Fifth Circuit Wrestles with Diversity and a Quirk in Appellate Jurisdiction in Review of a Burford Abstention Decision

In Grace Ranch, LLC v. BP American Prod. Co., No. 20-30224 (5th Cir. Feb. 26, 2021), the Fifth Circuit – in a case of first impression for that court – decides that, notwithstanding 28 U.S.C. § 1447(d), it has appellate jurisdiction to review a Burford abstention remand to state court. It also dismisses the state from the case

Plaintiff Grace Ranch, “[a]fter acquiring property allegedly contaminated by BP America Production Company and BHP Petroleum Americas, Grace Ranch sued the oil and gas operators in tort and contract” in state court, which was dismissed. They then filed an administrative action with a state regulatory board and, after two years of inaction, filed a second state-court action fashioned as “State of Louisiana ex rel. Grace Ranch, LLC v. [BP and BHP],” seeking an “injunction ordering BP and BHP to remediate contamination on its property in compliance with state regulation” under La. Stat. Ann. § 30:16.

Defendants removed the new case to federal court based on diversity. Plaintiff opposed, contending that because “Louisiana is the real party in interest to the litigation” it was not a case between “citizens of different States” under 28 U.S.C. § 1332(a)(1).

The district court denied dismissal on subject-matter jurisdiction grounds, but dismissed instead on Burford abstention grounds (abstention in deference to a state’s administrative machinery) based on the State’s interest in “legacy litigation and the remediation of contaminated land,” and the need for “the state judicial system to fashion a coherent state policy concerning the applicability of [section 30:16].”

The Fifth Circuit reverses the abstention remand. Before reaching the merits, though, it faces subject-matter and appellate jurisdiction challenges.

Regarding diversity, the court addresses whether the appearance of Louisiana in the case destroys jurisdiction. Although the Article III allows for suits between states and “a State and Citizens of another State,” such cases reside only in the U.S. Supreme Court and there is no federal statutory jurisdictional basis for a lower federal court to entertain such cases. Here, though, the Fifth Circuit holds that the presence of Louisiana – which was otherwise between citizens of opposite states – is spurious. “A private party suing under section 30:16 does so on its own behalf,” not on behalf of the state. Nor does “Louisiana’s interest in environmental regulation … make the State a real party in interest to Grace Ranch’s section 30:16 suit.” Because Louisiana is not part of the case, diversity is secured.

Regarding appellate jurisdiction, the panel confronts a seemingly absolute command in section 1447(d) that “[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal.” The Supreme Court held in Thermtron Prods., Inc. v. Hermansdorfer, 423 U.S. 336 (1976), that “section 1447(d) only prohibits appellate review of certain types of remand orders: the kind specified in neighboring subsection 1447(c).” In its present version, section 1447(c) applies a strict 30-day time limit to remands based on “any defect other than lack of subject matter jurisdiction,” which was not abided here.

The panel, consistent with other circuits, interprets the term “defect” narrowly and “reject[s] the view that ‘defect’ includes all nonjurisdictional remands” such as Burford abtention. “[A] federal court’s decision to abstain does not reflect anything deficient—that is, lacking—with the removal; abstention instead involves a discretionary assessment of how hearing a case would impact the delicate state/federal balance …. If Congress intended to require that any nonjurisdictional basis for removal be raised within 30 days of removal, it would have been clearer to say ‘any remandable ground’ … or more simply, ‘any basis’ or ‘any ground.’” Moreover, interpreting “defect” broadly would effectively eliminate the ability of U.S. courts of appeals to review district court decisions to dismiss and remand state-law claims under supplemental jurisdiction (28 U.S.C. § 1367(c)(3)), “will almost always arise only after the expiration of thirty days.”

“Making explicit what was previously implicit in our caselaw, a discretionary remand such as one on abstention grounds does not involve a removal ‘defect’ within the meaning of section 1447(c). We thus have jurisdiction to review the district court’s abstention-based remand order.”

Finally, weighing the factors of Burford abstention, the panel holds that there are no grounds for deference to Louisiana’s regulatory law. The case “does not involve an integrated state regulatory scheme in which a federal court’s tapping on one block in the Jenga tower might cause the whole thing to crumble. That fundamental Burford concern—that a federal court might undermine ‘a comprehensive scheme governing a matter of vital state interest . . . where uniform application of rules was important’ … —is missing here.”