JERRY E. SMITH, Circuit Judge:
Today we decide whether, on removal from a state court, a district court has discretion to resolve a challenge to personal jurisdiction before ruling on a legally more difficult question concerning its alleged lack of subject-matter jurisdiction. We conclude that, at least in removed cases, district courts should decide issues of subject-matter jurisdiction first and, only if subject-matter jurisdiction is found to exist, reach issues of personal jurisdiction. Accordingly, we vacate the judgment and remand with instruction to rule on the motion to remand to state court for lack of subject-matter jurisdiction.
I.
Marathon Oil Company, Marathon International Oil Company, and Marathon Petroleum Norge A/S (collectively "Marathon") sued Ruhrgas, a German gas supplier, under various tort theories in Texas state court. The alleged torts arose from Ruhrgas's relationship with Marathon Petroleum Company Norway ("MPCN"), a Marathon affiliate that is the equitable owner of a portion of the Heimdal natural gas field in the North Atlantic. Marathon Petroleum Norge A/S ("Norge"), as a Norwegian company, is required by law to hold legal title to MPCN's interest in the field.
MPCN entered into a sale agreement with Ruhrgas and other gas buyers whereby, for a premium price, the buyers would purchase MPCN's gas from the Heimdal field. This agreement provides that any disputes between MPCN and the buyers will be resolved through arbitration in Sweden.
At some point after the agreement was signed, the price of gas fell, and the buyers, including Ruhrgas, refused to pay MPCN the premium contract price. MPCN instituted arbitration proceedings in Sweden, whereupon MPCN's affiliates instituted these tort suits against Ruhrgas in Texas state court. They allege that Ruhrgas conspired to monopolize the gas market, tortiously interfered with MPCN's business opportunities, and committed other, similar torts, which had the effect of harming them, as lenders to MPCN.
Marathon Oil Company owns Marathon International Oil Company, which in turn owns Norge and MPCN. MPCN is not a party to this suit.
Ruhrgas removed the case to federal court, asserting diversity jurisdiction under 28 U.S.C. § 1332(a), federal arbitration jurisdiction under 9 U.S.C. § 205, and federal question jurisdiction under 28 U.S.C. § 1331 based on the federal common law of international relations. Ruhrgas moved to dismiss for lack of personal jurisdiction and, in the alternative, requested a stay of proceedings pending arbitration. Marathon moved to remand to state court, asserting a lack of federal subject-matter jurisdiction, and opposed compelled arbitration.
The district court determined that, under the caselaw of this circuit, it had discretion to address personal jurisdiction before reaching the legally more difficult subject-matter jurisdiction issue. Finding personal jurisdiction lacking, the court dismissed the action and otherwise denied Ruhrgas's motion to compel arbitration. Marathon appealed, arguing that, on a motion to remand, the district court should have considered subject-matter jurisdiction before deciding personal jurisdiction.
Ruhrgas cross-appealed, contending that it should have been entitled to an order compelling the plaintiffs to arbitrate.
A panel of this court determined that the district court lacked subject-matter jurisdiction, and thus it vacated the dismissal for lack of personal jurisdiction and remanded with instruction to remand to state court. Although acknowledging that "in some instances we have permitted the dismissal of an action for lack of personal jurisdiction without considering the question of subject matter jurisdiction," the panel concluded that "[t]he appropriate course [for a federal court] is to examine for subject matter jurisdiction constantly and, if it is found lacking, to remand to state court if appropriate, or otherwise dismiss."
Marathon Oil Co. v. Ruhrgas, A.G., 115 F.3d 315, 318 (5th Cir.) (citing Villar v. Crowley Maritime Corp., 990 F.2d 1489 (5th Cir. 1993); Asociacion Nacional de Pescadores v. Dow Quimica, 988 F.2d 559 (5th Cir. 1993); Walker v. Savell, 335 F.2d 536 (5th Cir. 1964)), cert. denied, 118 S.Ct. 413 (1997).
Id. (citing Ziegler v. Champion Mortgage Co., 913 F.2d 228 (5th Cir. 1990)).
After the Supreme Court denied certiorari, we granted en banc review. We now take this opportunity, as an en banc court, to reconcile the conflicting circuit precedent cited by the panel and to explain a district court's obligation concerning which challenge it should decide first when confronted with a removed case in which the existence of subject-matter jurisdiction is questionable and personal jurisdiction is contested. We conclude that the court should proceed to consider the issue of subject-matter jurisdiction (even if that is the more legally difficult issue) before proceeding to address whether it (or, for that matter, the state court) would have personal jurisdiction over the protesting defendant.
See Marathon Oil Co. v. Ruhrgas, A.G., 129 F.3d 746 (1997) (granting rehearing en banc).
II.
"[F]ederal courts, as opposed to state trial courts of general jurisdiction, are courts of limited jurisdiction marked out by Congress." Aldinger v. Howard, 427 U.S. 1, 15 (1976). The Constitution provides that "[t]he judicial Power of the United States, shall be vested in one supreme court, and in such inferior Courts as the Congress may from time to time ordain and establish." U.S. Const. art. III, § 1. "This language reflects a deliberate compromise [, known as the Madisonian Compromise,] reached at the Constitutional Convention between those who thought that the establishment of lower federal courts should be constitutionally mandatory and those who thought there should be no federal courts at all except for a Supreme Court with, inter alia, appellate jurisdiction to review state court judgments." Richard H. Fallon, et al., Hart Wechsler's the Federal Courts and the Federal System 348 (4th ed. 1996).
The effect of the compromise is this: "Only the jurisdiction of the Supreme Court is derived directly from the Constitution. Every other [federal] court . . . derives its jurisdiction wholly from the authority of Congress. That body may give, withhold or restrict such jurisdiction at its discretion, provided it be not extended beyond the boundaries fixed by the Constitution." Kline v. Burke Constr. Co., 260 U.S. 226, 234 (1922). Accordingly, "we should proceed with caution in construing constitutional and statutory provisions dealing with the jurisdiction of the federal courts," Victory Carriers, Inc. v. Law, 404 U.S. 202, 212 (1971), because the Constitution leaves Congress the policy choice concerning how far the federal courts' jurisdiction should extend.
Under our federal constitutional scheme, the state courts are assumed to be equally capable of deciding state and federal issues. To the extent that Congress elects to confer only limited jurisdiction on the federal courts, state courts become the sole vehicle for obtaining initial review of some federal and state claims. Cf., e.g., Victory Carriers, 404 U.S. at 212. Where Congress has given the lower federal courts jurisdiction over certain controversies, "`[d]ue regard for the rightful independence of state governments, which should actuate federal courts, requires that they scrupulously confine their own jurisdiction to the precise limits which [a federal] statute has defined.'" Id. (quoting Healy v. Ratta, 292 U.S. 263, 270 (1934)).
See Tafflin v. Levitt, 493 U.S. 455, 458 (1990); see also Robb v. Connolly, 111 U.S. 624, 637 (1884) (Harlan, J.) ("Upon the State courts, equally with the courts of the Union, rests the obligation to guard, enforce, and protect every right granted or secured by the Constitution of the United States . . . .").
The importance of both the lower federal courts' constitutional and statutory subject-matter jurisdiction should not be underestimated. "Because of their unusual nature, and because it would not simply be wrong but indeed would be an unconstitutional invasion of the powers reserved to the states if federal courts were to entertain cases not within their jurisdiction, the rule is well settled that the party seeking to invoke the jurisdiction of a federal court must demonstrate that the case is within the competence of that court." 13 Charles A. Wright et al., Federal Practice and Procedure § 3522, at 61-62 (2d ed. 1984) (emphasis added).
See, e.g., Mansfield, C. L.M. Ry. v. Swan, 111 U.S. 379, 382 (1884) (stating that "the rule [that a court not act outside its jurisdiction], springing from the nature and limits of the judicial power of the United States, is inflexible and without exception") (emphasis added).
When a federal court acts outside its statutory subject-matter jurisdiction, it violates the fundamental constitutional precept of limited federal power. See Oliver v. Trunkline Gas Co., 789 F.2d 341, 343 (5th Cir. 1986) (Higginbotham, J.). "Federal courts are courts of limited jurisdiction by origin and design, implementing a basic principle of our system of limited government. In sum, we do not visit a mere technicality upon the parties [by remanding to state court because their case falls outside the jurisdictional statutes]. Rather, we uphold a basic tenet of the American system of diffused political and judicial power." Id.
Since the panel issued its opinion, the Supreme Court has reminded us that our jurisdiction must be considered at the outset of a case. This Term, the Court rejected what the Ninth Circuit had labeled the "`doctrine of hypothetical jurisdiction'" — the process of "`assuming' [Article III] jurisdiction for the purpose of deciding the merits" of a case. Steel Co. v. Citizens for a Better Env't, 118 S.Ct. 1003, 1012 (1998) (majority opinion) (quoting United States v. Troescher, 99 F.3d 933, 934 n. 1 (9th Cir. 1996)). The Steel Co. Court remarked:
This is essentially the position embraced by several Courts of Appeals, which find it proper to proceed immediately to the merits question, despite jurisdictional objections, at least where (1) the merits question is more readily resolved, and (2) the prevailing party on the merits would be the same as the prevailing party were jurisdiction denied. . . .
We decline to endorse such an approach because it carries the courts beyond the bounds of authorized judicial action and thus offends fundamental principles of separation of powers. This conclusion should come as no surprise, since it is reflected in a long and venerable line of our cases. "Without jurisdiction the court cannot proceed at all in any cause. Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause." Ex parte McCardle, 7 Wall. 506, 514, 19 L. Ed. 264 (1868). . . . The requirement that jurisdiction be established as a threshold matter "spring[s] from the nature and limits of the judicial power of the United States" and is "inflexible and without exception." Mansfield, C. L.M.R. Co. v. Swan, 111 U.S. 379, 382, 4 S.Ct. 510, 28 L. Ed. 462 (1884).
. . .
"[E]very federal appellate court has a special obligation to `satisfy itself not only of its own jurisdiction, but also that of the lower courts in a cause under review,' . . . ." Arizonans for Official English v. Arizona, . . . 117 S.Ct. 1055, 1071 . . . (1997). . . .
Id. at 1012-13.
The rule that we first address our jurisdiction is so fundamental that "we are obliged to inquire sua sponte whenever a doubt arises as to the existence of federal jurisdiction." Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 278 (1977) (citations omitted). "The general rule is that the parties cannot confer on a federal court jurisdiction that has not been vested in that court by the Constitution and Congress. This means that the parties cannot waive lack of [subject-matter] jurisdiction by express consent, or by conduct, or even by estoppel; the subject matter jurisdiction of the federal courts is too basic a concern to the judicial system to be left to the whims and tactical concerns of the litigants." 13 Wright et al., supra, § 3522, at 66-68 (citations omitted); see, e.g., Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982).
III.
Ruhrgas does not dispute that a federal district court must determine its jurisdiction before proceeding to the merits of the case. It contests only the proposition that the federal court must reach the issue of subject-matter jurisdiction before reaching a challenge to personal jurisdiction. Ruhrgas argues that the district court may decide the personal jurisdiction challenge first, because "jurisdiction is jurisdiction is jurisdiction."
Because a federal district court must have both subject-matter jurisdiction over the removed controversy and personal jurisdiction over the defendant, so the argument goes, the court should have discretion to decide the easier jurisdictional challenge first, to save judicial resources and to avoid tougher legal issues. We find Ruhrgas's advocacy of a discretionary rule in the removal context unpersuasive, as we explain.
A.
Although the personal jurisdiction requirement is a "fundamental principl[e] of jurisprudence," Wilson v. Seligman, 144 U.S. 41, 46 (1892), without which a court cannot adjudicate, the requirement of personal jurisdiction, unlike that of subject-matter jurisdiction, "may be intentionally waived, or for various reasons a defendant may be estopped from raising the issue." Insurance Corp. of Ireland, 456 U.S. at 704; see also Fed.R.Civ.P. 12(h). The defendant's ability to waive the defense arises from the reality that "[t]he requirement that a court have personal jurisdiction flows not from Art. III, but from the Due Process Clause . . . . It represents a restriction on the judicial power not as a matter of sovereignty, but as a matter of individual liberty." Insurance Corp. of Ireland, 456 U.S. at 702; see also Omni Capital Int'l v. Rudolf Wolff Co., Ltd., 484 U.S. 97, 104 (1987) (quoting the same).
The Supreme Court has carefully elucidated the distinctions between subject-matter and personal jurisdiction:
Subject-matter jurisdiction, then, is an Art. III as well as a statutory requirement; it functions as a restriction on federal power, and contributes to the characterization of the federal sovereign. Certain legal consequences directly follow from this. For example, no action of the parties can confer subject-matter jurisdiction upon a federal court. Thus, the consent of the parties is irrelevant, principles of estoppel do not apply, and a party does not waive the requirement by failing to challenge jurisdiction early in the proceedings. Similarly, a court, including an appellate court, will raise lack of subject-matter jurisdiction on its own motion. `[T]he rule, springing from the nature and limits of the judicial power of the United States is inflexible and without exception, which requires this court, of its own motion, to deny its jurisdiction, and, in the exercise of its appellate power, that of all other courts of the United States, in all cases where such jurisdiction does not affirmatively appear in the record.' Mansfield, C. L.M. R. Co. v. Swan, 111 U.S. 379, 382 (1884).
None of this is true with respect to personal jurisdiction.
Insurance Corp. of Ireland, 456 U.S. at 702 (emphasis added) (citations omitted). The Court therefore has indicated that "jurisdiction" is not always "jurisdiction." The distinction is that subject-matter jurisdictional requirements prevent our overreaching into the powers that the Constitution and Congress have left to the state courts, while personal jurisdiction requirements prevent both state and federal courts from upsetting the defendant's settled expectations as to where it can reasonably anticipate being sued. See id. at 702-04.
Following oral argument in the instant en banc proceeding, the Supreme Court once again has reminded us of the distinction between restrictions on subject-matter jurisdiction inherent in Article III and those that operate as an external limitation on an Article III court's adjudication. See Calderon v. Ashmus, 118 S.Ct. 1694, 1697 n. 2 (1998).
The Steel Co. majority opinion plainly contemplates Article III jurisdiction in its use of the term "jurisdiction." See Steel Co., 118 S.Ct. at 1013 ("Justice STEVENS' arguments . . . asserting that a court may decide the cause of action before resolving Article III jurisdiction — are readily refuted."). Although that case dealt with the easier issue of whether a federal court could pretermit questions about its subject-matter jurisdiction in order to reach a case's "merits," the teachings of Steel Co. — combined with the reasons we discuss in more detail below — counsel against a discretionary rule in the case before us.
B.
A federal court's dismissal for lack of personal jurisdiction affects the state court from which a case was removed in a way that a remand for lack of subject-matter jurisdiction does not. As Ruhrgas concedes, dismissal for a lack of personal jurisdiction adjudicates the matter between the parties and is binding on the state court.
"It has long been the rule that principles of res judicata apply to jurisdictional determinations — both subject matter and personal. See Chicot County Drainage Dist. v. Baxter State Bank, 308 U.S. 371 (1940); Stoll v. Gottlieb, 305 U.S. 165 (1938)." Insurance Corp. of Ireland, 456 U.S. at 702 n. 9; see also Picco v. Global Marine Drilling Co., 900 F.2d 846, 850 (5th Cir. 1990) (citing the same).
It follows that in the removal context, when a federal district court that lacks federal subject-matter jurisdiction dismisses instead for want of personal jurisdiction, it impermissibly wrests that decision from the state courts. This follows from the fact that because, after remand, such a case would have to remain within the state courts, see, e.g., Healy, 292 U.S. at 270, questions of personal jurisdiction necessarily would fall within the state courts' exclusive, residual jurisdiction. Those courts are entitled to their own, independent — and absent a controlling Supreme Court decision — even conflicting interpretation of their state's long-arm statute and of the minimum contacts requirements of the federal Due Process Clause.
Cf., e.g., Tafflin v. Levitt, 493 U.S. 455, 458 (1990) ("Under [our] system of dual sovereignty, we have consistently held that state courts have inherent authority, and are thus presumptively competent, to adjudicate claims arising under the laws of the United States."); Martin v. Hunter's Lessee, 14 U.S. (1 Wheat.) 304, 342 (1816) ("It was foreseen, that in the exercise of their ordinary jurisdiction, state courts would incidentally take cognisance of cases arising under the constitution, the laws and treaties of the United States.").
A federal court's decision that it lacks subject-matter jurisdiction, by contrast, returns the case to the state court so that it can adjudicate or dismiss. That decision does not intrude on "[t]he power reserved to the states, under the Constitution, to provide for the determination of controversies in their courts . . . ." Healy, 292 U.S. at 270.
Contrary, therefore, to Ruhrgas's statement at oral argument that we are merely "reliev[ing] the state court of the burden of ruling on personal jurisdiction," the discretionary rule threatens the Article III principles of separation of powers and federalism in the context of a removed case. In sum, a federal court can remand a removed case for lack of subject-matter jurisdiction without offending the right and residual power of a state court to adjudicate, or dispose of, that case, but the federal court cannot do the same by assuming that it has subject-matter jurisdiction in order to reach an easier personal jurisdiction issue.
Implicit in Ruhrgas's advocacy of a discretionary rule in the removal context is the notion that a defendant's right of removal is of the same dignity as the plaintiff's choice of forum. "The defendant's right to remove and the plaintiff's right to choose the forum are not equal, [however,] and uncertainties are resolved in favor of remand." 16 James W. Moore et al., Moore's Federal Practice § 107.05, at 107-24 through 107-25 nn. 5, 6 (3d ed. 1997) (citing Shamrock Oil Gas Corp. v. Sheets, 313 U.S. 100, 104-07 (1941)). This presumption in favor of remand underscores that in the removal context, where the plaintiff chose state court, that court's interest in adjudicating the issue of personal jurisdiction, absent federal subject-matter jurisdiction, must be given special consideration.
C.
The usurpation of the state courts' residual jurisdiction to adjudicate the personal jurisdiction question is not the only reason for eschewing a discretionary rule in the removal context. A discretionary rule may also create incentives for defendants to subvert the orderly scheme for removing cases by acting opportunistically.
State-court defendants who face, at the margin of existing precedent, a more plaintiff — friendly due-process/minimum-contacts jurisprudence in state court could, under the discretionary rule, manufacture a convoluted theory of federal subject-matter jurisdiction, remove to federal court, and then take advantage of a stricter interpretation of personal-jurisdiction requirements in federal court, to have the case dismissed rather than remanded. The effect may be not only to reward the defendant's manipulation but also to make our interpretation of the state long-arm statute, and of the federal minimum contacts analysis, the default for the state courts in this circuit, whereas in the usual course, these state courts would be entitled to have their own interpretation of state and federal law, which would be reviewable only by the state courts and ultimately by the Supreme Court.
D.
We also find the discretionary rule unpersuasive in this case because its justification — judicial efficiency — is less weighty than are other, constitutionally based concerns. A principled discretionary rule also may not be very efficient.
First, our desire for efficiency cannot override separation-of-powers concerns. The latter rationale is of constitutional import, while the former is not: "[S]eparation of powers was adopted in the Constitution `not to promote efficiency but to preclude the exercise of arbitrary power.' Time has not lessened the concern of the Founders in devising a federal system which would likewise be a safeguard against arbitrary government." Bartkus v. Illinois, 359 U.S. 121, 137 (1959) (quoting Myers v. United States, 272 U.S. 52, 240, 293 (1926) (Brandeis, J., dissenting)). Indeed, this court has forcefully recognized this distinction: "We are fully aware of the inefficiency and expense to which these [parties] are being subjected . . . [but w]e cannot avoid this result [of remanding to state court for lack of subject-matter jurisdiction], for the rules of federal jurisdiction, while sometimes technical and counterintuitive, are strict and mandatory." Oliver, 789 F.2d at 343 (Higginbotham, J.).
Second, even if we were to fashion a discretionary rule, there is no certainty that it would be more convenient to district courts than the formulation we adopt today. Because we would wish to draw a discretionary rule in harmony with the constitutional principles that we have outlined, any resulting rule often would cause district courts to spend more time and effort than previously, when considering whether personal jurisdiction should be decided before subject-matter jurisdiction. In any given case, it might be more efficient for a district court to address the tough legal issues of subject-matter jurisdiction rather than to engage in a difficult balancing inquiry regarding personal jurisdiction.
IV.
Therefore, as the panel stated, in a case such as this one, "[t]he appropriate course is to examine for subject matter jurisdiction constantly and, if it is found lacking, to remand to state court if appropriate, or otherwise dismiss." Marathon, 115 F.3d at 318 (citing Ziegler v. Champion Mortgage Co., 913 F.2d 228 (5th Cir. 1990)). Such a methodology respects the limits that Congress has placed on the federal courts to adjudicate cases. It also accords the proper respect to the state courts, as the residual courts of general jurisdiction, to make the personal jurisdiction inquiry when we lack either constitutional or statutory subject-matter jurisdiction over a removed case. See Healy, 292 U.S. at 270.
V. A.
Our holding not only is supported by the aforementioned constitutional precepts, but also is grounded in our prior caselaw. Today we follow our holding in Ziegler v. Champion Mortgage Co., 913 F.2d 228, 229-30 (5th Cir. 1990).
In Ziegler, a plaintiff sued in state court alleging a breach of contract. See id. at 229. The defendants removed, asserting diversity jurisdiction. See id. When the plaintiff moved to remand because diversity jurisdiction was lacking, defendant Champion Mortgage moved to dismiss for want of personal jurisdiction. See id. That motion to dismiss was granted; the motion to remand was never addressed, because the district court concluded that its dismissal rendered the remand motion moot. See id. Final judgment was entered for the other defendants on the merits, and the plaintiff appealed. We sua sponte found complete diversity lacking and vacated the judgment. See id.
In doing so, we reiterated that "[f]ederal courts are courts of limited jurisdiction; therefore, we have a constitutional obligation to satisfy ourselves that subject matter jurisdiction is proper before we engage in the merits of an appeal." Id. Our action of vacating the dismissal of Champion Mortgage for lack of personal jurisdiction established that the district court should have resolved subject-matter jurisdiction before entertaining the attack on personal jurisdiction.
The Ziegler court was aware that this part of its ruling could be perceived to be in tension with Walker v. Savell, 335 F.2d 536, 538 (5th Cir. 1964), in which we had stated that "the federal court had a right to consider the motion to quash service and determine the jurisdictional question before remanding the case to the state court." Id. The Ziegler court, however, found Walker distinguishable, because Walker dealt only with a choice between deciding a personal jurisdiction challenge and a remand motion based on a defect in removal jurisdiction, not one based on a defect in subject-matter jurisdiction. See Ziegler, 913 F.2d at 230.
"It is beyond doubt that although the parties can waive defects in removal, they cannot waive the requirement of original subject matter jurisdiction — in other words, they cannot confer jurisdiction where Congress has not granted it." Baris v. Sulpicio Lines, Inc., 932 F.2d 1540, 1546 (5th Cir. 1991). The defendant in Walker was unable to remove to federal court not because there was no federal subject-matter jurisdiction, but because 28 U.S.C. § 1441(b) prohibits removal by an in-state defendant in diversity cases. Such a removal defect is waivable if not timely asserted by the plaintiff. See 28 U.S.C. § 1447(c); In re Shell Oil Co., 932 F.2d 1518, 1522-23 (5th Cir. 1991).
See Walker, 335 F.2d at 539 (observing that "this case was, under the terms of the removal statute, unquestionably in the district court even though later subject to a proper motion for remand").
Contrariwise, in this case, neither party contends that the plaintiffs challenged removal on the basis that the defendant had failed to meet the waivable requirements of the removal statutes. Rather, the plaintiffs argue that the district court would lack subject-matter jurisdiction had the plaintiffs originally brought this case in federal court. Such an objection is not subject to waiver, see Baris, 932 F.2d at 1546, and is, as explained above, a more fundamental concern of the district court than is a waivable defect.
When subject-matter jurisdiction is not in question, accordingly, we continue to believe that the district court should enjoy the freedom outlined in Walker to decide which waivable jurisdictional defect to address in the first instance. "Thus, resting as it does on the broader issue of subject matter jurisdiction, our decision today does not affect this Court's holding in Walker v. Savell." Ziegler, 913 F.2d at 230.
B.
Ruhrgas also argues that our rejection of the discretionary rule would be inconsistent with the well-settled principle that federal courts have jurisdiction to conduct discovery, to issue sanctions, to hold a trial, and to assess costs, even though they may lack subject-matter jurisdiction. See, e.g., Willy v. Coastal Corp., 503 U.S. 131, 135-36 (1992) (upholding Fed.R.Civ.P. 11 sanctions even though the district court eventually concluded that it lacked Article III jurisdiction). The flaw with this argument, however, is that the functions to which Ruhrgas points do not have the adverse consequences of making a case-dispositive decision for the state court.
Should a federal court without statutory subject-matter jurisdiction issue sanctions, assess costs, hold a trial, or conduct discovery, any subsequent remand and proceedings that follow in state court will remain unaffected by those federal court actions. Such is not the case when a federal court dismisses for want of personal jurisdiction. In the instant case, for example, the dismissal for lack of personal jurisdiction not only ends all federal court litigation, but also ends all litigation in the state court to which the case would otherwise be remanded.
Given existing caselaw, the federal court's determination that there was no personal jurisdiction would be preclusive on the state court from which the case was removed. See supra note 9 (citing cases).
C. 1.
We granted en banc review in part to resolve the conflicting precedents of this court, for Ziegler conflicts with Villar v. Crowley Maritime Corp., 990 F.2d 1489, 1494 (5th Cir. 1993), and Asociacion Nacional de Pescadores v. Dow Quimica, 988 F.2d 559, 566-67 (5th Cir. 1993).
In accordance with our rule of orderliness, subsequent panels cannot overrule prior panels, absent en banc review or a change in law by Congress or the Supreme Court. See, e.g., Lowrey v. Texas A M Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997). Accordingly, Ziegler remains good law, even in the face of Villar and Asociacion Nacional. Nonetheless, and especially in view of the fact that the Asociacion Nacional and Villar panels apparently were unaware of Ziegler, we use this en banc opportunity to eliminate any confusion.
The panel in Jones v. Petty-Ray Geophysical Geosource, Inc., 954 F.2d 1061, 1066 (5th Cir. 1992), also mentioned, in dictum, that Walker supports a discretionary rule. That observation was not essential to the holding. Accordingly, that case (shorn of its dictum) remains unaffected by our decision today.
In Asociacion Nacional, the district court denied plaintiffs' motion to remand for want of subject-matter jurisdiction and proceeded to dismiss for lack of personal jurisdiction. See Asociacion Nacional, 988 F.2d at 563. On appeal, a panel of this court decided that the court had erred in failing to remand, as there was no federal subject-matter jurisdiction. See id. at 563-66. Instead of vacating the dismissal for lack of personal jurisdiction and remanding with instructions to remand to state court, the panel affirmed. See id. at 566-67.
The panel began its analysis by noting the "conceptually troubling" proposition that we could "sustain an order by the district court in a case over which the court did not have subject matter jurisdiction." Id. at 566. Unaware, however, that Ziegler had already foreclosed an expansion of Walker for the very "conceptually troubling" reasons that the Asociacion Nacional panel had identified, the panel expanded Walker's holding and affirmed the dismissal for lack of personal jurisdiction. Id. at 566-67.
A month after Asociacion Nacional, still another panel overlooked Ziegler's decision not to extend Walker. In Villar, 990 F.2d at 1494, we opined that "[i]n Walker, we clearly held that district courts have the power to rule on motions challenging personal jurisdiction before reaching motions to remand." Id.
For the reasons explained above, Ziegler's interpretation of Walker is the better one. Indeed, had the Villar and Asociacion Nacional panels made their decisions in the knowledge, and with the benefit, of Ziegler's analysis, they too may have reached a different result.
Although Ziegler was decided three years prior to Asociacion Nacional and Villar, neither opinion mentions Ziegler.
2.
Ruhrgas argues that turning back the reach of Walker would conflict with the view of the Second Circuit, which has adopted a discretionary rule. See Cantor Fitzgerald, L.P. v. Peaslee, 88 F.3d 152, 155 (2d Cir. 1996). We find Ruhrgas's concerns unjustified; its reliance on Cantor Fitzgerald is misplaced, as we now explain.
See also Cantor Fitzgerald, 88 F.3d at 155 ("In our opinion, the District Court properly exercised its discretion in first deciding the motion to dismiss for lack of personal jurisdiction over the defendants before considering the question of federal subject-matter jurisdiction."). The Seventh Circuit, as well, mentioned and assumed a Villar — type interpretation of Walker, but ultimately expressed no opinion on the matter. See Allen v. Ferguson, 791 F.2d 611, 616 (7th Cir. 1986) ("[E]ven assuming arguendo that the Walker rule is correct, we find that the district court erred in deciding Ferguson's motion to dismiss for want of personal jurisdiction before determining whether there was complete diversity."). That court also stated, in passing, that the district court could have discretion to decide an easier personal jurisdiction challenge before addressing questions about its subject-matter jurisdiction when the federal and state courts' standards for personal jurisdiction would render the same conclusion that no personal jurisdiction exists. See id. at 615.
Although this rule is appealing because it recognizes the comity interests inherent in any exercise of the district court's discretion, ultimately we find this conclusion "conceptually troubling." Asociacion Nacional, 988 F.2d at 566. Admittedly, when we have proper jurisdiction, we often apply state courts' interpretations of their own laws under a "no harm, no foul" type rule (That is, we assume the state court would not change its interpretation of its own law in the case before us). When we lack subject-matter jurisdiction, however, we should leave the state courts free to apply their own law, as well as federal law, as they have interpreted it in the past, or as they wish to reinterpret it in the present.
First, Cantor Fitzgerald conflicts with an earlier Second Circuit opinion, Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass'n, 896 F.2d 674 (2d Cir. 1990), in which that court held that "[t]he court below mistakenly passed on the asserted absence of personal jurisdiction over the Guaranty Association defendants. Where, as here, the defendant moves for dismissal under Rule 12(b)(1), Fed.R.Civ.P., as well as on other grounds, `the court should consider the Rule 12(b)(1) challenge first since if it must dismiss the complaint for lack of subject matter jurisdiction, the accompanying defenses and objections become moot and do not need to be determined.'" Id. at 678 (quoting 5 Charles A. Wright Arthur Miller, Federal Practice and Procedure § 1350 (1st ed. 1969)). In light of Rhulen, the Second Circuit appears to have internally inconsistent views on this issue.
Compare Rhulen, 896 F.2d at 675-76 ("[T]he order below will be affirmed but on the ground that the Court lacks subject matter jurisdiction, which precludes consideration of the existence of personal jurisdiction."), with Cantor Fitzgerald, 88 F.3d at 155.
Second, the Cantor Fitzgerald court grounded its holding primarily on Browning-Ferris Indus. v. Muszynski, 899 F.2d 151, 159-60 (2d Cir. 1990). Muszynski was one of the cases adopting the now — discredited "doctrine of hypothetical jurisdiction" — finding that a federal court could reach an easier merits question before addressing a harder subject-matter jurisdiction challenge. See Steel Co., 118 S.Ct. 1012 (citing Muszynski for this proposition). Once a court has determined that it can pretermit its jurisdiction to reach the merits, the decision to pretermit subject-matter jurisdiction to reach personal jurisdiction is easily made. As the Second Circuit has recently recognized, however, Muszynski is no longer good law after Steel Co. See Fidelity Partners, Inc. v. First Trust Co., 1998 U.S. App. LEXIS 8072, at *14-*15 (2d Cir. Apr. 27, 1998) (Nos. 97-9589L, 97-963CON).
The Cantor Fitzgerald court also relied on Can v. United States, 14 F.3d 160, 162 n. 1 (2d Cir. 1994), and Bi v. Union Carbide Chems. Plastics Co., 984 F.2d 582, 584 n. 2 (2d Cir. 1993). Neither of these cases, however, supports Cantor Fitzgerald's holding. Can discusses which subject-matter jurisdiction challenge a district court should address first. See Can, 14 F.3d at 162 n. 1. Bi adopts no rule, but instead addresses subject-matter jurisdiction before considering personal jurisdiction. See Bi, 984 F.2d at 584 n. 2.
In sum, not only are the cases that Ruhrgas cites to support its advocacy of a discretionary rule in a case such as ours "conceptually troubling," Asociacion Nacional, 988 F.2d at 566, but they are also aberrational. Accordingly, we decline to follow their lead and instead adopt the reasoning of Ziegler and Rhulen.
VI.
We now address some of Ruhrgas's other arguments. Specifically, we discuss the fairness implications for the removing defendant; the applicability of the minimum-contacts analysis in determining whether subject-matter jurisdiction exists; and the argument that our rule may have the effect of unnecessarily entangling the federal courts in difficult issues of state law and the state courts in issues of federal law.
A.
We are mindful that the personal-jurisdiction requirement embodies a rule of fundamental fairness for defendants. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-72 (1985). We therefore appreciate Ruhrgas's argument that it would be unfair to force the defendant, which we assume arguendo is not subject to personal jurisdiction in any court, to litigate, upon removal, subject-matter jurisdiction in federal court only to be forced to return to state court to litigate personal jurisdiction there (if federal subject-matter jurisdiction is found not to exist).
We find this argument ultimately unpersuasive, however. The defendant's action in seeking to invoke the jurisdiction of the federal courts, through removal, indicates its willingness — indeed, its preference — to litigate the issue of subject-matter jurisdiction, a question on which it has the burden of proof. Had the issue of personal jurisdiction been more easily resolved in its favor than was the question of subject-matter jurisdiction, the defendant had the option to save itself the time and expense of litigating federal subject-matter jurisdiction by litigating the easily — resolved personal jurisdiction challenge in the state courts before removal. In any case, the fundamental-fairness requirement of personal jurisdiction will still be examined — by either state or federal court — after the district court has made its inquiry into subject-matter jurisdiction.
See Carpenter v. Wichita Falls Indep. Sch. Dist., 44 F.3d 362, 365 (5th Cir. 1995) (citing Wilson v. Republic Iron Steel Co., 257 U.S. 92 (1921)).
We recognize that there may be a few instances in which "the jurisdictional facts are too intertwined with the merits to permit the [remand motion] determination to be made independently . . . [thus forcing the court to] leave the jurisdictional determination to trial." 2 James W. Moore et al., Moore's Federal Practice § 12.30[3], at 12-37 (3d ed. 1998). Although many of the same considerations we express today may apply to such cases, other concerns may arise as well. Because the instant case deals solely with the decision to exercise discretion to address personal jurisdiction first because the legal issues of subject-matter jurisdiction are more complex than the legal issues surrounding personal jurisdiction, we have no occasion to opine on what rule should apply when the facts needed to support subject-matter jurisdiction are so "intertwined with the merits" of the case that they must await trial.
We also do not mean to straightjacket the district courts by designating what proceedings they may conduct, or in what order those proceedings must be conducted, when there is a pending issue as to subject-matter jurisdiction. Accordingly, while the Ruhlen court and professors Wright and Miller opine that a court should consider a rule 12(b)(1) challenge first, see supra, we read this to mean that the court must rule on the subject-matter jurisdiction challenge first. In their discretion, however, the courts are free to allow various aspects of the proceedings to go forward, as efficiency and fairness may dictate. "The district court is free to decide the best way to deal with [matters covered by rule 12(b)], because neither the federal rules nor the statutes provide a prescribed course." 2 Moore et al., supra, § 12.50, at 12-102 through 12-103.
B.
Ruhrgas also argues that, in cases like the instant one, our determination of subject-matter jurisdiction depends on an analysis of personal jurisdiction. See Villar, 990 F.2d at 1494-95. Because we are going to have to conduct the minimum contacts inquiry in any event, Ruhrgas avers, we might as well do it at the outset.
Specifically, Ruhrgas contends that Norge is included as a plaintiff solely to defeat federal diversity jurisdiction. One of the ways in which Ruhrgas attempts to prove that Norge has been "fraudulently joined" is to show that Norge could assert no claims against it. See Marathon, 115 F.3d at 319. To show that Norge has no viable claim, Ruhrgas argues that Norge could not subject Ruhrgas to service of process — that is, personal jurisdiction — in Texas state court.
Assuming, arguendo, that Villar correctly found that the minimum contacts analysis is relevant to a fraudulent joinder analysis, it does not alter our obligation to decide questions of subject-matter jurisdiction at the outset. For instance, assume that the district court determines that because Norge cannot serve Ruhrgas, Norge has been fraudulently joined. It does not follow that we should allow the district court the discretion to address personal jurisdiction first. Rather, in such a case, given the principles we have outlined above, the district court should find federal diversity subject-matter jurisdiction to exist, and proceed to decide the personal jurisdiction challenge without fear of trampling on the state courts' residual domain.
C.
Ruhrgas maintains that the rule we adopt could entangle federal courts unnecessarily in difficult decisions of state law joinder, and state courts in the federal law of personal jurisdiction. Specifically, Ruhrgas first argues that it plans to raise fraudulent joinder to establish diversity jurisdiction; the court's analysis will require the resolution of complex areas of state law. Second, Ruhrgas claims that the question of personal jurisdiction does not interfere with the state courts' autonomy, as the Texas long-arm statute reaches as far as the Constitution permits; the inquiry, thus, is one of constitutional, not state, law.
See Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990) (interpreting the Texas long-arm statute to reach the federal constitutional limit).
Although we appreciate Ruhrgas's first argument, our adoption of it would create incentives for defendants in Ruhrgas's position to act opportunistically in the removal context. Essentially, the defendant's argument is that because it plans to invoke a convoluted theory of subject-matter jurisdiction to support removal — one requiring difficult interpretations of state law — we should dispense with its need to prove that federal subject-matter jurisdiction exists and proceed to grant it a dismissal for lack of personal jurisdiction. We find that argument unappealing.
We dispense with Ruhrgas's second argument even more expeditiously. As we have already described, Article III envisions state courts as the default for all claims, based in both state and federal law. See Healy, 292 U.S. at 270; supra part II. Where Congress has not extended federal subject-matter jurisdiction, we should respect the Article III default of residual state court jurisdiction. See, e.g., 13 Wright et al., supra, § 3522, at 61-62. Therefore, although the ultimate issue might prove to be one of federal law, we may not deprive state courts of their authority to pass on that question.
Cf. Tafflin, 493 U.S. at 467 ("[W]e note that, far from disabling or frustrating federal interests, `[p]ermitting state courts to entertain federal causes of action facilitates the enforcement of federal rights.'") (quoting Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 478 n. 4 (1981)).
VII. A.
We end by noting that our ruling today applies only to removed cases and is otherwise limited as mentioned above. Cases brought originally in the federal courts may raise other issues that we do not face in the instant case, so any opinion as to those issues would, as a consequence, be premature.
B.
We also understand that the district court's decision to address the personal jurisdiction question at the outset was reasonably made, given the state of our existing precedent. Because of the novelty of some of the subject-matter jurisdiction claims, and because our court has been understandably pre-occupied in reconciling the confused state of our precedent concerning a district court's obligations, we remand the issue of whether there exists federal subject-matter jurisdiction to the able district court for its determination in the first instance.
Although the district court may consider the panel opinion persuasive on the question of subject-matter jurisdiction, that opinion has been vacated and thus is no longer binding precedent, see 5th Cir. R. 41.3; United States v. Manges, 110 F.3d 1162, 1173 (5th Cir. 1997), cert. denied, 118 S.Ct. 1675 (1998), and we express no opinion on that issue.
The judgment is VACATED, and this cause is REMANDED with instruction to address the motion to remand to state court for lack of federal subject-matter jurisdiction, and for other proceedings, as appropriate, consistent with this opinion.
Ruhrgas's motion to strike the plaintiffs' response to the amici filings is DISMISSED as moot.