Ruhrgas AG v. Marathon Oil Co.
526 U.S. 574 (1999)

Annotate this Case

OCTOBER TERM, 1998

Syllabus

RUHRGAS AG v. MARATHON OIL CO. ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

No. 98-470. Argued March 22, 1999-Decided May 17, 1999

The underlying controversy stems from a venture to produce gas in the North Sea's Heimdal Field. In 1976, respondents Marathon Oil Company and Marathon International Oil Company acquired respondent Marathon Petroleum Norge (Norge) and Marathon Petroleum Company (Norway) (MPCN). Following the acquisition, Norge assigned its license to produce gas in the Heimdal Field to MPCN, which then contracted to sell 70% of its share of the Heimdal gas production to a group of European buyers, including petitioner Ruhrgas AG. MPCN's sales agreement with Ruhrgas and the other European buyers provided that disputes would be settled by arbitration in Sweden. In 1995, Marathon Oil Company, Marathon International Oil Company, and Norge (collectively Marathon) sued Ruhrgas in Texas state court, asserting state-law claims of fraud, tortious interference with prospective business relations, participation in breach of fiduciary duty, and civil conspiracy. Marathon alleged that Ruhrgas had defrauded it into financing MPCN's development of the Heimdal Field and that Ruhrgas had diminished the value of the license Norge had assigned to MPCN. Ruhrgas removed the case to the District Court, asserting three bases for federal jurisdiction: diversity of citizenship, see 28 U. S. C. § 1332, on the theory that Norge, the only nondiverse plaintiff, had been fraudulently joined; federal question, see § 1331, because Marathon's claims raised questions of international relations; and 9 U. S. C. § 205, which authorizes removal of cases relating to international arbitration agreements. Ruhrgas moved to dismiss the complaint for lack of personal jurisdiction. Marathon moved to remand the case to the state court for lack of federal subjectmatter jurisdiction. The District Court granted Ruhrgas' motion. Noting that Texas' long-arm statute authorizes personal jurisdiction to the extent allowed by the Due Process Clause of the Federal Constitution, the court addressed the constitutional question and concluded that Ruhrgas' contacts with Texas were insufficient to support personal jurisdiction. The en banc Fifth Circuit vacated and remanded, holding that, in removed cases, district courts must decide issues of subjectmatter jurisdiction first, reaching issues of personal jurisdiction only if subject-matter jurisdiction is found to exist. The court derived "counsel against" recognizing judicial discretion to proceed directly to per-


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sonal jurisdiction from Steel Co. v. Citizens for Better Environment, 523 U. S. 83, in which this Court held that Article III generally requires a federal court to satisfy itself of its subject-matter jurisdiction before it considers the merits of a case. The Fifth Circuit limited its holding to removed cases, perceiving in them the most grave threat that federal courts would usurp state courts' residual jurisdiction.

Held: In cases removed from state court to federal court, as in cases originating in federal court, there is no unyielding jurisdictional hierarchy requiring the federal court to adjudicate subject-matter jurisdiction before considering a challenge to personal jurisdiction. Pp. 583-588.

(a) The Fifth Circuit erred in according absolute priority to the subject-matter jurisdiction requirement on the ground that it is nonwaivable and delimits federal-court power, while restrictions on a court's jurisdiction over the person are waivable and protect individual rights. Although the character of the two jurisdictional bedrocks unquestionably differs, the distinctions do not mean that subject-matter jurisdiction is ever and always the more "fundamental." Personal jurisdiction, too, is an essential element of district court jurisdiction, without which the court is powerless to proceed to an adjudication. Employers Reinsurance Corp. v. Bryant, 299 U. S. 374, 382. In this case, indeed, the impediment to subject-matter jurisdiction on which Marathon relies-lack of complete diversity-rests on statutory interpretation, not constitutional command. Marathon joined an alien plaintiff (Norge) as well as an alien defendant (Ruhrgas). If the joinder of Norge is legitimate, the complete diversity required by § 1332, but not by Article III of the Constitution, see State Farm Fire & Casualty Co. v. Tashire, 386 U. S. 523, 530-531, is absent. In contrast, Ruhrgas relies on the constitutional due process safeguard to stop the court from proceeding to the merits of the case. See Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U. S. 694, 702. The Steel Co. jurisdiction-before-merits principle does not dictate a sequencing of jurisdictional issues. A court that dismisses for want of personal jurisdiction, without first ruling on subject-matter jurisdiction, makes no assumption of law-declaring power that violates the separation of powers principles underlying Steel Co. pp. 583-585.

(b) The Court rejects Marathon's assertion that it is particularly offensive in removed cases to rule on personal jurisdiction without first deciding subject-matter jurisdiction, because the federal court's personal jurisdiction determination may preclude the parties from relitigating the very same issue in state court. See Baldwin v. Iowa State Traveling Men's Assn., 283 U. S. 522,524-527. Issue preclusion in subsequent state-court litigation may also attend a federal court's subject-


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Full Text of Opinion

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Primary Holding

When a case is removed to federal court, it may be able to dismiss it for lack of personal jurisdiction without considering subject-matter jurisdiction.

Facts

Marathon Oil Co. agreed to sell a significant amount of its gas production from an area in the Norwegian North Sea to Ruhrgas AG and other buyers. It eventually sued Ruhrgas, which was a German company, in state court for causes of action based on state-law business torts arising from their interactions under the contract. It argued that the state had personal jurisdiction over Ruhrgas because the parties had held three meetings in the state, and Ruhrgas had directed correspondence to Marathon in the state. Removing the case to federal court, Ruhrgas argued that its jurisdiction was appropriate based on diversity of citizenship, since the only non-diverse plaintiff was a Marathon subsidiary called Marathon Petroleum Norge that had been fraudulently joined in the action. It also argued that the claims in the case implicated international relations and thus raised a federal question. Finally, Ruhrgas argued that federal jurisdiction was proper under 9 U.S.C. Section 205, which provides for the removal of cases that involve international arbitration agreements.

Once the action had been removed to federal court, Ruhrgas sought to dismiss it on the grounds of lack of personal jurisdiction. Meanwhile, Marathon sought to remand the case to state court on the grounds that there was no federal subject-matter jurisdiction. The lower court ruled in favor of Ruhrgas, but a panel of the intermediate appellate court decided that it needed to consider the subject-matter jurisdiction question before personal jurisdiction. It found that there was no basis for federal jurisdiction and remanded the case back to state court. Once the court of appeals granted a rehearing en banc, however, it vacated the panel's decision and determined that these cases required district courts to first determine issues of subject-matter jurisdiction and address personal jurisdiction only if subject-matter jurisdiction is present.

Opinions

Majority

  • Ruth Bader Ginsburg (Author)
  • William Hubbs Rehnquist
  • John Paul Stevens
  • Sandra Day O'Connor
  • Antonin Scalia
  • David H. Souter
  • Clarence Thomas
  • Anthony M. Kennedy
  • Stephen G. Breyer

Subject-matter jurisdiction cannot be waived, while personal jurisdiction may be waived and is designed to protect individual rights rather than the power of the courts. Despite this distinction, subject-matter jurisdiction is not necessarily more fundamental than personal jurisdiction, and it should not have an absolute priority over it when they are considered together. A court also cannot hear a case if personal jurisdiction is absent, so it is still an essential element of a case. The issue related to subject-matter jurisdiction here, which is the lack of complete diversity between the parties, arises from a statute rather than the Constitution. The personal jurisdiction issue is based on constitutional due process, on the other hand, which arguably makes it more significant here.

If a court dismisses for lack of personal jurisdiction without making a decision on subject-matter jurisdiction, this does not violate the separation of powers principle by infringing on the authority of the legislative branch. The preclusive effect of a decision regarding either jurisdictional issue may have the effect of issue preclusion if the parties continue the litigation in state court. This is intended to assist the federal and state court systems in functioning together harmoniously. In some instances, ruling on subject-matter jurisdiction first may be appropriate, such as when personal jurisdiction must be determined by addressing difficult issues of state law, and subject-matter jurisdiction may be determined just as easily. This situation would raise federalism concerns, so the court first should consider the motion to remand. Situations like the current case, by contrast, raise concerns of judicial economy and restraint that make personal jurisdiction a more appropriate place to start. Federal courts have the discretion to make these determinations based on the circumstances of each case, and district courts can be trusted with determining when removal is appropriate.

Case Commentary

This is a situation in which the interests of overall efficiency trumped concerns about certain situations in which a court makes a dismissal based on personal or subject-matter jurisdiction that has a substantive impact on the outcome of the claim.

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