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Case of the Day: European Community v. RJR Nabisco

I’m going outside the official Letters Blogatory Scope of Coverage to write about European Community v. RJR Nabisco, Inc. (E.D.N.Y. 2011), an interesting reversal of the usual FSIA case. In the usual case, a sovereign defendant asserts immunity from jurisdiction in the US courts. In today’s case, the sovereign—or the supposed sovereign—was the plaintiff. The European Community, on behalf of its member states, sued RJR Reynolds Tobacco Co. for violations of the RICO Act and common law torts. RJR moved to dismiss for want of subject-matter jurisdiction. The judge had previously dismissed the RICO case, leaving only state law claims in the case. The question was whether to dismiss the action.

I am writing about this case because I want to question the judge’s discretionary decision to dismiss the case. The judge’s analysis focused nearly exclusively on whether the state-law claims were within the court’s diversity jurisdiction. If the answer had been yes, then the court would have been required to exercise jurisdiction over the case. But as we’ll see the answer was no. To my mind, the most interesting question in the case is the one that got the least attention. The court had jurisdiction over the case when it was filed, because the EC had asserted a claim arising under federal law. The judge had discretion to keep the state law claims after the federal claim was dismissed, but he declined to exercise that jurisdiction, essentially without discussion. Given that the EC is a supranational body whose member states are not just foreign states, but some of the foreign states most closely aligned with the United States, was it wise, and consistent with comity, to refuse the EC access to a federal forum?

First, some background. Unlike the state courts, the U.S. District Courts are courts of limited jurisdiction. A federal court can exercise jurisdiction only if Congress has vested the court with jurisdiction by statute. (Jurisdiction must also comport with the Constitution, but that is not an issue here). There are three jurisdictional statutes relevant here.

  1. Federal Question. Under 28 U.S.C. § 1331, the district court has jurisdiction over “all civil actions arising under the Constitution, laws, or treaties of the United States.” So if, as in this case, the plaintiff asserts a claim under a federal statute such as the RICO Act, the court has jurisdiction.
  2. Diversity of Citizenship Jurisdiction. This was the main issue in the case. Under 28 U.S.C. § 1332, the court has jurisdiction over actions “where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between … a foreign state, defined in section 1603(a) of this title, as plaintiff and citizens of a State or of different States.” The upshot is that the court has to look at § 1603(a) of the Foreign Sovereign Immunities Act in order to determine whether it has diversity-of-citizenship jurisdiction over a case brought by an entity that may or may not be a “foreign state.”
  3. Supplemental Jurisdiction. What happens when a case has both federal and state law claims, and there is no diversity of citizenship? Suppose, for example that a citizen of Massachusetts sues another citizen of Massachusetts for a RICO violation and for breach of contract. The breach of contract claim is outside the scope of § 1331 and outside the scope of § 1332. But as long as it forms part of the same case or controversy as the RICO claim, the federal court has jurisdiction to hear it under 28 U.S.C. § 1367, which provides:

    Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. …

    * * *

    (c) The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if—

    * * *

    (3) the district court has dismissed all claims over which it has original jurisdiction.

    The key point here is that the court has jurisdiction over the state law claims after the federal law claims have been dismissed, but the court has discretion to decline to exercise its jurisdiction in such cases.

The judge spent most of the decision deciding that the EC is not a “foreign state”. It is not recognized as a state by the US government, either de jure or de facto, which is the normal test, and even looking at the factors set out for distinguishing states from international organizations in the Restatement, the EC pretty clearly can’t be a state. But having reached this conclusion, the judge decided to decline to exercise jurisdiction over the remaining state law claims without any real analysis at all.

I’m not saying the judge necessarily abused his discretion, but I think that considerations of comity suggest that he should have denied the motion to dismiss. Even if an entity like the EC is not technically a state, it seems to me that the same reasons that led Congress to grant federal jurisdiction in cases involving foreign states—respect for foreign sovereigns the most salient in my mind—provide reasons for a district court to exercise discretion to permit cases brought by such entities to proceed in federal court. The European Union is our largest trading partner, and many of its member states are among our closest allies. Would it not have been wise to exercise the court’s discretion in favor of the EC?