Ruhrgas AG v. Marathon Oil Company (05/17/1999)

By: Kristi King, Medill News Service

Questions presented

Whether a federal district court is absolutely barred in all circumstances from dismissing a removed case for lack of personal jurisdiction without first deciding its subject-matter jurisdiction?

Brief

What began as a business dispute over the price of gas became a legal battle over federal jurisdiction that caught the attention of the U.S. Supreme Court.

In 1984, Marathon Petroleum Company Norway, a subsidiary of Ohio-based Marathon Oil Co., entered into an agreement with Ruhrgas, Germanys primary gas supplier in which the Germany company agreed to buy gas at a premium from Marathon. In exchange, Marathon agreed to drill gas from the Heimdal natural gas field in the North Atlantic and pump it to the German companys plant. They also agreed that any disputes would be settled under Norwegian law in Stockholm, Sweden.

But when gas prices fell, Ruhrgas refused to pay the premium price for Marathons gas. Marathon initiated a suit against the German company in Sweden, while the parent company, Marathon Oil Co., filed suit against Ruhrgas in Texas state court.

In its complaint, Marathon contended that Ruhrgas actions hurt the American companys business opportunities and the organization as a result. Marathon also alleged that Ruhrgas attempted to monopolize the gas supplying industry in western Europe. The company said that the enormous cost of the project, which totaled about $300 million, forced Marathon to sell its gas to Ruhrgas.

Citing diversity jurisdiction, federal arbitration jurisdiction and federal question jurisdiction, Ruhrgas successfully moved the suit to federal court. Ruhrgas then moved to have the case dismissed, contending that the court did not have the authority to consider personal jurisdiction because the company did not have sufficient contact with Texas.

At the same time, Marathon asked that the case be remanded to state court because the federal court did not have subject-matter jurisdiction.

The district court determined that it could consider the issue of personal jurisdiction first before examining the merits of the case. The court then determined it did not have the authority to rule on personal jurisdiction and dismissed the case, making Marathons motion to remand moot.

The 5th Circuit Court of Appeals affirmed. Writing for the majority, Appeals Judge Jerry E. Smith supported the trial courts decision to analyze subject-matter jurisdiction first. The 5th Circuit determined that federal courts are ""courts of limited jurisdiction, therefore we have a constitutional obligation to satisfy ourselves that the subject-matter jurisdiction is proper before we consider the merits of an appeal.""

In dissent, Judge Patrick E. Higginbotham asserted that federal district court judges have the discretion to dismiss a case because they feel they lack personal jurisdiction. The dissenting opinion argued that in limited cases, a federal court should consider personal jurisdiction first. Those cases include instance in which the question of federal law is easier to resolve than the issue of subject-matter jurisdiction and when the challenge to personal jurisdiction does not raise significant issues of state law.

The U.S. Supreme Court granted certiorari on Dec. 7, 1998.

On May 17, 1999, a unanimous Court sided with Ruhrgas and sent the case back to the 5th Circuit. It held that, in a case where the issue of personal jurisdiction is straightforward and an issue of subject-matter jurisdiction is complex, the court may turn directly to the issue of personal jurisdiction.

The 5th Circuit was directed to determine if the district court erred in dismissing the case because of lack of personal jurisdiction.