The Supreme Court granted certiorari today in two cases; one is of potential interest to the business community. Amicus briefs in support of the petitioners are due on January 21, 1999, and amicus briefs in support of the respondents are due on February 22 (because February 20 is a Saturday). Any questions about this case should be directed to Alan Untereiner (202-778-0656) or Donald Falk (202-778-0174) in our Washington office.

Federal Courts — Subject-Matter Jurisdiction — Personal Jurisdiction. The Court granted certiorari in Ruhrgas AG v. Marathon Oil Co., No. 98-470, to decide whether a federal district court presiding over a case that has been removed from state court may dismiss the case for lack of personal jurisdiction without first deciding the plaintiff's motion to remand the case to state court for lack of subject-matter jurisdiction.

Marathon Oil and affiliated companies sued Ruhrgas in Texas state court, asserting tort claims relating to an agreement for the sale of North Sea natural gas. Ruhrgas removed the case to federal district court, asserting federal jurisdiction on three grounds: the Convention on the Recognition of Foreign Arbitral Awards (see 9 U.S.C. § 205), federal common law, and diversity of citizenship of the parties. Although Marathon moved for a remand to state court, the district court dismissed the case on the ground that it lacked personal jurisdiction. The district court held that it had discretion to address personal jurisdiction without first resolving the more difficult question of its subject-matter jurisdiction.

A panel of the Fifth Circuit reversed, holding that federal subject-matter jurisdiction was lacking and directing that the case be remanded to the state trial court for that court to determine the issue of personal jurisdiction. 115 F.3d 315 (1997). After the Supreme Court denied certiorari, 118 S. Ct. 413 (1997), the Fifth Circuit sua sponte ordered the case reheard en banc. Dividing 9-7, the court of appeals held that a district court hearing a case that has been removed from state court must decide whether it has Article III jurisdiction before addressing any challenge to personal jurisdiction; the court remanded the case to the district court to address subject-matter jurisdiction in the first instance, however. 145 F.3d 211 (1998). The Fifth Circuit held that, in a federal system, subject-matter jurisdiction was logically prior to personal jurisdiction. If a federal court in fact does not have subject-matter jurisdiction, for it to decide the question of personal jurisdiction "impermissibly wrests that decision from the state courts." Id. at 218.

Judge Patrick Higginbotham and six of his colleagues would have held that district courts have the discretion to dismiss a case for lack of personal jurisdiction even where subject-matter jurisdiction is uncertain. The dissenting opinion rejected the majority's assignment of priority to subject-matter jurisdiction, and suggested that both subject-matter jurisdiction, based in Article III, and personal jurisdiction, grounded in the Due Process Clause, are "rooted in core constitutional precepts" and "are critical to the power of a court." 145 F.3d at 229.

The Fifth Circuit's decision conflicts with Cantor Fitzgerald, L.P. v. Peaslee, 88 F.3d 152 (2d Cir. 1996). Without addressing the order in which jurisdictional challenges were resolved, other courts of appeals appear to have permitted district courts to decide personal jurisdiction without first deciding subject-matter jurisdiction.

Because state courts may tend to take a more expansive view of their own personal jurisdiction than federal district courts, this case is potentially important to businesses on either side of the procedural issue that the Court will decide. The case is especially significant to businesses that may not be subject to personal jurisdiction in every (or in any) State. The Fifth Circuit's approach would prevent a defendant that removes its case to federal court from achieving a final disposition of a clear-cut personal jurisdiction issue unless it first prevails on the question of subject-matter jurisdiction. Conversely, if the Supreme Court reverses the Fifth Circuit, businesses that wish to litigate their claims in state court may be finally precluded from doing so based on a personal jurisdiction ruling by a federal court that had no subject-matter jurisdiction to hear the case.