04-5974-cv
In Re: Methyl Tertiary Butyl Ether (“MTBE”) Products Liability Litigation
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2005
(Argued: January 26, 2006 Decided: May 24, 2007)
Docket Nos. 04-5974-cv(L), 04-6056-cv(CON)
In Re: Methyl Tertiary Butyl Ether (“MTBE”) Products Liability Litigation
The People of the State of California,
Plaintiff-Appellant,
v.
Atlantic Richfield Company, et al.,
Defendants-Appellees.
The State of New Hampshire,
Plaintiff-Appellant,
v.
Amerada Hess Corporation, et al.
Defendants-Appellees.
BEFORE: RAGGI and HALL, Circuit Judges, and KORMAN, District Judge.*
Appeal from an order of the United States District Court for the Southern District of New
*
The Honorable Edward R. Korman, United States District Judge for the Eastern District of
New York, sitting by designation.
York (Scheindlin, J.) denying Plaintiffs-Appellants’ motions to remand. Because the district
court erroneously held that it had removal jurisdiction over these actions under the federal officer
removal statute, 28 U.S.C. § 1442, and/or the bankruptcy removal statute, 28 U.S.C. § 1452, and
no alternative ground for jurisdiction is satisfied, we vacate the order of the district court and
remand with directions to return these cases to the forums from which they were removed.
JAN SCULLLY
ALBERT LOCHER
RUSS DETRICK
Sacramento County Office of the District Attorney
Sacramento, California, for
California Plaintiff-Appellant.
KELLY AYOTTE
MAUREEN D. SMITH
Attorney General of the State of New Hampshire
Concord, New Hampshire, for
New Hampshire Plaintiff-Appellant.
NATHAN P. EIMER
Eimer Stahl Klevorn & Solberg LLP
Chicago, Illinois, for
Defendants-Appellees.
EDWARD R. KORMAN, District Judge:
This interlocutory appeal arises from lawsuits originally filed by the States of California
and New Hampshire in their respective state courts against corporations that manufactured,
refined, marketed, or distributed gasoline containing methyl tertiary butyl ether (“MTBE”).
Refiners have added MTBE to some gasoline since the late 1970s in order to enhance its octane
content. The use of MTBE significantly increased after 1990, when Congress established the
Reformulated Gasoline Program (“RFG Program”) as part of its amendments to the Clean Air
Act (“CAA”). See 42 U.S.C. § 7545(k). Until 2005, when the Clean Air Act was again
amended, the RFG Program required the use of reformulated gasoline containing at least 2
percent chemical oxygen by weight in certain metropolitan areas with high summertime smog
levels. See id. § 7545(k)(2)(B) (2000). States with less severe smog problems may opt in to the
RFG Program. Id. § 7545(k)(6). Pursuant to regulations promulgated by the Environmental
Protection Agency (“EPA”) in 1991, MTBE is one of several different oxygenates that may be
used to certify gasoline as reformulated. 40 C.F.R. § 80.46(g)(2)(i). These provisions of the
RFG Program took effect in 1995. 42 U.S.C. § 7545(k)(5). The CAA amendments also created
the Oxygenated Fuels Program (“Oxyfuel Program”), which requires gasoline containing 2.7
percent oxygen by weight during winter months in areas that do not meet national air quality
standards for carbon monoxide. 42 U.S.C. § 7545(m)(2).
The complaints allege that MTBE contaminated public drinking water supplies through
discharges, leaks, overfills, and spills from gasoline delivery facilities, as well as from the release
of gasoline in certain consumer and commercial activities. When released into the environment,
MTBE can render water undrinkable by giving it a foul taste and odor, and at high
concentrations, it poses a risk to human health. Because of its chemical properties, MTBE
dissolves easily in water, does not biodegrade, and can disperse quickly through a water supply,
reaching areas far from its initial release. This makes MTBE more difficult and expensive to
remove from groundwater than other gasoline constituents that also pose a threat to the
environment and human health. The complaints allege various theories of liability, under the
laws of California and New Hampshire, to hold the defendants responsible for the damage caused
by MTBE.
These two cases are among scores of related actions removed from state court and
transferred to the Southern District of New York by the Judicial Panel on Multidistrict Litigation
pursuant to MDL No. 1358, In re Methyl Tertiary Butyl Ether (“MTBE”) Products Liability
Litigation. Before considering California’s and New Hampshire’s motions to remand, the district
court had already denied similar motions by plaintiffs in other related cases. In two decisions,
the district court held that the cases were removable under either (1) the federal officer removal
statute, 28 U.S.C. § 1442, because the defendants had acted at the direction of a federal agency in
adding MTBE to gasoline, In re Methyl Tertiary Butyl Ether (“MTBE”) Prods. Liab. Litig., 342
F. Supp. 2d 147, 156-58 (S.D.N.Y. 2004) (“MTBE III”), or (2) the bankruptcy removal statute,
28 U.S.C. § 1452, because defendant Texaco, Inc. (now ChevronTexaco Corp.) had earlier filed
for and been discharged from bankruptcy, In re Methyl Tertiary Butyl Ether (“MTBE”) Prods.
Liab. Litig., 341 F. Supp. 2d 386, 413-14 (S.D.N.Y. 2004) (“MTBE V”). In the latter case, the
district court also held that subject matter jurisdiction could not be predicated on the basis of a
substantial federal question or complete preemption. Id. at 402-03, 406-11.
The district judge asked California and New Hampshire to brief the then-undecided
question of sovereign immunity. She then held that “the removal of cases filed by State Plaintiffs
does not violate principles of sovereign immunity.” In re Methyl Tertiary Butyl Ether (“MTBE”)
Prods. Liab. Litig., 361 F. Supp. 2d 137, 148 (S.D.N.Y. 2004) (“MTBE VI”). This interlocutory
appeal followed. Two issues are presented: (1) whether principles of sovereign immunity are
violated when a state plaintiff voluntarily prosecutes a claim in state court and the action is
removed from state to federal court pursuant to a statute that expressly authorizes removal; and
(2) if not, whether the district court had subject matter jurisdiction over this matter under the
federal officer removal statute, 28 U.S.C. § 1442, the bankruptcy removal statute, 28 U.S.C.
§ 1452, or some other ground. Because the subject matter jurisdiction of the district court, unlike
the issue of sovereign immunity, is not normally the proper subject of an interlocutory appeal, we
must also determine whether we may even reach the second issue.
DISCUSSION
We review the district court’s legal conclusions de novo. Cooper v. New York State
Office of Mental Health, 162 F.3d 770, 773 (2d Cir. 1998) (sovereign immunity); Bechtel v.
Competitive Techs, Inc., 448 F.3d 469, 471 (2d Cir. 2006) (subject matter jurisdiction).
I. Sovereign Immunity
The Eleventh Amendment provides that “[t]he Judicial power of the United States shall not
be construed to extend to any suit in law or equity, commenced or prosecuted against one of the
United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.” U.S.
Const. amend. XI. The question presented here is whether a suit filed by a state in its own courts,
and then removed to federal court, is a suit “commenced or prosecuted against” that state.
Early in its history, the Supreme Court answered that question in the negative. Speaking
through Chief Justice Marshall, the Court held in Cohens v. Virginia, 19 U.S. 264 (1821), that the
character of the parties to a lawsuit does not change when the forum in which the suit is heard does:
To commence a suit, is to demand something by the institution of process in
a Court of justice; and to prosecute the suit, is, according to the common acceptation
of language, to continue that demand. By a suit commenced by an individual against
a State, we should understand process sued out by that individual against the State,
for the purpose of establishing some claim against it by the judgment of a Court; and
the prosecution of that suit is its continuance. Whatever may be the stages of its
progress, the actor is still the same. . . . If a suit, brought in one Court, and carried
by legal process to a supervising Court, be a continuation of the same suit, then this
suit is not commenced nor prosecuted against a State. It is clearly in its
commencement the suit of a State against an individual, which suit is transferred to
[federal] Court, not for the purpose of asserting any claim against the State, but for
the purpose of asserting a constitutional defence against a claim made by a State.
Id. at 408-09. As a result, the Chief Justice concluded, “[t]he [Eleventh] amendment . . . extended
to suits commenced or prosecuted by individuals, but not to those brought by States.” Id. at 407.
While the particular issue in Cohens was whether the Eleventh Amendment barred Supreme Court
review of a judgment obtained by a state against an individual in state court, the holding is equally
applicable here.
Nevertheless, state sovereign immunity is broader than, and independent of, the immunity
provided by the Eleventh Amendment. See Alden v. Maine, 527 U.S. 706, 713 (1999); Idaho v.
Coeur d’Alene Tribe of Idaho, 521 U.S. 261, 267 (1997). Indeed, since Hans v. Louisiana, 134 U.S.
1 (1890), the Supreme Court has recognized that state sovereign immunity is not confined by the text
of the Eleventh Amendment, but is part of the constitutional structure. California and New
Hampshire argue that these broader principles are offended when a suit voluntarily prosecuted by
a state is removed to federal court.
Specifically, California argues that Hans raises a presumption against proceedings or suits
that were “anomalous and unheard of” at the time the Constitution was adopted, and that the removal
of cases brought by states from state courts was unheard of at that time. Cal. Br. at 15-20. The
holding in Hans, however, was that “[t]he suability of a state, without its consent, was a thing
unknown to the law.” 134 U.S. at 16. While it is true that, prior to the adoption of the Constitution,
removal of a case from state court was “unheard of,” this was because “each State had complete and
exclusive authority to administer by its courts all the law, civil and criminal, which existed within
its borders. Its judicial power extended over every legal question that could arise.” Tennessee v.
Davis, 100 U.S. 257, 267 (1880). In other words, the constitutional framework for removal –
including the existence of a federal judiciary – did not exist.
Nevertheless, there has been some provision for the removal of cases from state to
federal courts ever since the original Judiciary Act of 1789. This strong historical
foundation has combined with inferences drawn from Article III, Section 2 of the
Constitution – the grant to Congress of the power to regulate the business of the
federal courts – to put the constitutionality of removal jurisdiction beyond question.
14B Charles A. Wright et al., Federal Practice and Procedure § 3721, at 288 (3d ed. 1998). Indeed,
the first federal officer removal statute expressly contemplating the removal of suits brought by
states – the predecessor to 28 U.S.C. § 1442 – was enacted during the War of 1812 and signed into
law by James Madison. 3 Stat. 195, 198-99 (1815); see generally Willingham v. Morgan, 395 U.S.
402, 405-06 (1969) (tracing the long history of the modern federal officer removal statute).
In Tennessee v. Davis, the Supreme Court expressly upheld the constitutionality of one of
the early incarnations of the federal officer removal statute. 100 U.S. at 261. Davis, an internal
revenue collector for the federal government, was fired upon while attempting to seize an illegal
distillery under the authority of the federal revenue laws. He returned fire, killing one man, and was
subsequently indicted for murder by a state grand jury. Davis sought to have his criminal
prosecution removed to federal court under a federal statute permitting the removal of “any civil suit
or criminal prosecution . . . commenced in any court of a State against any officer appointed under,
or acting by authority of, any revenue law of the United States, now or hereafter enacted, or against
any person acting by or under authority of any such officer, on account of any act done under color
of his office or of any such law, or on account of any right, title, or authority claimed by such officer
or other person under any such law.” Id. (internal quotation marks omitted).
The Supreme Court held that the case was properly removed. Addressing the argument that
this violated the state’s sovereignty, the Court found no offense in requiring the state, in these limited
circumstances, to prosecute its case in a federal forum:
The argument so much pressed upon us, that it is an invasion of the
sovereignty of a State to withdraw from its courts into the courts of the general
government the trial of prosecutions for alleged offences against the criminal laws
of a State, even though the defence presents a case arising out of an act of Congress,
ignores entirely the dual character of our government. It assumes that the States are
completely and in all respects sovereign. But when the national government was
formed, some of the attributes of State sovereignty were partially, and others wholly,
surrendered and vested in the United States. Over the subjects thus surrendered the
sovereignty of the States ceased to extend. Before the adoption of the Constitution,
each State had complete and exclusive authority to administer by its courts all the
law, civil and criminal, which existed within its borders. Its judicial power extended
over every legal question that could arise. But when the Constitution was adopted,
a portion of that judicial power became vested in the new government created, and
so far as thus vested it was withdrawn from the sovereignty of the State. Now the
execution and enforcement of the laws of the United States, and the judicial
determination of questions arising under them, are confided to another sovereign, and
to that extent the sovereignty of the State is restricted. The removal of cases arising
under those laws, from State into Federal courts, is, therefore, no invasion of State
domain.
Id. at 266-67. This holding is a complete answer to the argument that the Hans presumption
precludes removal here.
More recently, the Supreme Court has reaffirmed the proposition that “‘the constitutional
powers of Congress to authorize the removal of criminal cases for alleged offences against State laws
from State courts to the . . . courts of the United States, when there arises a Federal question in them,
is as ample as its power to authorize the removal of a civil case.’” Mesa v. California, 489 U.S. 121,
128 (1989) (quoting Davis, 100 U.S. at 271). Other Supreme Court cases support this conclusion.
In Ames v. Kansas, 111 U.S. 449 (1884), the Supreme Court considered the removal to federal court
of a civil action to block a corporate merger filed by a state, in its state court, against corporations
and corporate directors. The Court framed the question before it in a way clearly applicable to the
present cases:
The . . . question we have to consider is, therefore, whether suits cognizable in the
courts of the United States on account of the nature of the controversy, and which
need not be brought originally in the [S]upreme [C]ourt, may now be brought in or
removed to the circuit courts without regard to the character of the parties. All admit
that the act does give the requisite jurisdiction in suits where a State is not a party,
so that the real question is, whether the Constitution exempts the States from its
operation.
Id. at 470. Relying on Cohens v. Virginia, the Court rejected the state’s claim. Instead, it held that
“[t]he argument would have great force if urged to prove that this court could not establish the
demand of a citizen upon his State, but is not entitled to the same force, when urged to prove that
this court cannot inquire whether the Constitution or laws of the United States protect a citizen from
a prosecution instituted against him by a State.” Id. (internal quotation marks omitted).
Somewhat more recently, in Illinois v. City of Milwaukee, 406 U.S. 91 (1972), the Court held
that a federal district court, not the Supreme Court, had original jurisdiction over a suit brought by
a state against political subdivisions of another state. Sovereign immunity was not at issue, but the
Court nevertheless found Ames “controlling” and held that when a state sues a party that is not also
a state, those suits “‘may now be brought in or removed to the Circuit Courts (now the District
Courts) without regard to the character of the parties.’” Id. at 101 (quoting Ames, 111 U.S. at 470).
While Ames and City of Milwaukee arose under circumstances that differ from the present cases,
their express holdings that cases in which a state is the plaintiff may be brought in or removed to
federal court are equally applicable here. See California ex rel. Lockyer v. Dynegy, Inc., 375 F.3d
831, 846-47 (9th Cir. 2004).
Of course, Davis and Ames must be read in the context of other cases recognizing a state’s
broad right to sovereign immunity. While much Eleventh Amendment jurisprudence traditionally
has been focused on concerns that a judgment against a state would require it to pay money damages
from the public fisc, interfere with public administration, or compel a state to act or restrain from
acting, see Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 101 n.11 (1984), many of the
Supreme Court’s recent decisions on sovereign immunity have placed particular emphasis on the
dignity and respect owed states as separate sovereigns in our federal system, see, e.g., Alden, 527
U.S. at 709 (concluding that congressional authorization of suits against states in state courts would
be offensive to the “respect and dignity due them as residuary sovereigns”); Coeur d’Alene Tribe,
521 U.S. at 268 (observing that suits against states in federal court jeopardize “the dignity and
respect afforded a State”); Seminole Tribe of Florida v. Florida, 517 U.S. 44, 58 (1996) (stating that
the Eleventh Amendment serves to avoid the “indignity of subjecting a State to the coercive process
of judicial tribunals at the instance of private parties” (internal quotation marks omitted)); but see
Cohens, 19 U.S. at 406 (“We must ascribe the [Eleventh] amendment . . . to some other cause than
the dignity of a State.”).
All of these recent opinions, however, concerned suits against states that forced them to
defend actions prosecuted by private parties. Suits commenced by states stand on a different footing.
The removal of the cases here was the result of the voluntary acts of California and New Hampshire
in commencing the lawsuits against the defendants. Once having done so, these states subjected
themselves to all of the rules and consequences attendant to that decision. Indeed, in the foreign
sovereign immunity context, there is authority for the proposition that “when the sovereign seeks
recovery, it [is] subject to legitimate counterclaims against it.” Banco Nacional de Cuba v.
Sabbatino, 376 U.S. 398, 438 (1964); accord Nat’l City Bank of New York v. Rep. of China, 348
U.S. 356, 364 (1955) (“It is recognized that a counterclaim based on the subject matter of a
sovereign’s suit is allowed to cut into the doctrine of immunity.”). Because the defendants have not
asserted counterclaims, we need not decide whether these holdings also apply to the states in our
federal system. Suffice it to say, the removal of these cases will not subject the states to the indignity
or fiscal pain of being subject to a money judgment or an injunction – the core concerns underlying
the sovereign immunity to which they are entitled.
Our holding today that sovereign immunity does not preclude the removal to federal court
of a suit filed by a state plaintiff in state court is consistent with that reached by the vast majority of
courts to have considered the issue. In Dynegy, California brought an action against several energy
companies alleging violations of state law, and the defendants removed the case to federal court.
The state moved to remand on the basis of sovereign immunity. In a carefully researched and
reasoned opinion, the Ninth Circuit concluded, as we do today, that “history gives little indication
that sovereign immunity was ever intended to protect plaintiff states. Rather, it plainly understands
sovereign immunity as protection from being sued.” 375 F.3d at 847; accord City & County of San
Francisco v. PG & E Corp., 433 F.3d 1115, 1123 (9th Cir. 2006). The Tenth Circuit reached the
same conclusion in a state tort action removed to federal court, though it confined its discussion to
the Eleventh Amendment, not broader principles of sovereign immunity. See Oklahoma ex rel.
Edmondson v. Magnolia Marine Transp. Co., 359 F.3d 1237, 1239-40 (10th Cir. 2004) (holding that
“the Eleventh Amendment’s abrogation of federal judicial power ‘over any suit . . . commenced or
prosecuted against one of the United States’ does not apply to suits commenced or prosecuted by a
State”). The Fifth Circuit and the Federal Circuit have reached similar conclusions, albeit in cases
presenting different procedural postures. See Huber, Hunt & Nichols, Inc. v. Architectural Stone
Co., 625 F.2d 22, 24 n.6 (5th Cir. 1980) (stating, in a case brought against the State of Louisiana, that
“[o]f course, the eleventh amendment is inapplicable where a state is a plaintiff . . . .”); Regents of
the Univ. of California v. Eli Lilly & Co., 119 F.3d 1559, 1564 (Fed. Cir. 1997) (denying Eleventh
Amendment challenge to transfer of case brought by a state from one federal district court to
another). Numerous district court decisions have also held that the Eleventh Amendment and/or
state sovereign immunity does not bar removal of cases filed by a state plaintiff. See, e.g., Virginia
v. Bulgartabac Holding Group, 360 F. Supp. 2d 791, 796 (E.D. Va. 2005); In re Rezulin Prods. Liab.
Litig., 133 F. Supp. 2d 272, 297 (S.D.N.Y. 2001); In re Texas, 110 F. Supp. 2d 514, 530-31 (E.D.
Tex. 2000); Regents of Univ. of Minnesota v. Glaxo Wellcome, Inc., 58 F. Supp. 2d 1036, 1040 (D.
Minn. 1999); Kansas ex rel. Stovall v. Home Cable, Inc., 35 F. Supp. 2d 783, 789 (D. Kan. 1998);
Vermont v. Oncor Commc’ns, Inc., 166 F.R.D. 313, 321 (D. Vt. 1996); South Dakota State Cement
Plant Comm’n v. Wausau Underwriters Ins. Co., 778 F. Supp. 1515, 1522 (D.S.D. 1991).
We are aware of only two cases to have concluded otherwise. In California v. Steelcase Inc.,
792 F. Supp. 84 (C.D. Cal. 1992), the district court held that the Eleventh Amendment barred
removal of an action filed by a state plaintiff because it rendered the state “an involuntary party to
an action in federal court.” Id. at 86. Moore ex rel. State of Mississippi v. Abbott Laboratories, Inc.,
900 F. Supp. 26 (S.D. Miss. 1995), reached the same conclusion, relying entirely on the reasoning
of Steelcase. Id. at 30. In their brief analyses, however, both courts ignored the text of the Eleventh
Amendment insofar as it applied only to cases “commenced or prosecuted against” a state, as well
as the voluntary nature of the states’ continued participation in those cases. Moreover, whatever
force these cases had is undermined by the fact that Steelcase has been overruled by the Ninth
Circuit. See Dynegy, 375 F.3d at 849 n.15.
Our holding is not inconsistent with Thomas v. FAG Bearings Corp., 50 F.3d 502 (8th Cir.
1995), upon which both states rely. In that case, a defendant corporation, sued in federal court under
the Comprehensive Environmental Response, Compensation, and Liability Act, the Resource
Conservation and Recovery Act (“CERCLA”), and common law causes of action, sought to join the
Missouri Department of Natural Resources as an involuntary party plaintiff based on the agency’s
prior announcement that it intended to sue the defendant for the same equitable relief as the citizen
plaintiffs. In so doing, the defendant hoped to avoid the possibility that two separate lawsuits would
result in multiple or inconsistent judgments. Id. at 504. The Eighth Circuit found that joinder
would violate the Eleventh Amendment because it would force the state – to its prejudice – to
undertake proceedings against the defendant at a time and place not of its own choosing. Id. at 505.
Specifically, the Eighth Circuit observed that the state agency had “not yet completed the regulatory
process required by CERCLA and the Missouri environmental statute.” Id. at 505 n.10. Premature
litigation, it wrote, could prejudice the state in a variety of ways, e.g., by barring it from bringing
claims under other environmental statutes in later litigation and by limiting the costs it could seek
to recover from the defendant. Id. at 505 n.10, 506. These consequences would strike at the very
heart of the Eleventh Amendment by undermining the state’s asserted “autonomy in decision-
making” and harming the public fisc. Id. at 505-06.
The present cases, however, do not implicate the significant concerns that motivated the
holding in Thomas. Unlike the state agency in Thomas, which had not yet decided to bring suit
against the defendant – indeed, it had not even completed its investigation into the polluted site at
issue – here, California and New Hampshire have each made and acted upon the decision to
commence a lawsuit. This voluntary act subjects them to the consequences that Congress may
legitimately attach to such an action. Thus, we conclude that sovereign immunity does not bar the
removal of these state-commenced actions to federal court. The question we turn to then is whether
the removal of these cases has, in fact, been authorized by Congress.
II. Removal Jurisdiction
A. Jurisdiction to Hear Appeal
While the district court’s denial of the state plaintiffs’ claims of sovereign immunity is
appealable under the collateral order doctrine, Puerto Rico Aqueduct & Sewer Auth. v. Metcalf &
Eddy, Inc., 506 U.S. 139, 147 (1993), the denial of a motion to remand is generally not the proper
subject of an interlocutory appeal, see 28 U.S.C. § 1291; Chicago, Rock Island & Pac. R.R. Co. v.
Stude, 346 U.S. 574, 578 (1954); Wilkins v. Am. Export-Isbrandtsen Lines, Inc., 401 F.2d 151, 151
(2d Cir. 1968). Nevertheless, California and New Hampshire ask us to rule that the district court
erred in holding that these cases were removable under the federal officer and bankruptcy removal
statutes.
We conclude that review of this question is required pursuant to our independent obligation
to satisfy ourselves of the jurisdiction of this court and the court below. “On every writ of error or
appeal, the first and fundamental question is that of jurisdiction, first, of this court, and then of the
court from which the record comes. This question the court is bound to ask and answer for itself,
even when not otherwise suggested, and without respect to the relation of the parties to it.” Great
S. Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 453 (1900); accord Steel Co. v. Citizens for a Better
Env’t, 523 U.S. 83, 94-95 (1998); Arizonans for Official English v. Arizona, 520 U.S. 43, 73 (1997);
FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990); Bender v. Williamsport Area Sch. Dist.,
475 U.S. 534, 541 (1986).
This obligation is well-founded. “Subject-matter limitations on federal jurisdiction serve
institutional interests. They keep the federal courts within the bounds the Constitution and Congress
have prescribed. Accordingly, subject-matter delineations must be policed by the courts on their
own initiative even at the highest level.” Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583
(1999). Indeed, we have often taken it upon ourselves to determine whether removal jurisdiction
existed even where that issue was not itself appealed. See, e.g., Barbara v. New York Stock Exch.,
Inc., 99 F.3d 49, 53 (2d Cir. 1996) (“Although neither party raises this issue on appeal, we are under
an obligation to do so sua sponte.”); Mignogna v. Sair Aviation, Inc., 937 F.2d 37, 40 (2d Cir. 1991)
(“The parties have not raised the issue of removal jurisdiction on this appeal, but it is our obligation
to do so sua sponte.”); see also Sykes v. Texas Air Corp., 834 F.2d 488, 492 n.16 (5th Cir.1987)
(“When the district court decides to retain a case in the face of arguments that it lacks jurisdiction,
the decision itself is technically unreviewable; but of course the appellate court reviewing any other
aspect of the case must remand for dismissal if the refusal to remand was wrong, i.e., if there is no
federal jurisdiction over the case.”).
This obligation is not extinguished because an appeal is taken on an interlocutory basis and
not from a final judgment. See Merritt v. Shuttle, Inc., 187 F.3d 263, 268 (2d Cir. 1999). Indeed,
we relied on Merritt in our order in this case denying Citgo Petroleum Corp.’s motion to limit the
scope of the appeal to the issue of sovereign immunity, see Berisha v. BP Amoco Corp., Nos.
04-5974-cv (L), 04-6056-cv (Con) (2d Cir. June 27, 2005), and we do so again today. Because
subject matter jurisdiction goes uniquely to the fundamental power of the federal courts to hear a
case, there is no reason why an appellate court should potentially compound an error of the district
court by assuming it has jurisdiction. See Steel Co., 523 U.S. at 101-02 (“For a court to pronounce
upon the meaning or the constitutionality of a state or federal law when it has no jurisdiction to do
so is, by very definition, for a court to act ultra vires.”). Indeed, there are sound policy reasons for
tackling the issue at this stage, as “[i]t is surely in the interest of judicial economy to determine now
whether the federal courts continue to have subject matter jurisdiction over [a] controversy [subject
to an interlocutory appeal].” Lamar Adver. of Penn, LLC v. Town of Orchard Park, 356 F.3d 365,
372-73 (2d Cir. 2004).
Moreover, this obligation is not undermined by the Supreme Court’s holding in Swint v.
Chambers County Commission, 514 U.S. 35 (1995). In that case, the Supreme Court held that, when
a federal appellate court reviews a district court decision on an interlocutory basis, it may not at the
same time review unrelated questions that are not themselves entitled to expedited consideration.
Id. at 51. Specifically, the Court held that, while an order denying a claim of qualified immunity was
the proper subject of an interlocutory appeal, another order denying a motion for summary judgment
was not an appealable collateral order under the test announced in Cohen v. Beneficial Industrial
Loan Corp., 337 U.S. 541 (1949). The Court held open the possibility, however, that pendent
appellate jurisdiction would be proper if the two rulings were “inextricably intertwined” or if “review
of the former decision was necessary to ensure meaningful review of the latter.” Swint, 514 U.S.
at 51. While we have previously suggested that those two phrases mean “essentially the same thing,”
Rein v. Socialist People’s Libyan Arab Jamahiriya, 162 F.3d 748, 758 (2d Cir. 1998) (Calabresi, J.),
we have also left open the possibility that the two phrases are not redundant, see Lamar Adver., 356
F.3d at 371 n.7.
Nevertheless, there are several reasons why Swint is inapposite. Because the district court
in Swint had subject matter jurisdiction over the collateral order on appeal, the Supreme Court did
not have occasion to address whether its holding applied to the special subset of cases in which the
district court did not have subject matter jurisdiction. Indeed, the issue decided in that case was
whether a litigant had the right to appeal the collateral order, not whether the appellate court had the
right to address an issue, such as subject matter jurisdiction, on its own initiative. Under these
circumstances, we are not inclined to assume that Swint decided a significant issue that it had no
reason to consider. See Jenkins v. Delaware, 395 U.S. 213, 216 (1969).
In any event, the present cases satisfy the exception acknowledged in Swint for those
circumstances where the appealed interlocutory order cannot be meaningfully reviewed without
consideration of a related ruling not itself appealable or where the two issues are inextricably
intertwined. Specifically, in Merritt, we held that the review of a collateral order “would be
meaningless if the district court was without jurisdiction over that claim in the first instance.” 187
F.3d at 269. This broad holding plainly compels the conclusion that the review of the issue of
sovereign immunity would be meaningless if the district court was without subject matter
jurisdiction over these actions. More than this, however, the appealable order relating to sovereign
immunity and the collateral issue of removal jurisdiction are significantly related. Our holding
rejecting the sovereign right asserted by California and New Hampshire to prosecute these cases in
courts of their own choosing is predicated on the assumption that federal law authorizes the removal
of these cases. Under these circumstances, the ultimate resolution of the sovereign immunity claim
turns on whether these cases were properly removed to federal court. The relationship between these
two issues is analogous to that between the issues presented in interlocutory appeals by public
officials from claims of qualified immunity in cases alleging the violation of a constitutional right.
In those cases, we routinely exercise pendent appellate jurisdiction over the issue of whether a
constitutional right has been violated, because “the merits of a constitutional claim generally are
inextricably intertwined with qualified immunity . . . . [W]e must determine whether a constitutional
right has been violated before deciding whether the right was clearly established.” Demoret v.
Zegarelli, 451 F.3d 140, 152 (2d Cir. 2006). Similarly, except as an abstract matter, we cannot
resolve the defense of sovereign immunity here without determining whether the removal statutes
confer subject matter jurisdiction on the district court.
The defendants suggest that we may not determine the jurisdiction of the district court
because we do not have appellate jurisdiction “over the entire case.” Defs.’ Br. at 31. While it is
true that our jurisdiction is limited to the subject matter of the appeal – we may not, for instance,
reach the merits of the case – we unquestionably have jurisdiction to decide whether there is any
further impediment to our exercise of jurisdiction over the subject matter of the case and, by
extension, the jurisdiction of the court below. The defendants also suggest that we have, on many
occasions, “been willing to forego inquiry into the district court’s jurisdiction where the question was
not constitutional or where the merits were foreordained, suggesting that such review is not
mandatory.” Defs.’ Br. at 33 (citing Dotson v. Griesa, 398 F.3d 156, 177 (2d Cir. 2005); In re
Arbitration Between Monegasque de Reassurance S.A.M. v. Nak Naftogaz of Ukraine, 311 F.3d 488,
497-98 (2d Cir. 2002); Ctr. for Reprod. Law & Policy v. Bush, 304 F.3d 183, 194 (2d Cir. 2002);
United States v. Miller, 263 F.3d 1, 4 n.2 (2d Cir. 2001); Fama v. Comm’r of Corr. Servs., 235 F.3d
804, 817 n.11 (2d Cir. 2000)). Setting aside the fact that the issue of the propriety of removal cannot
so easily be separated from the claims of sovereign immunity, the defendants misstate the import of
our decisions. In each of these cases, our holding on the merits directed the dismissal of the
complaints – the same result that would have followed had we decided that subject matter
jurisdiction was lacking. In the present cases, however, the denial of the plaintiffs’ claims of
sovereign immunity would not result in the dismissal of the complaints; thus, we have an obligation
to determine whether the district court has subject matter jurisdiction to go forward.
In sum, while an order denying a motion to remand may normally be reviewed only after
entry of a final judgment, our obligation to remain assured of our jurisdiction and that of the court
below remains intact. Therefore, in ruling in this interlocutory appeal, we must determine whether
there is a proper basis for removal of these cases.
B. Bases for Removal
The district court recognized two bases for removal of these and other related state court
lawsuits to federal court: (1) the federal officer removal statute, for cases in areas covered by the
RFG Program and in adjacent “spillover” areas, MTBE III, 342 F. Supp. 2d at 156-58; MTBE V, 341
F. Supp. 2d at 400, and (2) the bankruptcy removal statute, MTBE V, 341 F. Supp. 2d at 414. In
determining whether jurisdiction is proper, we look only to the jurisdictional facts alleged in the
Notices of Removal. See Colorado v. Symes, 286 U.S. 510, 518-19 (1932) (“The burden is upon
him who claims the removal plainly to set forth by petition made, signed, and unequivocally verified
by himself all the facts relating to the occurrence, as he claims them to be, on which the accusation
is based.”); see also Mesa, 489 U.S. at 131-34 (requiring averment of a colorable federal defense in
the notice of removal). The Supreme Court has held that “statutory procedures for removal are to
be strictly construed,” Syngenta Crop Prot., Inc. v. Henson, 537 U.S. 28, 32 (2002), and we have
held that out of respect for the limited jurisdiction of the federal courts and the rights of states, we
must “resolv[e] any doubts against removability.” Somlyo v. J. Lu-Rob Enters., Inc., 932 F.2d 1043,
1045-46 (2d Cir. 1991).
1. Federal Officer Removal
The federal officer removal statute, in relevant part, permits the removal of cases commenced
in state court against “any officer (or any person acting under that officer) of the United States or of
any agency thereof, sued in an official or individual capacity for any act under color of such
office . . . .” 28 U.S.C. § 1442(a)(1). A defendant who is not a federal officer or agency must satisfy
three elements to have a suit against it removed under this statute. First, it must show that it is a
“person” within the meaning of the statute. Second, it must establish that it was “acting under” a
federal officer, which subsumes the existence of a “‘causal connection’ between the charged conduct
and asserted official authority.” Willingham, 395 U.S. at 409. Finally, the defendant must raise a
colorable federal defense. Mesa, 489 U.S. at 129.
Because it is clear that corporations are “persons” within the meaning of the statute, see 1
U.S.C. § 1; Ryan v. Dow Chem. Co., 781 F. Supp. 934, 946 (E.D.N.Y. 1992), we turn to the
requirement that the defendants have been “acting under” a federal officer. Although the district
court considered this question to be separate from that of the existence of a causal connection
between the conduct in question and the federal direction, MTBE III, 342 F. Supp. 2d at 154, they
tend to collapse into a single requirement: that “the acts that form the basis for the state civil or
criminal suit were performed pursuant to an officer’s direct orders or to comprehensive and detailed
regulations.” Ryan, 781 F. Supp. at 947. “Critical under the statute is to what extent defendants
acted under federal direction at the time they were engaged in the conduct now being sued upon.”
Id. at 946 (citation and internal quotation marks omitted). Removal will not be proper where a
private party establishes only that the acts complained of were performed under the “general
auspices” of a federal officer. Id. at 947. “Likewise, the mere fact that a corporation participates in
a regulated industry is insufficient to support removal absent a showing that the particular conduct
being sued upon is closely linked to detailed and specific regulations.” Id.; see also Bakalis v.
Crossland Sav. Bank, 781 F. Supp. 140, 145 (E.D.N.Y. 1991) (describing the need for some
government intervention or control, other than that contemplated by a generally applicable regulatory
scheme, as “regulation plus”).
The line between the absence and the presence of “direct control” by a federal officer over
a private party is a fine one, depending heavily on the facts of each case and the particular conduct
giving rise to the plaintiff’s cause of action. For example, in Ryan, Judge Weinstein considered
whether seven companies that had manufactured the cancer-causing defoliant Agent Orange for the
United States Armed Forces could remove the actions from state to federal court. He first noted that
government officers exercised a high degree of control over the defendants’ production and delivery
processes. 781 F. Supp. at 938. Judge Weinstein then observed, however, that the defendants were
being sued on the theory that Agent Orange was improperly designed and produced, and relied on
the assumption that Agent Orange “was a mix of pre-existing chemical formulae that had long been
put to domestic commercial use.” Id. at 950. On this basis, he concluded that the defendants had
not met the requirements for removal under section 1442:
They are being sued for formulating and producing a product all of whose
components were developed without direct government control and all of whose
methods of manufacture were determined by the defendants. Although the
defendants later produced and delivered Agent Orange under the control of federal
officers, these subsequent acts are distinct from the earlier acts of product and
manufacturing design being sued upon. The government sought only to buy
ready-to-order herbicides, not to cause, control, or prevent the production of the
unwanted byproduct, dioxin, which is the alleged cause of plaintiffs’ injuries. The
necessary direct and detailed official control over the acts for which the defendants
are now being sued is therefore lacking.
Id.
In a subsequent Agent Orange case, a different court found that removal was proper in light
of a more developed record that undermined the factual basis for Judge Weinstein’s decision and
evidenced the more direct control of federal officers. In Winters v. Diamond Shamrock Chemical
Co., 901 F. Supp. 1195 (E.D. Tex. 1995), aff’d, 149 F.3d 387 (5th Cir. 1998), the district court found
that “the Defense Department expressly directed chemical companies to provide a detailed mixture
of chemicals known as Agent Orange” and that the defendants were “compelled under threat of
criminal sanctions” to deliver it. Id. at 1199. The Fifth Circuit cited those facts in affirming the
action’s removal. 149 F.3d at 398; see also Miller v. Diamond Shamrock Co., 275 F.3d 414 (5th Cir.
2001). On its own review of the record, the Fifth Circuit also observed that, while the defendant
manufacturers had always diluted the active ingredients in Agent Orange with inert chemicals before
commercial use, it was the Defense Department that required the defendants to produce Agent
Orange comprising only the undiluted active ingredients for use in Vietnam. 149 F.3d at 399. This
combination of factors – the government’s detailed specifications, the defendants’ compulsion to
provide the product to those specifications, and the government’s oversight over the manufacturing
process – caused the court to determine that removal was appropriate. Id. at 399-400. Indeed,
relying on these facts, Judge Weinstein would later conclude that his earlier decision in Ryan was
wrong and that removal was proper. See In re “Agent Orange” Prod. Liab. Litig., 304 F. Supp. 2d
442, 449-50 (E.D.N.Y. 2004).
Adopting these standards for determining when a private party is “acting under” a federal
officer for the purpose of removal jurisdiction, we now turn to the reasons stated by the district court
in sustaining the removal of the complaints here. The district judge began her analysis with three
observations. First, the defendants alleged in their Notices of Removal that “the Clean Air Act, and
regulations promulgated thereunder, require them to blend oxygenates into gasoline.” MTBE III,
342 F. Supp. 2d at 156. Second,“defendants allege that at the time the Clean Air Act was amended
and the seven oxygenates were approved for use, both Congress and the EPA were aware that
defendants would have to use MTBE in order to comply with the Act’s requirements.” Id. Third,
“[a]lthough the EPA has identified seven additives that may be used to meet these requirements,
MTBE is the only approved oxygenate that is available in quantities sufficient to comply with the
Act and regulations.” Id. On this basis, the district judge concluded, “defendants have sufficiently
alleged that they added MTBE to gasoline at the direction of the EPA, a federal agency.” Id. We
cannot agree.
The conclusion of the district judge is not based on an explicit directive in either the Clean
Air Act or its implementing regulations. Significantly, after oral argument in this appeal, the district
judge held that “federal law did not require the use of MTBE.” In re Methyl Tertiary Butyl Ether
(“MTBE”) Prods. Liab. Litig., 457 F. Supp. 2d 324, 335 (S.D.N.Y. 2006) (denying summary
judgment to defendants on issue of preemption). Indeed, the district judge and the defendants
acknowledged that the EPA identified six other additives, besides MTBE, that could be blended into
reformulated gasoline to meet the requirements imposed by the CAA and the regulations
promulgated thereunder. MTBE III, 342 F. Supp. 2d at 156. Thus, although the district judge was
correct in her first observation – that the defendants alleged they were required to blend oxygenates
into gasoline – because this allegation lacks a foundation in law, it is unavailing in supporting
removal. Moreover, the complaints here are not predicated simply on the fact that the defendants
blended oxygenates into gasoline. Instead, they focus on the use of one particular oxygenate, MTBE,
and the harm caused by the release of gasoline containing MTBE into the states’ water supplies.
Under these circumstances, we understand the district court to have found removal proper
on the premise that, if the defendants were compelled to use a particular additive – in this case
MTBE – because there was no sufficiently available alternative to meet CAA requirements, it would
demonstrate that the defendants were acting pursuant to the direct orders of a federal agency, at least
where, at the time the regulation was promulgated, the agency was aware of these market forces. We
assume for present purposes that such market compulsion would satisfy the federal officer removal
statute. Nevertheless, the district judge somewhat overstated the language in the Notices of Removal
when she observed that the defendants alleged that “Congress and the EPA were aware that
defendants would have to use MTBE in order to comply with the Act’s requirements.” MTBE III,
342 F. Supp. 2d at 156. The Notices of Removal do not so allege. Nor do they allege that “MTBE
is the only approved oxygenate that is available in quantities sufficient to comply with the Act and
regulations.” Id. On their faces, the Notices of Removal, which are virtually identical for the present
purposes, come closest when they allege that “Congress also knew, when it enacted these oxygenate
mandates, that the industry would have to blend MTBE into at least some of the gasoline sold in OFP
and RFG areas in order to comply with the program requirements.” N.H. Notice of Removal ¶ 19;
Cal. Notice of Removal ¶ 19. The Notices of Removal also allege – without citation to any
supporting document – that, at some point in time, the EPA “knew there was not a sufficient capacity
of ethanol, on a nationwide basis, nor sufficient infrastructure for ethanol, to comply with the
regulation.” N.H. Notice of Removal ¶ 33; Cal. Notice of Removal ¶ 34.
The allegation as to what Congress “knew” is based entirely on the floor statements by a
handful of individual legislators rather than explicit findings of fact in the legislation itself. Because
such “[f]loor debates reflect at best the understanding of individual Congressmen,” Zuber v. Allen,
396 U.S. 168, 186 (1969), they are of little value even in construing ambiguous statutes. The issue
here, however, does not turn on the construction of statutory language. Instead, the statements in the
floor debates are offered to prove what Congress as a whole understood would be the practical
consequences of the statute it was discussing. On this score, they do not constitute competent
evidence.
Nevertheless, while we decide this appeal without reliance on the floor debate, the statements
made during its course are useful in evaluating the defendants’ arguments that they were victims of
a course of action that they were forced by Congress to undertake. Some background is necessary.
While the RFG Program required only 2 percent oxygen content for gasoline in areas with too much
summertime smog, the Oxyfuel Program imposed a higher standard during the winter months in
areas with too much carbon monoxide. The bill introduced in the Senate, passed out of committee
and endorsed by the White House, originally provided that gasoline subject to the Oxyfuel Program
contain 3.1 percent oxygen, not 2.7 percent oxygen. While ethanol could be used to reach that 3.1
percent threshold, MTBE alone could not. In order to overcome this impediment to the use of
MTBE as an oxygenate, and ostensibly to give flexibility to state and local officials, Senator
Lautenberg introduced an amendment on the floor reducing the oxygen-content requirement from
3.1 percent to 2.7 percent.
The floor debate on which the defendants rely is derived principally from the colloquy that
ensued after Senator Lautenberg introduced his amendment. Indeed, their evidence of congressional
intent is composed largely of statements made by several farm-belt Senators defending the 3.1
percent standard. While Senator Daschle, for example, is quoted by the defendants as saying that
he wanted MTBE, along with other oxygenates, “to play a role in achieving a variety of national
objectives,” he did so in the context of opposing an amendment that would have encouraged
significantly greater use of that additive at the expense of ethanol. See 136 Cong. Rec. S 2280, 2289
(Mar. 7, 1990). Indeed, any reasonable reading of the floor debate establishes, if anything, that many
of the Senators engaged in the debate believed that ethanol production would expand to meet
increased demand and that the 3.1 percent standard would operate to the severe detriment of those
who manufactured or wished to use MTBE. Otherwise, the Lautenberg Amendment and the debate
it engendered were pointless.
More than this, the statements made during the floor debate, if credited, support the premise
that many of the defendants actually lobbied Congress for a lower oxygen-content requirement that
would make it possible for them to use more MTBE – a chemical created from natural gas and
byproducts of the gasoline-refining process – and less ethanol. As Senator Grassley, one of the farm-
state legislators, observed:
[B]y dropping the standard down to 2.7 percent, we will actually be cutting ethanol
and American farmers out of a major market.
So who will really gain by changing from 3.1 to 2.7 percent? The answer is
obvious! Big oil!! Big oil will gain because those companies control the methanol
and MTBE. The [b]ig oil companies make up much of the membership of the
so-called [C]onsumers for [C]ompetitive [F]uels which supports this amendment.
Big consumers like Shell, Mobil, Exxon, Phillips, Amoco, Chevron, just to name a
few.
The debate over this amendment, therefore, really boils down to this: If you
want to help big oil maintain its lock on our fuel supply and if you want to weaken
the Clean Air Act, then vote to reduce the 3.1-percent requirement down to 2.7
percent.
On the other hand, if you want to improve our air, and provide the Federal
Government with some net savings, then vote to retain the 3.1-percent requirement.
Because with 3.1, you are going to encourage the use of ethanol – a proven pollution
fighter produced by American farmers, not big oil.
136 Cong. Rec. S 2290, 2295-96 (Mar. 7, 1990) (emphasis added). Likewise, Senator Dole added:
The amendment is an antienvironmental, big oil bailout, and I am surprised
anyone would think it should be given serious consideration to a bill which is
supposed to help our environment. . . .
....
Make no mistake, this is a big oil amendment. The major international oil
companies control foreign natural gas reservoirs, and they are looking for a market
– your gas tank and the gas tanks of your constituents. By voting for the Lautenberg
amendment, you will be closing an opportunity for a clean-burning, domestically
produced product from our motor fuels market, leaving nothing to compete against
oil company-owned feedstocks. If you vote for this amendment, do not complain
about high gasoline prices, because you voted against competition.
Id. at 2297. Perhaps the most candid comments on this issue came from Senator Simpson, who
explained his vote by stating:
Mr. President, I find myself in disagreement with my fine leader [Senator
Dole] and some of my farm State colleagues on this one. I would like to see all types
of oxygenates used to reduce carbon monoxide and other pollutants – for I believe
they are useful fuel additives and are very necessary in nonattainment areas.
We often react to issues based on parochial concerns. Here is such a case.
I find that I must support the amendment offered by my able colleague, the Senator
from New Jersey. There are many small refiners in my State that produce MTBE or
methyl tertiary butyl ether and a major corporation has just announced they are
planning to build a new MTBE plant in my State and that they will be making MTBE
from natural gas. Then we also have the potential to make methanol from coal and
natural gas and we have great reserves of those products in my State. I also have
farmers to represent and they would like to produce ethanol as well, but not on the
same scale as the MTBE producers.
So, I do support the amendment to change the oxygenate number to 2.7. This
is assuredly a tough issue, but I must support my State on this one.
Id. at 2299. While the legislation that emerged from the House-Senate Conference suggests that the
large oil companies ultimately obtained the result they allegedly sought, namely, the reduction of the
oxygenation requirement to 2.7 percent, this proves little more than that they achieved the goal of
ensuring that MTBE would be used widely as an oxygenate. It does not establish, however, that the
defendants were required to use MTBE or that, if MTBE were not used, ethanol producers would
have been unable to meet the expected demand in the few years before the fuel-oxygenation
requirements took effect.
Nor are the defendants aided by the allegation that, at some unspecified time, the EPA “knew
there was not a sufficient capacity of ethanol, on a nationwide basis, nor sufficient infrastructure for
ethanol, to comply with the regulation.” N.H. Notice of Removal ¶ 33; Cal. Notice of Removal ¶ 34.
First, apart from what the EPA may have understood about the supply of ethanol at the time the
regulations were promulgated, the Notices of Removal do not allege that there was, in fact, an
insufficient supply of alternative oxygenates, or that the EPA entertained such an understanding.
Second, and more importantly, this allegation does not support the conclusion that had the
defendants decided to use ethanol (or some other oxygenate) instead of MTBE, it would have been
impossible for the supply of ethanol to have grown to meet that demand before the EPA regulations
implementing the CAA amendments took effect. While the defendants allege that “the notices’
allegations of impossibility cover this easily,” Defs.’ Br. at 53 n.13, we do not find this specific
allegation in the Notices of Removal, and the defendants do not cite any particular paragraph where
it appears. Indeed, although we rely only on the language of the Notices of Removal, the plaintiffs
argue persuasively, and without contradiction, that the defendants’ argument that ethanol capacity
was insufficient is “a classic example of confusing the cart with the horse: ethanol supplies were low
because the oil industry chose not to use it, not the other way around.” N.H. Br. at 28.
Against this backdrop, the other allegations in the Notices of Removal are similarly
unavailing. Even if the Notices of Removal were sufficient to establish that Congress and the EPA
may have expected that the defendants would use MTBE, they leave unstated the reason for that
expectation. Of course, constraints on the supply of other oxygenates constitute one plausible
explanation, but it is also possible that Congress and the EPA based their expectation on price
differences among the oxygenates or the fact that the major oil companies also controlled the natural
gas from which MTBE is derived. That it may have been more convenient or less expensive for the
defendants to use MTBE does not mean it would have been impossible for them to use other, less-
polluting additives. Moreover, most of the facts alleged by the defendants in their Notices of
Removal only indicate that MTBE would be one of several oxygenates used, and many of the floor
statements cited by the defendants put ethanol and ethyl tertiary butyl ether, another oxygentate, on
equal footing with MTBE with respect to the means by which gasoline refiners would comply with
the terms of the CAA. In sum, the defendants have not met their burden of providing “candid,
specific and positive” allegations, Willingham, 395 U.S. at 408 (internal quotation marks omitted),
that they were acting under federal officers when they added MTBE, and not some approved
alternative, to their reformulated gasoline.
Moreover, the defendants’ reliance on Watson v. Philip Morris Cos., 420 F.3d 852 (8th Cir.
2005), cert. granted, 127 S. Ct. 1055 (2007) (No. 05-1284), is misplaced. In that case, users of so-
called “light” cigarettes sued a cigarette manufacturer in state court under a state law barring
deceptive trade practices, alleging that it had designed its cigarettes to deliver more tar and nicotine
to smokers than its use of the terms “light” and “lowered tar and nicotine” would suggest.
Specifically, pursuant to a voluntary agreement with the Federal Trade Commission (“FTC”) entered
into in 1970, Philip Morris and other cigarette manufacturers had used a standard testing mechanism
designed by the FTC to measure the amount of tar and nicotine in its products and had displayed the
results in all of its advertisements. This filter test was known to be imperfect, as it did not accurately
measure the tar and nicotine inhaled by a person under real-world conditions. Rather, it was
intended to provide a standard methodology for comparing the relative amounts of these substances
present in different varieties of cigarettes. In addition, the FTC permitted manufacturers to advertise
a cigarette as “light” or “low tar” if the tar collected using the FTC’s testing apparatus fell below a
certain level. The plaintiffs contended that Philip Morris manipulated the design and content of its
“light” cigarettes so that they would score well on the FTC test, even though they were as or more
harmful than regular cigarettes.
Philip Morris removed the case from state to federal court on the ground that it was acting
under a federal officer for the purposes of cigarette testing and advertising. The district court denied
the plaintiffs’ motion to remand, and the Eighth Circuit affirmed, holding that Philip Morris was
acting at the direction of the FTC. Specifically, it noted that the FTC specified the testing procedures
to be used with the same particularity that the Defense Department specified the formula for Agent
Orange, determined the language to be used to disclose the tar and nicotine content of each type of
cigarette, monitored the industry’s testing labs, independently verified the manufacturers’ results,
monitored the content of cigarette advertisements, and threatened enforcement actions against
manufacturers that did not comply with the terms of the “voluntary” agreement in any way. Watson,
420 F.3d at 858-60. The Eighth Circuit further observed that “[t]he FTC involved itself in the
tobacco industry to an unprecedented extent” and that it engaged in “an unusually high level of
governmental participation and control.” Id. at 860.
There are several reasons why we are not persuaded that the decision in Watson is useful to
our resolution of this appeal. First, even if we assume Watson was correctly decided, its conclusion
was by no means inevitable. The plaintiffs did not challenge any conduct undertaken by or at the
direction of the FTC, including the testing of the cigarettes using the government-specified
methodology or the public disclosure of the test results. Instead, they alleged that Philip Morris
manipulated its cigarettes to achieve particular test results, even though the “light” cigarettes were
as or more harmful than regular cigarettes, and as a result, the marketing of Philip Morris’s cigarettes
as “light” was misleading. While the FTC permitted Philip Morris to use the word “light” in its
advertisements on the basis of the test results, it did not require the company to do so. Moreover,
at least three federal courts facing similarly stated allegations regarding “light” cigarettes did not find
the federal officer removal statute satisfied and remanded those cases back to state court. See
Paldrmic v. Altria Corp. Servs., Inc., 327 F. Supp. 2d 959 (E.D. Wis. 2004); Virden v. Altria Group,
Inc., 304 F. Supp. 2d 832 (N.D. W. Va. 2004); Tremblay v. Philip Morris, Inc., 231 F. Supp. 2d 411
(D.N.H. 2002); cf. Brown v. Philip Morris Inc., 250 F.3d 789, 801 (3d Cir. 2001) (in Bivens action,
“[t]he mere fact that a tobacco company has complied with the requirements of a federal law cannot
suffice to transform it into a federal actor any more than the compliance of a myriad of private
enterprises with federal law and administrative regulations could of itself work such a
transformation”).
More significantly, the grounds for removal in Watson were more compelling than those in
the present cases. For one thing, the FTC’s level of control and monitoring over the cigarette
industry, which the court described as “unprecedented,” 420 F.3d at 860, was stronger than that of
the EPA over the gasoline industry. The FTC required the regulated companies to test its products
using an apparatus and a methodology created and specified by the federal government; it required
manufacturers to disclose the results of those tests in their advertisements; and it held a sword over
the manufacturers’ heads by threatening to take action against any company that deviated from the
requirements set forth in the “voluntary” agreement. Id. at 858-61. By contrast, while federal
regulations at issue here have much to say about gasoline content, they allow refiners to use any of
several additives to meet federal oxygenation requirements and say nothing regarding the marketing
of gasoline containing MTBE, a highly dangerous compound that, like tar and nicotine, poses a
threat to human health if ingested.
Lastly, we are mindful of Judge Gruender’s concurring opinion in Watson, which cautioned
that “our decision today should not be construed as an invitation to every participant in a heavily
regulated industry to claim that it, like Philip Morris, acts at the direction of a federal officer.” Id.
at 863. Judge Gruender observed, and we agree, that “in most instances, a contract, principal-agent
relationship, or near-employee relationship with the government will be necessary to show the degree
of direction by a federal officer necessary to invoke removal under 28 U.S.C. § 1442(a)(1).” Id.
Judge Gruender concurred with the court’s opinion because he found that “the FTC’s direction and
control of the testing and marketing practices at issue is extraordinary,” id. at 863-64, but there is
no similar direction and control in the present cases.
The federal officer removal statute is not to be construed grudgingly, Arizona v. Manypenny,
451 U.S. 232, 242 (1981), but we do not believe it was intended to be construed so broadly that it
would federalize a broad spectrum of state-law tort claims against entities regulated by – though not
acting under – officers or agencies of the United States. As we have found that removal was
inappropriate under the federal officer removal statute because the defendants did not act under an
officer of the United States, we need not address the last requirement for removal under the federal
officer removal statute, i.e., whether defendants have offered a “colorable” federal defense.
2. Bankruptcy Removal
Pursuant to the bankruptcy removal statute, “[a] party may remove any claim or cause of
action in a civil action other than . . . a civil action by a governmental unit to enforce such
governmental unit’s police or regulatory power, to the district court for the district where such civil
action is pending, if such district court has jurisdiction of such claim or cause of action under section
1334 of this title.” 28 U.S.C. § 1452. Section 1334, in turn, grants the federal district courts original
jurisdiction over all cases under Title 11 of the United States Code. 28 U.S.C. § 1334(a). The state
plaintiffs clearly are governmental units. See 11 U.S.C. § 101(27). The question we must answer,
then, is whether these actions are intended to enforce California’s and New Hampshire’s “police or
regulatory powers,” bringing them within the exception to removal in section 1452.
We have never had occasion to define the parameters of a governmental unit’s police or
regulatory power in the context of section 1452. We have, however, addressed that question in
dealing with the automatic stay provision of the bankruptcy code. That clause, in relevant part,
exempts from the automatic stay “the commencement or continuation of an action or proceeding by
a governmental unit . . . to enforce such governmental unit’s . . . police and regulatory power,
including the enforcement of a judgment other than a money judgment . . . .” 11 U.S.C. § 362(b)(4).
As “[t]he language of the police and regulatory power exceptions in the automatic stay context and
in the removal context is virtually identical, and the purpose behind each exception is the same,”
PG & E Corp., 433 F.3d at 1123, we think it proper to look to judicial interpretations of section 362
for guidance.
In City of New York v. Exxon Corp., 932 F.2d 1020 (2d Cir. 1991), New York City sued
fifteen corporations to recover the costs of removing hazardous substances contained in industrial
wastes produced by the defendants from several city-owned landfills. One of those defendants later
filed for bankruptcy protection and sought to stay the action. We declined to grant a stay, holding
that “Congress meant to except damage actions for completed violations of environmental laws from
the action of the stay.” Id. at 1024. In support, we cited the legislative history of the automatic stay
provision, which stated that “where a government unit is suing a debtor to prevent or stop violation
of [laws relating to] fraud, environmental protection, consumer protection, [or] safety, or similar
police or regulatory laws, or attempting to fix damages for violation of such a law, the action or
proceeding is not stayed under the automatic stay.” Id. (quoting H.R. Rep. No. 595, at 343 (1978),
reprinted in 1978 U.S.C.C.A.N. 5963, 6299). This approach is consistent with that of other cases,
which have held that “the term ‘police or regulatory power’ refers to the enforcement of state laws
affecting health, welfare, morals, and safety, but not regulatory laws that directly conflict with the
control of the res or property by the bankruptcy court.” In re Missouri, 647 F.2d 768, 776 (8th Cir.
1981); accord In re Javens, 107 F.3d 359, 369-70 (6th Cir. 1997); Hillis Motors, Inc. v. Hawaii
Auto. Dealers’ Ass’n, 997 F.2d 581, 591 (9th Cir. 1993).
While the similarity between the present cases and Exxon strongly suggests that the present
proceedings fall within the “police or regulatory power” exception to removal under section 1452,
the defendants suggest that the exception will not apply where “the government action directed
against the debtor relates mainly to the protection of a pecuniary interest rather than the enforcement
of regulatory police powers for the protection of the general public.” Defs.’ Br. at 67 (quoting In re
Greenwald, 34 B.R. 954, 956-57 (Bankr. S.D.N.Y. 1983)). In so arguing, the defendants allude to
the “pecuniary purpose” test adopted in other circuits, see, e.g., Lockyer v. Mirant Corp., 398 F.3d
1098, 1108 (9th Cir. 2005); Chao v. Hosp. Staffing Servs., Inc., 270 F.3d 374, 385 (6th Cir. 2001),
under which it is necessary to determine whether the governmental action relates primarily to the
government’s pecuniary interest in the debtor’s property, in which case the automatic stay applies,
or to matters of safety and welfare, in which case the suit may proceed. Cases that employ the
pecuniary purpose test also use the “public purpose” test, under which the reviewing court
determines whether the government seeks to “effectuate public policy” or “adjudicate private rights.”
Mirant, 398 F.3d at 1109 (internal quotation marks omitted). While these tests were developed in
connection with section 362, the automatic stay provision, the Ninth Circuit has applied them in the
context of section 1452. PG & E Corp., 433 F.3d at 1124.
Although we do not find it necessary to pass on the validity of these tests at this time, we find
them satisfied in this case. The California and New Hampshire actions relate primarily to matters
of public health and welfare, and the money damages sought will not inure, strictly speaking, to the
economic benefit of the states. Instead, the clear goal of these proceedings is to remedy and prevent
environmental damage with potentially serious consequences for public health, a significant area of
state policy. Thus, even under the tests advocated by the defendant companies, these proceedings
represent efforts by California and New Hampshire to enforce their “police or regulatory power” and
are not subject to removal under section 1452.
Apart from the question of whether these lawsuits are actions by governmental units to
enforce their police or regulatory powers, the defendants contend that the police power exception
in section 1452 does not apply to actions seeking money damages for past conduct. While the
“pecuniary purpose” test, discussed above, concerns whether or not a suit is for a police or regulatory
purpose, this argument presupposes that any action seeking money damages is barred. The
defendants’ argument is without merit for two reasons. First, the automatic stay provision of section
362 bars only a governmental unit’s attempt to enforce a money judgment, not, as here, a suit seeking
entry of a money judgment. See SEC v. Brennan, 230 F.3d 65, 71 (2d Cir. 2000) (“It is well
established that the governmental unit exception of § 362(b)(4) permits the entry of a money
judgment against a debtor so long as the proceeding in which such a judgment is entered is one to
enforce the governmental unit’s police or regulatory power.”); see also Penn Terra Ltd. v. Dep’t of
Envtl. Res., 733 F.2d 267, 272 (3d Cir. 1984). Second, section 1452 contains no provision
distinguishing between lawsuits seeking to enforce a money judgment and those seeking merely the
entry of a money judgment. Instead, unlike the exception to the automatic stay provision of section
362, it applies to any suit by a governmental unit to enforce its police or regulatory powers. In sum,
as the present cases are such suits, they may not be removed pursuant to section 1452.
C. Alternative Grounds for Removal
Having concluded that the district court lacked jurisdiction over these actions under the
federal officer removal statute or the bankruptcy removal statute, we now turn to the other bases for
removal urged by the defendants, though rejected by the district court in MTBE V: preemption and
federal question jurisdiction. We may affirm the denial of the motion to remand on either of those
grounds, as “[a]n appellate court is free to affirm a district court decision on any grounds for which
there is a record sufficient to permit conclusions of law, even grounds not relied upon by the district
court.” Gmurzynska v. Hutton, 355 F.3d 206, 210 (2d Cir. 2004) (internal quotation marks omitted).
As a preliminary matter, we note that preemption and federal question jurisdiction may apply
only to the California action, not the New Hampshire action. Defs.’ Br. at 58. In the New
Hampshire action, unlike the California action, not every defendant consented to removal. Id.
Because removal on the basis of preemption or a substantial federal question – unlike removal under
the federal officer or bankruptcy removal statutes – requires the consent of all defendants, Chicago,
Rock Island & Pac. R.R. Co. v. Martin, 178 U.S. 245, 247-48 (1900); 14C Charles A. Wright et al.,
Federal Practice and Procedure § 3731, at 258 (3d ed. 1998), only the California action is arguably
capable of being removed on the grounds discussed below.
1. Preemption
We begin by observing that the parties have largely ignored the issue of preemption in their
papers to this court for the obvious reason that the case for preemption is weaker with respect to the
California plaintiffs than it is with respect to perhaps any other plaintiffs. Many of the plaintiffs in
MTBE V alleged that MTBE entered their groundwater as a result of being emitted from car tailpipes
and falling back to the earth as rain. This allegation supports at least a colorable argument that those
lawsuits are for the purposes of emission control, or at least so closely related to the issue of
emission control that perhaps the applicable EPA regulations are of preemptive effect. See 42
U.S.C. § 7545(c)(4)(A) (preempting state regulation of fuel additives when for the purpose of motor
vehicle emission control). Nevertheless, in this case, California does not appear to allege liability
based on the release of MTBE through normal vehicle operations. Rather, it premises its theory of
liability on leaks and discharges of MTBE from gasoline delivery systems into the state’s
groundwater, before it has seen the inside of a vehicle’s gas tank. The defendants’ own papers
acknowledge the weakness of their argument. Specifically, in their opposition to the plaintiffs’
motions for remand in two related cases, County of Nassau v. Amerada Hess Corp., No. 03-cv-9543
(S.D.N.Y. filed Dec. 2, 2003), and Water Authority of Western Nassau County v. Amerada Hess
Corp., No. 03-cv-9544 (S.D.N.Y. filed Dec. 2, 2003), the defendants write:
That states and private parties have myriad other remedies, under both state
and federal law, to address MTBE in groundwater – and, in particular, remedies
against those who spill or leak MTBE gasoline – means that this Court need not be
concerned that federal preemption interferes with the States’ historical role in
protecting health and safety. . . . Rather, reflecting that clean air and national supply
of reasonably priced gasoline were overriding federal concerns, Congress and EPA
preempted only in the narrow area of fuel design, while preserving participation in
the federal administrative process and state remedies against those who spill gasoline.
Defs.’ Opp’n to Pls.’ Mot. to Remand at 29 (emphasis added). This statement recognizes that state-
law remedies are available to address MTBE in groundwater – the very remedies pursued in this
action.
In addition, for the reasons articulated in MTBE V, 341 F. Supp. 2d at 403-11, we agree with
Judge Scheindlin that the plaintiffs’ claims are not completely preempted by federal law.
Specifically, we agree with her conclusions that the EPA considered the preemptive effect of its
regulations to be “limited,” id. at 406; that the agency intended its regulations to preempt
nonidentical state controls in the context of fuel emissions, not in every conceivable area related to
fuel and fuel additives, id. at 406-07; and that Congress did not intend to preempt state regulations
unrelated to emissions control, id. at 408-09. We also agree with the conclusions of other courts that
have found that similar claims were not preempted by the CAA. See, e.g., Oxygenated Fuels Ass’n
v. Davis, 331 F.3d 665, 673 (9th Cir. 2003); Oxygenated Fuels Ass’n v. Pataki, 158 F. Supp. 2d 248,
257 & n.4 (N.D.N.Y. 2001).
We also note that, since oral argument was held in these cases, the district court has denied
the defendants’ motions for summary judgment on the related affirmative defense of conflict
preemption. In re Methyl Tertiary Butyl Ether (“MTBE”) Prods. Liab. Litig., 457 F. Supp. 2d 324
(S.D.N.Y. 2006). Judge Scheindlin held that there was no conflict preemption, as “[i]t was not
physically impossible for defendant[s] to comply with both standards because, even if state tort law
demands that defendants not use MTBE, the federal law did not require the use of MTBE.” Id. at
335. Likewise, she held that there was no obstacle preemption, because the CAA amendments
created a fuel-neutral program that could succeed even if tort liability were available for the use or
misuse of MTBE. Id. at 335-43. While conflict preemption is a defense, not a basis for jurisdiction,
this holding only reinforces the plaintiffs’ argument that state tort law and the federal regulations at
issue are compatible with one another.
2. Substantial Federal Question
For the reasons stated in Judge Scheindlin’s opinion, we agree that the plaintiffs’ claims do
not raise a substantial federal question giving rise to federal subject matter jurisdiction. See
MTBE V, 341 F. Supp. 2d at 400-03. The plaintiffs’ claims arise under and will be decided under
state law, and although the defendants may refer to federal legislation by way of a defense, the jury’s
verdict will not necessarily turn on a construction of that federal law. As the Supreme Court noted
in Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986), “the mere presence of a
federal issue in a state cause of action does not automatically confer federal-question jurisdiction.”
Id. at 813. Indeed, words written by Justice Cardozo more than seventy years ago are equally
applicable here:
The most one can say is that a question of federal law is lurking in the background,
just as farther in the background there lurks a question of constitutional law, the
question of state power in our federal form of government. A dispute so doubtful and
conjectural, so far removed from plain necessity, is unavailing to extinguish the
jurisdiction of the states.
Gully v. First Nat’l Bank, 299 U.S. 109, 117 (1936).
The California defendants also argue that in delegating to the EPA the authority to enact
regulations requiring oxygenated fuels, Congress required the agency to “give greater importance
to clean air gains than to other potential environmental concerns.” Defs.’ Br. at 58 (citing 42 U.S.C.
§ 7545(k)(1)). They contend that plaintiffs’ lawsuits, in seeking to privilege clean water at the
expense of clean air, “implicate these federal determinations and thus require the application of
federal law.” Id. at 59. This argument, however, presents a false dichotomy between clean air and
clean water. That the defendants might use MTBE to meet fuel oxygenation requirements does not
necessarily conflict with the state’s goal of securing the safety of its water supply. Because the
California complaint focuses on spills, leaks, and discharges of MTBE into groundwater, as well as
alleged misrepresentations and omissions related to the safety of MTBE, they are entirely separate
issues. A jury finding in favor of the plaintiffs would undermine neither Congress’s intent in
enacting the CAA amendments, nor the EPA regulations implementing them.
Conclusion
We hold that, if the criteria of a valid removal statute are met, sovereign immunity does not
bar the removal of a case commenced by a state in its own courts. Because the requirements of the
applicable removal statutes have not been met, we vacate the order of the district court and remand
with directions to return these cases to the forums from which they were removed.
California v. Atlantic Richfield Co. (In Re Methyl Tertiary Butyl Ether ("MTBE") Products Liability Litigation)
Court: Court of Appeals for the Second Circuit
Date filed: 2007-05-24
Citations: 488 F.3d 112
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