4th Circuit: Insurance coverage dispute remanded to state court

Where the District Court had a “colorable basis” for concluding that it lacked subject matter jurisdiction over an insurance coverage suit, and remanding the suit to state court, the Court of Appeals was barred from reviewing that remand order.

Background

A South Carolina court-appointed receiver brought this action against Travelers Surety and Casualty Co. and other insurers on behalf of a defunct company within a state receivership, alleging breaches of insurance policies issued to the company. Travelers removed the action to federal court based on diversity jurisdiction.

The District Court, however, granted the receiver’s motion to remand, holding (1) that it lacked subject-matter jurisdiction under Barton v. Barbour, 104 U.S. 126 (1881), because the case involved the property of a state receivership that was in the exclusive jurisdiction of the state court and (2) that the removal lacked unanimous consent of the defendants because a forum selection clause in insurance policies issued to the defunct company by some of the defendants rendered their consent invalid.

After Travelers filed this appeal, Protopapas filed a motion to dismiss the appeal for lack of appellate jurisdiction under 28 U.S.C. § 1447(d).

Standard

Section 1447(d) bars appellate court review of remand orders when they are based on “(1) a district court’s lack of subject matter jurisdiction or (2) a defect in removal ‘other than lack of subject matter jurisdiction’ that was raised by the motion of a party within 30 days after the notice of removal was filed.”

Because the lack of subject-matter jurisdiction still has to be a basis for a District Court’s remand order and the appellate court has to be able to so verify when declining to review it, the appellate court should take a peek at the District Court’s ruling to confirm that fact. In doing so, however, it “should be limited to confirming that [the District Court’s] characterization was colorable,” i.e., that a lack of subject-matter jurisdiction was a “plausible explanation of what legal ground the District Court actually relied upon for its remand.”

Barton doctrine

When applying the Barton doctrine, the District Court plausibly concluded that a federal court lacks jurisdiction over a state receivership or a state-court appointed receiver with respect to assets of the receivership because the state court has exclusive jurisdiction over the assets of the receivership. Exercising federal jurisdiction over a suit by or against a state-appointed receiver, who functions as an “arm” or “executive” of the state-receivership court, would infringe on the state court’s control over the receivership assets — its exclusive jurisdiction. In these circumstances, this court’s quick look confirms that the District Court’s characterization of its remand as relying on a lack of subject-matter jurisdiction was colorably supported, thus barring this court’s review by reason of § 1447(d).

Consent

The District Court concluded that because at least one insurer agreed to litigate coverage wherever the claimant chose and the claimant chose a state court in South Carolina, the insurer was barred thereafter from consenting to a federal forum. Under the applicable standard for review of that issue, the District Court’s characterization of a procedural defect in these circumstances was at least colorable, inasmuch as unanimous consent to removal was required by § 1446(b)(2)(A). Thus, any further analysis and review would not be appropriate.

Appeal dismissed.

Concurring opinion

Wynn, J., concurring in the judgment:

I concur in holding that, because the District Court based its remand order on the Barton doctrine and colorably described the Barton doctrine as a mandatory limit on its subject matter jurisdiction, the appeal must be dismissed. But today, my good colleagues in the majority choose to go well beyond what is needed to resolve this appeal. By addressing unnecessary issues, they contravene a clear directive from our Supreme Court not to do so.

In appeals like this one, Congress has sought to keep our review to a minimum. I suggest that future panels carefully heed that directive. Because the majority opinion in this case does not, I concur only in the judgment.

Protopapas v. Travelers Casualty and Surety Company, Case No. 23-1339, Feb. 26, 2024. 4th Cir. (Niemeyer), from DSC at Columbia (Coggins). Harry Lee for Appellant. David B. Salmons for Appellee. 20 pp.

— South Carolina Lawyers Weekly