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November 09, 2011 Articles

Appealing Dismissal of Federal Claims upon Remand of State Law Claims

There has been little discussion about procedure where a district court assumes jurisdiction over an action including federal and state-law claims, dismisses the former, and then remands the latter.

By Lawrence A. Kasten

Federal courts and scholars have extensively considered the question of whether orders remanding actions to state court are appealable. As is explained below, many questions in this area recently have been resolved by the Supreme Court. There has been relatively less discussion, however, about appellate procedure in cases in which a district court properly assumes jurisdiction over an action that includes both federal claims and state-law claims, dismisses the federal claims, and then remands the remaining state-law claims. Although proper procedure in this area appears relatively clear at this time, the matter is nevertheless appropriate for discussion for at least two reasons. First, it implicates important appellate timing issues, particularly for claimants who must understand the rules so that they do not forfeit an appeal. Second, it creates the possibility of splitting a case between federal and state courts even though the parties may not desire such a result.

Consider the following example. The plaintiff brings an action in state court, which the defendant removes because it includes a federal claim in addition to state law claims. As any first-year civil procedure student can recite, the district court’s jurisdiction over the federal claim also gives it subject matter jurisdiction over factually related state law claims under the doctrine previously known as “pendent” jurisdiction and now codified in the federal supplemental jurisdiction statute. 28 U.S.C. § 1367. Assume, however, that some time later, the district court grants a motion to dismiss the federal claim.

The district court must now decide what to do with the pending state law claims. Under the supplemental jurisdiction statute, the district court has discretion to remand the action back to state court, because only state law claims remain. 28 U.S.C. § 1367(c)(3). And appellate courts generally hold that once the federal claims are gone, district courts ordinarily should exercise that discretion to remand the state law claims unless retention of the action would serve judicial economy or other interests. E.g., Motorola Credit Corp. v. Uzan, 388 F.3d 39, 56–57 (2d Cir. 2004); see Sanford v. MemberWorks, Inc., 625 F.3d 550, 561 (9th Cir. 2010) (“[I]n the usual case in which all federal-law claims are eliminated before trial, the balance of factors to be considered under the pendent jurisdiction doctrine—judicial economy, convenience, fairness, and comity—will point toward declining to exercise jurisdiction over the remaining state-law claims.”) (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.7 (1988)).

Assume, in this hypothetical example, the district court follows this law and, at the plaintiff’s urging, does indeed remand the state law claims. What happens now? This article addresses two facets of this question. First, can the defendant appeal the remand order? Second, if the plaintiff wishes to appeal the dismissal of the federal claim, must it do so immediately?

For several years, the courts of appeals were in conflict about whether the defendant could appeal the district court’s decision to remand the case. The controversy arose because the removal statutes provide that “[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise.” 28 U.S.C. § 1447(d). Some courts held this language was plain and precluded federal appellate courts from hearing appeals from remand orders; others held this language applies only when a remand order is based on lack of subject matter jurisdiction, which is not implicated by a discretionary remand under the supplemental jurisdiction statute. See generally Carlsbad Tech., Inc. v. HIF BIO, Inc., 129 S. Ct. 1862 (2009). In 2009, the Supreme Court adopted the latter view and held that, assuming removal was proper in the first place, a district court’s order remanding supplemental state law claims may be reviewed on appeal. Id.

It should be noted that several members of the Court expressed discomfort with this holding and would have preferred a plain-language reading, but felt constrained by the Court’s prior decisions because no party before it was asking for reconsideration of that precedent. Id. at 1867 (Stevens, J., concurring); id. at 1868 (Scalia, J., concurring); id. at 1869 (Breyer, J., concurring). Justice Breyer suggested “expert” consideration of a statutory amendment may be in order. Id. at 1869–70. Justice Scalia indicated reconsideration might be appropriate in a future case. Id. at 1868. Accordingly, further developments in this area are possible and perhaps even likely and should be carefully monitored by federal practitioners.

The second issue considered in this article—whether the plaintiff must immediately appeal the district court’s dismissal of the federal claims or may instead wait for final resolution of the state law claims—has received relatively less attention. If the district court, in the hypothetical example above, had elected to retain supplemental jurisdiction over the state law claims, the answer would be clear: The plaintiff could not appeal from an order dismissing only the federal claim but not the state law claims unless the district court entered a final judgment on the federal claim pursuant to Federal Rule of Civil Procedure 54(b), after making an “express[] determin[ation] that there is no just reason for delay.” (This assumes that none of the special grounds for an interlocutory appeal under 28 U.S.C. § 1292 exist.) This is so, of course, because an order resolving some, but not all, claims in an action is not a “final” decision suitable for appeal under 28 U.S.C. § 1291 unless the district court makes an express Rule 54(b) determination. Liberty Mut. Ins. Co. v. Wetzel, 424 U.S. 737 (1976); Sears, Roebuck & Co. v. Mackey, 351 U.S. 427 (1956). This leaves the question of whether the rule is different if the district court remands the state law claims instead of retaining them. The answer to that question appears to be yes.

Courts looking at the question generally hold that, once the state law claims are dismissed, there is nothing left to be decided in the district court, rendering the dismissal of federal claims appealable under section 1291. Coll v. First Am. Title Ins. Co., 642 F.3d 876, 884 (10th Cir. 2011); Hyde Park Co. v. Santa Fe City Council, 226 F.3d 1207, 1209 n.1 (10th Cir. 2000) (collecting cases). Although such cases challenge traditional notions of finality, because remand leaves the merits to be decided (albeit in a different venue), these courts appear to view a complete surrender of jurisdiction by a federal court to a state court to be enough to create finality.

This analysis is consistent with the Supreme Court’s decision in Quackenbush v. Allstate Insurance Co., 517 U.S. 706 (1996), that a remand from federal to state court on abstention grounds renders a case adequately final to allow appeal of the remand order pursuant to the “collateral order doctrine.” Although the Court did not reanalyze this section 1291 issue until 12 years later in Carlsbad Technology, a recent decision from the Ninth Circuit holds that Carlsbad Technology’s analysis necessarily implies that section 1367 remand orders are final decisions under section 1291. Harmston v. City & Cnty. of S.F., 627 F.3d 1273, 1277 (9th Cir. 2010). If a remand of state law claims renders a case sufficiently final to permit an appeal from the remand order itself, it is reasonable to conclude that a fully resolved federal claim is similarly appealable after the remand of all other claims.

This also is a sound result from a pragmatic standpoint. Any other would run the risk of rendering the dismissal of the federal claim unreviewable, because a state court of appeals likely will not review a dismissal order by a different court. See Hyde Park, 226 F.3d at 1209 n.1 (citing 14C Charles Alan Wright, Arthur R. Miller and Edward H. Cooper, Federal Practice and Procedure § 3740 (3d ed. 1998)). Yet, some important considerations remain.

First, be aware of the time for filing a notice of appeal. Because, under the authority above, the remand renders the case final notwithstanding the otherwise interlocutory nature of the order dismissing only the federal claim, the plaintiff should carefully adhere to Federal Rule of Appellate Procedure 4. In other words, plaintiffs in this position must understand that finality—and thus the beginning of the time for appeal—likely exists right away, not after resolution of the remanded state law claims in state court.

At this time, however, this issue does not appear to have received enough judicial attention for there to be clear rules about exactly when the time for appeal begins to run. The Tenth Circuit has suggested that an appeal is not ripe until the district court has entered both a remand order and a judgment pursuant to Federal Rule of Civil Procedure 58. Coll, 642 F.3d at 884. It would seem that, at a minimum, the appeal period should not start until the district court remands the state law claims, because until then there is no finality. The purpose of this article, however, is not necessarily to answer the question but to raise it, to remind thoughtful counsel to research and carefully consider the issue. The consequence for failing to do so can be severe. Recent Supreme Court decisions regarding the time for appeal are extremely rigid, notwithstanding potentially harsh consequences, counseling in favor of an abundance of caution wherever the law about the time for filing a notice of appeal may be developing or debatable. See, e.g., Lawrence A. Kasten, “Time Limits for Filing a Notice of Appeal Are Mandatory and Jurisdictional—Really,” App. Prac. J., Fall 2010.

Second, the ultimate result may be that the case becomes split between state and federal courts. If the parties do not seek and obtain a stay, they may be required to litigate the merits of the state law claims in state court while the federal appeal runs its course. For example, in People v. Bhakta, 135 Cal. App. 4th 631, 636–37 (Cal. Ct. App. 2006), the court held that, absent a stay from the federal court of appeals, it was not required to refrain from considering and resolving the merits of remanded state law claims, even though the federal court could ultimately reverse a remand order. (The questions of whether a state court judgment on the merits would moot the appeal of a remand order or would be enforceable notwithstanding an inconsistent result in the federal appellate court are beyond the scope of this article.) Accordingly, inconsistent arguments or rulings may become a concern, especially considering that the claims in question will be factually related (because that would have been the basis to join them together in federal court in the first place).

Similarly, if the federal court of appeals, after many months, or even years, reverses the dismissal of the federal claim and remands it back to the district court, the parties may be left with no procedural device to reunite that claim with the state claims. A quote from a recent Ninth Circuit case exemplifies the issue and also the absence of any easy solution:

[B]ecause we reverse the district court’s dismissal of some of Plaintiffs’ federal claims, the district court should reconsider on remand whether it should exercise supplemental jurisdiction over the state-law claims. We realize, of course, that pursuant to the district court’s remand, the parties are currently litigating the state law issues in Arizona court.

Lacey v. Arpaio, No. 09-15703, No. 09-15806, 2011 WL 2276198, at *14 (9th Cir. June 9, 2011).

Indeed, depending on how long it takes the federal court to resolve the appeal, the state law claims may no longer even be pending or they may themselves be subject to an appeal in state court. The ironic consequence is that the very judicial economy considerations that underlie liberal joinder, supplemental jurisdiction, and the final judgment rule might end up being undermined by the remand. Accordingly, when deciding whether to urge or oppose remand after the dismissal of federal claims, counsel should give thoughtful consideration to what the case might later look like if the dismissal of the federal claim is reversed.

Keywords: litigation, appellate practice, supplemental state law claims, federal practice and procedure

Lawrence A. Kasten is a partner at Lewis and Roca LLP in Phoenix, Arizona.

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