Jurisdiction

The geographic area over which authority extends; legal authority; the authority to hear and determine causes of action.

Powerex Corp. v. Reliant Energy Services, Inc.

Congress enacted the Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U.S.C.A. §1603, to codify protections and immunities for foreign governments and the entities of those governments. In doing so Congress gave foreign entities the right to remove state lawsuits against them to federal district court and to have trials before judges rather then juries. However, a federal district court may decide that it lacks jurisdiction to hear the case if it decides the party did not qualify as a foreign sovereign. The litigation is then returned to the state court. In contrast to standard civil rules, when a district court acts in this way, a federal law, 28 U.S.C.A. §1447(d), prohibits a federal circuit court of appeals from reviewing the decision to return the matter to state court. In Powerex Corp. v. Reliant Energy Services, Inc., __U.S.__, 127 S.Ct., __L.Ed.2d__ 2007 WL 1731097 (2007), the U.S. Supreme Court rejected the claim that in FSIA cases §1447(d) did not apply and could be reviewed by an appellate court. The Supreme Court found that Congress had made no such exception and it declined to create one despite the problems this created for foreign governments denied federal jurisdiction.

The State of California, along with private individuals and corporations, filed suits in California state courts against a host of energy companies that had allegedly conspired to fix prices. Some of these defendants then filed cross-claims against two federal power agencies, the British Columbia Hydro and Power Authority (BC Hydro), and Powerex Corporation, a wholly owned subsidiary of BC Hydro. BC Hydro itself is wholly owned by the province of British Columbia and therefore qualified as a "foreign state" under the FSIA. The federal agencies, BC Hydro, and Powerex removed the entire case to federal court, citing two different statutes that permitted such removal. The plaintiffs contested the removal, arguing before the federal district court that Powerex was not a foreign state and that the cross-claims were barred by sovereign immunity.

The district court ruled that BC Hydro enjoyed sovereign immunity under FSIA and the two federal power agencies were immune from suit in state court. It also ruled that Powerex did not qualify for protection under FSIA. Having come to these conclusions the court found that it had no subject-matter jurisdiction to hear the Powerex issue. Therefore, it remanded the entire case to state court. Powerex appealed to the Ninth Circuit Court of Appeals, contending that the district court had erred when it said it was not a foreign sovereign entitled to FSIA protection. The plaintiffs argued that the appeals court did not have jurisdiction to hear the merits of Powerex's case because §1447(d) barred such appeals. The Ninth Circuit rejected this argument, holding that it had the authority to review substantive issues of law that preceded the remand order. However, it agreed that Powerex was not protected by FSIA.

The Supreme Court reversed the Ninth Circuit's ruling that it had jurisdiction to hear the appeal. In a 7-2 decision the Court declined to rule on the merits of whether Powerex was an organ of a foreign state under FSIA, limiting the ruling to appellate jurisdiction over the remand of removed cases to state court. Justice Antonin, writing for the majority, acknowledged that a "mere reading" of §1447(d) would not settle the matter because the Court had previously interpreted it to "cover less than its words alone suggest." These prior decisions precluded review only of remands for lack of subject-matter jurisdiction and for defects in removal procedure. Powerex did not claim any procedural defects, thereby shifting the inquiry to the question of whether there was or was not subject-matter jurisdiction. Powerex contended §1447(d) only applied when there was a defect in subject-matter jurisdiction at the time of removal that made removal jurisdictionally improper. Following this argument, the district court's remand order was not based on a lack of subject-matter jurisdiction since the federal agencies and BC Hydro were statutorily authorized to remove the entire case because of their sovereign status.

Justice Scalia found no merit in this construction of the jurisdiction statutes. His reading of the laws "unambiguously demonstrates that a case can be properly removed and yet suffer from a failing in subject-matter jurisdiction that requires remand." In the present case the district had repeatedly stated in denying a stay of remand that a lack of subject-matter jurisdiction required remand. Justice Scalia declined to analyze the jurisdictional grounds at issue because would frustrate the purpose of in preventing delay in the resolution of litigation. Because the line between misclassifying and misapplying grounds was "sometimes elusively thin," the Court held "that when, as here, the District Court relied upon a ground that is colorably characterized as subject-matter jurisdiction, appellate review is barred by §1447(d)." Justice Scalia noted that the Court was aware that erroneous remands would have "undesirable consequences in the FSIA context," but stated that it was up to Congress to exempt this type of case from §1447(d).

Justice Stephen Breyer, in a dissenting opinion joined by Justice John Paul Stevens, believed the Court should have, as it had done in the past, find an exception to §1447(d). The special status of FSIA and the importance of foreign sovereign immunity provided sufficient bases for such an exception. Turning to the merits of the case, Breyer concluded that Powerex was an organ of the government of British Columbia, and thus entitled to immunity under FSIA.