Jurisdiction

The geographic area over which authority extends; legal authority; the authority to hear and determine causes of action.

Empire Healthchoice v. McVeigh

In Empire Healthchoice Assurance v. McVeigh, No. 05-200, 547 U.S. ____ (2006), the U.S. Supreme Court was asked to decide whether federal question jurisdiction applied to reimbursement claims made by a federal healthcare contractor against proceeds from state-court litigation. Said the Court in the slim majority's opinion, "Federal courts should await a clear signal from Congress before treating such auxiliary claims as 'arising under' the laws of the United States."

Joseph McVeigh, a federal employee working for the Environmental Protection Agency (EPA), was seriously injured as a passenger in a 1997 car accident. Although, following surgery, he was able to return to work, he ultimately died in 2001 of a seizure related to head injuries suffered in the accident.

McVeigh's medical bills totaled somewhere between $100,000 and $157,000. (The disparity represented disagreement between the parties. An attorney for McVeigh's estate claimed the same $15,000 charge for brain surgery showed up three times on a charge summary statement, along with some other unrelated charges. In any event, the total amount owed was not part of the high court's ruling.)

As a federal employee, McVeigh's bills were paid under the Federal Employees Health Benefits Act (FEHBA), 5 USC 8901 et seq. Under FEHBA, the federal government pays for approximately 75 percent of premiums and federal employees pay the remainder. The combined premium payments are deposited in a special Treasury fund, from which carriers (such as Empire Healthchoice) draw to pay for covered benefits. The Act itself contains no provision that addresses carriers' subrogation or reimbursement rights or claims.

The federal Office of Personnel Management (OPM) negotiates and regulates health benefits plans for federal employees. OPM had contracted with the Blue Cross Blue Shield Association (BCBSA) to provide a nationwide fee-for-service health plan (the Plan), to be administered by local companies. Empire Healthchoice Assurance, Inc. (Empire) administered the BCBSA plan to federal employees in New York State. The Plan obligated Empire to make a "reasonable effort" to recover amounts paid for medical care. The "statement of benefits" distributed by Empire to its beneficiaries/enrollees notified them that monetary recoveries received by them must be used to reimburse Empire for benefits paid on their behalf.

After McVeigh's death, his widow, who was the administrator of his estate, filed a wrongful death suit in state court against those allegedly responsible for his death. Empire, as the healthcare benefits provider, had notice of the state-court action, but took no part in it. Prior to trial, a large settlement was reached, and the parties agreed to the settlement. McVeigh's estate set aside $100,000 in escrow for reimbursement of benefits.

However, Empire instead filed suit against McVeigh's estate in federal district court for the Southern District of New York, seeking reimbursement for the $157,000 it allegedly paid for McVeigh's medical care. The district court dismissed Empire's suit for lack of federal jurisdiction, holding that the issue raised was a state, and not federal one.

For its part, Empire maintained that, since it was a federal contractor, its reimbursement claims implicated "uniquely federal interest[s]." (Empire quoted Boyle v. United Technologies Corp., 487 U.S. 500, in which the appeals court held that courts may create federal common law only where state law would "significant[ly] conflict" with "uniquely federal interests.") Empire also argued that FEHBA contained a preemption provision that independently conferred federal jurisdiction.

The Second Circuit Court of Appeals affirmed the district court's dismissal of Empire's suit. It agreed that Boyle was controlling, but concluded that Empire had not met its burden of showing that there was "significant conflict" between federal law and New York state law.

Supreme Court Justice Ruth Bader Ginsburg, writing for the 5-4 slim majority, held that federal courts lacked jurisdiction over suits filed by a federal government contractor for reimbursement of benefits paid pursuant to a provision in a health benefits plan for federal employees. While the majority agreed that distinctly federal elements were involved, other considerations controlled. For example, the express language in the FEHBA's jurisdictional provision, §8912, created federal jurisdiction for civil actions "against the United States." Further, express language in OPM regulations channel disputes over coverage or benefits into federal court by designating OPM as the sole defendant, "and not against the carrier or carrier's subcontractors." 5 CFR 809.107(c). Nowhere in the Act or OPM regulations is there language that opens federal courts to carriers seeking reimbursement. Thus, the preemption provision cited by Empire did not apply to it as a carrier. Ultimately, the majority reasoned that state courts in which personal injury and wrongful death actions were more generally lodged were competent to apply federal law, and best suited to ascertain fair apportionment of tort recovery among co-parties. Accordingly, the majority opinion upheld both district court dismissal and the Second Circuit's affirming opinion.

However, the majority opinion was lengthy. Justice Breyer filed a dissenting opinion in which he was joined by Justices Kennedy, Souter, and Alito.

Lincoln Property Co. v. Roche

Defendants in a civil lawsuit filed in state court may ask a federal district court to remove the matter to federal court in that state if the defendants are not citizens of the state. This right to seek removal is part of federal diversity jurisdiction that is authorized by Congress in 28 U.S.C.A. § 1441. It is predicated on the belief that non-citizens of a state will receive a fairer hearing in federal court rather than state court. Section 1441 states that removal is permissible "only if none of the parties in interest properly joined as defendants is a citizen of the State in which [the] action [was] brought." The Supreme Court, in Lincoln Property Co. v. Roche, ___U.S.___, 126 S.Ct. 606, 163 L.Ed.2d 415 (2005), ruled that named defendants do not have to an obligation to name some other entity that they are affiliated with and show that its joinder would not destroy diversity jurisdiction and send the case back to state court.

Christophe and Juanita Roche rented an apartment in Fairfax County, Virginia. The complex known as Westwood Village was managed by Lincoln Property Company. The Roches discovered toxic mold in the apartment, which can lead to serious health problems. Investigators concluded that the mold spores were airborne in the apartment and had contaminated carpeting and fabric-covered surfaces. The couple moved out of the unit while it was decontaminated, leaving their personal property in the care of Lincoln and the mold removal firm. The Roches later filed separate but similar civil lawsuits in Virginia state court against Lincoln and the State of Wisconsin Investment Board, which allegedly owned the apartment complex. They alleged that the mold had made them sick. They claimed memory loss, headaches, and respiratory problems as well as the alleged loss, theft, or destruction of their personal property during the period they had left the apartment. The couple sought damages for these alleged injuries.

Lincoln and the board removed the two cases to Virginia federal district court, citing diversity-of-citizenship jurisdiction under § 1441. The notice of removal stated that Lincoln was a Texas corporation with its principal headquarters in Texas. The board stated that it was an independent agency located in Wisconsin. This information had been contained in the Roches' state complaints and the Roches agreed in their federal complaints that the federal courts had jurisdiction to decide these matters. Lincoln answered the Roches' federal complaints, admitting that it managed the apartment complex in question. In addition, it did not try to avoid liability by claiming that some other entity was responsible for managing the complex. Though the Roches told the court that they would investigate to see if additional defendants needed to be joined to the lawsuit, they did not try to join any additional defendants. After discovery, the federal court granted Lincoln's motion to dismiss the case. Six days later the Roches moved the court to remand the case to state court, alleging for the first time that there was no diversity between Lincoln and them. They contended that Lincoln was not a Texas corporation but rather a partnership that had a partner residing in Virginia. The district court denied the motion after Lincoln presented documents that proved it was a Texas corporation.

The Fourth Circuit Court of Appeals reversed the district court and instructed it to remand the case to Virginia state court. The appeals court agreed that Lincoln was a Texas corporation and a proper party in the action but found that Lincoln operated under "many different structures." The court believed Lincoln was a nominal party and suspected that an unidentified Virginia subsidiary was the "real and substantial party in interest." Lincoln had failed to demonstrate the nonexistence of the Virginia entity and therefore had failed to meet is burden of establishing diversity. The Supreme Court agreed to hear Lincoln's appeal because the circuit courts of appeals were divided on whether an entity not named or joined as a defendant can still be considered a real party in interest whose presence would destroy diversity.

The Court, in a unanimous decision, reversed the Fourth Circuit ruling. Justice RUTH BADER GINSBURG, writing for the Court, noted that the Roches could have kept the case in state court if they had named and served as a defendant a party that resided in Virginia. Once removed to federal court, the Federal Rules of Civil Procedure reinforced the conclusion that no additional parties needed to be named for the action to proceed. As to Lincoln's status, Justice Ginsburg pointed out that Lincoln had accepted responsibility for managing the apartment complex. Therefore, a "named defendant who admits involvement in the controversy and would be liable to pay a resulting judgment is not 'nominal' in any sense except that it is named in the complaint." The Fourth Circuit had no authority to "inquire whether some other person might have been joined as an additional or substitute defendant." It was up to the plaintiff to deal with the consequences of selecting the named parties, and not the responsibility of a defendant to name additional defendants. As "masters of their complaint," the Roches had the duty to discover and then seek permission to join other parties that might defeat diversity.

Martin v. Franklin Capital Corporation

Under federal statute 28 U.S.C.A. § 1441 a defendant in a civil lawsuit that has been filed in state court may remove the case to a federal district court if the defendant is a citizen of another state. This diversity-of-citizenship jurisdiction is premised on the assumption that an out-of-state defendant will receive a fairer hearing in the federal court by avoiding local bias. However, diversity jurisdiction cannot be asserted if the plaintiff's claim for damages is less than $75,000. This provision prevents the federal courts from being overwhelmed by relatively minor disputes. Finally, if a defendant improperly removes the case to federal court and that court sends it back to state court, the plaintiff may recover attorney fees from the defendant under 28 U.S.C.A. § 1447(c). As to this last issue, the circuit courts of appeal were divided as to when attorney fees should be awarded under § 1447(c). The Supreme Court, in Martin v. Franklin Capital Corp., __U.S.__, 126 S.Ct. 704, 163 L.Ed.2d 547 (2005), ruled that absent unusual circumstances, attorney's fees should not be awarded when the removing party "has an objectively reasonable basis for removal."

Gerald and Juana Martin filed a class-action lawsuit in New Mexico state court against Franklin Capital Corporation alleging that Franklin had improperly bought car insurance on their behalf to protect Franklin in case the car they had purchased on credit was involved in an accident. Franklin, which is a California corporation, removed the case to federal district court, as was its right under the federal removal statute. The amount in controversy was not clear when Franklin removed the case but it relied on legal precedent suggesting that punitive damages and attorney's fees could be included in a class action to meet the amount-in-controversy requirement. Fifteen months later the Martins filed a motion asking that the federal court send the case back to state court because their claims did not meet the amount-in-controversy requirement. The district denied their motion but the Tenth Circuit Court of Appeals reversed. The Tenth Circuit concluded that punitive damages and attorney's fees could not be aggregated to meet the statutory minimum for federal jurisdiction. The appeals court acknowledged that this ruling was based on decisions that had been made after the district court had rejected the Martin's motion to remand the case to state court.

Based on this ruling the Martins filed a motion in federal district court asking that Franklin pay their attorney's fees for the removal litigation under 28 U.S.C.A. § 1447(c). The district court rejected this motion as well, finding that Franklin had "objectively reasonable grounds" for believing its removal of the case to federal court was proper. The Martins appealed this ruling to the Tenth Circuit, arguing that attorney's fees must be awarded when a removed case is returned to state court. The Tenth Circuit declined to adopt this reasoning, ruling that under circuit precedent the trial judge had "wide discretion" to award fees based on the "propriety of defendant's removal." In this case Franklin had calculated the amount in controversy relying on court precedents; therefore its basis for removal was objectively reasonable. The Supreme Court agreed to hear the Martins' appeal because other circuit courts of appeal had developed different rules for awarding fees under 28 U.S.C.A. § 1447(c).

The Court, in a unanimous decision, affirmed the Tenth Circuit ruling. Chief Justice John Roberts, writing for the Court, found no merit in the Martins' claim that attorney's fees should be awarded automatically when a removed case is sent back to state court. The statute stated that the court "may" award attorney's fees, not "shall" or "should." The use of the word "may" clearly connoted discretion and the Court could not change the meaning of the text to make the awarding of feeds mandatory. Roberts pointed out that 28 U.S.C.A. § 1447(c) contained the word "shall" in enough places to indicate Congress knew what it was doing when it used the word "may" in dealing with attorney's fees. The Martins claimed that at minimum that there should be a strong presumption in favor of awarding attorney's fees. Roberts agree that the Martins were on "somewhat stronger ground" because the Court had created such a presumption involving a civil rights statute that permitted the discretionary award of attorney's fees. However, in the civil rights case the plaintiff had served as a "private attorney general" in trying to vindicate civil rights laws. Moreover, the defendant in that case had violated federal law. The Martins were not serving as private attorneys general when they convinced the court to remand the case to state court and Franklin had not violated federal law. Roberts emphasized that Franklin had the right to remove the case under the statute and its error in doing so was "not comparable to violating a substantive federal law."

The U.S. government had filed a brief in the case, urging the Court to limit attorney's fees to cases where the defendant's removal action was "frivolous, unreasonable, or without foundation." Chief Justice Roberts found no merit in this approach; Congress did not "tilt the exercise of discretion" either in favor or against fee awards. Judges had discretion to grant or deny awards, but they did not have unfettered discretion. They should balance Congress' desire to provide defendants with a right to remove as a general rule against the attempts by some defendants to use removal "for prolonging litigation and imposing costs on the opposing party." Judges may only award attorney's fees where "the removing party lacked an objectively reasonable basis for seeking removal." In this case the lower courts properly denied the request for fees because Franklin had an objectively reasonable grounds for removal, based on circuit precedent.

Wachovia Bank v. Schmidt

U.S. national banks are a special type of corporation, chartered to do business by the Comptroller of the Currency of the U.S. Treasury rather than by state governments. Congress has overseen the regulation of national banks since the Nineteenth Century and it has periodically passed legislation that deals with how courts of law will handle matters involving these banks. In Wachovia Bank v. Schmidt, __U.S.__, 126 S.Ct. 941, 163 L.Ed.2d 797 (2006), the U.S. Supreme Court had to decide whether a fair reading of these statutes precluded a national bank from asserting diversity jurisdiction and removing a state court lawsuit to federal court. The lower courts had found that because the national bank had a branch "located" in a state, that branch was a citizen of that state and must litigate the dispute in state court. The Supreme Court rejected this ruling, concluding that the text and legislative history of the statute allowed the national bank to claim citizenship in the place designated in its articles of association as the location of its main office.

Daniel Schmidt and other citizens of South Carolina filed suit in state court against Wachovia Bank, alleging that Wachovia had used fraud to induce them to buy tax shelters that were ruled illegal by the Internal Revenue Ser-vice. Wachovia is a national bank with its designated main office in Charlotte, North Carolina. Wachovia filed a motion in the federal district court located in South Carolina, asking the court to compel arbitration to resolve the dispute. It based federal court jurisdiction for the matter on diversity-South Carolina plaintiffs and a North Carolina defendant. The district court denied Wachovia's motion and the bank appealed to the Fourth Circuit Court of Appeals. However, the Fourth Circuit declined to rule on the merits of the arbitration issue, finding that the district court lacked diversity jurisdiction over the matter. It directed that the lower court to dismiss the case.

Judge Michael Luttig of the Fourth Circuit, writing for the majority, noted that under 28 U.S.C.A. § 1348 national banks like Wachovia are, for diversity purposes, "deemed citizens of the States in which they are respectively located." Wachovia was "located" in every state in which it had a branch office and therefore it must be a "citizen" of these states as well. The Wachovia branch in South Carolina was a citizen of the state, thereby defeating federal diversity jurisdiction. The Supreme Court agreed to hear Wachovia's appeal, as the circuit courts of appeals had divided over the meaning of § 1348. Some agreed with the Fourth Circuit, while others believed national banks are citizens of their designate main offices.

The Supreme Court, in an 8-0 decision (Justice Clarence Thomas did not participate in the consideration of the case), reversed the Fourth Circuit ruling. Justice Ruth Bader Ginsburg, writing for the Court, reviewed the legislative history of national banks, which were first specifically authorized by Congress in 1863. This law granted federal courts jurisdiction to hear proceedings for and against national banks, without regard to diversity, the amount in controversy, or the existence of a federal question. This stood in contrast to state-chartered banks, which like any state-incorporated business organization could pursue a federal lawsuit only on the basis of diversity or the federal question jurisdiction. However, in 1882 Congress reversed course and removed national banks' automatic federal jurisdiction. This amendment placed national banks on the same footing as the banks of the state where they were located. In 1887 Congress returned to the issue, replacing the 1882 provision and using the "located" language now found in § 1348. Congress still sought to place national and state banks on the same jurisdictional plane. Almost 25 years passed before Congress recodified the national bank jurisdiction language in 1911. The phrase "citizens of the States in which they are respectively located" was retained and in 1948 Congress enacted § 1348 in its present form. The law states that federal districts have original jurisdiction to hear national bank cases "established in the district for which the court is held," as well as the "located" provision.

Justice Ginsburg rejected the three major reasons advanced by the Fourth Circuit. First, the word "located" did not have a fixed, plain meaning as claimed by the appeals court. In some provisions the word "unquestionably refers to a single place: the site of the banking association's designated main office." In other provisions the word seemed to refer to or include branch offices. Second, Congress may have intended the words "located" and established" as synonymous or alternative terms. When Congress addressed this issue (1863, 1882, 1887, 1911 and 1948), national banks "were almost always 'located' in the State in which they were 'established.'" With few exceptions a national bank was not permitted to operate branches outside its home state. It was not until 1994 that Congress gave national banks the authority to establish branches in other states. Justice Ginsburg surmised that "Congress' use of the two terms may be best explained as a coincidence of statutory codification." Third, a 1977 Court ruling relied on by the Fourth Circuit was not applicable. The Court had interpreted the word "located" in a now-repealed venue statute for national banks to include any county in which a bank maintained a branch office. Justice Ginsburg held that venue and subject-matter jurisdiction were "not concepts of the same order." Venue is "largely a matter of litigational convenience" (where is the best place to hear a case for the convenience of the parties), while subject-matter jurisdiction "concerns a court's competence to adjudicate a particular category of cases" (what can a court hear). Therefore, the Court did not need to honor this case precedent. The Fourth Circuit decision would have meant that national banks would rarely, if ever, be able to claim diversity jurisdiction. The best course was to locate a national bank in the state designated by its articles of association as its main office.