Argument Preview: Carlsbad Technology v. HIF

Erica Goldberg previews the second case to be heard this morning.

On February 24, 2009, in No. 07-1437, Carlsbad Technology, Inc. v. HIF Bio, Inc., the Supreme Court will hear argument to resolve a jurisdictional puzzle of its own creation. The Court must decide whether a federal district court’s discretionary refusal to assume supplemental jurisdiction over state-law claims constitutes a dismissal for lack of subject-matter jurisdiction. The Federal Circuit answered this question in the affirmative, holding that a remand based on a federal district court’s decision not to exercise supplemental jurisdiction is not subject to appellate review. The Federal Circuit’s decision, guided by ambiguous language in a recent Supreme Court opinion, deviated from the decision of every other court of appeals to address the issue.

This case involves the interplay between two subsections of 28 U.S.C. § 1447, which governs remands. After a defendant removes a complaint filed in state court to federal court, the district court has jurisdiction over state-law claims that arise from the same controversy as the plaintiff’s federal claim. However, the district court may also refuse to exercise this “supplemental jurisdiction,” and has discretion to remand any state-law claims back to state court – if, for example, the state-law claims are complex or the federal claim has been dismissed from the action. Although § 1447(d) provides that remand orders are generally not reviewable on appeal, the Court has held that this subsection applies only to the specific types of remands listed in § 1447(c), the most recent version of which describes the procedures for remanding a case based on lack of subject-matter jurisdiction and for other procedural defects. Therefore, if a district court’s remand after declining to exercise supplemental jurisdiction constitutes a lack of subject-matter jurisdiction, this decision is not reviewable on appeal under § 1447(d).

Until recently, the courts of appeals followed Supreme Court precedent in unanimously concluding that they can review a district court’s refusal to exercise supplemental jurisdiction because it is not based on a lack of subject-matter jurisdiction. However, in 2007, the Supreme Court indicated in Powerex Corp. v. Reliant Energy Services, Inc., that it “is far from clear … that when discretionary supplemental jurisdiction is declined the remand is not based on lack of subject-matter jurisdiction for purposes of § 1447(c) and § 1447(d).” The Federal Circuit took this language as license to deviate from the other courts of appeals, creating the circuit split that the Court will resolve in Carlsbad Technology.

Respondents HIF Bio et al. own the rights to a chemical compound, YC-1, that inhibits blood flow to tumors. In 2005, they sued petitioner Carlsbad Technology in California state court for misusing their invention. The complaint alleged violations of the federal racketeering statute, RICO, as well as several state-law claims for unfair competition. They also sought a declaratory judgment for ownership and inventorship of YC-1.

Carlsbad removed the case to federal district court, which dismissed the federal RICO claim because the complaint did not sufficiently allege racketeering activity. The court also held that the remaining claims were state-law claims, declined to exercise supplemental jurisdiction, and remanded them back to state court. Carlsbad appealed the remand decision to the Federal Circuit, arguing that the district court abused its discretion in declining supplemental jurisdiction because the inventorship claims were based on federal patent law and must be resolved in federal court.

The Federal Circuit did not consider the merits of Carlsbad’s appeal, instead holding that it lacked authority to review the district court’s refusal to exercise supplemental jurisdiction. The court of appeals acknowledged that nine other circuits had reached the opposite decision following the Supreme Court’s decision in Carnegie-Mellon University v. Cohill, in which the Court considered a district court’s ability to decline to exercise supplemental jurisdiction. In a footnote, the Cohill Court remarked that § 1447(c) does not implicate supplemental-jurisdiction remands, and that the remand authority outlined in § 1447(c) and the authority to decline supplemental jurisdiction “overlap not at all.”

In the Federal Circuit’s view, Cohill’s footnote was not controlling for several reasons. First, § 1447(c) has been amended since the Court’s decision in Cohill; although at that time § 1447(c) described only remands based on defects that existed prior to removal to federal court, it now extends to any defects and to lack of subject-matter jurisdiction. Moreover, the Supreme Court in Powerex declared this issue to be an open question. Ultimately, the Federal Circuit concluded that a remand based on declining supplemental jurisdiction should be considered a dismissal for lack of subject-matter jurisdiction because it involves both a finding that the state-law claims lack an independent basis for jurisdiction, and a decision not to extend supplemental jurisdiction.

Carlsbad Technology filed a petition for certiorari asking the Court to overturn the Federal Circuit’s decision. The petition stressed that the Federal Circuit’s erroneous ruling created a circuit conflict that must be resolved by the Supreme Court. The Court’s statements in Powerex do not, Carlsbad argued, undermine the reasoning in Cohill, and a discretionary decision refusing to exercise supplemental jurisdiction is not a dismissal for lack of jurisdiction. This discretionary decision entails an assessment by the district court that, although it has jurisdiction over the state-law claims, the state court is better suited to resolve them. Moreover, any amendments to § 1447(c) after the Cohill decision do not undermine this logic. Finally, this issue is exceptionally important in cases, such as this one, in which a district court improperly remands claims that can be resolved only in federal court.

HIF Bio’s short opposition to certiorari emphasized that the conflict at issue is narrowly confined to the Federal Circuit, which has limited jurisdiction over patent cases, and that other circuits may revisit their interpretations of § 1447(c) in light of the Court’s decision in Powerex.

The Supreme Court granted certiorari on October 14, 2008.

In its opening brief, Carlsbad reiterated the points that it made in its petition for certiorari. Supplemental jurisdiction provides an independent basis for jurisdiction over state-law claims, even when supplemental jurisdiction is declined. Carlsbad distinguished between a district court’s power to adjudicate claims, based on jurisdiction, and its discretion to remand those claims, which is not jurisdictional in nature.

HIF Bio’s brief was much more ambitious than its opposition to certiorari. It began with the premise that federalism and finality concerns dictate a strong policy against review of remand orders. Precisely because supplemental jurisdiction is a type of subject-matter jurisdiction, the refusal to assume supplemental jurisdiction is tantamount to a lack of subject-matter jurisdiction. HIF Bio also disputed Carlsbad’s position that the review of refusals to exercise supplemental jurisdiction is especially important in cases, such as this one, in which the remanded claims are in the exclusive jurisdiction of the federal court. By that logic, it would be equally important for appellate courts to review remands based solely on a lack of subject matter jurisdiction, with no issues of supplemental jurisdiction, but this type of appellate review is squarely prohibited by §§ 1447(c) and (d).

Carlsbad’s reply brief again pushed the point that the discretionary decision to decline supplemental jurisdiction is not equivalent to a lack of subject-matter jurisdiction, and that the post-Cohill amendments to § 1447 do not affect this statutory interpretation. HIF Bio was further attempting to undermine well-established precedent limiting the review prohibition of § 1447(c) to the types of remands enunciated in § 1447(d). Finally, when the Fifth Circuit recently confronted this issue after Powerex, it too rejected the Federal Circuit’s approach, reasoning that the refusal to exercise supplemental jurisdiction is beneficial because district courts frequently abuse their discretion and remand state-law claims that implicate important federal interests.