More on Today’s Decision in Powerex

This entry was authored by Travis Mock, an Akin Gump summer associate and a student at the University of Virginia School of Law.

In a 7-2 decision authored by Justice Scalia, the Supreme Court held today that when a district court remands a properly removed case because it lacks subject matter jurisdiction, the court of appeals may not review that remand order – even when, as in this case, the Foreign Sovereign Immunities Act (“FSIA”) provided the basis for the removal. And because it held that the Ninth Circuit lacked jurisdiction to review the remand order in this case, the Court did not reach the question whether petitioner Powerex is immune from suit under the FSIA. [A very thorough review of the facts and briefs can be found in our argument preview here.]

After the California energy crisis in 2000-2001, state and individual energy consumers (“Ratepayers”) sued Reliant Energy and other California energy providers in California state court for conspiracy to fix the price of wholesale electricity. The energy providers then filed cross-claims for indemnity against two U.S. government agencies, Bonneville Power Administration (BPA) and Western Area Power Administration (WAPA), as well as the British Columbia Hydro and Power Authority (“BC Hydro”) and its wholly owned subsidiary Powerex.

After the cross-defendants removed their cases to federal district court, the Ratepayers sought remand. The district court found BPA, WAPA, and BC Hydro immune from suit as agencies of the U.S. government and a foreign sovereign, respectively. Although Powerex did not claim immunity, it argued that it was entitled to removal as an agency or instrumentality of a foreign state. The district court rejected this argument and remanded the case without dismissing the immune parties.

On appeal, the Ninth Circuit affirmed. It rejected the Ratepayers’ contention that it lacked jurisdiction because 28 U.S.C. § 1447(d) prohibits appellate review of remand orders based on lack of subject-matter jurisdiction. Instead, it held, Section 1447(d) precludes review only of the jurisdictional and procedural issues resulting in remand. And it agreed with the district court that Powerex was not an “organ of a foreign sovereign” for FSIA purposes and therefore not entitled to removal. The Supreme Court granted certiorari on the FSIA issue and also asked the parties to brief the issue of appellate jurisdiction over the remand order.

Today the Court held that Section 1447(d) bars appellate review of the remand order and the FSIA claim. Relying on the Court’s decisions in Thermtron Products, Inc. v. Hermansdorfer and Quackenbush v. Allstate Insurance Co., Justice Scalia explained that because Section 1447(d) must be read in pari materia with Section 1447(c), Section 1447(d) precludes review only of remands based on Section 1447(c) – for present purposes, a lack of subject matter jurisdiction.

The Court’s inquiry thus turned to whether the district court’s remand order was based on a lack of subject-matter jurisdiction. For the majority, the answer was an unequivocal “yes.” As an initial matter, the Court rejected the contention – advanced by both petitioner and the Solicitor General – that Section 1447(c)’s reference to a “lack of subject matter jurisdiction” encompasses only defects in subject matter jurisdiction at the time of removal that render the removal itself improper. Such a construction, the Court explained, is not supported by either the text or statutory history of Section 1447(c).

The majority next determined that the district court’s remand was in fact based on lack of subject matter jurisdiction. It emphasized that the language of both the remand order and the order denying a stay of the remand characterized the district court’s rationale as lack of subject matter jurisdiction. And although the majority assumed without deciding that Section 1447(d) permits an appellate court to look behind the district court’s characterization of its remand order, in its view a lack of subject-matter jurisdiction was the only plausible basis for the remand order in this case. In any event, the Court continued, review of the district court’s characterization of its remand order should be limited to whether there was a colorable argument in support of the district court’s rationale: “Lengthy appellate disputes about whether an arguable jurisdictional ground invoked by the district court was properly such would frustrate the purpose of [Section] 1447(d) quite as much as determining whether the factfinding underlying that invocation was correct.” Finally, the Court deemed “implausible” Powerex’s argument that the remand was in fact based on the district court’s decision not to exercise a discretionary form of supplemental jurisdiction under Carnegie-Mellon University v. Cohill. Wholly aside from whether this form of supplemental jurisdiction was even available in this case, the Court noted that neither Powerex nor the district court ever appeared to have relied on it.

The Court next disposed of a separate legal theory: the Ninth Circuit’s assertion of jurisdiction (notwithstanding Section 1447(d)’s bar of appellate review of remand orders) to review merits determinations that precede the remand order. It explained that Supreme Court precedent permits such appeals only regarding orders that are entirely separate from the remand order, which is unreviewable. In this case, it noted, Powerex was unable to point to any order distinct from the remand order that turned on its status as a foreign sovereign.

Finally, the Court rejected the assertion – made by both Powerex and its amici – that Section 1447(d)’s bar on appellate review must yield to the FSIA to avoid frustrating congressional policy goals. The Court noted that Congress had made explicit exceptions to Section 1447(d) in the past. Therefore, absent such an explicit exception, the plain language should prevail.

In an opinion joined by Justice Stevens, Justice Breyer dissented. Relying on the Court’s recent decision in Osborn v. Haley, he would have resolved the conflict between Section 1447(d) and the FSIA by reading an exception to Section 1447(d) into the FSIA. Such a construction, Justice Breyer explained, is appropriate because the FSIA was enacted after Section 1447(d), it is more specific, and continued enforcement of Section 1447(d) would render the FSIA “weightless.” Justice Breyer noted that the Court’s contrary construction potentially denies foreign sovereigns immunity or, at the very least, access to a bench trial in federal court.

Turning to the merits of the case, Justice Breyer would have held that Powerex was an organ of a foreign sovereign under the FSIA. In support of his conclusion, Justice Breyer pointed to Powerex’s governmental purpose, its regulation and oversight by the government and BC Hydro, and the fact that all of its revenues are returned to the government and the citizens of British Columbia.

Justice Kennedy (joined by Justice Alito) issued a concurring opinion in which he indicated that “[t]here is no latitude for us to reach a different result.” However, he expressed regret that the holding may frustrate congressional policy goals and observed that the Court’s ruling may require a prompt legislative response to protect the interests of foreign sovereigns.