THOMAS O. RICE

ORDER GRANTING PLAINTIFF'S

MOTION TO REMAND

BEFORE THE COURT is Plaintiff's Motion to Remand (ECF No. 6). This matter was submitted for consideration without oral argument. The Court has reviewed the briefing and the record and files herein, and is fully informed.

BACKGROUND

Plaintiff Babcock Services, Inc. ("BSI") filed this action in Benton County Superior Court, asserting state law breach of contract claims arising from alleged violations of a subcontract between itself and Defendant CH2M Hill Plateau Remediation Company, Inc. ("CHPRC"). CHPRC timely removed the case to this Court pursuant to 28 U.S.C. § 1441(a). ECF No. 1. Plaintiff subsequently moved to remand the case for lack of subject-matter jurisdiction. ECF No. 6. For the reasons discussed below, the Court concludes that CHPRC has failed to carry its burden of establishing federal subject matter jurisdiction. Accordingly, the case will be remanded to Benton County Superior Court for all further proceedings.

FACTS

CHPRC contracts with the Department of Energy ("DOE") to provide environmental cleanup of the Hanford Site in Richland, Washington. In 2008, CHPRC entered into a subcontract (the "Shared Resource Agreement" or "SRA") with BSI for various professional services. The subcontract's "base period" ran from October 2008 to September 2013. The subcontract also provided for an "option period" extending from October 2013 to September 2018.

According to BSI, the parties agreed that the subcontract would continue through the option period unless it was specifically terminated for convenience by the DOE. In support of this assertion, BSI cites the subcontract's termination clause, which provides:

The subcontract may be terminated at any time by mutual agreement of the Parties. It is anticipated that this subcontract shall continue [for] the duration of the CHPRC Contract and any extension thereof, unless during the term of the subcontract, DOE directs in writing the termination of the Subcontract in accordance with FAR 52.249-6 or unless DOE removes substantially all the Subcontractor scope of work [from] the Prime Contract. Buyer will terminate by delivering to the
Contractor a Notice of Termination for Convenience specifying the extent of termination and the effective date.

Despite this agreement, BSI alleges, CHPRC declined to extend the subcontract into the option period. BSI claims that this decision was not prompted by a termination of the subcontract for convenience by the DOE or by a removal of substantially all of BSI's scope of work from the prime contract.

BSI further alleges that, after deciding not to extend the subcontract, CHPRC actively solicited BSI employees in violation of the subcontract's non-solicitation clause. The non-solicitation clause provides:

During the term of the SRA, neither Party shall, without the written approval of the other party, directly or indirectly or through the use of a third party, solicit for employment an employee of the other Party. This prohibition shall extend for a period of ninety (90) days after the employee terminates employment with the other Party. The foregoing shall not apply to employees of either Party who have not been substantially involved in the performance of the initial Teaming Agreement or PRC Project, clerical or administrative employees, or individuals hired as a result of the use of a general solicitation (e.g., PRC solicitation) not specifically directed to the employees of the other Party.

BSI filed the instant lawsuit in Benton County Superior Court, alleging state law breach of contract claims. After being served with the Complaint, CHPRC removed the case to this Court on federal question grounds. BSI now moves to remand the case for lack of subject matter jurisdiction.

DISCUSSION

CHPRC removed this case from state court pursuant to 28 U.S.C. § 1441(a) on the ground that BSI's claims present a federal question. Section 1441(a) allows removal of "any civil action brought in a State court of which the district courts of the United States have original jurisdiction." 28 U.S.C. § 1441(a). Pursuant to 28 U.S.C. § 1331, federal district courts have original jurisdiction over all claims "arising under the Constitution, laws, or treaties of the United States."

Whether a suit "arises under" federal law is determined by the well-pleaded complaint rule, which provides that federal jurisdiction exists "only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). "Because a defense is not part of a plaintiff's properly pleaded statement of his or her claim, a defense that raises a federal question is inadequate to confer federal jurisdiction." Wash. Consulting Grp., Inc. v. Raytheon Technical Servs. Co., LLC, 760 F. Supp. 2d 94, 100 (D. D.C. 2011) (internal quotations and citations omitted). As a result, under the well-pleaded complaint rule, "the plaintiff is the master of his complaint and may avoid federal jurisdiction by relying exclusively on state law." Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009) (quotations and citation omitted).

There are two ways in which a claim can "arise under" federal law. "Most directly, a case arises under federal law when federal law creates the cause of action asserted." Gunn v. Minton, --- U.S. ---, 133 S. Ct. 1059, 1064 (2013). Such claims "account[] for the vast bulk of suits that arise under federal law." Id. In a much narrower category are state law claims that "implicate significant federal issues." Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 312 (2005); see also Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 699 (2006) (explaining that such claims are in a "special and small category" of federal "arising under" jurisdiction). Claims in this category fall within a limited exception to the well-pleaded complaint rule, which is grounded in "the commonsense notion that a federal court ought to be able to hear claims recognized under state law that nonetheless turn on substantial questions of federal law, and thus justify resort to the experience, solicitude, and hope of uniformity that a federal forum offers on federal issues." Id. To fall within this so-called "substantial federal question" exception, a state law claim must present a federal issue which is: "(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress." Gunn, 133 S. Ct. at 1064 (citing Grable, 545 U.S. at 314).

At issue in the instant motion is whether Plaintiff's state law claims raise an issue of federal law that is "substantial" enough to warrant the exercise of federal question jurisdiction. As the party that removed the case from state court, CHPRC bears the burden of demonstrating that the exercise of federal question jurisdiction is proper. Hunter, 582 F.3d at 1042. There is a "strong presumption" against removal. Id. Any doubts about the propriety of the removal must be resolved in favor of remand. Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1244 (9th Cir. 2009).

A. Substantial Federal Question Jurisdiction

CHPRC asserts that the Shared Resource Agreement, as a subcontract let under a prime contract with the federal government, is governed by federal law. ECF No. 1 at 4. Citing to American Pipe & Steel Corp. v. Firestone Tire & Rubber Co., 292 F.2d 640 (9th Cir. 1961) and New SD, Inc. v. Rockwell Int'l Corp., 79 F.3d 953 (9th Cir. 1996), CHPRC argues that the federal government has a strong interest in having disputes relating to such contracts adjudicated uniformly in federal court. This interest, CHPRC contends, warrants the exercise of "substantial federal question" jurisdiction over BSI's claims. ECF No. 10 at 8-10.

At first glance, American Pipe and New SD appear to support CHPRC's assertion that this case presents a substantial federal question. In American Pipe, a diversity case, the Ninth Circuit chose to apply federal law rather than California law to claims arising from an alleged breach of a subcontract for the manufacture of missile containers for the federal government. 292 F.2d at 644. In reaching this decision, the court noted that the plaintiff's requested remedy—an "equitable adjustment" in the subcontract price—would result in increased national security costs to the federal government. Id. In light of Congress's expressed desire to reduce national security costs, the court reasoned, the federal government had a substantial interest in having such cases adjudicated "uniform[ly] throughout the country." Id. at 643. Thus, the court concluded that "the construction of contracts, let under prime contracts connected with the national security, should be regulated by a uniform federal law." Id.

In New SD, the Ninth Circuit was asked to decide whether the federal government's interest in uniform adjudication of government contract disputes between private parties could support the exercise of federal question jurisdiction over state law breach of contract claims. As in American Pipe, the plaintiff's claim was for breach of a subcontract let under a prime government contract which implicated national security. New SD, 79 F.3d at 955. After reviewing its prior decision in American Pipe, the court concluded that the case could not be "meaningfully distinguish[ed]." Id. Thus, the court held that federal question jurisdiction had been properly established:

[O]n government contract matters having to do with national security, state law is totally displaced by federal common law. Where the federal interest requires that "the rule must be uniform throughout the country," as we said was the case in American Pipe, then the entire body of state law applicable to the area conflicts and is replaced by federal rules." [Boyle v. United Techs. Corp., 487 U.S. 500, 508
(1988)]. When federal law applies, as American Pipe holds that it does to this type of contract, it follows that the question arises under federal law, and federal question jurisdiction exists.

Having carefully reviewed these and other applicable authorities, however, the Court concludes that American Pipe and New SD do not support the exercise of federal question jurisdiction. As an initial matter, both cases were decided before the Supreme Court's decisions in Grable and Empire, which clarified the proper scope of the substantial federal question doctrine. In Grable, the Court granted certiorari to review its jurisdiction over a state law quiet title action which required an interpretation of a federal tax statute. The Court began by emphasizing that the mere presence of a federal issue is insufficient "to open the 'arising under' door." Grable, 545 U.S. at 313. To warrant the exercise of federal question jurisdiction, the Court explained, the federal issue must be "a substantial one, indicating a serious federal interest in claiming the advantages thought to be inherent in a federal forum." Id. (emphasis added).

The Court further emphasized that, before exercising jurisdiction over a state law claim on substantial federal question grounds, a district court must consider the potential for disruption of the balance of power between state and federal government:

Because arising-under jurisdiction to hear a state-law claim always raises the possibility of upsetting the state-federal line drawn (or at
least assumed) by Congress, the presence of a disputed federal issue and the ostensible importance of a federal forum are never necessarily dispositive; there must always be an assessment of any disruptive portent in exercising federal jurisdiction.

Turning to the merits of the case, the Court found that federal jurisdiction had been properly established. In reaching this conclusion, the Court noted that the state claim hinged on whether the IRS had properly served the plaintiff with notice of a tax sale under federal law. Id. at 314-15. This question, the Court reasoned, implicated an important federal issue that could be adjudicated in federal court without upsetting the balance of state and federal power:

The meaning of the federal tax provision is an important issue of federal law that sensibly belongs in a federal court. The Government has a strong interest in the prompt and certain collection of delinquent taxes, and the ability of the IRS to satisfy its claims from the property of delinquents requires clear terms of notice to allow buyers like [the defendant] to satisfy themselves that the Service has touched the bases necessary for good title. The Government thus has a direct interest in the availability of a federal forum to vindicate its own administrative action, and buyers (as well as tax delinquents) may find it valuable to come before judges used to federal tax matters. Finally, because it will be the rare state title case that raises a contested matter of federal
law, federal jurisdiction to resolve genuine disagreement over federal tax title provisions will portend only a microscopic effect on the federal-state division of labor.

Empire was decided one year after Grable. In that case, a health insurance carrier for federal employees filed suit in federal court, seeking reimbursement of health insurance benefits paid on behalf of its insured after the insured's estate negotiated a substantial settlement in a state-law tort action. The insurer, which was under contract with the federal government, argued that federal question jurisdiction existed under Grable because federal law provided a necessary element of its claim for relief. Empire, 547 U.S. at 699. The Court rejected this argument, explaining that the case was "poles apart from Grable." Id. at 700. First, the Court noted that Grable, unlike the case before it, "centered on the action of a federal agency (IRS) and its compatibility with a federal statute." Id. Second, the Court explained that the "substantial" federal question at issue in Grable "was both dispositive of the case and would be controlling in numerous other cases"—a description which did not apply to the "bottom-line practical issue" of whether the insurer was entitled to a share of the settlement proceeds. Id. Finally, the Court reasoned that while Grable presented "a nearly pure issue of law," the case before it was "fact-bound and situation-specific." Id. at 700-01 (citation omitted). Thus, the Court concluded that the insurer's claim for reimbursement could not be "squeezed into the slim category Grable exemplifies." Id. at 701.

As illustrated above, American Pipe and New SD rest on a single premise: that private disputes relating to a government contract should be uniformly adjudicated in federal court when "the cost of national security stands to be increased in the process." New SD, 79 F.3d at 955 (citing American Pipe, 292 F.2d at 644). Under Grable and Empire, this premise is no longer sound. For one thing, neither American Pipe nor New SD addresses the potential for disruption of the balance of power between state and federal government. This is a crucial component of the substantial federal question analysis; as the Court explained in Grable, "the presence of a disputed federal issue and the ostensible importance of a federal forum are never necessarily dispositive; there must always be an assessment of any disruptive portent in exercising federal jurisdiction." 545 U.S. at 314 (emphasis added). As at least one other court has recognized, the reasoning in New SD could support the exercise of federal jurisdiction in virtually any case involving a government contract. See Woodward Governor Co. v. Curtiss Wright Flight Sys, Inc., 164 F.3d 123, 128 (2d Cir. 1999) ("[T]he reasoning behind New SD is, in our opinion, flawed. While there is no question that contracts relating directly to government liability for procurement decisions are governed by federal common law, the issue gets muddier as the contract gets further removed from the government.") (emphasis in original). Because the reasoning in American Pipe and New SD cannot accommodate a case-by-case balancing of competing state and federal interests, there is reason to believe that the Supreme Court would reject it.

Furthermore, under Empire, the mere potential for increased costs to the federal government does not automatically warrant uniform adjudication of private contract disputes. Although Empire did not specifically address the issue, the Court's refusal to allow a government contractor to recoup its expenses in federal court is instructive. Given that a federal contractor's attempt to recover funds paid pursuant to a federal contract does not trigger the federal government's interest in uniform adjudication, the need for uniformity can hardly support the exercise of federal question jurisdiction over disputes in which the government's financial interest is more attenuated.

In any event, assuming for the sake of argument that American Pipe and New SD remain good law, the cases are distinguishable from the instant case. Unlike the prime contracts in those cases, the contract between CHPRC and the Department of Energy does not implicate national security interests. Thus, the government does not have the same "substantial" interest in uniform adjudication that existed in American Pipe and New SD. See Vetro, Inc. v. Active Plumbing and Heating, Inc., 403 F. Supp. 2d 1033, 1038 (D. Colo. 2005) (distinguishing New SD on the ground that a government contract for renovation of a building at the Air Force Academy did not concern matters of national security). As BSI correctly notes, accepting CHPRC's theory of removal in this case would effectively open the door to federal question jurisdiction in any breach of contract case involving a subcontract let under a prime government contract. Such a result would be directly at odds with the Supreme Court's directives in Grable and Empire that the substantial federal question doctrine be construed narrowly. Accordingly, the Court concludes that CHPRC has failed to carry its burden of demonstrating that this case was properly removed. The case will be remanded to the Benton County Superior Court for all further proceedings.

B. Attorney's Fees and Costs

BSI has requested an award of attorney's fees and costs pursuant to 28 U.S.C. § 1447(c). Section 1447(c) provides, in relevant part, that "[a]n order remanding [a] case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." 28 U.S.C. § 1447(c). "Absent unusual circumstances, courts may award attorney's fees under § 1447(c) only where the removing party lacked an objectively reasonable basis for seeking removal. Conversely, where an objectively reasonable basis exists, fees should be denied." Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). The Court finds that CHPRC had an objectively reasonable basis for removing this case under the Ninth Circuit's decisions in American Pipe and New SD. Accordingly, BSI's request for attorney's fees and costs is denied.

IT IS HEREBY ORDERED:

Plaintiff's Motion to Remand (ECF No. 6) is GRANTED. This case is hereby REMANDED to the Benton County Superior Court for all further proceedings.

The District Court Executive is hereby directed to enter this Order, furnish copies to counsel, mail a certified copy to the Clerk of the Benton County Superior Court, and CLOSE the file.

THOMAS O. RICE

United States District Judge