Cross Country Bank v. McGraw

Decision Date15 June 2004
Docket NumberNo. CIV.A.2:04-0306.,CIV.A.2:04-0306.
Citation321 F.Supp.2d 816
CourtU.S. District Court — Southern District of West Virginia
PartiesCROSS COUNTRY BANK and Applied Card Systems, Inc., Plaintiffs/Counterclaim Defendants, v. Darrell V. MCGRAW, Jr., Attorney General of the State of West Virginia Defendant/Counterclaim Plaintiff, v. Rocco A. Abessinio, individually and as an Officer of Cross Country Bank and Applied Card Systems, Inc., Third-Party Defendant.

Troy N. Giatras, Giatras & Webb, Norman Googel, Jill L. Miles, Sr. Asst. Atty. Gen. Office of Attorney General, Consumer Protection/Antitrust Division, Anthony J. Majestro, Powell & Majestro, Charleston, WV, Gregory A. Hewitt, Hamilton Burgess Young & Pollard, Fayetteville, WV, for Defendant, Counter-Claimant and Third-Party Plaintiff.

ORDER

CHAMBERS, District Judge.

Pending is Defendant Attorney General Darrel V. McGraw's motion to remand. For the reasons set forth herein, the motion is GRANTED.

I. Factual and Procedural History

On March 2, 2004, Plaintiffs Cross Country Bank ("Cross Country") and Applied Card Systems, Inc. ("ACS") filed a complaint in the Circuit Court of Kanawha County, West Virginia, against Defendant Darrell V. McGraw, Jr., in his official capacity as Attorney General of the State of West Virginia. According to the complaint, Attorney General McGraw had retained private counsel for the purposes of investigating and ultimately bringing a civil suit against Cross Country and ACS for alleged violations of the West Virginia Consumer Credit and Protection Act ("the WVCCPA"). Cross Country and ACS sought declaratory and injunctive relief based on their assertion that under West Virginia statutory and constitutional law, the Attorney General lacks authority to retain or authorize payment of compensation to private counsel absent legislative authority to do so.

On March 17, 2004, Attorney General McGraw responded to the complaint by filing a counterclaim against Cross Country and ACS and a third party complaint against Rocco Abessinio, who Attorney General McGraw alleged was the chief executive officer and alter ego of both Cross Country and ACS. The Attorney General alleged that Cross Country, ACS, and Abessinio engaged in a host of predatory lending practices that violated the WVCCPA "on a scale rarely seen." The counterclaim and third party complaint (which were filed as one document) expressly disclaimed the pursuit of any remedies under federal law. On March 30, 2004, Cross Country, ACS, and Abessinio (collectively, "the removing parties") joined in a notice of removal. They assert that removal is proper because some of the claims raised by the Attorney General are completely preempted by the Federal Deposit Insurance Act. The Attorney General has filed a timely motion to remand, arguing that this Court lacks subject matter jurisdiction over the instant controversy.

II. Analysis

The Attorney General premises his motion on several grounds. He argues that the removing parties have improperly recast the Attorney General's counterclaim as challenging the legality of the terms upon which credit is extended to consumers (a claim that might be subject to complete preemption) rather than as one challenging the marketing and disclosure of those terms (a claim that is not preempted); that even if some claims are preempted, those claims would be subject to immediate dismissal, rendering the exercise of supplemental jurisdiction over the remaining state law claims inappropriate; that the Eleventh Amendment bars the removal of a lawsuit in which a State is a party; and that the removal statute, 28 U.S.C. § 1441, does not permit a plaintiff or third-party defendant to remove a case. The Court concludes that the Attorney General's final point is correct, thereby rendering unnecessary resolution of his remaining contentions.

The propriety of removal by a third-party defendant who asserts that a court has federal question jurisdiction over issues raised in a third-party complaint actually raises two, discrete issues. The first goes to subject matter jurisdiction: can a federal claim in a third-party complaint form the basis of subject matter jurisdiction?1 The second goes to removal procedure: assuming that jurisdiction exists, can a third-party defendant remove a case to federal court? Though no clear guidance has emerged from either Fourth Circuit or Supreme Court jurisprudence,2 this Court finds that in such a situation, jurisdiction is lacking.

Federal courts are courts of limited jurisdiction. See, e.g., Kokkonen v. Guardian Life. Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) ("Federal courts ... possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree."); Turner v. Bank of N. Am., 4 U.S. (4 Dall.) 8, 11, 1 L.Ed. 718 (1799) ("[T]he fair presumption is (not as with regard to a Court of general jurisdiction, that a cause is within its jurisdiction unless the contrary appears, but rather) that a cause is without its jurisdiction till the contrary appears."). Through the Judiciary Act of 1875, now codified as 28 U.S.C. § 1331, Congress conferred upon the federal judiciary original jurisdiction over those "cases arising under the Constitution, laws, or treaties of the United States."3 Although the grant of jurisdiction in § 1331 is made in language identical to that used in Article III of the Constitution, the Supreme Court has consistently stated that the jurisdiction granted by § 1331 is not in all respects coextensive with the potential for federal jurisdiction found in Article III. See, e.g., Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 494-95, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983). Instead, federal courts must determine whether a case satisfies the "arising under" requirement of § 1331 through application of the "well-pleaded complaint rule," which as articulated nearly a century ago states:

[A] suit arises under the Constitution and laws of the United States only when the plaintiff's statement of his own cause of action shows that it is based upon those laws or that Constitution. It is not enough that the plaintiff alleges some anticipated defense to his cause of action and asserts that the defense is invalidated by some provision of the Constitution of the United States. Although such allegations show that very likely, in the course of the litigation, a question under the Constitution would arise, they do not show that the suit, that is, the plaintiff's original cause of action, arises under the Constitution.

Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 152, 29 S.Ct. 42, 53 L.Ed. 126 (1908). Since Mottley, the well-pleaded complaint rule has been interpreted by the Court as dependent on the nature of the claim raised by the plaintiff; this is true whether the case was filed in a federal district court originally or was removed from a state court. See, e.g., Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 27-28, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983) ("Under our interpretations, Congress has given the lower courts jurisdiction to hear, originally or by removal from a state court, only those cases in which a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law."); Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 672, 70 S.Ct. 876, 94 L.Ed. 1194 (1950) ("The plaintiff's claim itself must present a federal question unaided by anything alleged in anticipation of avoidance of defenses which it is thought the defendant may interpose."). In recent years, the Court has consistently displayed a narrow view of the scope of the federal courts' federal question jurisdiction. See, e.g., Merrell Dow Pharms. v. Thompson, 478 U.S. 804, 817, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986) (concluding that "a complaint alleging a violation of a federal statute as an element of a state cause of action, when Congress has determined that there should be no private, federal cause of action for the violation, does not state a claim `arising under the Constitution, laws, or treaties of the United States'").

The Supreme Court's most recent application of the well-pleaded complaint rule, Holmes Group, Inc. v. Vornado Air Circulation Sys., 535 U.S. 826, 122 S.Ct. 1889, 153 L.Ed.2d 13 (2002), makes clear that if the Attorney General had merely filed a counterclaim against Cross Country and ACS, removal jurisdiction would be lacking.4 In that case, the Holmes Group filed an action against Vornado seeking a declaratory judgment that its products did not infringe on the latter's trade dress. Id. at 828, 122 S.Ct. 1889. Vornado's answer included a compulsory counterclaim alleging patent infringement. After the district court ruled in the Holmes Group's favor, Vornado appealed to the Federal Circuit Court of Appeals. Id. at 829, 122 S.Ct. 1889. After holding that its exclusive jurisdiction over the appeal from any final judgment entered in a case "arising under any Act of Congress relating to patents"5 extended to those appeals in which the patent claim appeared in a defendant's answer, the Federal Circuit vacated the district court's decision. The Holmes Group appealed, arguing that the Federal Circuit lacked jurisdiction over the case. Justice Scalia, writing for the Court, began the jurisdictional analysis by noting that 28 U.S.C. § 1338(a), which defines the scope of the Federal Circuit's jurisdiction, uses language identical to that in 28 U.S.C. § 1331. Id. Thus, determining the extent of the Federal Circuit's jurisdiction rested on an...

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