In Carlsbad Technology Inc. v. HIF Bio, Inc., the Supreme Court ruled that district court orders remanding cases back to state courts are subject to appeal.

On May 4, 2009, the Supreme Court of the United States ruled that district court orders remanding cases back to state courts after declining to exercise supplemental jurisdiction are appealable, despite the language of 28 U.S.C. §1447(d) stating that remand orders are “not reviewable on appeal,” reversing a decision by the U.S. Court of Appeals for the Federal Circuit. Carlsbad Technology Inc. v. HIF Bio, Inc., Case No. 07-1437 (May 4, 2009) (Thomas, J.; Stevens, J. and Scalia, J., concurring; Breyer, J., concurring joined by Souter, J.)

The respondents initiated the action in 2005 by filing a complaint in a California state court alleging that the petitioner violated several state laws and a single federal statute, the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§1961-68. The petitioner successfully removed the entire case, including the state law claims, to the U.S. District Court for the Central District of California pursuant to §1441(c), which allows for removal when at least one claim exists over which the federal court has original subject matter jurisdiction.

Once in federal court, the petitioner successfully moved under Rule 12(b)(6) to dismiss the respondents’ RICO claim. In addition to dismissing the RICO claim, the district court decided not to exercise supplemental jurisdiction over the remaining state law claims pursuant to 28 U.S.C. §1367(c)(3), which gives a district court discretion to choose whether to exercise supplemental jurisdiction over a claim where the district court has dismissed all of the claims over which it had original jurisdiction. The district court consequently remanded the case to the state court. Carlsbad appealed the decision.

On appeal to the Federal Circuit, the petitioner argued that the district court should have exercised supplemental jurisdiction over the state law claims because those claims implicated federal patent law rights (in this case, ownership of an invention and inventorship). Without getting to the merits of the petitioner’s argument, the Federal Circuit dismissed the appeal, finding that the remand by the district court could “be colorably characterized as a remand based on lack of subject matter jurisdiction” and, thus, could not be reviewed under §§1447(c) and (d).

The Supreme Court granted certiorari to consider the novel issue of whether a district court’s order remanding a case to state court after declining to exercise supplemental jurisdiction is a remand for lack of subject matter jurisdiction for which appellate review is barred by §§1447(c) and (d). In sum, the court concluded such orders are not based on lack of subject matter jurisdiction.

Writing for a unanimous court, Justice Clarence Thomas pointed out that Supreme Court precedent unambiguously requires that §1447(d) be construed together with §1447(c), citing Thermtron Products v. Hermandsdorfer, and stating that neither party on appeal argued that Thermtron should be overruled. Thus, Justice Thomas noted, the type of remand ostensibly at issue in this case—a remand order based on a lack of “subject matter jurisdiction”—is one type of remand order banned from appeal under §1447(c).

Framing the issue as whether the district court’s remand order resting on its decision not to exercise supplemental jurisdiction over remaining state law claims is a remand based on a “lack of subject matter jurisdiction” for purposes of §§1447(c) and (d), Justice Thomas acknowledged the precedential distinction between whether a court has subject matter jurisdiction over a claim and whether a court chooses to exercise that jurisdiction. Justice Thomas concluded that a remand after declining to exercise supplemental jurisdiction under §1367(c) is not a remand for lack of subject matter jurisdiction and is thus not subject to the ban on appellate review. Justice Thomas explained that a district court has subject matter jurisdiction over remaining state law claims under §1367(a) and (c), and any decision not to exercise that jurisdiction is purely discretionary.

In a concurring opinion, Justice John Paul Stevens agreed that the ruling by the court was consistent with the precedential effect of Thermtron, and that “stare decisis compels the conclusion that the District Court’s remand order is reviewable notwithstanding §1447(d)’s unambiguous contrary command.” In his concurring opinion, Justice Antonin Scalia, while agreeing with the decision, characterized Thermtron as questionable and concluded that it was ripe for review. Justice Scalia’s commentary may in fact echo the sentiment of a footnote found at page three of Justice Thomas’ opinion.

Justice Steven Breyer’s concurrence highlighted an anomaly in the operation of §1447(d) that allows appellate review of decisions which, if wrong, are likely to do little harm but forbids review of decisions which, if wrong, are likely to do great harm.