243 F.3d 912 (5th Cir. 2001), 99-20878, Howery v Allstate Insurance Co.

Docket Nº:99-20878
Citation:243 F.3d 912
Party Name:ERROL P. HOWERY, Plaintiff-Appellant, v. ALLSTATE INSURANCE CO., Defendant-Appellee.
Case Date:February 28, 2001
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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243 F.3d 912 (5th Cir. 2001)

ERROL P. HOWERY, Plaintiff-Appellant,

v.

ALLSTATE INSURANCE CO., Defendant-Appellee.

No. 99-20878

IN THE UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT

February 28, 2001

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[Copyrighted Material Omitted]

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Appeal from the United States District Court for the Southern District of Texas

Before KING, Chief Judge, and HIGGINBOTHAM and DUHE, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Errol Howery's home burned down. When he demanded payment from his insurer, Allstate Insurance Company, it refused, accusing him of arson. Howery filed suit in Texas state court. After more than two years, as the case was approaching trial, Allstate removed this case to federal court, asserting federal question jurisdiction. The district court denied Howery's motion to remand. After another year of litigation in federal court, a jury agreed with Allstate.

Howery appealed, challenging federal subject-matter jurisdiction and the district court's refusal to remand. Because Howery's complaint does not raise a federal question and the record fails to establish diversity of the parties, we vacate the judgment of the district court and remand

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with instructions to dismiss for lack of jurisdiction.

I

A

Errol Howery owned a townhome that he insured against fire with Allstate Insurance Company. When Howery's home burned down, he filed a claim with Allstate. Allstate refused to pay, convinced that Howery had committed arson.

On March 5, 1996, Howery filed suit against Allstate in a state court of general jurisdiction in Texas. During the next two and a half years, Howery filed ten amended complaints. Only in the last was there any reference to federal law. In his Tenth Amended Complaint, which he filed August 11, 1998, Howery mentioned for the first time "Federal Trade Commission rules, regulations, and statutes."

Allstate filed a notice of removal on August 20, 1998, asserting that Howery's complaint raised a federal question. Allstate did not allege the existence of diversity jurisdiction nor state the citizenship of the parties.1 The case was removed to the United States District Court for the Southern District of Texas. After Howery deleted the reference to federal law in his complaint, he moved for remand, which the district court denied. The court also denied Howery's subsequent motion to amend his complaint to add federal claims.

The case proceeded on Howery's claim of bad faith denial of insurance coverage and breach of contract. The court granted summary judgment for Allstate on the bad faith claim, and after trial a jury sustained Allstate's defense of arson. The court entered judgment against Howery.

Howery filed an appeal of the judgment on September 3, 1999. Howery argued that there was no federal question, and thus no jurisdiction; he further argued that the district court abused its discretion in refusing to remand the case to state court. Briefing of the appeal was completed almost a year later, and oral arguments were scheduled for January 8, 2001. At oral argument, counsel for Allstate raised for the first time the issue of diversity jurisdiction.

B

Howery's tenth amended complaint is the center of the dispute over federal question jurisdiction. It alleged, in relevant part:

The acts, omissions, and other wrongful conduct of Allstate complained of in this petition constituted unconscionable conduct or unconscionable course of conduct, and false, misleading, or deceptive acts or practices. As such, Allstate violated the Texas Deceptive Trade Practices Act, Sections 17.46, et seq., and the Texas Insurance Code, including articles 21.21, 21.21-1, 21.55, and the rules and regulations promulgated thereunder, specifically including 28 TAC Section 21.3, et seq. and 21.203.

. .

Allstate's destruction of [Howery's] file . . . constituted a further violation of the Texas Deceptive Trade Practices Act, for which plaintiff sues for recovery. Allstate also engaged in conduct in violation of the Federal Trade Commission rules, regulations, and statutes by obtaining Plaintiff's credit report in a prohibited manner, a further violation of the Texas Deceptive Trade Practices Act. . . .

As a further basis for this claim and further evidencing Allstate's statutory and common law violations, Howery would show that Allstate has sought to profit from its denial of his claim.

The complaint does not contain allegations of diversity or lack of diversity. It states that Howery is a citizen of Texas, but does not allege the citizenship of Allstate.

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II

Federal courts are courts of limited jurisdiction.2 We must presume that a suit lies outside this limited jurisdiction, and the burden of establishing federal jurisdiction rests on the party seeking the federal forum.3 In this case, Allstate invoked the jurisdiction of the federal courts by removing Howery's state court case to federal court. Allstate must prove that federal jurisdiction existed at the time of removal,4 or, at the very least, have alleged facts prior to the entry of judgment in this case that establish federal subject-matter jurisdiction.5 Without the presence of such facts in the record, a federal court does not have jurisdiction over the case.6

It is true that Caterpillar v. Lewis7 holds that improper removal does not automatically nullify a subsequent federal court judgment when the record establishes that the defect in federal jurisdiction was cured before judgment,8 but Caterpillar merely forgives "untimely compliance" with the removal statute;9 it still requires that jurisdiction be established by the time judgment was entered.10 We therefore examine the record of this case to determine whether the facts or allegations in the record establish the existence of subject-matter jurisdiction at the time of removal or, at the latest, at the time of judgment. At the same time, we need not address the denial of the motion to remand if the district court lacked subject-matter jurisdiction.

III

A

We first consider federal question jurisdiction. Federal district courts have jurisdiction over cases "arising under the Constitution, laws, or treaties of the United States."11 In determining whether a case "arises under federal law" we look to whether the "plaintiff's well-pleaded complaint raises issues of federal law."12

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The general rule for determining whether a case raises a federal question was announced by Justice Holmes in American Well Works Co. v. Layne & Bowler Co.13: a "suit arises under the law that creates the cause of action."14 This famous formulation actually serves better to include than to exclude federal cases,15 however, in that claims created by state law often incorporate federal standards or require the interpretation of federal law. That is, the claim arises from state law but may turn on a question of federal law embedded in the matrix of state law. But when this federal question will sustain "arising under" jurisdiction is the question. These cases are not answered by Holmes's formulation. In Gully v. First National Bank in Meridian,16 Justice Cardozo offered one answer: "To bring a case within the [federal question jurisdiction] statute, 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. The right or immunity must be such that it will be supported if the Constitution or laws of the United States are given one construction or effect, and defeated if they receive another."17 This was later refined in Franchise Tax Board,18 which insisted that the embedded federal question be substantial.19 Under American Well Works, a complaint creates federal question jurisdiction when it states a claim created by the Constitution or laws of the United States. Under Gully and Franchise Tax Board, the complaint also creates federal question jurisdiction when it states a cause of action created by state law and (1) a federal right is an essential element of the state claim, (2) interpretation of the federal right is necessary to resolve the case,20 and (3) the question of federal law is substantial. Ultimately, whether a federal issue embedded in the matrix of a state law claim will support federal question jurisdiction entails a pragmatic assessment of the nature of the federal interest at stake--a view embraced by two giants in this field.21 Allstate argues that Howery's complaint states a claim created by federal law. In the alternative, Allstate claims that Howery's reference to federal law creates federal question jurisdiction under Gully and Franchise Tax Board.

B

Allstate first argues that by mentioning the rules, regulations, and statutes of the FTC, Howery is stating a claim under the federal Fair Credit Reporting Act.22 A fair...

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