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Reimers v. Farm Credit Services

United States District Court, D. North Dakota, Southeastern Division
Jun 22, 2001
Case Number: A3-00-168, Docket Number: 27 (D.N.D. Jun. 22, 2001)


holding that the FCIA does not completely preempt state law

Summary of this case from Alliance Insurance Company v. Wilson


Case Number: A3-00-168, Docket Number: 27

June 22, 2001


Before the Court is defendant Great American Insurance Companies (Great American) motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. #12). Plaintiffs resist dismissal. (Doc. #21). Defendant Farm Credit Services AgCountry, ACA, (AgCountry) has not joined Great American's motion and takes no position with regard to dismissal. The motion came on for hearing on June 11, 2001; at the close of the hearing, the matter was taken under advisement. Upon consideration of the matter, along with a review of the entire file and in light of the parties arguments, the Court determines that this case was improperly removed to federal court and hereby REMANDS it to District Court, for Stutsman County, State of North Dakota.

I. Background

This case involves five farmers which had federally reinsured multi-peril crop insurance (MPCI) policies issued by Great American, an Ohio corporation. The farmers obtained the MPCI policies through AgCountry a federally chartered corporation headquarter in Fargo, North Dakota. During the crop year of 1999, the farmers made claims for crop losses based on the MPCI policies. Some of the claims were paid by Great American and some were not. The farmers appealed the denials to the Risk Management Services Agency (RMA). RMA supported Great American's decisions.

In November 2000, plaintiffs filed this action in Stutsman County District Court for the State of North Dakota. The complaint set forth five claims: breach of contract; professional negligence; misrepresentation and fraud; a statutory violation of the North Dakota Insurance Code, ch. 26.1-04 of the N.D. Century Code; and a statutory violation of the North Dakota Consumer Fraud Code, ch. 51-15 of the N.D. Century Code. Defendants jointly removed the case to this Court ostensibly on the basis of federal question jurisdiction ( 28 U.S.C. § 1331) and the Federal Crop Insurance Act (FCIA), 7 U.S.C. § 1501, et. seq. Plaintiffs did not challenge the removal. Nevertheless, the Court has a sua sponte duty to examine whether jurisdiction is appropriate in federal court. See Magee v. Exxon Corp., 135 F.3d 599, 601 (8th Cir. 1998) (explaining that subject-matter jurisdiction cannot be waived).

II. Analysis

A defendant may remove a state court case to federal court only if the claim originally could have been filed in federal court. See 28 U.S.C. § 1441(a), (b); Gore v. Trans World Airlines, 210 F.3d 944, 948 (8th Cir. 2000). Where, as here, there is no diversity jurisdiction, federal question jurisdiction (or some other basis for federal jurisdiction) must exist for removal to be proper. See Trans World, 210 F.3d at 948. Whether federal question jurisdiction exists is determined by the well-pleaded complaint rule which provides that a federal question must be presented on the face of the complaint to invoke federal court jurisdiction. See id. A defendant is not permitted to inject a federal question into an otherwise state law claim and thereby transform the action into one arising under federal law. Id. Put differently, a federal defense is not a basis for removal. Id. This is so because the plaintiff is the master of the complaint and allowing removal on the basis of a federal defense would deprive the plaintiff of that right. Id.

There are exceptions, however, to the well-pleaded complaint rule. The doctrine of complete preemption is one such exception. Id. at 949. Complete preemption converts an ordinary state-law claim into a federal claim where the pre-emptive force of a statute is so extraordinary that it converts an ordinary state common-law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule. Id. (internal quotations omitted). Thus, the doctrine of complete preemption is a jurisdictional conferring doctrine. See Gaming Corp. of America v. Dorsey Whitney, 88 F.3d 536, 543 (8th Cir. 1996).

In that respect, complete preemption is far different from preemption used only as a defense to a lawsuit. See id. Defensive preemption may prevent a claim from proceeding, in either state or federal court, but it does not create federal jurisdiction where it is otherwise lacking.FootnoteSee id. In contrast, as the Supreme Court has explained, once an area of state law has been completely pre-empted, any claim purportedly based on that pre-empted state law is considered, from its inception, a federal claim, and therefore arises under federal law. See Magee, 135 F.3d at 601 (quoting Caterpillar Inc. v. Williams, 482 U.S. 386, 393 (1987)). Whether federal law completely preempts a state law cause of action is a question of congressional intent: Congress must have clearly manifested an intent to make a cause of action pleaded under state law removable to federal court. Id. at 601-02.

Courts are reluctant to find this extraordinary pre-emptive power absent clear direction from Congress. See Gaming Corp. of America, 88 F.3d at 543; Magee, 135 F.3d at 602. As a testament to the rare and extraordinary nature of this doctrine, the Supreme Court has recognized complete preemption in only three areas: actions under § 502(a) the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132(a); actions under § 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 185; and in the area of Native American possessory interest in lands obtained by treaty. See Gaming Corp. of America, 88 F.3d at 543. The Eighth Circuit has extended the doctrine to only a few other areas of special federal interest including the Federal Railroad Safety Act, 45 U.S.C. § 434, the Railway Labor Act, 45 U.S.C. § 151, et. seq., and the Indian Gaming Regulatory Act, 25 U.S.C. § 2701, et. seq. Id.

In this case, the parties agree and the Court concurs that the only arguable basis for federal jurisdiction is the complete preemption doctrine. FootnoteDiversity jurisdiction is lacking and no federal cause of action is stated on the face of the complaint. Plaintiffs simply claim five state law claims including breach of contract, professional negligence, misrepresentation and fraud, and two statutory violations of North Dakota Century Code. Thus, the question is whether the FCIA so completely preempts state law, that the plaintiffs state law claims against the defendants are considered to arise from federal law. If complete preemption does not exist, the case must be remanded for lack of jurisdiction. See Magee, 135 F.3d at 602.

This Court is not the first to face this precise issue. While the Eighth Circuit has not spoken, several other district courts and one circuit court have. The majority holds that the FCIA does not completely preempt state law causes of action. See Holman v. Laulo-Rowe Agency, 994 F.2d 666, 669 (9th Cir. 1993); Halfmann v. USAG Ins. Servs., Inc., 118 F. Supp.2d 714 (N.D.Tex. 2000); Bullard v. Southwest Crop Ins. Agency, Inc., 984 F. Supp. 531 (E.D.Tex. 1997); Horn v. Rural Cmty. Ins. Servs., 903 F. Supp. 1502 (M.D.Ala. 1995); Hyzer v. Cigna Prop. Cas. Ins. Co., 884 F. Supp. 1146 (E.D.Mich. 1995); O'Neal v. Cigna Prop. Cas. Ins. Co., 878 F. Supp. 848 (D.S.C. 1995).

In fact, only two district courts have held in favor of complete preemption under the FCIA. See Brown v. Crop Hail Mgmt., Inc., 813 F. Supp. 519 (S.D.Tex. 1993); Owen v. Crop Hail Mgmt., 841 F. Supp. 297 (W.D.Mo. 1994). These cases have been roundly criticized. See Bullard, 984 F. Supp. at 536 (declining to follow Brown); Halfmann, 118 F. Supp.2d at 717 (disagreeing with Brown and siding with Bullard); Horn, 903 F. Supp. at 1505 (Brown interpretation is contrary to plain language of statute); Hyzer, 884 F. Supp. at 1150 (disregarding the Brown and Owen cases and following instead the Ninth Circuit's opinion).

In addition, several other courts have determined that the FCIA and its regulations do not preempt state law causes of action under the defense of federal preemption. See Meyer v. Conlon, 162 F.3d 1264, 1268 (10th Cir. 1998) (federal law does not preempt state law causes of action consistent with the FCIA and FCIC regulations); Williams Farms of Homestead v. Rain and Hail Ins. Servs., Inc., 121 F.3d 630, (11th Cir. 1997) (Congress did not draft the FCIA to expressly preempt state law claims, nor does the wording of the statute or its legislative history evince an intent to preempt state law claims); Nobles v. Rural Cmty. Ins. Servs., 122 F. Supp.2d 1290, 1294-95 (M.D.Ala. 2000) (the Act in no way prevents farmers from suing their private insurance company when that insurance company denies their claim). These cases are persuasive since it follows that if the FCIA does not rise to the level of defensive preemption, then it likewise does not rise to the extraordinary level of complete preemption.

Having considered both positions, the Court is persuaded that the majority is correct: the FCIA does not have the extraordinary preemptive force necessary for the application of the doctrine of complete preemption. FootnoteSee, e.g., Holman, 994 F.2d at 669. First, the text and jurisdictional framework of the statute, do not indicate such an extraordinary preemptive force. The FCIA contains no section or language expressly limiting the right to bring state causes of action against private insurers in state court. In contrast, the FCIA grants exclusive federal jurisdiction over actions against the FCIC. Section 1506(d) provides, in part:

The Corporation [FCIC] subject to the [statute of limitations] may sue and be sued in its corporate name. . . . The district courts of the United States . . . shall have exclusive original jurisdiction, without regard to the amount in controversy, of all suits brought by or against the Corporation. The Corporation may intervene in any court in any suit, action, or proceeding in which it has an interest.

7 U.S.C. § 1506(d) (bracketed language added). Section 1506(d) provides for the conditions under which the FCIC, itself, can be sued and by its express terms does not apply to actions where the corporation is not a party. Holman, 994 F.2d at 669. See also Williams Farms, 121 F.3d at 633-34 (explaining that the text of the FCIA neither creates a federal cause of action against a private insurance company nor expressly preempts state law claims against them). It can only be concluded from such a provision that Congress knew how to create exclusive federal jurisdiction yet chose not to do so with regard to private insurers.

This conclusion is strengthened by § 1508(j)(2) which provides for claims for losses and states that if a claim is denied, a suit may be brought against the FCIC or the Secretary. See 7 U.S.C. § 1508(j)(2)(A). The permissive language of this section demonstrates that Congress did not expressly preempt state law claims or create an exclusive federal remedy against the FCIC. See Williams Farms, 121 F.3d at 634. The legislative history supports this point. See id. A previous version of this section adopted by the Senate had included language that would have required any action on a denied claim to be brought only against the FCIC or Secretary. Id. In the final version, however, the mandatory shall only be brought language was scrapped for the permissive may be brought language. Id. The rejection of the mandatory language in the final version of this section is telling. It indicates that Congress did not intend to completely preempt state law causes of action against private insurance companies. See id.

Indeed, Great American appears to concede this point in its brief by noting that [e]ven though Congress did not expressly state an intent to completely preempt state law, apparently Congress did give FCIC the power to do so. Great American asserts that the FCIC has completely preempted state law causes of action through its regulations. It is clear that federal agencies have the power pursuant to the Supremacy Clause of the Constitution to preempt an area of law by promulgating regulations. See Symens v. Smithkline Beecham Corp., 152 F.3d 1050, 1053 (8th Cir. 1998) (citing City of New York v. F.C.C., 486 U.S. 57, 63-64 (1988) (explaining that Congress also may delegate the preemption decision to the appropriate agency). However, it is unclear whether an agency's federal preemption power extends to complete preemption. See Hyzer, 884 F. Supp. at 1152 (noting that it is quite another matter to conclude that an agency may also completely preempt an area, thereby allowing an agency to create federal court subject matter jurisdiction where none exists). The Court is inclined to believe that a federal agency may not create federal court subject matter jurisdiction. Nevertheless, the Court need not and does not resolve the issue because the FCIC regulations also do not rise to the level of complete preemption.

Section 1506(l) of Title 7, United States Code, provides the FCIC with the power to preempt state and local rules through its regulations. See Meyer, 162 F.3d at 1263 (noting that state law applies to FCIA contracts unless the contracts provide sate law does not apply or when state law is inconsistent with FCIC contracts). Pursuant to that grant of power, the FCIC has promulgated regulations to prescribe the procedures for federal preemption of State laws and regulations not consistent with the purpose, intent, or authority of the FCIA. See 7 C.F.R. § 400.351. FCIC has broadly interpreted its preemption power to allow it to preempt any state insurance rules or regulations regarding crop insurance that may apply to FCIC or to any insurance company with which FCIC has an agreement. See 55 F.R. 23066, 23067 (June 6, 1990). To be sure, the FCIC regulations do preempt and limit certain state and local government action and interference. See 7 C.F.R. § 400.352 (listing examples of actions that are specifically prohibited). See also State of Kansas ex rel. Todd v. United States, 995 F.2d 1505, 1512 (10th Cir. 1993) (holding that state regulations that interfere with the purpose of FCIA and its crop reinsurance contracts are preempted). Nevertheless, this type of preemption is merely a defense to a lawsuit; it is not a jurisdictional limitation. See Hurt v. Dow Chem. Co., 963 F.2d 1142, 1144-45 (8th Cir. 1992) (explaining that removal is not necessarily appropriate even if state-law authority is preempted). In short, the Court has extensively reviewed the regulations cited by Great American and nowhere in its review does the Court ascertain an intent to completely preempt state court causes of action. Complete preemption is a recognized term of art, see Meyer, 162 F.3d at 1268 n. 2, yet the regulations do not employ this term. Neither do the regulations refer to exclusive federal jurisdiction. In fact, the Court has not located, nor has Great American pointed to, any regulation setting out a general jurisdictional provision. Rather, at least two regulations elude to state court jurisdiction. First, § 400.352(b)(4) provides that nothing herein is intended to preclude any action on the part of any authorized State regulatory body or any State court or any other authorized entity concerning any actions or inactions on the part of the agent, company, or employee . . . whose action or inaction is not authorized or required under the [FCIA]. 7 C.F.R. § 400.352(b)(4). Second, § 400.176(b) provides that a plaintiff may establish liability, under certain circumstances, in a court of competent jurisdiction. Id. § 400.176(b). North Dakota district courts are courts of general jurisdiction, and thus competent. N.D. Cent. Code § 27-05-06. See also Alumax Mill Prod., Inc. v. Congress Fin. Corp., 912 F.2d 996, 1002 (8th Cir. 1990) (state courts have general jurisdiction). In light of this language and absent any language clearly expressing an intent to completely preempt state court causes of action, the Court concludes that removal was improper. See Magee, 135 F.3d at 602 (noting that Congress intent to make a cause of action pleaded under state law removable to federal court must be clearly manifested).

Great American points to Owen v. Crop Hail Mgmt., 841 F. Supp. 297 (W.D.Mo. 1994) in support of its argument. In Owen, the court looked at the same regulations considered above and concluded that the FCIC had completely preempted state law causes of action. This Court respectfully disagrees. See NAACP v. Florida, 122 F. Supp.2d 1335, 1340 (M.D.Fla. 2000) (noting that another district court's decision is not binding on a federal district court). Instead, the Court finds no clear intent in the regulations to make state law causes of action removable to federal court. Thus, this Court lacks removal jurisdiction over this case and remand is necessary. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 68 (1987) (Brennan, J., concurring) (explaining that the prudent course for a federal district court that does not find clear congressional intent to create removal jurisdiction is to remand the case to state court).


The Court concludes that the complete preemption doctrine does not apply to the FCIA with regard to state law claims brought against private insurers. Consequently, removal jurisdiction is lacking. The case is REMANDED to District Court, for Stutsman County, State of North Dakota.


Summaries of

Reimers v. Farm Credit Services

United States District Court, D. North Dakota, Southeastern Division
Jun 22, 2001
Case Number: A3-00-168, Docket Number: 27 (D.N.D. Jun. 22, 2001)

holding that the FCIA does not completely preempt state law

Summary of this case from Alliance Insurance Company v. Wilson

rejecting complete preemption argument and declining to find federal jurisdiction

Summary of this case from AGRE v. RAIN HAIL
Case details for

Reimers v. Farm Credit Services

Case Details


Court:United States District Court, D. North Dakota, Southeastern Division

Date published: Jun 22, 2001


Case Number: A3-00-168, Docket Number: 27 (D.N.D. Jun. 22, 2001)

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