Bernhard v. Whitney Nat. Bank

• Citation: 523 F.3d 546
• Decision Date: 02 April 2008
• Docket Number: No. 07-30464.,07-30464.
• Parties: Barry BERNHARD; Sheryle Bernhard, Plaintiffs-Appellees, v. WHITNEY NATIONAL BANK, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

523 F.3d 546

Barry BERNHARD; Sheryle Bernhard, Plaintiffs-Appellees, v. WHITNEY NATIONAL BANK, Defendant-Appellant.

No. 07-30464.

United States Court of Appeals, Fifth Circuit.

April 2, 2008.

Robert M. Marionneaux, Barrett David Burkart (argued), Unglesby Law Firm, Baton Rouge, LA, for the Bernhards.

Brett P. Furr (argued), Elisabeth C. Quinn, Taylor, Porter, Brooks & Phillips, Baton Rouge, LA, for Whitney Nat. Bank.

Appeal from the United States District Court for the Middle District of Louisiana.

Before JOLLY, BARKSDALE and BENAVIDES, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

This case was birthed in Louisiana state court by Barry and Sheryle Bernhard. It was adopted by the Middle District of Louisiana when the defendants, Capital One and Whitney National Bank, removed it on the basis of a federal question. Whitney appeals a split-the-baby decision of the district court, granting summary judgment in Whitney's favor on the federal claim, yet remanding the state claims. Because we hold that, under the unusual circumstances of this case, the district court lacked federal question jurisdiction, we VACATE the district court's judgment and REMAND with instructions that the case be remanded to the custody of the state court.

I.

Barry and Sheryle Bernhard brought this suit against Whitney National Bank and Capital One Bank, LLC, in Louisiana state court in July 2005. They alleged violations of Louisiana Civil Code articles 2315 and 2316.¹ Their claims arose out of alleged unauthorized transfers from their checking account at Whitney Bank by a contractor with whom the Bernhards did business, Robert Williams. The Bernhards alleged that Williams had used Capital One's online banking system to make unauthorized electronic transfers from the Whitney account, using the routing and account numbers from the Bernhards' personal check. They alleged that Capital One and Whitney breached duties owed to them by allowing Williams to make the unauthorized transfers and by failing to maintain adequate security procedures.²

The unauthorized transfers began in November 2003 and continued through November 2004, totaling $113,836.83. The Bernhards notified Whitney of the unauthorized transfers in November 2004 and were credited $24,859 for some of the unauthorized withdrawals.

The Bernhards alleged in their petition that the defendants are liable for an amount to compensate them for losses sustained legal interest, and "all costs of these proceedings, including attorney's fees."

The defendants removed the case to the federal district court for the Middle District of Louisiana. They contended that "the facts alleged and the actions complained of by the Bernhards actually involve and include alleged violations of federal law, namely the Electronic Fund Transfer Act, 15 U.S.C. § 1693 et seq. (the `EFTA'), and its implementing regulations . . . . Resolution of the Bernhards' claims requires the interpretation of these federal laws." The defendants also argued that, because the Bernhards sought attorneys' fees, which are available under the EFTA but not under state law, the claims necessarily arise under federal law.

The Bernhards moved to remand the case to the state court, arguing that they sought relief only under state law. The magistrate judge filed a report and recommendation that the motion to remand be denied. The magistrate judge found that "plaintiffs' claims arise under federal law even though the plaintiffs have characterized them as state law claims." Citing this court's decision in Medina v. Ramsey Steel Co., Inc., 238 F.3d 674 (5th Cir.2001), the magistrate judge found that, "if the remedy that the plaintiff seeks in his or her complaint is exclusively available under federal law, then a federal court has jurisdiction of the case." The magistrate judge concluded that, because the attorneys' fees sought by the Bernhards are exclusively available under federal law, the district court had federal question jurisdiction over the case under 28 U.S.C. § 1331. The magistrate judge also found:

Secondly, even though the plaintiffs only assert causes of action under state law in their petition, [automated clearing house] transactions like those at issue are governed by federal law, EFTA and its implementing regulations, Regulation E. In order to determine whether plaintiffs are entitled to attorneys fees as requested, it will be necessary for the Court to engage in an analysis of whether EFTA was violated by the defendants. Accordingly, this case necessarily involves an embedded issue of federal law affording the Court original jurisdiction under Grable [&] Sons Metal Prod. Inc. [v.] Daru[e] Eng'g & Mfg., 125 S.Ct. 2362 [2363], 162 L.Ed.2d 257 (2005).

The magistrate judge cited the provision of the EFTA defining its relationship to state laws, 15 U.S.C. § 1693q, interpreting it to provide "that state laws which are inconsistent or afford consumers less protection than EFTA relating to electronic fund transfers are pre-empted by EFTA."

The district court adopted the magistrate judge's recommendation over the Bernhards' objection and denied their motion to remand.

Capital One and Whitney filed motions for summary judgment. The district court granted the motions for summary judgment as to claims arising under the EFTA. The district court found that the plaintiffs were entitled to no further reimbursement from Whitney under the EFTA because the plaintiffs failed to report the unauthorized transfers to Whitney in a timely manner. Under the EFTA, Whitney was not legally obligated to reimburse the Bernhards for unauthorized transfers occurring more than sixty days after the receipt of the bank statement showing the first unauthorized transfer and before notice was given to Whitney. The district court found that the Bernhards could not set forth a cause of action against Capital One under the EFTA because Capital One is not a "financial institution" with respect to the Bernhards as provided by the EFTA, 15 U.S.C. § 1693a(8).

The court found that it had supplemental jurisdiction under 28 U.S.C. § 1367(a) over all claims that are so related to the claims over which the court has original jurisdiction that the related claims are part of the same case or controversy. The court declined to exercise supplemental jurisdiction and remanded "the remaining state law negligence claims" to state court.

Whitney filed a motion under Rule 59(e) to alter or amend the judgment for clarification. Fed.R.Civ.P. 59(e). Whitney contended that the district court did not properly specify in its order that the only negligence claims remanded to state court were those against Capital One. Whitney sought clarification that the EFTA "preempts Louisiana state law, thus the Bernhards have no state law claim against Whitney to remand."

The district court denied Whitney's motion, reaffirming its previous determination not to exercise supplemental jurisdiction over any remaining state law claims in the case. Whitney appealed to this court.

II.

Whitney contends that the district court granted its motion for summary judgment in a manner inconsistent with its earlier conclusion that the Bernhards' state law negligence claims were, in fact, federal claims under the EFTA and were preempted by the EFTA. Whitney contends that the court therefore erred in denying Whitney's Rule 59(e) motion to reconsider its judgment.

III.

None of the parties raised the question of jurisdiction on appeal. Of course, we must raise the issue of jurisdiction on our own motion if necessary. E.g., Hill v. City of Seven Points, 230 F.3d 167, 169 (5th Cir.2000). We must first consider our own jurisdiction and then that of the district court. United States v. Creamer Indus., Inc., 349 F.2d 625, 626 (5th Cir. 1965).

A.

This court has jurisdiction over an appeal of a final judgment under 28 U.S.C. § 1291. Although this court may not review a district court's order to remand that is based upon grounds specified in 28 U.S.C. § 1447(c), we may review a remand order that is based on the district court's exercise of its discretion not to take supplemental jurisdiction over state law claims under 28 U.S.C. § 1367. Smith v. Tex. Children's Hosp., 172 F.3d 923, 926 n. 5 (5th Cir.1999).

In this case, the district court explicitly remanded the Bernhards' state law claims on the basis of its discretionary power to decline to exercise supplemental jurisdiction. Therefore this court has appellate jurisdiction over the district court's decision to remand remaining state law claims.

B.

Jurisdiction of the district court, however, is quite another matter. We review the remand orders in this case de novo. Campbell v. Stone Ins., Inc., 509 F.3d 665, 669 (5th Cir.2007).

The district court has removal jurisdiction in any case where it has original jurisdiction. 28 U.S.C. § 1441(a). The district court has original federal question jurisdiction over "all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. However, the fact that federal law may provide a defense to a state claim is insufficient to establish federal question jurisdiction. E.g., Hart v. Bayer Corp., 199 F.3d 239, 244 (5th Cir.2000).

We start with the long-established axiom that a plaintiff is master of his complaint and may generally allege only a state law cause of action even where a federal remedy is also available. See Waste Control Specialists, LLC v. Envirocare of Tex., Inc., 199 F.3d 781, 784 (5th Cir.), modified in part on rehearing, 207 F.3d 225 (5th Cir.2000). Under this "well-pleaded complaint" rule, a federal court has original or removal jurisdiction only if a federal question appears on the face of the plaintiff's well-pleaded complaint; generally, there is no federal jurisdiction if the plaintiff properly pleads only a state law cause of action. E.g., Franchise Tax Bd. v. Const. Laborers Vacation Trust, 463 U.S. 1, 10-11, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). A...