Almond v. Capital Properties, Inc.

Decision Date06 April 2000
Docket NumberNo. 99-2249,99-2249
Parties(1st Cir. 2000) GOVERNOR LINCOLN C. ALMOND, ET AL., PLAINTIFFS, APPELLEES, v. CAPITAL PROPERTIES, INC., AND METROPARK, LTD., DEFENDANTS, APPELLANTS. Heard
CourtU.S. Court of Appeals — First Circuit

Gerald J. Petros with whom Christopher R. Bush, Charles D. Blackman and Hinckley, Allen & Snyder Llp were on brief for appellants.

Joseph S. Larisa, Jr. with whom Claire Richards, Executive Counsel to the Governor, was on brief for appellees.

Before Boudin, Stahl and Lipez, Circuit Judges.

Boudin, Circuit Judge.

Defendant-appellant Capital Properties, Inc., owns a garage at the railroad station in Providence, Rhode Island. The garage exists because in 1982 various parties, including the Federal Railroad Administration ("FRA"), the State of Rhode Island, and Capital Properties' predecessor-in-interest entered into an extensive "cooperative agreement" to relocate the station; and, as part of the agreement, the FRA agreed to pay 50 percent of the cost of a new garage.

FRA and Capital Properties' predecessor-in-interest also entered into a subordinate agreement concerning the operation of the new garage parking facility. A crucial paragraph of this "parking agreement" provided as follows in paragraph 6(b):

Except as provided in subsection (c) below, FRA or its designee shall have the right of prior approval of any changes in public parking rates. Any request by P&W [Capital Properties' predecessor-in-interest] for such a change shall be accompanied by appropriate justification. FRA or its designee shall not unreasonably withhold approval of such a request if the interests of intercity rail passengers are not adversely affected by the requested change.

Subsection (c) permitted the garage operator to increase rates for parking for a period of less than nine hours, decrease rates for a parking period of nine hours or more, and regularly increase all parking rates in equal proportion by a percentage keyed to the percentage increase in the Consumer Price Index since the last rate increase.

Although the state was not a signatory to the parking agreement, it was a party to the cooperative agreement, a provision of which contained a promise by Capital Properties' predecessor "to comply fully with the terms of [the parking agreement] attached to and made a part of this" cooperative agreement. This incorporation clause also permitted the FRA and the garage operator to amend the parking agreement by themselves, subject to review and comment by any other affected party; but there is no indication that paragraphs 6(b) and (c) have since been amended.

When the garage opened in 1988, rates for all rail passengers were apparently set below market rates. Monthly passes for Providence/Boston commuters were originally sold at a discounted monthly rate of $40 but rose over time to $80 per month. In late September 1999, Capital Properties announced that it was eliminating the monthly discount for commuters, effectively raising the rate to approximately $200 per month. Capital Properties did not seek the FRA's permission before instituting the rate increase and apparently has never claimed that the increase could be justified as a CPI adjustment under subsection (c).

Rhode Island Governor Lincoln Almond and the Rhode Island Department of Transportation (collectively, "the state"), then began this action in state court to enjoin Capital Properties' alleged violation of its contractual obligation to seek FRA approval for rate increases, and Capital Properties removed the case to federal court. The state sought temporary relief and, after a hearing on October 4, 1999, the district court determined to enjoin the increase on the ground that Capital Properties had failed to seek the FRA's approval (a TRO was issued on October 22). After the hearing, Capital Properties submitted a request to the FRA seeking approval of the increase, the state objected to the request, and, while the matter was pending before the FRA, the district court held a further hearing on October 26, 1999, and ordered from the bench:

I will grant the request for a preliminary injunction that precludes Capital Properties from raising the parking rates unless and until it obtains the approval of the FRA or alternatively unless and until it establishes that the FRA has unreasonably refused to give approval or has failed to rule on the request within a reasonable period of time.

Three days later, on October 29, 1999, the FRA in a letter denied Capital Properties' request. The letter said that granting the request would inflict large rate increases on passengers commuting between Providence and Boston, that passengers in this category were regarded by the FRA as among those whom the parking agreement was importantly designed to protect, and that the large increase had not been adequately justified. The letter said that the FRA was willing to consider justified increases and suggested that the matter be resolved through negotiations rather than through litigation. 1

In the meantime, in the district court, Capital Properties filed a motion on October 28, 1999, requesting that the state provide security for the preliminary injunction. The state objected, saying that the motion for security was "moot because the conditions of the injunction . . . have already been satisfied." On November 2, 1999, the state submitted a formal proposed injunction, based on the district court's earlier above-quoted oral ruling, to enjoin Capital Properties from raising rates "until and unless approval is received from the [FRA]" or until further order of the court. The district court issued this order on November 5, 1999, but has not yet ruled on the security request.

Capital Properties now seeks review of the preliminary injunction, as it is entitled to do. 28 U.S.C. § 1292(a)(1) (1994). Its most salient claims are that the state lacks standing to seek a preliminary injunction, that the injunction was improvidently granted, and that a bond should have been required. Before turning to these issues, we have to address an issue that neither party has raised--the federal courts' subject matter jurisdiction over this suit. American Airlines, Inc. v. Cardoza-Rodriguez, 133 F.3d 111, 115 n.1 (1st Cir. 1998).

This action was removed from state court on the ground that it came within the district court's "arising under" jurisdiction, 28 U.S.C. § 1331 (1994). This appears to be a correct position, as we will explain, because the complaint necessarily presents and turns upon the interpretation of a contractual obligation to the United States. But this is a remarkably tangled corner of the law and there is little direct authority, partly because in most cases interpreting contracts with the United States the federal government is a party and jurisdiction is automatic under 28 U.S.C. §§ 1345, 1346(a)(2) (1994).

Although Article III's grant of "arising under" jurisdiction is broad, section 1331 itself (despite its use of almost identical language) has been read more narrowly. See ALI, Study of the Division of Jurisdiction Between State and Federal Courts 179 (1969). Undoubtedly, section 1331 covers claims that are created by federal law (including federal common law), whether expressly or by implication. E.g., Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 8-9 (1983) (section 1331 applies where federal law creates the cause of action); National Farmers Union Ins. Co. v. Crow Tribe of Indians, 471 U.S. 845, 850 (1985) (federal common law is law of United States for purposes of section 1331).

But it is simply unclear under the case law whether the state's contract claim here could properly be viewed as "created" by federal common law where the plaintiff and the defendant are both private parties. Miree v. DeKalb County, 433 U.S. 25, 30-31 (1977), may suggest that the answer is no, but its message is not crystal clear. Cf. Price v. Pierce, 823 F.2d 1114, 1119-20 (7th Cir. 1987) (distinguishing Miree), cert. denied, 485 U.S. 960 (1988). We will assume, arguendo and without deciding the point, that federal law does not "create" the state's contract claim in this case even though (as we will see) federal law surely controls on what is the most important issue.

A more controversial basis for "arising under" jurisdiction under section 1331 exists where, regardless of whether federal or state law creates the claim, a well-pleaded complaint necessarily "requires resolution of a substantial question of federal law." Franchise Tax Bd., 463 U.S. at 13. The Supreme Court has periodically affirmed this basis for jurisdiction in the abstract (Smith v. Kansas City Title & Trust Co., 255 U.S. 180 (1921), is the most famous example), occasionally cast doubt upon it, rarely applied it in practice, and left the very scope of the concept unclear. 2 Perhaps the best one can say is that this basis endures in principle but should be applied with caution and various qualifications. ALI, supra, at 178-79.

The central issue properly presented by the well-pleaded complaint in this case is whether Capital Properties' promise to the FRA includes an obligation to obtain the FRA's approval before implementing the increase in parking charges at issue in this case. The Supreme Court has repeatedly said that "obligations to and rights of the United States under its contracts are governed exclusively by federal law." Boyle v. United Techs. Corp., 487 U.S. 500, 504 (1988). It seems to us to defy common sense that the answer to the question whether paragraph 6 obliges the garage to get FRA approval should turn on federal law if the FRA is party to the suit but on state law if the FRA is not a party. Cf. id. at 507 (applying federal common law to suit between private parties where imposition of liability could "directly affect the terms of government contracts").

What remains is the almost unanswerable question of whether the...

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