CALSTAR v. State Compensation Ins. Fund

636 F.3d 538

• Court: Court of Appeals for the Ninth Circuit
• Decided: March 31, 2011
• Docket: 09-16810
• Status: Published

Opinion

636 F.3d 538 (2011)

CALIFORNIA SHOCK TRAUMA AIR RESCUE, Plaintiff-Appellant,
v.
STATE COMPENSATION INSURANCE FUND; Zurich American Insurance Company; Zenith Insurance Company; Redwood Fire & Casualty Insurance Company; Seabright Insurance Company; Allied Property and Casualty Insurance Company; Employers Direct Insurance Company; XL Specialty Insurance Company; Applied Underwriters, Inc.; National Liability & Fire Insurance Company; Aims Insurance Services; Arch Insurance Company; Broadspire Services, Inc.; Church Mutual Insurance Company; Alaska National Insurance Company; Employers Insurance Company of Wausau; Insurance Company of the West; Employers Compensation Insurance Company; Florists' Mutual Insurance Company; Safeco Insurance Company of America; Safety National Casualty Corporation; Ace American Insurance Company; Cypress Insurance Company; Sierra Pacific Industries, Inc.; Fire Association Self-Insurance System; Contra Costa County Schools Insurance Group; California State Association of Counties Excess Insurance Authority; Protected Insurance Programs for Schools; Norcal Waste Systems, Inc.; Special District Risk Management Authority; Manpower, Inc.; Redwood Empire Municipal Insurance Fund; East Bay Regional Park District; Trindel Insurance Fund; County of Marin; Barrett Business Services, Inc.; Northern California Special Districts Insurance Authority; City of Monterey; County of Solano; Lake Valley Fire Protection District; County of Santa Barbara; 99 Cent Only Stores; County of El Dorado; City of Pleasanton; County of Stanislaus; Municipal Pooling Authority; the Davey Tree Expert; Ace Property and Insurance Company; ConocoPhillips Company; ABC Supply Company Inc.; Labor Ready Southwest Inc.; City of Watsonville; Lowe's HIW, Inc.; Agrium U.S. Inc.; American Casualty Company of Reading, Pennsylvania; Irwin Industries, Inc.; Waste Connections, Inc., Defendants-Appellees.
California Shock Trauma Air Rescue, Plaintiff-Appellant,
v.
AIG Domestic Claims, Inc.; AIG Insurance Services, Inc.; AIG Indemnity Insurance Company; State Farm General Insurance Company; State Farm Employees Activities Assn.; Regents of the University of California; MCM Construction, Inc.; Endurance Reinsurance Corporation of America; Environmental Alternatives; American Home Assurance Company; National Union Fire Insurance Company of Pittsburgh, PA; Commerce and Industry Insurance Company; Mainstay Business Solutions; Monterey County Local Agencies Insurance Authority; E.I. Du Pont De Nemours and Company; Cambridge Integrated Services Group, Inc.; Schools Insurance Authority; Schools Insurance Group; Pebble Beach Company, Defendants-Appellees.

Nos. 09-16810, 09-16874.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted January 14, 2011. Filed March 31, 2011.

Kathryn Doi (argued) and John E. Fischer of Murphy Austin Adams Schoenfeld LLP, Sacramento, CA, for appellant California Shock Trauma Air Rescue.

Moe Keshavarzi (argued), Frank Falzetta, and James F. McShane of Sheppard Mullin Richter & Hampton LLP, Los Angeles, CA; Peter Roan and Ronald D. Kurtz of Locke Lord Bissell & Liddell LLP, Los Angeles, CA; Larry M. Golub and Sandra I. Weishart of Barger & Wolen LLP, Los Angeles, CA; Steven H. Frankel and Sean McEneaney of Sonnenschein Nath & Rosenthal LLP, San Francisco, CA, for appellees State Compensation Insurance Fund et al.

Before: J. CLIFFORD WALLACE, JOHN T. NOONAN, and BARRY G. SILVERMAN, Circuit Judges.

OPINION

WALLACE, Senior Circuit Judge:

These consolidated appeals arise from two separate actions that involve California Shock Trauma Air Rescue (CALSTAR). Both actions turn on the same jurisdictional question: is the expectation of a federal defense, without more, sufficient to establish federal jurisdiction over a state-law claim? Despite CALSTAR's arguments to the contrary, we reiterate that the well-pleaded complaint rule precludes the exercise of federal subject matter jurisdiction over purely state-law causes of action, like the one raised here.

I.

CALSTAR provides air-ambulance rescue services to employees injured in the course of their employment, and whose employers are either self-insured or have purchased workers' compensation insurance. CALSTAR alleges that these employers and various insurance companies (collectively, Employers) have underpaid CALSTAR for its services. Rather than pay the amount billed by CALSTAR, Employers have paid a lesser amount as specified under the California's workers' compensation statute. See Cal.Code Regs. tit. 8 § 9789.70 (now obsolete in relevant part).

In 2009, CALSTAR filed its actions in the Eastern District of California, alleging state-law claims of quantum meruit, unjust enrichment, and open book account. CALSTAR also sought a declaratory judgment that the state statute regulating air-ambulance rates is pre-empted by federal law. In the 1970s, the federal government adopted legislation—the Federal Aviation Act of 1958 (FAA), as amended by the Airline Deregulation Act of 1978, codified at 49 U.S.C. § 41713(b)(1)—to increase airline competition and lower air-fare prices. According to CALSTAR, the FAA preempts the workers' compensation statute at issue.

The FAA preemption question is the sole basis on which CALSTAR attempts to have its actions adjudicated in federal court. Relying on Federal Rule of Civil Procedure 12(e)(1), the district court concluded that subject matter jurisdiction was lacking and dismissed CALSTAR's claims. CALSTAR now appeals. We review the district court's dismissal for lack of subject matter jurisdiction de novo, Kildare v. Saenz, 325 F.3d 1078, 1082, 1085 (9th Cir. 2003), and we affirm.

II.

Under 28 U.S.C. § 1331, federal courts have jurisdiction over those actions "arising under the Constitution, laws, or treaties of the United States." While plaintiffs usually invoke section 1331 jurisdiction for violations of federal law, they also may invoke it over certain state-law claims. Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 312, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005).

In determining whether a federal district court has "arising under" jurisdiction over a claim, we must keep in mind "the basic principle marking the boundaries of the federal question jurisdiction of the federal district courts": the well-pleaded complaint rule. Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987). Under the well-pleaded complaint rule, we must determine whether "a right or immunity created by the Constitution or laws of the United States must be an element, and an essential one, of the plaintiff's cause of action." See Gully v. First Nat'l Bank, 299 U.S. 109, 112, 57 S.Ct. 96, 81 L.Ed. 70 (1936).

We thus are required to consider whether CALSTAR's complaints satisfy the well-pleaded complaint rule. CALSTAR is suing Employers under various state-law theories. CALSTAR anticipates that Employers will respond by asserting, as a defense, that they correctly paid CALSTAR pursuant to California's air-ambulance rate regulation. In response to that defense, CALSTAR anticipates arguing that the state's air-ambulance rate regulation is inapplicable because the FAA preempts the state regulation. It is evident that CALSTAR's federal preemption argument is not necessary to its state-law claims—it is merely a potential response to a defense. Because CALSTAR's preemption issue cannot satisfy the well-pleaded complaint rule, there is no basis for federal question jurisdiction.

Any doubt about our analysis is removed by Phillips Petroleum Co. v. Texaco, Inc., 415 U.S. 125, 94 S.Ct. 1002, 39 L.Ed.2d 209 (1974) (per curiam). There, Texaco brought an action in federal court for quantum meruit, arguing that Phillips Petroleum underpaid for helium contained in the natural gas that Texaco sold to Phillips Petroleum. Id. at 125-26, 94 S.Ct. 1002. If the action had gone forward, Phillips Petroleum would have argued that it made payments pursuant to the terms of the parties' contract. Id. at 128, 94 S.Ct. 1002. In response, Texaco was prepared to argue that the federal statute governing helium sales required further payment for helium trapped within natural gas. Id. Thus, "[t]o the extent that the [federal statutes] may bear on th[e] action for the recovery of the reasonable value of constituent helium in natural gas, it is clear that their effect is no more than to overcome a potential defense to the action." Id. at 129, 94 S.Ct. 1002(emphasis added). The Court then ruled that it "cannot be said that this suit `arises under the Constitution, laws, or treaties of the United States.'" Id., quoting 28 U.S.C. § 1331(a). Based on Phillips Petroleum, which contained facts functionally identical to those at issue here, federal subject matter jurisdiction cannot arise from CALSTAR's complaint raising mere state-law claims.

Ignoring Phillips Petroleum, CALSTAR invokes the Supreme Court's decision in Grable and argues that a federal court may entertain any action if it involves "significant federal issues." 545 U.S. at 312, 125 S.Ct. 2363. Grable, however, does not support CALSTAR's position. There, a plaintiff filed a state common law quiet title action alleging superior title to a parcel of land previously seized by the Internal Revenue Service (IRS). Id. at 311, 125 S.Ct. 2363. The basis of Grable's argument for superior title, as alleged in his complaint, was the IRS's failure to serve notice pursuant to 26 U.S.C. § 6335(a). Id. The defendant "removed the case to Federal District Court as presenting a federal question, because the claim of title depended on the interpretation of . . . federal tax law." Id. The Court observed that jurisdiction was proper because, "federal-question jurisdiction will lie over state-law claims that implicate significant federal issues." Id. at 312, 125 S.Ct. 2363.

Read in isolation, this statement arguably suggests that federal courts may exercise jurisdiction over any state-law claim that "implicate[s] significant federal issues." In fact, this is the very interpretation that CALSTAR asks us to adopt. Nevertheless, contrary to CALSTAR's suggestion, Grable did not implicitly overturn the well-pleaded complaint rule— which has long been a "basic principle marking the boundaries of the federal question jurisdiction of the federal district courts," Metropolitan Life, 481 U.S. at 63, 107 S.Ct. 1542—in favor of a new "implicate[s] significant federal issues" test, see Grable, 545 U.S. at 312, 125 S.Ct. 2363. For CALSTAR's argument to have any merit, the complaint in Grable would have had to violate the well-pleaded complaint rule. But this is where CALSTAR falters. The Grable complaint did present a federal issue on its face. As the Court explained, the complaint in Grable "premised its [state-law] superior title claim on a failure by the IRS to give it adequate notice, as defined by federal law." Id. at 314-15, 125 S.Ct. 2363. Thus, contrary to CALSTAR's suggestion, Grable stands for the proposition that a state-law claim will present a justiciable federal question only if it satisfies both the well-pleaded complaint rule and passes the "implicate[s] significant federal issues" test. This test requires that the federal issue within a state-law claim be "necessar[y], . . . actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities." Id. at 314, 125 S.Ct. 2363.

Turning to the facts of this case, CALSTAR's argument fails at the outset. Notwithstanding its declaratory judgment claim, which we address later, its actions are based entirely on California causes of action (quantum meruit, unjust enrichment and open book account), each of which does not, on its face, turn on a federal issue. Instead, any federal issue here would be a response to a defense to these state-law claims. Under Phillips Petroleum, there is no arising under jurisdiction in this context. 415 U.S. at 128, 94 S.Ct. 1002.

III.

The other potential basis for federal jurisdiction is CALSTAR's claim for declaratory relief. Pursuant to that claim, CALSTAR seeks a declaration that the FAA preempts the now obsolete fee schedule for air ambulances. See Cal.Code Regs. tit. 8 § 9789.70.

"[T]he operation of the Declaratory Judgment Act is procedural only" and does not confer arising under jurisdiction. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 70 S.Ct. 876, 94 L.Ed. 1194 (1950) (internal quotation marks omitted). That holding should be the end of the discussion. Nevertheless, CALSTAR argues that the logical extension of Shaw v. Delta Air Lines, Inc. opens the doors of the federal courts to CALSTAR's claim. 463 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983). The relevant portion of Shaw, upon which CALSTAR relies, states:

It is beyond dispute that federal courts have jurisdiction over suits to enjoin state officials interfering with federal rights. Ex parte Young, 209 U.S. 123, 160-62 [28 S.Ct. 441, 52 L.Ed. 714] (1908). A plaintiff who seeks injunctive relief from state regulation, on the ground that such regulation is pre-empted by a federal statute which, by virtue of the Supremacy Clause of the Constitution, must prevail, thus presents a federal question which the federal courts have jurisdiction under 28 U.S.C. § 1331 to resolve.

Id. at 96 n. 14, 103 S.Ct. 2890.

CALSTAR's argument is a matter of first impression within our circuit and therefore we must address it. In Shaw, the Supreme Court predicated its jurisdictional holding on the fact that a state official was the defendant. Id. Relying on Ex parte Young, the Court held that there was arising under jurisdiction over an action against a state attorney general, acting in his official capacity, who allegedly violated federal law. 209 U.S. at 160-62, 28 S.Ct. 441. A Supremacy Clause-related claim against a state official was the logical extension of the jurisdictional rule set forth in Ex parte Young. The structure of the Shaw syllogism confirms its conclusion. In footnote 14, Shaw reiterates its major premise: Jurisdiction exists over federal actions to enjoin state officials. 463 U.S. at 96 n. 14, 103 S.Ct. 2890. When confronted with the Shaw plaintiff's Supremacy Clause claim against a state official, the Court explained that such a claim "thus presents a federal question." Id. (emphasis added). Because the presence of a state official is crucial to the reasoning in Shaw, its holding is irrelevant to CALSTAR's action against Employers, none of whom are state officials. As CALSTAR is unable to cite any case in which there exists federal subject matter jurisdiction over a declaratory judgment claim brought by a private party against another private party, CALSTAR's argument necessarily fails.

Furthermore, to the extent that CALSTAR contends that Shaw opened the door to its argument, it ignores Supreme Court precedent that keeps that door closed. If we ruled as CALSTAR suggests we do, we would directly contravene the Skelly Oil rule, which held that Declaratory Judgment Act actions are procedural claims, as opposed to substantive ones that would confer jurisdiction. 339 U.S. at 671, 70 S.Ct. 876. For this reason as well, CALSTAR's position is untenable.

At bottom, CALSTAR's argument is nothing more than a "futile . . . attempt to define a `cause of action' without reference to . . . context." Gully, 299 U.S. at 117, 57 S.Ct. 96. Federal subject matter jurisdiction jurisprudence is not an area of the law that lends itself to the application of broad principles. It is a precise analysis. The line is clearly drawn. As the Supreme Court cautioned,

To define broadly and in the abstract "a case arising under the Constitution or laws of the United States" has hazards of a kindred order. . . . [T]he courts have formulated the distinction between controversies that are basic and those that are collateral, between disputes that are necessary and those that are merely possible. We shall be lost in a maze if we put that compass by.

Id. at 117-18, 57 S.Ct. 96. Actions against state officials are part of those that are "basic" and "necessary." See Shaw, 463 U.S. at 96 n. 14, 103 S.Ct. 2890. Declaratory judgments against private parties, regardless of whether the Supremacy Clause has been invoked, are not. Skelly Oil, 339 U.S. at 671, 70 S.Ct. 876.

Our analysis is strengthened by the fact that those circuits to address the argument now raised by CALSTAR have unanimously rejected it. See Colonial Penn Grp., Inc. v. Colonial Deposit Co., 834 F.2d 229, 237 (1st Cir.1987) ("Jurisdiction over actions for declarations of pre-emption can logically only be asserted where a state official is the defendant"); Albradco, Inc. v. Bevona, 982 F.2d 82, 87 (2d Cir.1992) ("Because [plaintiffs] have not sued state officials to enjoin them from enforcing an unconstitutional state law, this case is distinguishable from Shaw"); New Orleans & Gulf Coast Ry. Co. v. Barrois, 533 F.3d 321, 330 (5th Cir.2008) (Shaw "does not apply in a suit exclusively between private parties . . ."). Accordingly, we hold that there is no federal jurisdiction over CALSTAR's declaratory judgment claim.

IV.

Because there is no federal jurisdiction over any of CALSTAR's claims, we affirm the district court's dismissal for lack of jurisdiction. We therefore need not address the parties' remaining arguments. We do, however, grant Employers' motion to take judicial notice of CALSTAR's state-law complaint.

Costs on appeal are awarded to Employers.

AFFIRMED.