Case of the Day: In re Crystal Power Co.
Posted on May 31, 2011
I ignore the Letters Blogatory Scope of Coverage today in order to write about In re Crystal Power Co. (5th Cir. 2011) [Initial Decision] [On Rehearing]. Can you blame me? It’s a mandamus case involving removal jurisdiction! H/T to Louis M. Solomon for a pointer to the case.
Crystal Power was an El Salvador firm. It sued Coastal Salvadoran Power, Ltd. and Coastal Nejapa, Ltd. in the Texas state court. Its lawyer, Vidal Martinez, changed law firms shortly after filing the complaint. The new firm, McFall, Breitbell & Smith, signed a new engagement letter with Crystal Power that had a contingent fee arrangement (the original engagement was on an hourly fee basis). Martinez later left McFall, Brietbell & Smith, taking the case with him. The McFall firm sued Crystal Power to recover the value of its work, and it settled the claim for a 5% interest in the underlying case, with any disputes to be arbitrated.
McFall then intervened in Crystal Power’s case against Coastal Salvadoran Power and Coastal Nejapa, and Crystal Power cross-claimed against McFall for conspiracy, fraud, malpractice, and breach of fiduciary duty. All of these claims were arbitrable, and because McFall was a US firm and Crystal Power was an El Salvador firm, the case fell under the New York Convention.
McFall removed the case to the Southern District of Texas, and Crystal Power moved to remand. The question was whether McFall, as an intervenor cross-claim defendant, had the power to remove the case. The District Court denied the motion. Crystal Power then petitioned for a writ of mandamus.
Here are the relevant statutes. First, the FAA removal statute, § 205:
Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending. The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal. For the purposes of Chapter 1 of this title any action or proceeding removed under this section shall be deemed to have been brought in the district court to which it is removed.
Second, the All Writs Act, 28 U.S.C. § 1651:
The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.
The court focused on the words of the FAA removal statue: only “the defendant or the defendants” may remove an action. It cited Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941), a case arising under the ordinary removal statute rather than the special provision in the FAA, noting that both statutes gave a right of removal only to “the defendant.” In Shamrock, a plaintiff who filed a claim in state court sought to remove the case after the defendant asserted a counterclaim. The Supreme Court held that a counterclaim defendant is not a “defendant” for purposes of the removal statute:
the plaintiff, having submitted himself to the jurisdiction of the state court, [is] not entitled to avail himself of a right of removal conferred only on a defendant who has not submitted himself to the jurisdiction.
The Fifth Circuit held, first, that the same principle applied to McFall, a cross-claim defendant that could have asserted its claims against Crystal Power in federal court in the first instance if it had wanted a federal forum.
It seems to me that the key point in terms of applying Shamrock isn’t that Crystal Power was a cross-defendant, but rather, that it had intervened in the case. Suppose A sued B and C, and then B asserted a cross-claim against C. Can C remove the case? Maybe yes and maybe no, but the rationale of Shamrock seems to turn on whether Crystal Power purposefully availed itself of the state court forum; and if Crystal Power and McFall had been named as defendants in the first instance, and McFall had then asserted a cross claim against Crystal Power, then the rationale of Shamrock wouldn’t help us decide whether Crystal Power should be permitted to remove the case.
The Fifth Circuit also held, initially at least, that mandamus was a proper remedy. But on a petition for rehearing, the panel reversed itself on this point. It held that the ordinary appellate remedy was adequate and thus that mandamus did not lie:
Supreme Court precedent does not ordinarily allow mandamus review of district court decisions that, while not immediately appealable, can be reviewed at some juncture. The Court has instructed that our review of an erroneous refusal to remand must await appeal from a final judgment, even when this forces the parties to submit to proceedings before a tribunal that lacks competent jurisdiction over their dispute. To the same end, the Court has advised that the ordinary costs of trial and appeal are not a sufficient burden to warrant mandamus.
I am not sure I agree with this. The district court case will continue chugging along, only to face sure reversal on appeal no matter who wins, assuming the panel that hears the appeal agrees with the panel that heard the mandamus petition on the issue of removability. But assuming that the main claims in the case, i.e., the claims between Crystal Power, Coastal Salvadoran Power, Ltd. and Coastal Nejapa, Ltd., have not been settled out of court, the lack of jurisdiction will affect not only the claim between Crystal Power and McFall, but the claims involving parties that had nothing to do with the removal. To me, that suggests a good practical rationale for mandamus relief.