07-0651-cv
Price v. Marsh USA Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2006
Submitted: May 15, 2007 Decided: July 6, 2007)
Docket No. 07-0651-cv
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ANDREW N. PRICE, E. JAMES DROLLETTE, JOHN A.
SULLIVAN, JR., ANTHONY VON ELBE, CHAMPLAIN
ENTERPRISES, INC.,
Plaintiffs-Appellees,
v.
J&H MARSH & McLENNAN, INC.,
Defendant-Third-Party-
Plaintiff-Appellant.
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Before: NEWMAN, MINER and KATZMANN, Circuit Judges.
Motion to dismiss appeal from remand order for lack of appellate
jurisdiction.
Motion granted.
Jonathan P. Wolfert, Kaplan, Thomashower &
Landau LLP, New York, N.Y., submitted
papers on behalf of Defendant-Third-Party-
Plaintiff-Appellant.
Douglas C. Pierson, Pierson Wadhams Quinn
Yates & Coffrin, Burlington, VT, submitted
papers on behalf of Plaintiffs-Appellees.
JON O. NEWMAN, Circuit Judge.
This appeal primarily concerns the issue of the appealability of
an order remanding a removed action to state court. Specifically, we
must decide whether we have appellate jurisdiction to review (1) a
remand order based on the conclusion that joinder of a plaintiff
destroyed subject matter jurisdiction and (2) the ruling that
permitted joinder of a plaintiff after removal. The Defendant-
Appellant, J&H Marsh & McLennan, Inc. (“Marsh”), appeals from the
January 25, 2007, order of the District Court for the District of
Vermont (J. Garvan Murtha, District Judge), permitting joinder of a
nondiverse plaintiff and remanding the case to the state court for
lack of subject matter jurisdiction. The Plaintiffs-Appellees, Andrew
N. Price (“Price”), Champlain Enterprises (“Champlain”), and other
individuals, have moved to dismiss the appeal on the ground that 28
U.S.C. § 1447(d) bars appellate review of the remand order. Applying
the Supreme Court’s recent opinion in Powerex Corp. v. Reliant Energy
Services, Inc., 127 S. Ct. 2411 (2007), we agree that section 1447(d)
bars appellate review of the remand order, and we also conclude that
the collateral order doctrine does not authorize review of the
District Court’s joinder ruling. We therefore dismiss the appeal.
Background
The District Court’s opinion recites the following undisputed
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facts. See Price v. Marsh USA, Inc., No. 1:03 CV 292, 2007 WL 294082,
at *1 (D. Vt. Jan. 25, 2007).
This action arises out of a directors and officers liability
insurance policy issued by the Third-Party Defendant, Chubb Custom
Insurance Co. (“Chubb”) to Champlain, a New York corporation.
Defendant Marsh, also a New York corporation, was Champlain’s
insurance broker and helped procure the policy for Champlain.
Champlain filed a claim under the policy in connection with an
employee lawsuit, but Chubb denied the claim. In response, Champlain
filed an action for coverage against Chubb in the U.S. District Court
for the Northern District of New York, but the action was dismissed.
After the unsuccessful action against Chubb, Champlain purported
to assign any claims it had against Marsh, the insurance broker, to
Price, Champlain’s president. Price was a resident of Vermont. Price
then filed an action against Marsh in Vermont Superior Court alleging
that Marsh had “breached the applicable standard of care of a prudent
insurance broker by failing to use reasonable care and diligence in
the procurement of . . . [c]overage with prior acts.” Marsh removed
the case to federal court on the basis of diversity of citizenship.
Marsh later filed a third-party complaint against Chubb.
Several years later, Price filed a motion to amend the complaint
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to join Champlain as a plaintiff. At the same time, Marsh filed a
motion for summary judgment claiming that the assignment of
Champlain’s claims to Price was invalid. See id. at *1. Ruling first
on the motion for summary judgment, the District Court concluded that
the assignment was invalid under Vermont law because, among other
reasons, Price had not given any consideration for the assignment. See
id. at *2.
Turning then to the joinder motion, the District Court ruled
that, in light of the assignment’s invalidity, joinder of Champlain as
a plaintiff was necessary for the action to proceed. Applying Rule 15
of the Federal Rules of Civil Procedure, the Court decided to allow
Champlain’s joinder because (1) Price moved to amend promptly after
recognizing “a serious challenge” to the assignment and thus did not
cause inordinate delay, (2) the Defendants would not suffer any
prejudice because the claims against them would remain the same,
(3) any delay caused by amendment and remand would be inconsequential,
and (4) the assignment’s invalidity meant that amendment would not be
futile. See id. at *2-*3. Marsh had also argued that joinder should
be denied because “any attempt by a plaintiff to amend his pleading to
destroy diversity is subject to scrutiny in addition to that imposed
by Rule 15(a).” Id. at *3 (internal quotation marks omitted).
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However, after reviewing factors similar to those recited above, the
Court rejected this argument. See id.
Because both Champlain and Marsh had their principal places of
business in New York, the District Court then proceeded to assess the
jurisdictional consequences of granting the motion to join Champlain
as a plaintiff. Citing Freeport-McMoRan, Inc. v. KN Energy, Inc., 498
U.S. 426, 428 (1991), the Court observed that, “[o]rdinarily, subject
matter jurisdiction and the determination of whether diversity of
citizenship exists are made at the outset of the case and govern
regardless of subsequent changes in parties.” Price, 2007 WL 294082,
at *4. However, the Court distinguished Freeport-McMoRan on two
grounds. First, Freeport-McMoRan involved substitution of a plaintiff
under Rule 25 of the Federal Rules of Civil Procedure, and the
substituted plaintiff had no interest in the action at the time of its
commencement; by contrast, Champlain was not joined under Rule 25 and
“had an interest in the claims at issue well before Price even filed
suit.” See id.
Second, the Court relied on the “indispensability” exception to
Freeport-McMoRan, developed by a number of other courts, which
provides that joinder of a nondiverse party destroys diversity when
the joined party was indispensable to the action at its commencement.
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See id. (citing, e.g., Salt Lake Tribune Publishing Co. v. AT&T Corp.,
320 F.3d 1081, 1096 (10th Cir. 2003)). Applying this exception, the
District Court reasoned that Champlain was an indispensable party
because “at its core this dispute was, and currently remains, a
controversy between . . . Champlain and Marsh.” Id. at *5.
Accordingly, it held that Champlain’s joinder destroyed subject matter
jurisdiction, and it remanded the action to the state court. See id.
Discussion
On appeal, Marsh contends that the District Court was obliged to
dismiss the action under Rule 19 of the Federal Rules of Civil
Procedure for failure to join an indispensable party, instead of
permitting joinder and remanding the action to state court for lack of
diversity jurisdiction. The Plaintiffs-Appellees have moved to
dismiss the appeal on the ground that 28 U.S.C. § 1447(d) bars
appellate review of the District Court’s remand order. Marsh seeks to
avoid application of section 1447(d) primarily on the theory that this
provision does not preclude review of a remand order when a district
court concludes that it lacks subject matter jurisdiction because of
events occurring after removal. Marsh also contends that we can
review the District Court’s joinder ruling under the collateral order
doctrine. We reject both of Marsh’s arguments.
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I. 28 U.S.C. § 1447(d) Precludes Review of the District Court’s Remand
Order
Two statutory provisions govern our analysis of our jurisdiction
to review this appeal. 28 U.S.C. § 1447(c) provides in relevant part:
A motion to remand the case on the basis of any defect other
than lack of subject matter jurisdiction must be made within
30 days after the filing of the notice of removal under
section 1446(a). If at any time before final judgment it
appears that the district court lacks subject matter
jurisdiction, the case shall be remanded.
The second provision, section 1447(d), states, with one exception not
pertinent here, that “[a]n order remanding a case to the State court
from which it was removed is not reviewable on appeal or otherwise.”
Although section 1447(d) could be read expansively to apply to all
remand orders, the Supreme Court has held that it must be read in
conjunction with section 1447(c), meaning that section 1447(d)
prohibits review only of those remand orders based on the grounds
specified in section 1447(c). See, e.g., Quackenbush v. Allstate
Insurance Co., 517 U.S. 706, 711-12 (1996) (abstention-based remand
order reviewable by court of appeals); Thermtron Products, Inc. v.
Hermansdorfer, 423 U.S. 336, 345-51 (1976) (remand order based on
heavy docket reviewable by court of appeals). Thus, section 1447(d)
prohibits appellate review when a district court remands based on
(1) a defect other than lack of subject matter jurisdiction presented
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in a timely remand motion or (2) a determination that the court lacked
subject matter jurisdiction. Shapiro v. Logistec USA Inc., 412 F.3d
307, 313 (2d Cir. 2005); see also Spielman v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 332 F.3d 116, 125 (2d Cir. 2003) (“Section
1447(d) bars appellate review of remand orders based on any ground
recognized in Section 1447(c), such as perceived lack of subject
matter jurisdiction . . . .”).1
The District Court remanded this action after concluding that the
joinder of Champlain destroyed diversity jurisdiction and thereby
precluded the Court’s exercise of subject matter jurisdiction over the
1
We note that some courts of appeals have also read section
1447(d) in conjunction with section 1447(e), which provides that “[i]f
after removal the plaintiff seeks to join additional defendants whose
joinder would destroy subject matter jurisdiction, the court may deny
joinder, or permit joinder and remand the action to the State court.”
See, e.g., Stevens v. Brink’s Home Security, Inc., 378 F.3d 944, 949
(9th Cir. 2004); In re Florida Wire & Cable Co., 102 F.3d 866, 868
(7th Cir. 1996); Washington Suburban Sanitary Commission v.
CRS/Sirrine, Inc., 917 F.2d 834, 836 n.5 (4th Cir. 1990). Because
Champlain was joined as a plaintiff, not as a defendant, section
1447(e) does not apply in this case.
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action. Although the Court’s remand order appears to place it within
the coverage of the plain language of section 1447(c), Marsh makes two
arguments in an attempt to take the remand order outside the scope of
section 1447(c) and thereby avoid the limitation on appellate review
set forth in section 1447(d).
First, Marsh intimates that the District Court could not have
remanded the case pursuant to section 1447(c) because the Court did
not mention that specific provision in its remand order. However,
when a district court remands a case “‘based on a perceived lack of
subject matter jurisdiction,’” the remand is based on a ground
specified in section 1447(c) and thus is unappealable, even if the
court does not cite section 1447(c). See McNally v. Port Authority (In
Re WTC Disaster Site), 414 F.3d 352, 366 (2d Cir. 2005) (quoting
Spielman, 332 F.3d at 122); see also Spielman, 332 F.3d at 129 (noting
that reviewability of a remand order turns on “the district court’s
basis for granting it” (internal quotation marks omitted)).
Notwithstanding the absence of any citation to section 1447(c) in the
District Court’s remand order, the order was clearly based on the
Court’s conclusion that it lacked subject matter jurisdiction.
Marsh relies more heavily on the argument that section 1447(c)
authorizes remand only when jurisdiction is lacking at the time of
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removal. Under this theory, which some courts call the “post-removal-
event” doctrine, a remand order based on a district court’s conclusion
that a post-removal event destroys subject matter jurisdiction falls
outside the scope of section 1447(c) and therefore is subject to
review on appeal. See, e.g., Reddam v. KPMG LLP, 457 F.3d 1054, 1058-
59 (9th Cir. 2006) (upholding appellate jurisdiction over remand order
based on determination that arbitrator’s post-removal refusal to
arbitrate deprived the court of subject matter jurisdiction); Poore v.
American-Amicable Life Insurance Co. of Texas, 218 F.3d 1287, 1291-92
(11th Cir. 2000) (upholding appellate jurisdiction over remand order
based on post-removal event reducing damages recoverable below the
amount-in-controversy requirement); In re Amoco Petroleum Additives
Co., 964 F.2d 706, 708-09 (7th Cir. 1992) (upholding appellate
jurisdiction over remand order based on perceived lack of subject
matter jurisdiction following post-removal change in parties); see
also DaWalt v. Purdue Pharma, L.P., 397 F.3d 392, 399-402 (6th Cir.
2005) (summarizing the doctrine and citing cases); Trans Penn Wax
Corp. v. McCandless, 50 F.3d 217, 223 (3d Cir. 1995) (stating the
doctrine in dicta); 16 James Wm. Moore et al., Moore’s Federal
Practice § 107.44[2][a][iii] (3d ed. 2006) (noting that the courts of
appeals are split on whether to apply the doctrine).
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Unfortunately for Marsh, the Supreme Court recently rejected this
very argument in Powerex Corp. v. Reliant Energy Services, Inc., 127
S. Ct. 2411 (2007). The procedural history of Powerex Corp. is
complex and need not be detailed here to explain the Supreme Court’s
holding. In brief, the Ninth Circuit had exercised appellate
jurisdiction to review a determination made by a district court under
the Foreign Sovereign Immunities Act (“FSIA”) as part of a remand
order. See id. at 2415. The Supreme Court granted certiorari over the
FSIA question but also instructed the parties to discuss whether
section 1447(d) barred appellate jurisdiction over the order. See id.
Before the Court, the petitioner (and the United States as amicus
curiae) argued that the district court’s remand order “was not based
on a lack of ‘subject matter jurisdiction’ within the meaning of §
1447(c) because that term is properly interpreted to cover only a
defect in subject matter jurisdiction at the time of removal that
rendered the removal itself jurisdictionally improper.” Id. at 2416
(internal quotation marks omitted). Apparently conceding “the absence
of an explicit textual limitation” in section 1447(c), the petitioner
grounded this argument in the statute’s legislative history. See id.
An earlier version of the statute had required remand “[i]f at any
time before final judgment it appears that the case was removed
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improvidently and without jurisdiction.”2 28 U.S.C. § 1447(c) (1982).
According to the petitioner, the earlier version had authorized remand
only when a case was removed improperly, and the legislative history
of the provision’s amendment disclosed no congressional intent to
alter this rule. See Powerex Corp., 127 S. Ct. at 2416-17; see also,
e.g., Poore, 218 F.3d at 1289-91 (adopting this argument and citing
cases).
The Supreme Court rejected this argument, observing that the
legislative history of the amendment contradicted the petitioner’s
proposed temporal limitation on section 1447(c). See Powerex Corp.,
127 S. Ct. at 2417. When Congress amended section 1447(c), it also
created section 1447(e), permitting remand after post-removal joinder
of a nondiverse defendant, which the Court viewed as an indication
that “a case can be properly removed and yet suffer from a failing in
subject-matter jurisdiction that requires remand.” Id. Noting that
“[t]here is no reason to believe that the new language in [section
1447(c)] . . . covers only cases in which removal itself was
jurisdictionally improper,” the Court reasoned that when a district
2
This earlier version of section 1447(c) was replaced in 1988. See
Judicial Improvements and Access to Justice Act, Pub. L. No. 100-702,
§ 1016(c)(1), 102 Stat. 4642, 4670 (1988).
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court remands a properly removed case on the ground that it lacks
subject matter jurisdiction, the remand falls within section 1447(c),
and appellate review of the remand is barred by section 1447(d). See
id.
Having rejected the post-removal-event doctrine (although the
Court did not call the doctrine by that name), the Court proceeded to
determine whether the ground for the remand order was a lack of
subject matter jurisdiction. The district court had purported to base
its remand order on that ground. See id. The Court acknowledged
disagreement among the Justices as to whether the district court’s own
characterization of its remand order sufficed to preclude appellate
review. See id.; see also Kircher v. Putnam Funds Trust, 126 S. Ct.
2145, 2153 & n.9 (2006) (declining to decide whether a court of
appeals may look beyond a district court’s label in a remand order);
id. at 2159 (Scalia, J., concurring) (arguing that section 1447(d)
prohibits courts of appeals from looking beyond the stated bases for
district courts’ remand orders). However, the Court agreed that
“review of the District Court’s characterization of its remand as
resting upon lack of subject-matter jurisdiction, to the extent it is
permissible at all, should be limited to confirming that that
characterization was colorable.” Powerex Corp., 127 S. Ct. at 2418
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(emphasis added). Because the only plausible explanation for the
district court’s decision to remand the case was a conclusion that it
lacked subject matter jurisdiction, that court’s characterization of
its remand order was “colorable,” and section 1447(d) prohibited
appellate review. See id.
Marsh’s reliance on earlier cases recognizing the post-removal-
event doctrine is unavailing in light of Powerex Corp. In the pending
case, the District Court purported to remand for lack of subject
matter jurisdiction, and it is immaterial that the perceived lack of
jurisdiction arose after removal.3 Regardless of whether the subject
matter jurisdiction determination was correct on the merits, see
Kircher, 126 S. Ct. at 2153 (repeating the principle that all remand
orders issued on a ground specified in section 1447(c), no matter how
erroneous, are immunized from review), the District Court’s
characterization of its remand order as being based on a lack of
subject matter jurisdiction was certainly “colorable.” Indeed, we can
discern no other plausible ground for the remand decision.
3
In addition, it is arguable that the District Court believed that
the case was actually removed without jurisdiction given its
conclusion that Champlain was indispensable to the case at its
commencement. See Price, 2007 WL 294082, at *5.
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Accordingly, applying Powerex Corp., we conclude that section 1447(d)
precludes our review over the remand order.
II. The Collateral Order Doctrine Does Not Permit Appellate Review
Marsh also contends that, even if we cannot review the District
Court’s remand order, the rest of the District Court’s ruling is
reviewable on appeal under the collateral order doctrine. In
particular, Marsh urges us to review the District Court’s rulings (1)
granting the motion to join Champlain and (2) holding that Champlain
was indispensable.4
The collateral order doctrine, recognized in Cohen v. Beneficial
Industrial Loan Corp., 337 U.S. 541 (1949), permits review of an
otherwise unappealable order if “the order conclusively determine[s]
the disputed question, resolve[s] an important issue completely
separate from the merits of the action, and is effectively
unreviewable on appeal from a final judgment.” Excimer Associates,
Inc. v. LCA Vision, Inc., 292 F.3d 134, 138 (2d Cir. 2002) (internal
4
Marsh also urges us to review that portion of the District
Court’s ruling “ignoring the requirements of Rule 19.” We do not
understand the District Court’s failure to apply Rule 19 as a separate
decision but rather as Marsh’s explanation of why the affirmative
decisions recited above are alleged to be erroneous.
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quotation marks omitted) (alterations in original). In addition, to
overcome section 1447(d) on an appeal from a remand order based on a
lack of subject matter jurisdiction, the ruling for which an appellant
seeks interlocutory review “must be ‘separate from the question of the
district court’s subject matter jurisdiction.’” MediSys Health
Network, Inc. v. Local 348-S United Food & Commercial Workers, 337
F.3d 119, 122 (2d Cir. 2003) (quoting Excimer Associates, 292 F.3d at
139). This separability requirement stems from the Supreme Court’s
decision in Waco v. U.S. Fidelity & Guaranty Co., 293 U.S. 140 (1934),
where the Court permitted appellate review of a “separate” order
dismissing a claim that “in logic and in fact . . . preceded [the
remand order] and was made by the District Court while it had control
of the cause.” Id. at 142, 143; see also Powerex Corp., 127 S. Ct. at
2419 (“Waco does not permit an appeal when there is no order separate
from the unreviewable remand order.”); Kircher, 126 S. Ct. at 2156
n.13 (declining to “pass[] on the continued vitality of [Waco] in
light of § 1447(d),” but distinguishing the case on the ground that
the dismissal order in Waco could be “disaggregated” from the remand
order). We have explained that a decision is separable when “‘the
issue [being determined] has independent relevance in adjudging the
rights of the parties (i.e., relevance beyond determining the
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existence of federal subject matter jurisdiction).’” Excimer
Associates, 292 F.3d at 139 (quoting Powers v. Southland Corp., 4 F.3d
223, 228 (3d Cir. 1993)).
We discuss the rulings identified by Marsh in reverse order. The
second ruling--the District Court’s holding that Champlain was
indispensable--was part and parcel of the Court’s assessment of its
subject matter jurisdiction because it considered indispensability to
determine whether the joinder satisfied the “indispensability”
exception to Freeport-McMoRan recognized by some courts. Accordingly,
this decision was not sufficiently separate from the remand order to
warrant review under Waco.
By contrast, the District Court’s decision to permit Champlain’s
joinder perhaps satisfies the separability requirement. The joinder
ruling could be said to have preceded the remand decision in logic and
in fact because the District Court did not consider the joinder motion
for the purpose of assessing subject matter jurisdiction. Indeed, the
District Court had no reason to assess its subject matter jurisdiction
until after granting the joinder motion. Moreover, the joinder of
Champlain arguably had independent relevance to the rights of the
parties because it served to preserve the Plaintiffs’ claim against
Marsh.
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We need not decide, however, whether the joinder ruling is
sufficiently separate from the remand order because, even if it is, it
is not reviewable under the collateral order doctrine. For a
collateral order such as a joinder ruling to satisfy the collateral
order doctrine, it must be, among other things, effectively
unreviewable on appeal from a final judgment. Marsh summarily argues
that the joinder ruling is “not reviewable by the state court and, in
any event, [is] too important to require Marsh to await the
possibility that the state court will do so.” We disagree. We have
stated that “the unavailability of appellate review of remand orders
under § 1447(d) strongly militates against giving a judgment
preclusive effect, and thus any issues that the district court decided
incident to remand may be relitigated in state court.” MediSys Health
Network, 337 F.3d at 124 (internal quotation marks and citation
omitted). And even if the state trial court is bound by the joinder
ruling under the law-of-the-case doctrine, which we need not decide,
we see no reason why the state appellate court cannot review the
joinder decision on an appeal from a final judgment. See Powers, 4
F.3d at 233-37 (holding that the state appellate court could review a
district court’s pre-remand order granting joinder of a defendant);
see also Doleac v. Michalson, 264 F.3d 470, 491 (5th Cir. 2001)
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(“Because we do not think Congress intended the bar in § 1447(d) to
turn an otherwise non-collateral, unreviewable interlocutory order
into a collateral, appealable order, we conclude that this amendment
does not meet the requirements of the third prong of the collateral
order exception.”). Nor can we discern any reason to excuse Marsh
from the usual requirement that it await appellate review of a final
judgment to appeal the joinder ruling.
In sum, even if the joinder ruling is separable from the remand
order, Marsh has not demonstrated that the decision is effectively
unreviewable on appeal from final judgment in the state court. For
this reason, the collateral order doctrine cannot support appellate
jurisdiction over the joinder ruling, and the appeal must be
dismissed.
Conclusion
For the foregoing reasons, we conclude that we lack appellate
jurisdiction to review the remand order or the joinder ruling, and we
therefore dismiss the appeal.
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