IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 00-40999
_____________________
STATE OF TEXAS,
Petitioner-Appellant,
versus
REAL PARTIES In Interest, Including
Walter Umphrey, John O’Quinn, John Eddie
Williams, Wayne Reaud and Harold Nix,
Respondents-Appellees.
_________________________________________________________________
Appeal from the United States District Court for the
Eastern District of Texas, Texarkana
_________________________________________________________________
July 23, 2001
Before GARWOOD, JOLLY, and DeMOSS, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
The district court entered a final judgment, incorporating a
settlement agreement that supposedly ended the litigation between
the State of Texas and the tobacco industry. It should have been
expected that, when attorney’s fees are in the billions, a string
of disputes would follow. This appeal arises from the post-
settlement controversy questioning the legitimacy of the
contingency fees awarded to counsel representing the state
1
(“Private Counsel”). Texas instituted this pre-litigation
discovery proceeding in state court for the purpose of
investigating possible fraud and breach of fiduciary duty claims
against Private Counsel. Private Counsel removed the action to
federal court, claiming federal jurisdiction on the basis of the
settlement agreement and further arguing that the All Writs Act, 28
U.S.C. § 1651, was applicable to protect the integrity of the
court’s judgment from a collateral assault. Texas moved to remand,
asserting, inter alia, the absence of federal jurisdiction based on
the Eleventh Amendment. The district court, concluding that Texas
had submitted itself to the jurisdiction of the federal court,
denied the motion and Texas has appealed. We find no basis in this
case for removal jurisdiction under the All Writs Act. We further
conclude that the Texas Rule 202 discovery proceeding presents a
premature basis for asserting the district court’s jurisdiction to
protect the settlement agreement. We therefore reverse with
instructions to remand this action to the state court from whence
it came.
I
Taking a cue from sister states that targeted the tobacco
industry, the State of Texas hired Private Counsel to file suit in
federal court against several tobacco companies to recover medical
costs and other expenditures associated with tobacco use. See
Texas v. American Tobacco Co., No. 5:96-CV-91 (E.D.Tex. 1996).
2
Suit was filed in March 1996. After 18 months of pre-trial
activities, the State and the tobacco companies entered into a
Comprehensive Settlement and Release Agreement in January 1998.
Under the settlement, Texas agreed to dismiss its claims and the
tobacco companies agreed to pay $15.3 billion in damages. The
district court entered a final judgment incorporating prior orders.
The paragraphs relevant to this appeal state that the district
court would retain exclusive jurisdiction over the provisions of
the settlement and final judgment.1 The final judgment
specifically stated that all persons “who seek to raise any
objections or challenges in any forum to any provision of this
judgment are hereby enjoined from proceeding in any other state or
federal court.” The settlement agreement also stated that “[t]he
settlement negotiations resulting in this Settlement Agreement have
been undertaken by the parties hereto in good faith.” Finally, the
settlement provided for the payment of attorney’s fees by the
defendants to Private Counsel upon presentation of Private
1
The first paragraph of the comprehensive settlement states:
Settling Defendants and the State of Texas acknowledge
that this Court has jurisdiction over the subject matter
of this action and over each of the parties hereto, and
this Court shall retain jurisdiction for the purposes of
implementing and enforcing this Settlement Agreement.
The parties hereto agree to present any disputes under
this Settlement Agreement, including without limitation
any claims for breach or enforcement of this Settlement
Agreement, exclusively to this Court.
3
Counsel’s estimate of reasonable costs and expenses.2 Ruling on
Private Counsel’s motion for approval of their attorney’s fees, the
district court determined that the 15 percent contingency fee--
provided for by contract between the Attorney General and Private
Counsel at the outset of the litigation and totaling $2.3 billion--
was reasonable.
Thereafter, on January 30, 1998, several Texas legislators
filed a mandamus action in Texas state court, which was removed by
Private Counsel and then-Attorney General Dan Morales to federal
court. This mandamus action challenged Morales’s authority to bind
the State to a contingency fee arrangement. Once removed to
federal court, the legislators asserted that the fee agreement
dispute could not be heard by the federal court because of Texas’s
Eleventh Amendment immunity.3 See In re Senator Troy Fraser, No.
5:98-CV-45 (E.D. Tex 1998).
In June 1998, the parties to the fee arrangement dispute
2
That portion of the settlement agreement reads:
Settling Defendants will reimburse . . . Private Counsel
for reasonable costs and expenses incurred in connection
with this litigation. . . . In addition, within 30 days
after the date of this Settlement Agreement, Settling
Defendants shall . . . pay to [Private Counsel] an amount
equivalent to Private Counsel’s best estimate of their
reasonable costs and expenses. . . . Private Counsel
shall provide Settling Defendants with an approximately
documented statement of their costs and expenses.
3
Then-Governor George W. Bush also intervened to challenge the
contingency fee arrangement and the district court’s jurisdiction
under the Eleventh Amendment.
4
reached a Severance and Standstill Agreement. The agreement gave
Private Counsel the choice of either attempting to enforce the
original contingency fee arrangement or accepting a fee to be
determined by an arbitration panel. The agreement, adopted by the
court, severed the fee dispute from the tobacco litigation. See In
re Private Counsel Fee Agreement, No. 5:98-CV-270 (E.D. Tex. 1998).
In December 1998, the arbitration panel upped the ante when it
awarded Private Counsel nearly $3.3 billion in fees. In the
meantime, the Texas political stage was being rearranged. The
following month, before Private Counsel had accepted the panel’s
award, the new Texas Attorney General, John Cornyn, moved to
dismiss In re Private Counsel and moved to remand In re Fraser
based on the State’s Eleventh Amendment immunity.4 On November 5,
1999, the district court ruled on several outstanding motions and
issued a memorandum opinion. See In re Fraser, 75 F.Supp.2d 572
(E.D. Tex. Nov. 5, 1999). The court denied the State’s motion to
dismiss and the legislators’ motion to remand, finding that Texas
waived its Eleventh Amendment immunity from claims regarding the
attorney’s fees agreement by filing the initial tobacco litigation
in federal court. See also In re Private Counsel, 1999 WL 1022131
(E.D. Tex. Nov. 5, 1999).
Two weeks later, Private Counsel deftly elected to accept the
4
Texas asserts that Cornyn also initiated an investigation
into the fiduciary conduct of Private Counsel during the tobacco
litigation at this time.
5
arbitration award and, under the agreement, waived their right to
sue under the initial fee arrangement. Texas soon appealed the
district court’s November 5 jurisdictional rulings to the Fifth
Circuit, and this court granted Private Counsel’s motion to dismiss
for mootness and vacated the district court’s underlying
jurisdictional decisions. Fraser v. Real Parties, Nos. 00-40024,
00-40036, 00-40038 (5th Cir. July 10, 2000).
On April 27, 2000, the State filed the instant Rule 202
proceeding5 in state court seeking to depose Private Counsel to
“investigate potential claims it believes it may possess for
conversion and breach of fiduciary duty.”6 Private Counsel
immediately removed the action to federal court and filed a motion
for summary judgment.7 Texas filed an emergency motion to remand,
5
Rule 202 allows a party to petition a state court for
depositions in order to investigate potential claims. It reads:
A person may petition the court for an order authorizing
the taking of a deposition on oral examination or written
questions either:
(a) to perpetuate or obtain the person’s own testimony or
that of any other person for use in an anticipated suit;
or
(b) to investigate a potential claim or suit.
Tex. R. Civ. P. 202.1.
6
Specifically, the State sought to discover whether Private
Counsel should have known that the fee agreement was unenforceable,
whether Private Counsel improperly sought to benefit themselves at
the State’s expense, whether tobacco litigation documents were
withheld from the State, and whether documentation supports the
expenditure of $40 million in legal expenses on the case.
7
Because removal is properly accomplished under 28 U.S.C. §
1441, and because the district court did not base its denial of the
6
arguing that the Eleventh Amendment barred adjudication of the Rule
202 proceeding in federal court. On August 15, 2000, the district
court, in a very thorough and well-considered opinion, denied the
motion to remand and, treating the case as removed from state
court, found specifically that (a) the Rule 202 proceeding was a
“civil action” for removal purposes under 28 U.S.C. § 1441; (b) the
issues in the petition, however, were not supplemental or ancillary
to the tobacco litigation;8 (c) but nevertheless the court could
exercise jurisdiction over the Rule 202 petition under the All
Writs Act, 28 U.S.C. § 1651, to protect its judgment; because,
inter alia, (d) the Eleventh Amendment was no bar to the proceeding
State’s motion to remand on provisions of that statute, the Rule
202 proceeding was not actually “removed” in any procedurally
cognizable way. Nevertheless, we use the term “removal” to
describe the assertion of federal jurisdiction over this case for
the sake of clarity.
8
While “[t]he doctrine of ancillary jurisdiction can hardly be
criticized for being overly rigid or precise,” Kokkonen v Guardian
Life Insurance Co., 511 U.S. 375, 379 (1994), the district court
properly refused to assert ancillary jurisdiction over the Rule 202
proceeding. In a case like this, the exercise of ancillary
jurisdiction over a claim with no independent basis for
jurisdiction is improper “once judgment [is] entered in the
original [suit].” Peacock v. Thomas, 516 U.S. 349, 355 (1996).
Some cases suggest, however, that ancillary jurisdiction could
exist over a subsequent claim when a federal court expressly
retains jurisdiction over a final judgment or settlement agreement
and the two claims are “factually interdependent” or the subsequent
state court action would “effectively nullify” the federal
judgment. Kokkonen, 511 U.S. at 379; Royal Ins. Co. of America v.
Quinn-L Capital Corp., 960 F.2d 1286, 1292 (5th Cir. 1992).
However, as explained in this opinion, the Rule 202 proceeding is
not factually interdependent with the original tobacco litigation
and does not threaten to “effectively nullify” the federal
settlement.
7
because the State had waived its immunity as to the tobacco
litigation and “all of its outgrowths.” The district court
therefore denied Texas’s motion to remand. This appeal of the
order denying the remand followed.
II
Ordinarily, we have appellate jurisdiction only over final
judgments, which the district court’s order denying remand is not.
We therefore must first address this court’s authority to hear this
appeal of a non-final ruling. Private Counsel argues that we lack
jurisdiction over this appeal because a district court’s remand
order is not appealable. B., Inc. v. Miller Brewing Co., 663 F.2d
545, 548 (5th Cir. 1981) (“Ordinarily, a district court’s refusal
to remand an action is not in and of itself a final order and
cannot be reviewed unless and until a final judgment has been
entered.”). However, the Supreme Court held in Puerto Rico
Aqueduct & Sewer Authority v. Metcalf & Eddy, Inc., 506 U.S. 139,
143-45 (1993), that States “may take advantage of the collateral
order doctrine to appeal a district court order denying a claim of
Eleventh Amendment immunity.” Given that the denial of Texas’s
Eleventh Amendment immunity is a non-frivolous issue in this case,
Puerto Rico Aqueduct fully supports this court’s jurisdiction over
the present appeal.
With appellate jurisdiction established, we now turn to
address the primary jurisdictional inquiry in this appeal: whether
8
the district court erred by exercising removal jurisdiction over
this state court action under the All Writs Act.
III
The All Writs Act, 28 U.S.C. § 1651 (a), provides:
The Supreme Court and all courts established by Act of
Congress may issue all writs necessary or appropriate in
aid of their respective jurisdictions and agreeable to
the usages and principles of law.
After acknowledging that it could not assert supplemental or
ancillary jurisdiction over the Rule 202 proceeding, the district
court found that the All Writs Act authorized it to assert
jurisdiction over the Rule 202 state proceeding, despite no
independent basis for federal jurisdiction over that proceeding.
The court reasoned that, particularly because it had retained
jurisdiction over the settlement agreement, it could assert its
jurisdiction under the All Writs Act in order to protect and
effectuate its final judgment, which incorporated the settlement
agreement. The State of Texas, however, argues that the All Writs
Act can provide no removal jurisdiction over a matter not otherwise
removable and, even if it could, the Rule 202 petition is a
separate and distinct proceeding from the original tobacco
litigation and in no way threatens the settlement agreement.
Although the Supreme Court has held that the All Writs Act may
authorize a court to issue commands “as may be necessary or
appropriate to effectuate and prevent the frustration of orders it
9
has previously issued in its exercise of jurisdiction otherwise
obtained,” United States v. New York Telephone, 434 U.S. 159, 172
(1977), almost 200 years of Supreme Court precedent establishes
that the Act, originally enacted as part of the Judiciary Act of
1789, cannot serve as an independent basis of jurisdiction. See,
e.g., Clinton v. Goldsmith, 526 U.S. 529, 534-35 (1999); Rosenbaum
v. Bauer, 120 U.S. 450, 458 (1887); McIntire v. Wood, 11 U.S.
(Cranch) 504, 506 (1813). Accordingly, this court has similarly
held that “section 1651(a) is not an independent grant of
jurisdiction.” In re McBryde, 117 F.3d 208, 220 (5th Cir. 1997).
Considering these hoary precedents of the Supreme Court, some
circuits have come to the conclusion that § 1651 may not be used as
a removal statute to allow a federal court to assert jurisdiction
over a purely state court action. These circuits have applied the
Act to enjoin state court proceedings when those state actions
threatened to disrupt prior orders of the court but have refused to
authorize “removal” under the Act. See Pacheco de Perez v. AT&T
Co., 139 F.3d 1368, 1379-80 (11th Cir. 1998); Hillman v. Webley,
115 F.3d 1461, 1468 (10th Cir. 1997); Westinghouse Electric Corp.
v. Newman & Holtzinger, P.C., 992 F.2d 932, 937 (9th Cir. 1993);
Telecommunications Research and Action Ctr. v. FCC, 750 F.2d 70, 76
(D.C. Cir. 1984)(citation omitted)(finding that, while the Act is
not an independent source of jurisdiction, it can be utilized in a
mandamus action to “aid” a court if it has jurisdiction over a
10
“past, present, or future” action).9 Several of these courts have
held that, when a federal court has jurisdiction over an action,
the All Writs Act grants jurisdiction to issue writs “necessary or
appropriate in aid of” that jurisdiction. Such power would permit
a district court to enjoin actions in state court but only where
necessary to prevent relitigation of an existing federal judgment
or otherwise to protect federal court orders.
On the other hand, some courts have given the All Writs Act a
considerably more expansive reading to permit removal of a state
court action to the federal court for adjudication even though the
action was otherwise non-removable. See, e.g., NAACP v.
Metropolitan Council, 144 F.3d 1168, 1170-71 (8th Cir. 1998); Davis
v. Glanton, 107 F.3d 1044, 1047 n.4 (3d Cir. 1997); Sable v.
General Motors Corp., 90 F.3d 171, 175 (6th Cir. 1996) (finding
removal jurisdiction proper under the Act where necessary to
protect federal judgments from state proceedings that would
“seriously interfere with” federal consent agreements); In the
Matter of VMS Sec. Litig., 103 F.3d 1317, 1323 (7th Cir. 1996); In
re Agent Orange Prod. Liab. Litig., 996 F.2d 1425, 1431 (2d Cir.
1993)(explicitly authorizing “[a] district court, in exceptional
circumstances, [to] use its All Writs authority to remove an
otherwise unremovable state court case in order to effectuate and
9
While none of these circuits has yet to authorize removal
under the All Writs Act, only the Tenth Circuit has categorically
held that the Act can never facilitate removal, regardless of the
circumstances.
11
prevent the frustration of orders it has previously issued.”).
Agent Orange is perhaps the most familiar of this genre.
There, a group of plaintiffs attempted to revive tort litigation in
state court that involved virtually identical claims addressed in
a federal court-approved settlement--a settlement that expressly
barred those prior class members from instituting such an action
against defendants. The defendants removed the actions to federal
court and the court dismissed those claims barred by the prior
settlement. The Second Circuit upheld the district court’s
exercise of jurisdiction under the All Writs Act, noting that
“exceptional circumstances” existed that authorized the removal of
the otherwise unremovable state action. Id. at 1431.
VMS Securities is also a noteworthy case permitting removal
under the All Writs Act. There, a federal court approved a
settlement in a securities fraud class action suit that provided
for the release of all further related claims by the class
plaintiffs. Thereafter, a group of class plaintiffs filed suit in
state court asserting fraud and breach of fiduciary duty claims
against the same defendants, claiming that they were wrongfully
induced to join the prior class settlement. The Seventh Circuit,
citing Agent Orange, held that the district court could assert
removal jurisdiction over the state law actions under the All Writs
Act for the purpose of dismissing those claims because the court
explicitly had retained jurisdiction over the initial class action
12
settlement. Id. at 1323.
Yet, the principle reflected in both Agent Orange and VMS
Securities--that an otherwise non-removable action is removable
under the All Writs Act--must be questioned in the light of the
Supreme Court’s decision in Rivet v. Regions Bank of Louisiana
(Rivet I), 522 U.S. 470 (1998). In Rivet I, a Bankruptcy Court
approved the sale of a leasehold estate to a Bank and, after
acquiring the entire property, the Bank sold the land to
Fountainbleau Storage Associates (FSA). The holders of a second
mortgage on the land sued in state court, alleging that the
property had been transferred in the bankruptcy proceeding without
satisfying their rights as mortgage holders. FSA removed the state
action to federal court, arguing that the Bankruptcy Court’s orders
had resolved the petitioners’ rights and that the All Writs Act
provided federal-question jurisdiction for the case to be removed
for federal court resolution.
The Supreme Court thought the argument a poor one; it held
that claim preclusion based on a prior federal judgment is a
defensive plea that provides no basis for removal. Id. at 476. In
so holding, the Court embraced a strict reading of 28 U.S.C. § 1441
(the removal statute) and reemphasized the limited circumstances
under which an action in state court can properly be removed to
federal court.10 With Rivet standing as sentry, it would be bold
10
Rivet also calls into doubt the holding of Baccus v. Parrish,
45 F.3d 958 (5th Cir. 1995). In Baccus, a federal settlement
13
indeed to read the All Writs Act as authorizing removal of an
otherwise unremovable action.11
Even accepting the remote proposition that removal still can
be proper under the All Writs Act in the face of “extraordinary
agreement ended a suit involving Texas schools for the mentally
retarded. Baccus, the parent of a mentally retarded child, later
filed suit in state court challenging the implementation of the
settlement agreement. The action was removed to federal court.
Removal, however, was not based on the All Writs Act, but instead
on the general removal statute, 28 U.S.C. § 1441. We concluded
that removal was proper where a claim brought in state court “seeks
to attack or undermine an order of a federal district court.” Id.
at 960. The court reasoned that, although the cause of action was
brought under the laws of Texas, “courts will typically look beyond
the face of a complaint to determine whether removal is proper.”
Id. at 960. Given Rivet’s clear instruction that it is improper to
look beyond the face of a well-pleaded complaint to determine the
propriety of removal, 522 U.S. at 475, and given that the Baccus
defendant chose--either wittingly or unwittingly--not to rely on
the All Writs Act as support for removal, our decision in Baccus
retains little precedential value and is, in any event, not
applicable to the issues we address in this appeal.
11
Significantly, on remand in Rivet this court illustrated how
a federal court’s injunctive powers--as contrasted with removal--
under the All Writs Act can be used to prevent the frustration of
its orders in later state court proceedings. Following the Supreme
Court’s decision in Rivet I, FSA filed suit in federal court under
the All Writs Act, seeking injunctions against further proceedings
in state court by the petitioners. The petitioners, meanwhile,
proceeded with their case in state court. The district court
enjoined any litigation in state court regarding the second
mortgage that had been decided by the Bankruptcy Court. The
petitioners challenged the district court’s jurisdiction to issue
the injunction, and this court held that, while the All Writs Act
is not jurisdictional, the injunction was authorized because
“jurisdiction is based on the original case” and “it is not
necessary for the district court to have jurisdiction over the
second suit as an original action.” Regions Bank of Louisiana v.
Rivet (Rivet II), 224 F.3d 483, 493 (5th Cir. 2000).
14
circumstances,”12 and further accepting that the procedural
requirements for removal under § 1441 pose no barrier to the use of
the All Writs Act to bring a state court matter into federal
court,13 the Rule 202 proceeding in this case clearly does not
present such facts or circumstances. The proceeding is only an
investigatory tool. Both the State and Private Counsel can only
speculate as to the eventual outcome of the probe. This pending
state court action over which the district court exercised § 1651
12
The breadth and specificity of the removal statutes, found
at 28 U.S.C. § 1441, et seq., suggests that federal courts should
not read other statutes as providing additional, ad hoc avenues for
removal. The Supreme Court’s characterization of the All Writs Act
as “filling the interstices of federal judicial power” in
Pennsylvania Bureau of Correction v. United States Marshals
Service, 474 U.S. 34, 41 (1985), gives credence to the argument
that the Act should never be used to supplement the removal
statutes:
The All Writs Act is a residual source of authority to
issue writs that are not otherwise covered by statute.
Where a statute specifically addresses the particular
issue at hand, it is that authority, and not the All
Writs Act, that is controlling.
Id. at 43 (emphasis added). See also Joan Steinman, The Newest
Frontier of Judicial Activism: Removal Under the All Writs Act, 80
B.U. L. Rev. 773 (2000).
13
The explicit and detailed procedural guidelines for removal
outlined by Congress support a finding that removal under the All
Writs Act, particularly in this case, is inappropriate. 28 U.S.C.
§ 1446(a) requires that any claim filed in state court and
thereafter removed “shall” be removed to the federal district court
“for the district and division within which such action is
pending.” Texas filed its Rule 202 proceeding in Harris County
state court, located in the Southern District of Texas. In order
to bring the proceeding before the court that had issued the final
judgment in this case, however, Private Counsel “removed” the
proceeding directly to the Eastern District of Texas, Texarkana
Division.
15
jurisdiction ultimately may or may not pose an actual threat to the
federal tobacco settlement. The investigation could lead to no
further action, or it could result in a cause of action not
contemplated or covered by the settlement agreement; or, indeed, it
may lead to the institution of a cause of action for which the
invocation of, at least, the injunctive powers of the All Writs Act
would be timely and appropriate. In any event, the federal courts
cannot preclude the State of Texas from investigating potential
claims in the milieu of the Texas courts--pursuant to Texas law--
unless and until such investigation poses an actual threat to the
settlement agreement. Private Counsel’s claim that such a threat
exists is premature.
We recognize that if, at some point in the future, the State
attempts explicitly to upset provisions of the settlement agreement
in state court, circumstances may well dictate that the proceeding
be enjoined. Indeed, we will not decide today whether, under
“extraordinary circumstances,” the case may be “removed” to federal
court under the All Writs Act. In the absence of such
extraordinary circumstances, however, that indisputably demand such
a course of action as absolutely necessary to vouchsafe the central
integrity of the federal court judgment, we hold that the All Writs
Act cannot be employed as a vehicle for removal.14
14
Because we find no basis for federal jurisdiction in this
case, we need not address the other issues raised in this appeal--
the scope of Texas’s Eleventh Amendment immunity and whether the
Rule 202 proceeding was a “civil action” for removal purposes.
16
IV
In sum, we hold that the district court erred in exercising
its jurisdiction under the All Writs Act and in denying the State’s
motion to remand. We therefore reverse and remand to the district
court with instructions to remand the Rule 202 proceeding to the
Texas state court from which it was removed.
REVERSED AND REMANDED.
17