Fidelity & Guaranty Co.45 Under

City of Waco, we can review a pre-remand decision of the district

court if the decision is “separable” from the remand order and

independently reviewable under the collateral order doctrine.46 A

decision is “separable” if (1) the decision preceded the remand

order “in logic and in fact” such that it was “made by the district

44
Appellants also attempt to revive the oft-rejected argument that a “post-
removal event” offers an escape from the strictures of § 1447(d). Appellants
argue that because the district court initially denied Underwriters’ motion to
remand, then adjudicated Underwriters’ summary judgment motions, and only then
issued its remand order, § 1447(d) is no longer a bar to appellate review. We
have consistently rejected this argument. See Angelides v. Baylor College of
Medicine, 117 F.3d 833, 836 & n.3 (5th Cir. 1997) (collecting cases). Appellants
offer no reason why we should not do so here once again.
Appellants also ask us to adopt a “not-all-post-removal-events-are-equal”
approach, which they contend is illustrated by the Seventh Circuit in Adkins v.
Illinois Central Railroad Co., 326 F.3d 828, 833 (7th Cir. 2003). Given the
clear line of precedent in our Court regarding the treatment of post-removal
events, we decline to do so.
45
293 U.S. 140 (1934).

46
Dahiya, 371 F.3d at 210; Heaton v. Monogram Credit Card Bank, 297 F.3d
416, 421 (5th Cir. 2002).

16
court while it had control of the case”;47 and (2) the decision is

“conclusive”––that is, “functionally unreviewable in state

courts.”48

Our decision in Linton v. Airbus Industrie is illustrative.49

There, prior to remanding the matter to state court, the district

court determined that the defendants did not qualify for foreign

sovereign immunity, the basis for removal.50 We held that “[i]n

light of the district court’s ultimate conclusion that the entire

case had to be remanded for lack of subject matter jurisdiction,

the district court’s [foreign sovereign immunity] determination

[could] be deemed a jurisdictional finding under the facts of this

case and, as such, [could] be reviewed by the state court upon

remand.”51 Thus, determinations made in the process of remanding

a case for lack of jurisdiction are “jurisdictional findings” that

can be revisited by the state court upon remand.52

Here, the district court’s orders––that res judicata and

collateral estoppel did not provide Appellants a defense to

47
City of Waco, 293 U.S. at 143.
48
Arnold, 277 F.3d at 776.
49
30 F.3d 592 (5th Cir. 1994).
50
Linton, 30 F.3d at 594-95. The foreign defendants relied upon 28 U.S.C.
§ 1330(a), which confers original jurisdiction upon district courts over any
action against a “foreign state” that is “not entitled to immunity.” 28 U.S.C.
§ 1330(a) (2000).
51
Linton, 30 F.3d at 597.
52
See Dahiya, 371 F.3d at 210-11 (reviewing cases).

17
Underwriters’ state-law claims––were made in the process of

remanding the case for lack of jurisdiction. We see no difference

between the rejection, in Linton, of the defendants’ foreign

sovereign immunity defense––the basis for removal––and the

rejection, here, of Appellants’ affirmative defenses––again, the

basis for removal. We conclude that the district court’s order

rejecting Appellants’ affirmative defenses is not “conclusive”

under City of Waco; thus, we are unable to review the merits of the

district court’s decision.

C

Finally, we turn to the most troubling aspect of this

case––namely, what to do with the district court’s order dismissing

with prejudice Warrantech’s state-law counterclaims. Unlike

resolution of Appellants’ arbitration-based affirmative defenses,

we cannot say that the decision to dismiss the counterclaims was a

“jurisdictional” finding, not “conclusive” under City of Waco, and

therefore not binding on the state court upon remand. We also

decline to hold that the decision is “conclusive” under City of

Waco, as Warrantech asserts and as Underwriters appears to

concede.53 Rather, the prudent resolution of Warrantech’s state-law

53
We take no position on whether the order dismissing Warrantech’s
counterclaims is “conclusive” under City of Waco. Warrantech relies upon John
G. and Maria Stella Kenedy Memorial Foundation v. Mauro, in which we concluded
that we had jurisdiction to review the dismissal of plaintiffs’ federal law
claims even though the district court remanded the remaining state-law claims for
lack of jurisdiction. 21 F.3d 667, 670 (5th Cir. 1994). In John G., unlike
here, there was a sound basis for federal jurisdiction––plaintiffs asserted
claims fell under 28 U.S.C. § 1331. Here, in contrast, there are no federal

18
counterclaims requires a step-back, a reexamination of what the

district court should have done upon concluding that Appellants’

arbitration-related affirmative defenses were meritless. We

conclude that the district court, upon resolving the merits of the

arbitration-related affirmative defenses, abused its discretion in

continuing to exercise supplemental jurisdiction over Warrantech’s

state-law counterclaims.54

Warrantech’s state-law counterclaims rode into federal court

on the coattails of Appellants’ assertion that Appellants’ res

judicata and collateral estoppel affirmative defenses “relate[d]

to” the state-law claims asserted by Underwriters.55 As we have

noted, this is proper, and it would be within the district court’s

prerogative to adjudicate them on the merits, but only if the

district court properly exercised its discretion under 28 U.S.C.

§ 1367, the statute granting the federal courts supplemental

jurisdiction over related state-law claims.56 After concluding that

claims; the only basis for federal jurisdiction was 9 U.S.C. § 205, and once the
arbitration-related affirmative defenses were found to be without merit, the
district court properly remanded the matter to state court.

54
See Hernandez ex rel. Hernandez v. Tex. Dep’t of Protective & Regulatory
Servs., 380 F.3d 872, 878 (5th Cir. 2004) (“Prior to reaching the merits, we must
verify, sua sponte, that our jurisdiction . . . is proper.”); In re McCloy, 296
F.3d 370, 373 (5th Cir. 2002) (“[A] lack of subject matter jurisdiction may be
raised at any time, and we can examine the lack of subject matter jurisdiction
for the first time on appeal.”).
55
See 9 U.S.C. § 205.

56
Robertson v. The Neuromedical Center, 161 F.3d 292, 296 (5th Cir. 1998);
Parker & Parsley Petroleum Co. v. Dresser Industries, 972 F.2d 580, 585 (5th Cir.
1992).

19
Appellants’ affirmative defenses lacked merit, the following claims

remained in the case: (1) Underwriters’ state-law claims against

Warrantech and San Antonio; and (2) Warrantech’s state-law

counterclaims against Underwriters. It is at this moment in time

that we must examine the district court’s exercise of supplemental

jurisdiction.

Our inquiry starts with the mandatory nature of 28 U.S.C.

§ 1367(a), which provides that a district court “shall” have

supplemental jurisdiction over claims “so related to” claims within

the court’s original jurisdiction.57 Yet § 1367(a)’s command is

moderated by the factors provided in 28 U.S.C. § 1367(c), which

allow a district court to decline supplemental jurisdiction under

certain circumstances.58 In consideration of these factors, we have

stated that it is our “general rule” that courts should decline

supplemental jurisdiction when all federal claims are dismissed or

otherwise eliminated from a case.59

57
28 U.S.C. § 1367(a) (“Except as provided in subsections (b) and (c) or
as expressly provided otherwise by Federal statute, in any civil action of which
the district courts have original jurisdiction, the district courts shall have
supplemental jurisdiction over all other claims that are so related to claims in
the action within such original jurisdiction that they form part of the same case
or controversy under Article III of the United States Constitution.”).
58
28 U.S.C. § 1367(c) (“The district court may decline to exercise
supplemental jurisdiction over a claim under subsection (a) if –– (1) the claim
raises a novel or complex issue of State law, (2) the claim substantially
predominates over the claim or claims over which the district court has original
jurisdiction, (3) the district court has dismissed all claims over which it has
original jurisdiction, or (4) in exceptional circumstances, there are other
compelling reasons for declining jurisdiction.”).

59
Parker & Parsley Petroleum Co., 972 F.2d at 585; Wong v. Stripling, 881
F.2d 200, 204 (5th Cir. 1989).

20
 This is such a case. Here, all claims with even a tenable

connection to federal jurisdiction were dismissed very early in the

litigation. As the Supreme Court noted in United Mine Workers v.

Gibbs, “[I]f the federal claims are dismissed before trial, even

though not insubstantial in a jurisdictional sense, the state

claims should be dismissed as well.”60 We echoed a similar thought

in the context of removal under § 205 in Beiser:

Under § 205 . . . the federal issue in cases will often
be resolved early enough to permit remand to the state
court for a decision on the merits. . . . If the district
court decides that the arbitration clause does not
provide a defense, and no other grounds for federal
jurisdiction exist, the court must ordinarily remand the
case back to state court.61

Thus, the absence of any claims with any connection to federal law

at such an early point in the litigation suggests that the district

court abused its discretion in exercising supplemental jurisdiction

over Warrantech’s state-law counterclaims.62

Moreover, Warrantech’s state-law counterclaims have little, if

any, relation to the arbitration award. Our task is to compare the

federal basis for jurisdiction (here, the asserted affirmative

defenses stemming from the arbitration award) against the dismissed

state-law claims (here, Warrantech’s counterclaims arising from

60
383 U.S. 715, 726 (1966).
61
Beiser, 284 F.3d at 674-75.
62
See Carnegie-Mellon, 484 U.S. at 351 (nothing that when the single
federal law claim is eliminated at an “early stage” of the litigation, the
district court has “a powerful reason to choose not to continue to exercise
jurisdiction”); Parker & Parsley Petroleum Co., 972 F.2d at 585.

21
Underwriters’ alleged discovery conduct and failure to voluntarily

make payment of warranty claims).63 There is little factual overlap

between these two claims. Appellants asserted their arbitration-

related affirmative defenses in response to Underwriters’

underlying claims. Res judicata and collateral estoppel are

judicial economy devices, seeking to prevent religitation of issues

previously adjudicated.64 Warrantech’s counterclaims arise out of

separate and independent actions of Underwriters––discovery

misconduct and failure to pay insurance claims. In short, we do

not see a sufficient connection between the two claims to warrant

the exercise of supplemental jurisdiction. We conclude that the

district court abused its discretion in exercising supplemental

jurisdiction over Warrantech’s state-law counterclaims.

III

In sum, our inquiry into what we can decide leaves us without

jurisdiction to consider the merits of any of the district court’s

orders. First, we lack jurisdiction to review the district court’s

remand order as the district court did not “clearly and

affirmatively” state a non-§ 1447(c) ground for remand. Second,

the district court’s order dismissing Appellants’ res judicata and

63
We are not seeking a connection between the arbitration-based defenses
and Underwriters’ state-law claims properly presented in Texas state court. That
is the proper inquiry under Beiser, but the issue has not been presented on
appeal.

64
See Key v. Wise, 629 F.2d 1049, 1061 (5th Cir. 1981) (discussing res
judicata); Parklane Hosiery, Inc. v. Shore, 439 U.S. 322, 329 (1979) (discussing
collateral estoppel).

22
collateral estoppel affirmative defenses was a “jurisdictional

finding,” not binding on the state court following remand.

Finally, the district court abused its discretion in exercising

supplemental jurisdiction over Warrantech’s state-law

counterclaims. Accordingly, the district court’s order dismissing

with prejudice Warrantech’s counterclaims must be VACATED, and the

remainder of Appellants’ appeal must be DISMISSED.

Appellee’s motion to dismiss appeal for lack of jurisdiction

is GRANTED.

ENDRECORD

23
EMILIO M. GARZA, Circuit Judge, dissenting:

I dissent from the majority’s initial holding that the

district court’s remand order is not reviewable under 28 U.S.C.

§ 1447(d). Because this case involves the discretionary remand of

supplemental state-law claims, the prohibition on appellate review

does not apply.

The law in this area is clear. “After a district court

remands a case to state court for lack of subject matter

jurisdiction, 28 U.S.C. § 1447(d) bars a federal appellate court

from reviewing the remand ruling ‘no matter how erroneous.’ ”

Dahiya v. Talmidge Int’l, Ltd., 371 F.3d 207, 209 (5th Cir. 2004)

(quoting Arnold v. State Farm Fire & Cas. Co., 277 F.3d 772, 775

(5th Cir. 2001)). If the remand order is not based on a lack of

subject-matter jurisdiction but is, rather, discretionary, the

remand order is reviewable. Bogle v. Phillips Petroleum, 24 F.3d

758, 760 (5th Cir. 1994); see Carnegie Mellon Univ. v Cohill, 484

U.S. 343, 357 (1988) (“[A] district court has discretion to remand

to state court a removed case involving pendent claims upon a

proper determination that retaining jurisdiction over the case

would be inappropriate.”). In determining whether a remand is

discretionary or jurisdictional, the scope of our inquiry is

limited to determining the basis for the district court’s remand

order, in other words, what the district court perceived it was

doing. See Bogle, 24 F.3d at 760 (“In determining whether [an]

24
order is appealable, [the] threshold inquiry is whether the

district court based its remand on lack of subject matter

jurisdiction.”); McDermott Int'l, Inc. v. Lloyds Underwriters of

London, 944 F.2d 1199, 1201 (5th Cir. 1991) (“[T]he availability

and means of appellate review for a district court’s remand order

depend entirely on the court’s reason for issuing the order.”).

Asserting a newly tailored “clear-statement requirement,”1 the

majority concludes that “the district court did not ‘clearly and

affirmatively’ state a non-§ 1447(c) ground for remand” and holds

that the court is without jurisdiction on appeal under 28 U.S.C.

§ 1447(d).2 Although it acknowledges that the remand order bears

the hallmarks of a discretionary remand and although it claims to

not require “magic words” to satisfy its clear-statement

requirement, the majority nevertheless finds the remand order to be

“unclear.” Like the majority, I decline to opine as to the

validity of its “clear-statement requirement” because, even under

this standard, the district court’s remand order unmistakably

1
We have never invoked a “clear-statement requirement.” Rather, we
look to the remand order to determine whether a “district court ‘clearly and
affirmatively’ relie[d] on a non-§ 1447(c) basis.” Heaton v. Monogram Credit
Card Bank of Ga., 231 F.3d 994, 997 (5th Cir. 2000) (quoting Copling v. Container
Store, Inc., 174 F.3d 590, 596 (5th Cir.1999)).
2
Tellingly, the majority does not, indeed cannot, affirmatively state
that the district court remanded based upon a § 1447(c) ground such as a lack of
subject-matter jurisdiction. As I explain infra, every aspect of the district
court’s order demonstrates that its remand was discretionary. Instead, the
majority limits its holding by applying an appellate presumption against a
discretionary remand and finding this presumption to be unrebutted by the
district court order.

25
states a discretionary, “non-§ 1447(c) ground for remand.”3

In its analysis, the majority pauses only momentarily to

discuss and cast aside our treatment of a § 205 removal in Beiser

v. Weyler, 284 F.3d 675 (5th Cir. 2002). Yet, Beiser is the only

case relied upon by the district court to determine its subject-

matter jurisdiction upon removal4 and the only case it used to

state and explain the basis for its subsequent remand.5 In so

3
Our cases do not uniformly adhere to this requirement. Furthermore,
this requirement may be in tension with the other courts of appeals and,
possibly, Supreme Court cases addressing the issue of appellate jurisdiction.
Brief for the United States as Amicus Curiae, No. 05-107, Davis v. Int’l Union,
United Aerospace & Agricultural Implement Workers of Am. (UAW), at 9-11 (2006)
(cited in the majority opinion, supra note 29).
4
Upon motion to remand, the district court determined that it had
subject-matter jurisdiction over the action. It supported this determination
with a quotation from Beiser:

[T]he district court will have jurisdiction under § 205
over just about any suit in which a defendant contends
that an arbitration clause falling under the Convention
provides a defense. As long as the defendant’s
assertion is not completely absurd or impossible, it is
at least conceivable that the arbitration clause will
impact the disposition of the case.

Certain UnderWriters at Lloyd’s London v. Warrantech Corp., No. 4:04-CV-208-A,
slip op. at 4 (N.D. Tex. May 13, 2004) (quoting Beiser, 284 F.3d at 669) (“Order
Denying Remand”). The district court concluded that the arbitration-related
defenses were neither facially frivolous nor absurd or impossible and that, under
Beiser, it had “no choice but to deny the motion.” Id. (citing Beiser, 284 F.3d
at 669, 671).
5
Later, in its order remanding the case to state court, the district
court again supported its decision with a lengthy quotation from Beiser:

Moreover, § 205 does not interfere with state courts as
much as ordinary removal under the general removal
statute, 28 U.S.C. § 1441. When a case is removed under
§ 1441, it will often remain in federal court until its
conclusion. Under § 205, however, the federal issue in
cases will often be resolved early enough to permit
remand to the state court for a decision on the merits.
The arbitrability of a dispute will ordinarily be the
first issue the district court decides after removal
under § 205. If the district court decides that the

26
doing, the district court could not have been clearer: it remanded

based upon our guidance in Beiser.

Because the only basis for remand provided by the district

court is taken from Beiser, our analysis of whether the remand

stated a non-§ 1447(c) ground for remand must begin and end with

understanding what that case teaches. A cornerstone to our

reasoning in Beiser was the determination that removal is proper

under § 205 on the basis of a non-frivolous federal defense

presented in the petition for removal. “[A]s long as the defendant

claims in its petition that an arbitration clause provides a

defense, the district court will have jurisdiction to decide the

merits of that claim.” Beiser, 284 F.3d at 671-72. Where the

arbitration clause does not provide a defense, and no
other grounds for federal jurisdiction exist, the court
must ordinarily remand the case back to state court.
[See 28 U.S.C. § 1441(c) (granting district court
discretion to remand all claims in which state law
predominates); Parker & Parsley Petroleum Co. v.
Dresser Indus., 972 F.2d 580, 585 (5th Cir. 1992)
(noting that when all federal claims are resolved early
in a lawsuit and only state law claims remain, the
district court almost always should remand to the state
court); Wong v. Stripling, 881 F.2d 200, 204 (5th
Cir.1989) (same).] Except for state law claims that
turn out to be subject to arbitration, § 205 will rarely
permanently deprive a state court of the power to decide
claims properly brought before it. The district court
will ordinarily remand those cases that turn out not to
be subject to arbitration, such that the state court
will be able to resolve the merits of the dispute.
Section 205 therefore raises fewer federalism problems
than the general removal statute, § 1441: except in
arbitrable cases, it will ordinary [sic] permit state
courts to resolve the ultimate issues in a case.

Certain UnderWriters at Lloyd’s London v. Warrantech Corp., No. 4:04-CV-208-A,
2004 WL 2203244, at *3 (N.D. Tex. Sept. 23, 2004) (quoting Beiser, 284 F.3d at
674-75) (“Remand Order”). The district court supplied no other basis for its
remand.

27
special circumstances presented by a § 205 removal are at issue,

Beiser contemplates a later merit inquiry into arbitrability and,

if the district court decides that the arbitration clause does not

provide a defense, a discretionary remand of supplemental state-law

claims. See id. at 675 (citing authority for the proposition that

a district court has discretion to remand). Beiser does not intend

a remand based upon a post facto determination that it lacked

subject-matter jurisdiction ab initio but, rather, a discretionary

determination that its continued exercise of jurisdiction is no

longer prudent after federal arbitration-related issues have been

removed from the case. Id. at 674-75.

The district court understood and scrupulously adhered to our

guidance in Beiser when it exercised jurisdiction and subsequently

remanded this case. Quoting pertinent parts of that opinion, it

initially determined that jurisdiction was proper based upon

purported ties between Warrantech’s res judicata and collateral

estoppel defenses and the arbitration proceeding. Finding no non-

frivolous ties to the arbitration award after its ruling on summary

judgment, however, the district court remanded, “[c]onsistent with

the expectations of the Fifth Circuit,” because § 205 did not

require retention where “the only issues which implicate[d] the

arbitration award itself ha[d] been summarily removed from the

case.” Remand Order at *2-3. In so doing, the district court

spoke plainly: it was exercising its discretion to remand

28
supplemental state-law claims after determining that the

arbitration-related defenses were without merit. Such a remand

order is reviewable.

The majority acknowledges that the district court applied

Beiser and that Beiser calls for a discretionary remand in these

circumstances. Nonetheless, it asserts that “the mere citation of

dicta in Beiser . . . cannot satisfy our clear-statement

requirement . . . .” The majority’s reasoning here is puzzling.

Dicta is, of course, not binding. But in stating the basis for its

remand, there is no principle in law or reason that prevents a

district court from interpreting and using our case law to explain

itself. In this case, the district court used Beiser’s dicta to

clearly and affirmatively state the basis for its remand. No

clearer statement was required.

If there remained any doubt, the district court’s remand order

contains additional convincing indicia of a discretionary, “non-

§ 1447(c) ground for remand.” First, the district court examined

prudential reasons that militate against the exercise of

jurisdiction in its remand order, stating: “No policy evidenced by

the federal arbitration statutes would be advanced in the slightest

by the exercise by this court of subject matter jurisdiction over

issues that remain to be resolved in this case. . . . There is no

reason from a policy standpoint for this court to further entertain

29
jurisdiction over this case . . . .” Remand Order at *2.6 Such a

proffer of prudential reasons would be wholly unnecessary if the

district court felt that it lacked subject-matter jurisdiction

under 28 U.S.C. § 1447(c).7 Second, and most tellingly, the

district court adjudicated the state-law counterclaims brought by

Warrantech in its summary judgment order. The court could only

properly do so if it perceived that it had supplemental

jurisdiction pursuant to 28 U.S.C. § 1367 and exercised such

jurisdiction pursuant to 28 U.S.C. § 1441(c), which gives a federal

court the ability to “determine all issues” in a removed case,

including state-law claims. The district court could not have

determined those state-law claims unless it believed that it had

“original jurisdiction” in the first instance based on federal law.

Significantly, our case law establishes that where there is an

initial determination of jurisdiction, as is evident here, a

subsequent remand is not based on a lack of subject-matter

jurisdiction. In Bogle v. Phillips Petroleum, we stated:

6
The majority contends that the district court made only “passing
reference to policy considerations.” But the paragraph-long statement by the
district court is more than a “passing” reference and, moreover, is more
substantial than the statement upon which the majority relies to support its
determination that the remand order is most likely based upon a lack of
jurisdiction—namely the district court’s statement that there are “no other
grounds for federal jurisdiction.”
7
By contrast, such an expression of prudential reasons is consistent with
a remand of supplemental state-law claims following the dismissal of those claims
that provided the basis for original jurisdiction. See Giles v. NYLCare Health
Plans, Inc., 172 F.3d 332, 339 (5th Cir. 1999) (“When deciding whether to remand
supplemental claims, a court should examine economy, fairness, convenience, and
comity.”).

30
 The critical distinction for determining
appealability is the presence of federal
subject matter jurisdiction prior to the order
of remand. In a Section 1447(c) remand [for
lack of subject-matter jurisdiction], federal
jurisdiction never existed, and in a
non-Section 1447(c) remand, federal
jurisdiction did exist at some point in the
litigation, but the federal claims were either
settled or dismissed.

Bogle, 24 F.3d at 762. Here, the district court initially rejected

a motion to remand because, under Beiser, “the district court will

have jurisdiction under § 205 over just about any suit in which a

defendant contends that an arbitration clause . . . provides a

defense.” Order Denying Remand at 4 (quoting Beiser, 284 F.3d at

669). Only after the district court had ruled on a motion for

summary judgment and found the arbitration-related defenses without

merit did it remand the case to state court. Under the reasoning

in Bogle, this is a “non-Section 1447(c) remand, [because] federal

jurisdiction did exist at some point in the litigation, but the

federal claims were either settled or dismissed.” Bogle, 24 F.3d

at 762.8

8
Despite the district court’s exclusive reliance on portions of
Beiser—sections that indicate a discretionary remand occurs after an initial
finding of jurisdiction—and other compelling indicia of a discretionary remand
of supplemental state-law claims, the majority concludes that the district
court’s remand order was unclear because it also, according to the majority,
stated that it was remanding for lack of subject-matter jurisdiction. It rests
this finding upon a single phrase from the remand order; namely, the district
court’s statement that there were “no other grounds for federal jurisdiction.”
Remand Order at *3. Taking the phrase out of context, the majority fails to
acknowledge that the district court was quoting directly from Beiser and its
lengthy discussion of discretionary remands.

If the district court decides that the arbitration
clause does not provide a defense, and no other grounds

31
 There is no need to “decipher the tea-leaves” of the district

court’s remand order because the district court clearly and

affirmatively remanded for discretionary reasons based upon the

guidance we provided in Beiser. Accordingly, the restriction on

appellate review in 28 U.S.C. § 1447(d) does not apply. I would

review the district court’s remand order, as well as its decision

granting partial summary judgment in favor of Underwriters.

for federal jurisdiction exist, the court must
ordinarily remand the case back to state court. [See 28
U.S.C. § 1441(c) (granting district court discretion to
remand all claims in which state law predominates);
Parker & Parsley Petroleum Co. v. Dresser Indus., 972
F.2d 580, 585 (5th Cir. 1992) (noting that when all
federal claims are resolved early in a lawsuit and only
state law claims remain, the district court almost
always should remand to the state court); Wong v.
Stripling, 881 F.2d 200, 204 (5th Cir.1989) (same).]
Except for state law claims that turn out to be subject
to arbitration, § 205 will rarely permanently deprive a
state court of the power to decide claims properly
brought before it.

Remand Order at *3 (quoting Beiser, 284 F.3d at 675) (emphasis added)). Read in
context, the district court’s statement does not mean that it perceived a lack
of subject-matter jurisdiction to proceed. To the contrary, it merely
acknowledges that the original grounds for federal jurisdiction are absent, that
no other independent ground for federal jurisdiction exist, and that the court
was exercising its discretion to remand all matters in which State law
predominates pursuant to 28 U.S.C. § 1441(c).

32