American Fire Casualty Company v. Finn/Opinion of the Court

These proceedings present for determination the proper federal rule to be followed on a motion by a defendant to vacate a United States District Court judgment, obtained by a plaintiff after removal from a state court by defendant, and to remand the suit to the state court. Petitioner, the movant, urges that 28 U.S.C. § 1441, 28 U.S.C.A. § 1441 did not permit this removal and therefore the District Court was without jurisdiction to render the judgment which respondent, the plaintiff below, seeks to retain. The issue arose in this way:

Petitioner, the American Fire and Casualty Company, a Florida corporation, and its codefendant, the Indiana Lumbermens Mutual Insurance Company, an Indiana corporation, removed, in accordance with 28 U.S.C. § 1446, 28 U.S.C.A. § 1446, a suit brought by respondent Finn in a Texas state court against the two corporations and an individual, Reiss, local agent of both corporations and a resident of Texas. The suit was for a fire loss on Texas property suffered by respondent, a resident of Texas. Respondent tried to have the case remanded before trial but was unsuccessful. After special issues were found by the jury, judgment was entered against petitioner for the amount of insurance claimed and costs, and in favor of the other two defendants. The District Court denied the motion to vacate the judgment and the Court of Appeals affirmed. 181 F.2d 845. The latter court concluded there were causes of action against the foreign insurance companies 'separate and independent' from that stated against the resident individual. Since the causes against the companies would have been removable if sued on alone, the entire suit was removable. 28 U.S.C. § 1441(c), 28 U.S.C.A. § 1441(c). That ruling required consideration of the changes concerning removal made by § 1441(c), which superseded 28 U.S.C. (1946 ed.) § 71. The Court of Appeals said:

'The difference, if any, between separable controversies under the old statute and separate and independent claims under the new one is in degree, not in kind. It is difficult to distinguish between the two concepts, but it is not necessary to attempt it in a case like this, which would be removable under either statute.' 181 F.2d 846.

Consideration of the ruling on the motion to vacate the judgment requires a determination of whether the suit contained separate and independent causes of action under § 1441(c), and, if the conclusion is that it did not, a ruling on the effect of a judgment after a removal without right, initiated by the party against whom the judgment was ultimately rendered. As prompt, economical and sound administration of justice depends to a large degree upon definite and finally accepted principles governing important areas of litigation, such as the respective jurisdictions of federal and state courts, we granted certiorari. 340 U.S. 849, 71 S.Ct. 79. See also Mayflower Industries v. Thor Corporation, 3 Cir., 184 F.2d 537; Bentley v. Halliburton Oil Well Cementing Co., 5 Cir., 174 F.2d 788.

The removal took place after September 1, 1948, the effective date of the revision of the laws relating to judicial procedure. 62 Stat. 992, 28 U.S.C.A. note preceding § 1. The former provision governing removal, 28 U.S.C. (1946 ed.) § 71, read:

'And when in any suit mentioned in this section there shall be a controversy which is wholly between citizens of different States, and which can be fully determined as between them, then either one or more of the defendants actually interested in such controversy may remove said suit into the district court of the United States for the proper district.'

The new section, 28 U.S.C. § 1441(c), 28 U.S.C.A. § 1441(c), states:

'(c) Whenever a separate and independent claim or cause of action, which would be removable if sued upon alone, is joined with one or more otherwise nonremovable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters not otherwise within its original jurisdiction.'

One purpose of Congress in adopting the 'separate and independent claim or cause of action' test for removability by § 1441(c) of the 1948 revision in lieu of the provision for removal of 28 U.S.C. (1946 ed.) § 71, was by simplification to avoid the difficulties experienced in determining the meaning of that provision. Another and important purpose was to limit removal from state courts. Section 71 allowed removal when a controversy was wholly between citizens of different states and fully determinable between them. Such a controversy was said to be 'separable.' The difficulties inherent in old § 71 show plainly in the majority and concurring opinions in Pullman Co. v. Jenkins, 305 U.S. 534, 542, 59 S.Ct. 347, 351, 83 L.Ed. 334. See note, 41 Harv.L.Rev. 1048. Often plaintiffs in state actions joined other state residents as defendants with out-of-state defendants so that removable controversies wholly between citizens of different states would not be pleaded. The effort frequently failed, see Pullman Co. v. Jenkins, 305 U.S. at page 538, 59 S.Ct. at page 349, and removal was allowed. Our consideration of the meaning and effect of 28 U.S.C. § 1441(c), 28 U.S.C.A. § 1441(c) should be carried out in the light of the congressional intention. Cf. Pullman Co. v. Jenkins, supra, 305 U.S. at page 547, 59 S.Ct. at page 353; Phillips v. United States, 312 U.S. 246, 250, 61 S.Ct. 480, 483, 85 L.Ed. 800.

The Congress, in the revision, carried out its purpose to abridge the right of removal. Under the former provision, 28 U.S.C. (1946 ed.) § 71, separable controversies authorized removal of the suit. 'Controversy' had long been associated in legal thinking with 'case.' It covered all disputes that might come before federal courts for adjudication. In § 71 the removable 'controversy' was interpreted as any possible separate suit that a litigant might properly bring in a federal court so long as it was wholly between citizens of different states. So, before the revision, when a suit in a state court had such a separate federally cognizable controversy, the entire suit might be removed to the federal court.

A separable controversy is no longer an adequate ground for removal unless it also constitutes a separate and independent claim or cause of action. Compare Barney v. Latham, 103 U.S. 205, 212, 26 L.Ed. 514, with the revised § 1441. Congress has authorized removal now under § 1441(c) only when there is a separate and independent claim or cause of action. Of course, 'separate cause of action' restricts removal more than 'separable controversy.' In a suit covering multiple parties or issues based on a single claim, there may be only one cause of action and yet be separable controversies. The addition of the word 'independent' gives emphasis to congressional intention to require more complete disassociation between the federally cognizable proceedings and those cognizable only in state courts before allowing removal.

The effectiveness of the restrictive policy of Congress against removal depends upon the meaning ascribed to 'separate and independent * *  * cause of action'. § 1441. Although 'controversy' and 'cause of action' are treated as synonymous by the courts in situations where the present considerations are absent, here it is obvious different concepts are involved. We are not unmindful that the phrase 'cause of action' has many meanings. To accomplish its purpose of limiting and simplifying removal, Congress used the phrase 'cause of action' in an accepted meaning to obtain that result. By interpretation we should not defeat that purpose.

In a suit turning on the meaning of 'cause of action,' this Court announced an accepted description. Baltimore S.S.C.o. v. Phillips, 274 U.S. 316, 47 S.Ct. 600, 71 L.Ed. 1069. This Court said, 274 U.S. at page 321, 47 S.Ct. at page 602:

'Upon principle, it is perfectly plain that the respondent suffered but one actionable wrong and was entitled to but one recovery, whether his injury was due to one or the other of several distinct acts of alleged negligence or to a combination of some or all of them. In either view, there would be but a single wrongful invasion of a single primary right of the plaintiff, namely, the right of bodily safety, whether the acts constituting such invasion were one or many, simple or complex.

'A cause of action does not consist of facts, but of the unlawful violation of a right which the facts show.'

See Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 443, 64 S.Ct. 208, 215, 88 L.Ed. 149. Considering the previous history of 'separable controversy,' the broad meaning of 'cause of action,' and the congressional purpose in the revision resulting in 28 U.S.C. § 1441(c), 28 U.S.C.A. § 1441(c), we conclude that where there is a single wrong to plaintiff, for which relief is sought, arising from an interlocked series of transactions, there is no separate and independent claim or cause of action under § 1441(c).

In making this determination we look to the plaintiff's pleading, which controls. Pullman Co. v. Jenkins, 305 U.S. 534, 538, 59 S.Ct. 347, 349, 83 L.Ed. 334. The single wrong for which relief is sought is the failure to pay compensation for the loss on the property. Liability lay among three parties, but it was uncertain which one was responsible. Therefore, all were joined as defendants in one petition. First, facts were stated that made the petitioner, American Fire and Casualty Company, liable. It was alleged that the company, through its agent Reiss, insured the property destroyed for the amount claimed, that Reiss gave plaintiff credit for the premium, controlled her insurance, agreed to keep the property insured at all times. She further alleged that the Company issued the policy but Reiss retained the document in his possession and refused to deliver it after the fire. Then followed a prayer for judgment against the Company.

The next portion of the complaint stated, in the alternative, an obligation by the Indiana Lumbermens Insurance Company to pay the same loss. The policy with Lumbermens was attached as an exhibit, and allegations concerning Reiss similar to those in the first portion were made. A second prayer was added for recovery against Lumbermens.

The last portion of the complaint, alternative to both the preceding, alleged that Reiss, American Fire and Casualty Company and Indiana Lumbermens Insurance Company were jointly and severally liable for the loss. Reiss was said to be plaintiff's insurance broker, responsible for keeping her house insured. Plaintiff alleged Reiss insured her property with Lumbermens and never notified her of any cancellation or expiration. Reiss was alleged to have agreed later to insure her property with American, to have promised after the fire to deliver the policy, to have failed to make the promised delivery. She claimed that Reiss was responsible for 'anything that results in the defeat of her recovery on either one of said policies' and that he was 'the direct cause of the condition, of said insurance, and the proximate cause of all of plaintiff's troubles and confusion.' The pleader then asserted:

'That such acts and conduct on the part of said Joe Reiss as agent for the said two insurance companies, renders said Joe Reiss, agent, the Joe Reiss Insurance Agency and the American Fire and Casualty Insurance Company of Orlando, Florida, and the Indiana Lumbermens Mutual Insurance Company of Indianapolis, Indiana, jointly and severally liable for the full amount of the damages that plaintiff has suffered by reason of said fire in the amount of Five Thousand Dollars.'

The petition concluded with a prayer for joint and several judgment against all three defendants, based on the third set of allegations.

The past history of removal of 'separable' controversies, the effort of Congress to create a surer test, and the intention of Congress to restrict the right of removal leads us to the conclusion that separate and independent causes of action are not stated. The facts in each portion of the complaint involve Reiss, the damage comes from a single incident. The allegations in which Reiss is a defendant involve substantially the same facts and transactions as do the allegations in the first portion of the complaint against the foreign insurance companies. It cannot be said that there are separate and independent claims for relief as § 1441(c) requires. Therefore, we conclude there was no right to removal.

There are cases which uphold judgments in the district courts even though there was no right to removal. In those cases the federal trial court would have had original jurisdiction of the controversy had it been brought in the federal court in the posture it had at the time of the actual trial of the cause or of the entry of the judgment. That is, if the litigation had been initiated in the federal court on the issues and between the parties that comprised the case at the time of trial or judgment, the federal court would have had cognizance of the case. This circumstance was relied upon as the foundation of the holdings. The defendant who had removed the action was held to be estopped from protesting that there was no right to removal. Since the federal court could have had jurisdiction originally, the estoppel did not endow it with a jurisdiction it could not possess.

In this case, however, the District Court would not have had original jurisdiction of the suit, as first stated in the complaint, because of the present on each side of a citizen of Texas. 28 U.S.C. § 1332, 28 U.S.C.A. § 1332. The posture of this case even at the time of judgment also barred federal jurisdiction. A Texas citizen was and remained a party defendant. The trial court judgment, after decreeing recovery against American Fire and Casualty Company on the jury's verdict, added, over American's objection,

'It Is Further Ordered, Adjudged and Decreed that the Plaintiff take nothing as against Defendants, Indiana Lumbermens Mutual Insurance Company and Joe Reiss, individually and doing business as the Joe Reiss Insurance Agency, and that such Defendants go hence without day with their costs.'

By this decree the merits of the litigation against Reiss were finally adjudicated. The request of respondent to dismiss Reiss after the judgment was not acted upon by the trial court.

The jurisdiction of the federal courts is carefully guarded against expansion by judicial interpretation or by prior action or consent of the parties. To permit a federal trial court to enter a judgment in a case removed without right from a state court where the federal court could not have original jurisdiction of the suit even in the posture it had at the time of judgment, would by the act of the parties work a wrongful extension of federal jurisdiction and give district courts power the Congress has denied them.

The judgment of the Court of Appeals must be reversed and the cause remanded to the District Court with directions to vacate the judgment entered and, if no further steps are taken by any party to affect its jurisdiction, to remand the case to the District Court of Harris County, Texas, with costs against petitioner. State of Tennessee v. Union & Planters Bank, 152 U.S. 454, 464, 14 S.Ct. 654, 657, 38 L.Ed. 511.

It is so ordered.

Judgment of Court of Appeals reversed, and cause remanded with directions.

Mr. Justice DOUGLAS, with whom Mr. Justice BLACK and Mr. Justice MINTON concur, dissenting.