Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:This case arises out of the administration of consumer warranties and extended service plans on computers, printers, and related items sold by CompUSA, a national electronics retailer. CompUSA contracted with Warrantech to administer the warranties on CompUSA’s consumer goods. The contract required Warrantech to obtain insurance to cover the cost of paying warranty claims, which Warrantech did with Houston General Insurance Co., a nonparty to this litigation. Houston General, in turn, reinsured a portion of the risk with Underwriters. After approximately one year, Underwriters contended that Warrantech was paying unauthorized claims and refused to reinsure Houston General for any unauthorized amounts. Houston General instituted arbitration proceedings to determine Underwriters’ obligations, which took place under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). After five weeks of hearings, the arbitration panel ordered Underwriters to pay Houston General $39 million, and the order was confirmed by the United States District Court for the Southern District of New York. On Sept. 19, 2002, one month after the arbitral panel’s decision, Underwriters filed the instant lawsuit against Warrantech in Texas state court, seeking to recoup as damages the reinsurance payments that Underwriters was ordered to pay Houston General. Warrantech filed counterclaims, asserting causes of action for fraud, unfair and deceptive insurance practices in violation of Article 21.21 of the Texas Insurance Code, and violation of the duty of good faith and fair dealing. After Underwriters added San Antonio to the litigation, the case was removed under 9 U.S.C. �205, with appellants asserting res judicata and collateral estoppel affirmative defenses based on the arbitration award to Houston General. Underwriters moved to remand the matter to state court. In consideration of its jurisdiction, the district court, relying upon Beiser v. Weyler, 284 F.3d 665 (5th Cir. 2002), stated that its only task was to determine whether appellants’ arbitration-related affirmative defenses were “facially frivolous.” Concluding that they were not, the district court denied Underwriters’ motion to remand. In its order, the court supplied a caveat: “If the court later makes a summary ruling that the arbitration award does not provide a defense to any of [Underwriters'] claims, the court will then consider whether the action should be remanded to the state court.” Subsequently, Underwriters moved for partial summary judgment on appellants’ res judicata and collateral estoppel affirmative defenses and on Warrantech’s state-law counterclaims. On Aug. 24, 2004, the district court granted summary judgment for Underwriters, concluding that the affirmative defenses were without merit and dismissing Warrantech’s counterclaims with prejudice. After determining that “there [was] no just reason for delay,” the district court entered final judgment dismissing Warrantech’s counterclaims. That decision forms the basis of part of this appeal. After its August 24 order, the district court requested additional briefing on whether Underwriters’ remaining state-law claims should be remanded to state court given that the issues related to the arbitration award were no longer part of the suit. After briefing, the district court granted Underwriters’ motion to remand, concluding that appellants were not asserting any “non-frivolous” defense based on the arbitration award. Finding no “policy” reasons in support of exercising jurisdiction over this case and concluding that there were “no other grounds for federal jurisdiction,” the district court remanded all “unresolved claims and causes of action” to state court. HOLDING:Appellee’s motion to dismiss appeal for lack of jurisdiction is granted. Warrantech’s counterclaims are vacated, and the remainder of appellants’ appeal is dismissed. With any remand based on the policy considerations offered in Carnegie-Mellon University v. Cohill, 484 U.S. 343 (1988), 28 U.S.C. �1447(d) is no longer a bar to appellate review. There is some disagreement among the circuits regarding the methodology for reviewing remand orders. This court applies a clear-statement requirement. The U.S. Supreme Court recognized but did not resolve this dispute in Kircher v. Putnam Funds Trust, 126 S.Ct. 2145 (2006). Here, the court cannot say that the district court “clearly and affirmatively” stated a non-� 1447(c) ground for remand. The court finds its appellate jurisdiction is precluded by �1447(d). The district court’s orders � that res judicata and collateral estoppel did not provide appellants a defense to Underwriters’ state-law claims � were made in the process of remanding the case for lack of jurisdiction. The court finds no difference between the rejection, in Linton v. Airbus Industrie, 30 F.3d 592 (5th Cir. 1994), of the defendants’ foreign sovereign immunity defense � the basis for removal � and the rejection, here, of Appellants’ affirmative defenses � again, the basis for removal. The court concludes that the district court’s order rejecting appellants’ affirmative defenses is not conclusive under City of Waco, Texas v. United States Fidelity & Guaranty Co., 293 U.S. 140 (1934); thus, the court may not review the merits of the district court’s decision. “[t]he prudent resolution of Warrantech’s state-law counterclaims requires a step-back, a reexamination of what the district court should have done upon concluding that Appellants’ arbitration-related affirmative defenses were meritless. We conclude that the district court, upon resolving the merits of the arbitration-related affirmative defenses, abused its discretion in continuing to exercise supplemental jurisdiction over Warrantech’s state-law counterclaims.” OPINION:Patrick E. Higginbotham, J.; Reavley, Higginbotham and Garza, J.J. DISSENT:Emilio M. Garza, J. “I dissent from the majority’s initial holding that the district court’s remand order is not reviewable under 28 U.S.C. �1447(d). Because this case involves the discretionary remand of supplemental state-law claims, the prohibition on appellate review does not apply.”

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 1 article* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.