Wednesday’s Argument in Exxon Mobil v. Saudi Basic

In District of Columbia Court of Appeals v. Feldman, the Court breathed surprising new life into a relatively simple sixty-year-old case, Rooker v. Fidelity Trust Co., creating the eponymous “Rooker-Feldman Doctrine.” This Wednesday, the Court hears argument on whether its Rooker-Feldman creation has become a proper tool for preserving the congressionally-allocated bounds of federal court jurisdiction or a misshapen Frankenstein’s monster that lower courts call into service to clear cases from federal dockets without having to engage in a pesky preclusion analysis. Or, perhaps, to figure out which sounds better: Rooker-Feldman-Saudi Basic or Rooker-Feldman-Exxon?

At issue is a Third Circuit opinion requiring dismissal on Rooker-Feldman grounds of federal claims that, in the Third Circuit’s words, “were identical to the claims in which the [state court] reached a final judgment.” The specific question presented is, “May the Rooker-Feldman doctrine, which bars lower federal courts from conducting de facto appellate review of decisions by state courts, be expansively interpreted to additionally incorporate preclusion principles and divest federal courts of jurisdiction solely because a pending state-court proceeding presents identical issues, notwithstanding the long-established system of dual federal and state jurisdiction?” Gregory S. Coleman of Austin, Texas, is arguing for petitioners, and Gregory A. Castanias of Washington, D.C., is arguing for respondents.

The story behind this specialized fed courts controversy is as old as time (or, at least, commerce). Several companies agree to work together (Exxon subsidiaries on one side, and Saudi Basic, or “SABIC,” on the other). Almost twenty years later, one sues the others. And then sues them again, in a different court. Only to be sued right back. Specifically, SABIC sued ExxonMobil in New Jersey federal court in October 1998, alleging patent misappropriation. ExxonMobil then allegedly found proof (in the course of discovery in the first case) that SABIC had been improperly overcharging the joint venture. In July 2000, SABIC (the alleged overcharger) filed suit in Delaware state court seeking a declaratory judgment that it wasn’t liable to the joint venture for the (soon-to-be) alleged overcharging. Roughly two weeks later, ExxonMobil filed suit back in New Jersey federal court to recover for the alleged overcharging.

The complications continued. SABIC (which is seventy percent owned by the Kingdom of Saudi Arabia) filed a motion in New Jersey federal court to have ExxonMobil’s federal suit dismissed under the Foreign Sovereign Immunities Act. In April 2002, the district court denied the motion, and SABIC filed an interlocutory appeal to the Third Circuit. In the meantime, the Delaware state trial moved forward, with ExxonMobil having filed counterclaims for damages from the alleged overcharging and having convinced the court to treat it as the plaintiff in that case. After a two-week trial, the state jury found SABIC liable to ExxonMobil for claims totaling $416.8 million. SABIC appealed to the Delaware Supreme Court in October 2003.

Then the truly unexpected happened. On the day before oral argument in the interlocutory appeal of the federal district court’s FSIA ruling, in December 2003, the Third Circuit instructed the parties that they should prepare to address Rooker-Feldman issues. Then, having received supplemental briefs on Rooker-Feldman from the parties, the court in March 2004 held that the federal claims were barred by the Rooker-Feldman doctrine (and so never reached the FSIA issue). It is from that decision (available here) that petitioner ExxonMobil appeals. (Incidentally, just last month the Delaware Supreme Court affirmed the trial court’s $416.8 million verdict, although SABIC has moved for re-argument.)

Rooker, decided in 1923, was a straightforward case in which a plaintiff who had lost in state court sought to use a federal district court to “declare[] null and void” the state court’s decision. In upholding the district court’s dismissal for lack of jurisdiction, the Supreme Court explained that it was the only federal court with statutory jurisdiction to “entertain a proceeding to reverse or modify the judgment” of a state court for the constitutional errors alleged by the plaintiffs. “The jurisdiction possessed by the District Courts is strictly original.” Feldman, decided in 1983, was a slightly more complicated case, primarily because the Court first had to determine whether the decision of local courts in the District of Columbia not to admit certain graduates of unaccredited law schools to the D.C. bar was “judicial in nature.” Once the Feldman Court decided this question in the affirmative, it had little trouble holding certain of the plaintiffs’ federal claims—that the local D.C. courts “acted arbitrarily and capriciously” and “unreasonably and discriminatorily” in denying their admission—barred as impermissible attempts to obtain appellate review of another jurisdiction’s highest court in a federal district court.

Since the birth of the Rooker-Feldman Doctrine twenty years ago, some circuits (including the Seventh and Ninth) have been quite stingy in its use, while others (including the Third) have invoked it far more often. As the facts of this case demonstrate, the stakes can be very high, since the Rooker-Feldman bar is jurisdictional and so, unlike preclusion rules, cannot be waived by the parties and must be raised sua sponte by any court that thinks it applicable.

For petitioner ExxonMobil, this drastic rule should, and must, be used sparingly. The proper approach for managing problems arising from concurrent federal/state jurisdiction in cases such as this one—in which two lawsuits are wending their ways through parallel state and federal forums, neither has come completely to rest yet (i.e., both are still “pending” in some form), and the federal plaintiff seeks relief not from an injury caused by a state court judgment but from the injury allegedly caused by the defendant (even if it is the same injury at issue in the state trial)—is to look to the rules of preclusion of the state in which the state court trial was, or is being, held. The Third Circuit’s invocation of Rooker-Feldman, in contrast, “circumvent[s] any consideration of state preclusion law,” “replacing that consideration – apparently – with a federal common law of preclusion” in “direct conflict with the Court’s interpretation of [28 U.S.C.] § 1738,” the Full Faith and Credit statute. Moreover, the SABIC approach turns Rooker-Feldman into “a doctrine of vanishing jurisdiction, under which original jurisdiction once present can suddenly evaporate ‘once the [state] trial court had reached a judgment.’”

Respondent SABIC sees the real offense against state dignity not in some allegedly improper failure to consult state preclusion rules, but in the maintenance of a federal suit as an “insurance policy” (in the words of the Third Circuit) against a potentially negative outcome on the final state court appeal. SABIC endorses an interpretation of Rooker-Feldman that would preclude any federal relitigation of claims “identical” to ones that were “actually litigated . . . to final judgment in . . . state court.” “A federal court’s issue-by-issue ‘relitigation’ of the identical claims, in essence de novo appellate review, would result in a judgment carrying much the same force and effect as an appellate decision reversing or affirming,” argues SABIC, pointing to language in the Court’s decision in ASARCO Inc. v. Kadish for support. The fact that ExxonMobil might merely be asking a federal court to “affirm” a favorable state court decision denigrates the dignity of state courts as much as a request that a federal court “reverse” an unfavorable state court decision. As for ExxonMobil’s argument that it does not seek “relief” from any state court judgment, SABIC characterizes that as merely “[a]rtful pleading” that improperly focuses on a party’s own subjective characterization of its suit, rather than on what a federal court would have to do to decide the suit – in effect to “review” state court proceedings, contrary to the jurisdictional bar raised by Rooker-Feldman.