No. C 02-01084 WHA
July 22, 2002
Pursuant to the Court's order of July 22, 2002. dismissing this action for lack of subject-matter jurisdiction, judgment of dismissal is hereby ENTERED. The Clerk shall CLOSE the file.
ORDERED DISMISSING SECOND AMENDED COMPLAINT FOR LACK OF SUBJECT-MATTER JURISDICTION
This order addresses whether federal subject-matter jurisdiction exists under the Telecommunication Act of 1996 ("1996 Act" or "Act"), Pub.L. No. 104-104, § 207, 110 Stat. 56, to determine the validity of a homeowners-association restriction prohibiting condominium owners from installing certain satellite dishes. Although the statute confers no such express jurisdiction. Section 207 of the statute authorizes the Federal Communications Commission to promulgate regulations "to prohibit restrictions that impair a viewer's ability to receive video programming services through devices designed for over-the-air reception of television broadcast signals. multichannel multipoint distribution service, or direct broadcast satellite service."
Pursuant to the Act's directive, the FCC promulgated a regulation governing such restrictions and stating in part:
Parties may petition the Commission for a declaratory ruling under § 1.2 of this chapter, or a court of competent jurisdiction, to determine whether a particular restriction is permissible or prohibited under this section.47 C.F.R. § 1.4000(e)(2002).
This order holds that only Congress can confer subject-matter jurisdiction. A federal agency does not have the authority to enlarge subject-matter jurisdiction. Moreover, the FCC regulation merely permits a party to petition the FCC itself, or a "court of competent jurisdiction" a phrase that begs the question of whether or not federal courts have subject-matter jurisdiction in the first place. Accordingly, plaintiffs' second amended complaint is dismissed for lack of subject-matter jurisdiction, for the reasons now set forth in detail.
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Plaintiffs Opera Plaza Homeowners and Master Owners Associations are California nonprofit corporations charged with enforcing the covenants, conditions and restrictions of the condominium complex where defendants reside. Plaintiffs seek a judicial declaration blessing their prohibition on homeowners installing satellite dishes in general common areas. Declaratory relief is sought pursuant to Section 1.4000(e). Plaintiffs also seek injunctive relief directing defendants to remove a satellite dish they have erected. Defendants, on the other hand, contend that the satellite policy is "illegal" and "unenforceable" pursuant to Section 1.4000(a). At a case-management conference held on June 6, 2002. oral argument was heard regarding whether this case should be adjudicated in federal court. At that conference, the Court requested that both parties submit memoranda on whether subject-matter jurisdiction exists in this action. Each party subsequently submitted memoranda. Both sides urge that jurisdiction is proper. This Court disagrees. Although both parties prefer to be in federal court, they may not confer subject-matter jurisdiction by stipulation. California v. LaRue, 409 U.S. 109, 112 (1972).
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1. No Cause of Action.
Federal district courts have jurisdiction over civil actions "arising under" federal law. 28 U.S.C. § 1331 (1993). The 1996 Act, however, did not authorize the FCC to expand federal subject-matter jurisdiction when promulgating its regulations. It simply stated that the FCC was to promulgate regulations "to prohibit restrictions that impair a viewer's ability to receive video programming services through devices designed for over-the-air reception of television broadcast signals. multichannel multipoint distribution service, or direct broadcast satellite service." Pub.L. No. 104-104, § 207, 110 Stat. 56 (1996). The statute evidences no intent to create a private cause of action. Ibid. The ensuing regulation at issue in this case, 47 C.F.R. l.4000(e), cannot by itself, therefore, create jurisdiction. See First Pac. Bancorp, Inc. v. Helfer, 224 F.3d 1117, 1121 (9th Cir. 2000).
The Supreme Court requires courts to apply a four-factor test when determining whether a statute which has not expressly created a private right of action may nevertheless have created an implied right of action. Cort Ash, 422 U.S. 66, 78 (1975). The Cort test requires consideration of the following questions:
First, is the plaintiff one of the class for whose especial benefit the statute was enacted — that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?
Ibid. (internal citations and quotations omitted).
Supreme Court decisions subsequent to Cort have indicated that the inquiry to be afforded the A greatest weight is whether Congress intended to provide the plaintiff with a private right of action. See California v. Sierra Club, 451 U.S. 287, 293 (1981); see also Burgert v. Lokelani Bernice Pauahi Bishop Trust, 200 F.3d 661, 664 (9th Cir. 2000). The Ninth Circuit, however, "still finds the four-factor test helpful in determining whether a statute provides a private right of action." First Pac. Bancorp, 224 F.3d at 1122.
A. Is Plaintiff a Member of the Class for Whose Benefit the Statute was Enacted?
In the Ninth Circuit. the first factor of the Cort test is satisfied when the statute contains an explicit reference to the individuals for whose benefit the statute was enacted. Oliver v. Sealaska Corp., 192 F.3d 1220, 1224 (9th Cir. 1999). In Oliver, the Cort test was applied to the Alaska Native Claims Settlement Act to determine whether that Act had created a private right of action for shareholders of corporations created under the Settlement Act. Because the statute explicitly' required revenue distribution to the shareholders, the shareholders were deemed to be individuals for whose benefit the statute was enacted.
In relevant part, the Telecommunication Act of 1996 Act required the FCC to promulgate regulations "to prohibit restrictions that impair a viewer "s ability to receive video programming services through devices designed for over-the-air reception of television broadcast signals. multichannel multipoint distribution service, or direct broadcast satellite service." Pub.L. No. 104-104, § 207 (emphasis added). Because the Act mentions "viewers," defendants in the instant case may be members of the class for whom the statute was created. The Cort factors, however. are concerned with implied remedies available to plaintiffs, not defendants. See 422 U.S. at 28. If anything, the effect of the broad language of the 1996 Act is to limit, not increase, plaintiffs' ability to enforce its satellite policy. Such a limitation on plaintiffs' authority cannot be read as a "benefit" of the 1996 Act. See ibid. Because plaintiffs are not a member of the class for whose benefit the statute was created, they cannot rely upon the first Cort factor to argue that the FCC had the authority to expand subject-matter jurisdiction in 47 C.F.R. § 1.4000(e).
B. Is There any Indication of Congressional Intent to Create or Deny a Remedy? "[I]mplying a private right of action on the basis of congressional silence is a hazardous enterprise, at best." Touche Ross Co. v. Redington, 442 U.S. 560, 571 (1979) (citation omitted). In Redington, the "plain language" of the statute "weigh[ed] against implication of a private remedy." Id. at 571. Accordingly, the Supreme Court declined to imply a private right of action.
Furthermore, the burden of proving that an implied right of action can be derived from congressional intent rests on the party who is pursuing that alleged right of action. Suter v. Artist M., 503 U.S. 347, 363-64 (1992). In Suter, the respondents had petitioned for declaratory relief under the federal Adoption Assistance and Child Welfare Act against the Illinois Department of Children and Family Services. Among the factors the Supreme Court considered when holding that the Child Welfare Act did not contain an implied private right of action was the fact that respondents had failed to demonstrate that Congress intended to create a private right of action in the statute. Id. at 363.
Although the legislative history of Section 207 of the Telecommunication Act supports a conclusion that Congress intended the regulations promulgated thereunder to broadly preempt legislative restrictions on television reception. it is silent with regard to a private right of action. The House Committee Report on Section 207 (then section 308) stated:
The Committee intends this section to preempt enforcement of State or local statutes and regulations, or State or local legal requirements, or restrictive covenants or encumbrances that prevent the use of antennae designed for off-the-air reception of television broadcast signals or of satellite receivers designed for receipt of [Direct Broadcast Satellite] services. Existing regulations. including but not limited to, zoning laws, ordinances, restrictive covenants or homeowners' association rules, shall be unenforceable to the extent contrary to this section.
H.R. Rep. No. 104-204 at 123-24 (1995).
In the case at issue. not only does the plain language of the 1996 Act weigh against the creation of a private right of action, the Act's legislative intent is silent on the matter. The Supreme Court has signaled its reluctance to generate implied rights of action when Congress has been silent. See Redington, 442 U.S. at 571. Moreover. plaintiffs in the instant case have offered no evidence, after ample opportunity in oral and written argument before this Court. that Congress intended the FCC regulations to create a private right of action over which federal district courts would have jurisdiction. See Suter, 503 U.S. at 363. Plaintiffs have failed to meet their burden of proof. Under Redington, therefore, this Court is not in a position to imply a right of action in the 1996 Act, and plaintiffs' argument must fail the second Cort factor. See 442 U.S. at 571.
C. Is a Private Right of Action Consistent with the Purposes of the Act?
"Courts properly defer to remedies put in place by Congress or by administrative agencies. First Pac. Bankcorp, 224 F.3d at 1126. With regard to jurisdictional issues involved the instant case, the FCC promulgated 47 C.F.R. § 1.4000 in response to the Act's directive to prohibit restrictions that impair a viewer's ability to receive television reception. The FCC created a private right of action pursuant to this directive that allowed "parties" to petition the FCC or a "court of competent jurisdiction" for declaratory relief. 47 C.F.R. § 1.4000(e). The crux of the matter, however, is precisely whether a federal district court is a court of "competent jurisdiction." The fourth Cort factor, noted immediately below, weighs against the conclusion that Congress intended federal district courts to resolve issues, such as the breach-of-contract issue before this Court, that are traditionally adjudicated in state courts.
D. Is this cause of action traditionally relegated to state law?
The essential issue to be resolved in the instant matter is whether defendants breached the satellite policy. Absent diversity or supplemental jurisdiction, breach-of-contract disputes are traditionally adjudicated before state courts — courts of general jurisdiction. Plaintiffs have offered no evidence that Congress intended federal courts to adjudicate state-law breach-of-contract cases when it directed the FCC to promulgate regulations under Section 207. Such an intent is not evident in the plain language of the statute, nor can it be evinced from the legislative history of the statute. See Pub.L. No. 104-104, § 207; H.R. Rep. No. 104-204 at 123-24 (1995). As a result, plaintiffs have failed to satisfy this and all Cort factors. This Court, therefore, cannot exercise jurisdiction over the plaintiffs claims, since they do not arise under federal law. See 28 U.S.C. § 1331.
2. Plaintiffs' State Claims Do Not Embody a Substantial Federal Question.
It is nevertheless possible that plaintiffs' state claims confer jurisdiction by embodying a "substantial federal question." To determine whether a federal element in a state-law claim is sufficiently substantial, courts must evaluate the nature of the federal interest at stake. Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 814 (1986). This case, however, resembles nothing more than a garden-variety state-law breach-of-contract case. The federal statute is relevant to these claims only by means of the potential defense of "preemption."
Under the "well-pleaded complaint" rule, a substantial federal question cannot be presented "in the complainant's statement of what the defense of defendants would be." Louisville Nashville Ry. v. Mottley, 211 U.S. 149, 154(1908). In other words, plaintiffs are not entitled to anticipate a federal defense to their state claims for purposes of generating subject-matter jurisdiction. By seeking declaratory relief, plaintiffs have essentially predicted defendants' defense to plaintiffs' potential state-law claims. Such an approach violates the spirit of Mottley. 211 U.S. at 152, 154.
Plaintiffs disagree, and assert that their claim is well-pled. They would distinguish Skelly Oil Co. v. Phillips Petroleum Co. 339 U.S. 667, 672-73. Phillips Petroleum, however, is particularly instructive to the instant case. as it warns against the invocation of federal declaratory relief to resolve disputes that are essentially matters of state law (i.e., the concept of "artful pleading"):
It would turn into the federal courts a vast current of litigation indubitably arising under State law, in the sense that the right to be vindicated was State-created, if a suit for a declaration of rights could be brought into the federal courts merely because an anticipated defense derived from federal law.
Id at 673.
Like Phillips Petroleum, plaintiffs in the instant case should have sought remedial relief by requesting specific performance of their contract in state court. Accordingly, plaintiffs' state claims do not embody a significant federal question, and subject-matter jurisdiction cannot attach in the instant case.
Plaintiffs also argue that 47 C.F.R. l.4000(a)(4) "preempts any state law cause of action" by "making this statutory remedy the exclusive remedy available to either party" (id. at 4-5) (emphasis added). Caterpillar Inc. v. Williams identified this "complete preemption doctrine" as the corollary to the well-pleaded complaint rule. 482 U.S. 386, 394.
Plaintiffs cite 47 C.F.R. § 1.4000(a)(4), which reads: "No civil, criminal, administrative, or other legal action of any kind shall be taken to enforce any restriction or regulation prohibited by this section except pursuant to paragraph (d) or (e)" (ibid.). 47 C.F.R. § 1.4000(d) permits local governments or associations to petition the FCC for a waiver if they can demonstrate "local concerns of a highly specified nature." The petition for declaratory judgment permitted in Section 1.4000(e) is central to the federal-jurisdiction question at issue in this memo.
Just as petitioner's complete-preemption argument failed in Caterpillar, plaintiffs' preemption argument in the instant case must also fail. Id at 394. In Caterpillar, the Supreme Court held that the presence of a federal question in a defensive argument — even when that argument preempts a state-law claim — "does not overcome the paramount policies embodied in the well-pleaded complaint rule — that the plaintiff is the master of the complaint, that a federal question must appear on the face of the complaint. . . ." Id at 398-99.
In the instant case, plaintiffs' posture in seeking declaratory relief is essentially "defensive," since it is. in effect, an effort to ward off a defense to plaintiffs' potential state-law breach-of-contract claim. See id. at 398; see also Mottley, 211 U.S. at 152, 154. Through such "artful pleading," plaintiffs are attempting to keep their state-law claims before this federal court, a practice discouraged by the Ninth Circuit. See United Nat'l Ins. Co. v. RD Latex Corp., 242 F.3d 1102. 1115 (9th Cir. 2001) ("Forum shopping through the filing of declaratory judgment actions is no more appropriate when it favors state over federal jurisdiction than it is when it favors the reverse."). By virtue of having adopting a defensive posture, plaintiffs' state-law claims are not preempted by 47 C.F.R. § 1.4000(e).
Plaintiffs further contend that federal subject-matter jurisdiction exists in this case because either party could have brought a federal claim under 47 C.F.R. § 1.4000(e) (Br. 5). and that under Franchise Tax Bd. of California v. Constr. Laborers Vacation Trust for Southern California Franchise Tax Bd., 463 U.S. 1, 19(1983). the possibility of defendants' suit creates federal jurisdiction. As discussed above, however, this Court lacks jurisdiction to hear a petition from any party in this case because the FCC lacked the authority to confer such jurisdiction.
3. State Courts Adjudicate Analogous Cases.
Defendants in the instant case admit that plaintiffs' declaratory-judgment motion is not a "necessary element" of its state-law claims (Br. 3). Defendants state that their "defense to this action, specifically, that the Association's [sic] regulations are preempted by the Telecommunications Act, is by itself not sufficient to raise a federal question and confer jurisdiction [under the "well-pleaded complaint" rule]" (ibid.). Defendants also admit that "the causes of action in this case — breach of contract, request for permanent injunction, and declaratory relief are created by state law" (ibid.). Instead, defendants' argument is that federal-court adjudication of the instant case is necessitated by unspecified "substantial questions raised regarding the proper interpretation of the Telecommunications Act" and a "powerful federal interest in seeing that the federal statute is given uniform interpretations" (id at 3-4).
What defendants have overlooked, however, is that in analogous cases, state courts have been the entities called upon to interpret 47 C.F.R. § 1.4000 in the course of adjudicating alleged breaches of homeowners-association covenants which restricted the installation of satellite receivers. See, e.g., Holliday v. Crooked Creek Vill. Homeowners Ass'n, Inc., 759 N.E.2d 1088, 1093-95 (Ind.Ct.App. 2001) (affirming that restrictions on homeowners' — whom had been granted a favorable declaratory judgment by the FCC — installation of multiple satellite dishes did not violate 47 C.F.R. § 1.4000); Daly v. River Oaks Place Council of Homeowners, 59 S.W.3d 416, 419-420 (Tex.Ct.App. 2001) (affirming that homeowners association which had sued homeowner for breach of CCRs did not violate 47 C.F.R. l.4000(a)(1) when restricting the installation of a satellite dish in a common area); Belle Terre Lakes Home Owners Ass'n v. McGovern, 805 So.2d 1286, 1291 (La.Ct.App. 2002) (holding, contrary to the defendant's assertion, that homeowners association's covenants did not impair the installation or use of a satellite dish). Like Holliday and other breach-of-covenant decisions that involve an analysis of 47 C.F.R. § 1.4000 when that regulation has been invoked as a defense, the instant case should have its primary state-law claims adjudicated before a state court. Cf. Town of Greenhorn v. Baker County., Oregon, 596 F.2d 349, 353 (9th Cir. 1979) (holding that a federal district court lacked jurisdiction to issue a declaratory judgment and that the case "turn[ed] primarily upon issues of state law in which federal courts have no particular expertise. There is no reason to believe that state courts will be hostile to the claims asserted. The reasons which support federal jurisdiction are simply not present").
These cases also serve to belie plaintiffs' "complete preemption" argument, given that these several jurisdictions have evaluated defenses that restrictive satellite covenants violated 47 C.F.R. § 1.4000 while adjudicating legitimate state-law claims.
Furthermore, in Merrell Dow, the Supreme Court reminded the petitioner (who also expressed concerns that "a powerful federal interest" existed "in seeing that the federal statute [was] given uniform interpretations") that:
Petitioner's concern about the uniformity of interpretation, moreover is considerably mitigated by the fact that, even if there is no original district court jurisdiction for these kinds of action, this Court retains power to review the decision of a federal issue in a state cause of action.478 U.S. at 815-16.
The same principle applies in the instant case. In the future, under plaintiffs' properly-pled state- law complaint, if either party is dissatisfied with the state court's interpretation of 47 C.F.R. § 1.4000 as it relates to a defense against a breach-of-covenant claim, the Merrell Dow recourse will still be available. See 478 U.S. at 815-816.
The parties were afforded a full opportunity to submit briefs regarding federal subject-matter jurisdiction in this case. Having considered those briefs, the Court believes that oral argument on the matter would not be of further assistance. Plaintiffs' second amended complaint, therefore, is DISMISSED for want of subject-matter jurisdiction. The Clerk shall CLOSE the file and enter a judgment of dismissal.
IT IS SO ORDERED.