Fairfax County Redevelopment & Housing Authority v. W.M. Schlosser Co., Inc.

• Decision Date: 05 September 1995
• Docket Number: 93-1556,Nos. 93-1533,s. 93-1533
• Citation: 64 F.3d 155
• Court: U.S. Court of Appeals — Fourth Circuit
• Parties: FAIRFAX COUNTY REDEVELOPMENT & HOUSING AUTHORITY, Plaintiff-Appellant, v. W.M. SCHLOSSER COMPANY, INCORPORATED, Defendant-Appellee. FAIRFAX COUNTY REDEVELOPMENT & HOUSING AUTHORITY, Plaintiff-Appellee, v. W.M. SCHLOSSER COMPANY, INCORPORATED, Defendant-Appellant.

Page 155

64 F.3d 155

FAIRFAX COUNTY REDEVELOPMENT & HOUSING AUTHORITY, Plaintiff-Appellant, v. W.M. SCHLOSSER COMPANY, INCORPORATED, Defendant-Appellee.

FAIRFAX COUNTY REDEVELOPMENT & HOUSING AUTHORITY, Plaintiff-Appellee, v. W.M. SCHLOSSER COMPANY, INCORPORATED, Defendant-Appellant.

Nos. 93-1533, 93-1556.

United States Court of Appeals Fourth Circuit.

Argued Oct. 26, 1993.

Decided Sept. 5, 1995.

ARGUED: Dennis Roane Bates, Senior Assistant County Attorney, County Attorney's

Office, Fairfax, VA, for appellant. Michael Jay Cohen, General Counsel, W.M. Schlosser Company, Inc., Hyattsville, MD, for appellee. ON BRIEF: David P. Bobzien, County Attorney, Robert Lyndon Howell, Deputy County Attorney, Fairfax, VA, for appellant.

Before RUSSELL, WIDENER, and HALL, Circuit Judges.

Reversed and remanded by published opinion. Judge RUSSELL wrote the majority opinion, in which Judge HALL concurred. Judge WIDENER wrote a dissenting opinion.

OPINION

DONALD RUSSELL, Circuit Judge:

This is an appeal of a district court's order affirming, on appeal, the state law findings of a Virginia state agency. We conclude that the district court was without jurisdiction to review the state agency's findings and, therefore, we reverse.

I.

The case arose out of a contract dispute between Fairfax County Redevelopment and Housing Authority (Housing Authority) and W.M. Schlosser Company (Schlosser), a contractor who contracted to build a housing project for the Housing Authority. Schlosser alleged that the Housing Authority had not paid it in full under the parties' contract and brought a state administrative claim for the amount owed. The Fairfax County Executive, to whom the claim was brought under Virginia's administrative scheme, found that the Housing Authority had breached the parties' contract and ordered it to pay Schlosser the amount Schlosser sought.

The Housing Authority appealed the County Executive's decision to a Virginia circuit court under Va.Code Sec. 11-71, which allows for judicial review of state administrative decisions involving contract disputes. Schlosser removed the Housing Authority's appeal to federal district court. The district court reviewed the County Executive's decision under Va.Code Sec. 11-71 and, finding that the decision was not arbitrary or capricious, entered a judgment for Schlosser in the amount awarded by the County Executive.

II.

Removal of suits from state court to federal court is authorized by 28 U.S.C. Sec. 1441, which states in relevant part: "[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction ... may be removed by the defendant...." 28 U.S.C. Sec. 1441(a). The district court here determined that it had original jurisdiction over the Housing Authority's appeal of the County Executive's decision under 28 U.S.C. Sec. 1332, the diversity statute. Section 1332 provides that "[t]he district courts shall have original jurisdiction of all civil actions" in which the amount in controversy exceeds $50,000 and the parties are diverse. 28 U.S.C. Sec. 1332(a).

The Supreme Court in Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), considered whether a federal district court may, under its diversity jurisdiction, review the findings of a state administrative agency. An oil company had brought an action in federal court to enjoin a state commission's decision to grant a drilling permit. The recipient of the permit argued to the Supreme Court that, as the action was an appeal from a state agency, the federal district court lacked jurisdiction to hear it. The Court found that the district court did have jurisdiction, but only because the action was not an "appeal from the State Commission," but "a simple proceeding in equity to enjoin the enforcement of the Commission's order." Id. at 317, 63 S.Ct. at 1099. The Court noted: "[O]f course the Texas Legislature may not make a federal district court, a court of original jurisdiction, into an appellate tribunal...." Id.

The Court applied this rule that federal district courts are courts of original jurisdiction and, thus, cannot review on appeal findings of state agencies in Chicago, Rock Island & Pac. R.R. v. Stude, 346 U.S. 574, 74 S.Ct. 290, 98 L.Ed. 317 (1954), where a railroad company had asked a federal district court in its diversity jurisdiction to review a state agency's assessment of condemnation damages owed to a landowner. The Supreme Court affirmed the district court's dismissal of this action, stating:

The United States District Court for the Southern District of Iowa does not sit to review on appeal action taken administratively or judicially in a state proceeding. A state "legislature may not make a federal district court, a court of original jurisdiction, into an appellate tribunal...."

Id. at 581, 74 S.Ct. at 295 (quoting Burford, 319 U.S. at 317, 63 S.Ct. at 1099). ¹

The issue arose once again in Horton v. Liberty Mut. Ins. Co., 367 U.S. 348, 81 S.Ct. 1570, 6 L.Ed.2d 890 (1961). In that case, a state board had granted a worker's compensation award to an employee; under state law, the employer's insurance company could contest such an award in a trial de novo. When the employer's insurance company sought to proceed with this trial in federal district court, the employee contended the district court was without jurisdiction because the action was an appeal from a state agency. The Court determined that the federal district court had jurisdiction only after finding that the trial there was not an appellate proceeding: "The suit to set aside an award of the board is in fact a suit, not an appeal.... [T]he trial in court is not an appellate proceeding. It is a trial de novo wholly without reference to what may have been decided by the Board." Id. at 354-55, 81 S.Ct. at 1574 (quotation omitted). ²

The courts of appeals, with one exception, have consistently followed the Supreme Court and held that federal district courts are without jurisdiction to review on appeal findings of state agencies. The Tenth Circuit addressed the issue most comprehensively in Trapp v. Goetz, 373 F.2d 380 (10th Cir.1966), where a claimant asked a federal district court, in its diversity jurisdiction, to review a state agency's finding that she was not eligible for pension benefits. Citing Burford and Stude, the court stated: "[T]he United States District Court had no power to consider an appeal from the state administrative tribunal. Such a proceeding is not within its statutory jurisdiction." Id. at 383. See also FSK Drug Corp. v. Perales, 960 F.2d 6, 11 (2d Cir.1992) ("This Court lacks jurisdiction to hear [appellant's] claim that the [state agency's] substantive decision was arbitrary and capricious."); Shell Oil Co. v. Train, 585 F.2d 408, 414-15 (9th Cir.1978) (holding that federal district court was without jurisdiction to review state agency denial of environmental permit); Volkswagen de Puerto Rico, Inc. v. Puerto Rico Labor Relations Bd., 454 F.2d 38, 42 (1st Cir.1972) ("To the extent that the federal district court would treat a case removed from the [state court] as a review of a[ ] [state] administrative decision ..., this would place a federal court in an improper posture vis-a-vis a non-federal agency.") (citing Stude ); cf. Frison v. Franklin County Bd. of Educ., 596 F.2d 1192, 1194 (4th Cir.1979) ("[T]he [district] court should have declined pendent jurisdiction over this state law claim because it is essentially a petition for judicial review of state administrative action rather than a distinct claim for relief."). Only the Eighth Circuit, in Range Oil Supply Co. v. Chicago, Rock Island & Pac. R.R. Co., 248 F.2d 477 (8th Cir.1957), failed to follow the Supreme Court on this issue and held that a federal district court may, under its diversity jurisdiction, review on appeal the findings of a state agency. Id. at 479. Significantly, the Range Oil court did not consider that the diversity statute vests only "original" and not "appellate" jurisdiction in the district courts. See Stude, 346 U.S. at 581, 74 S.Ct. at 295; Burford, 319 U.S. at 317, 63 S.Ct. at 1099.

In the case at bar, the federal district court, in its diversity jurisdiction, reviewed the Fairfax County Executive's finding that the Housing Authority had not fully compensated Schlosser under the parties' construction contract. The district court performed this review under Virginia's "Administrative appeals procedure" set forth in Va.Code Sec. 11-71, which provides for "judicial review" of the County Executive's decision. In this review:

the findings of fact shall be final and conclusive and shall not be set aside unless the same are fraudulent or arbitrary or capricious, or so grossly erroneous as to imply bad faith. No determination on an issue of law shall be final if appropriate legal action is instituted in a timely manner.

Va.Code Ann. Sec. 11-71. The district court entered judgment in the amount awarded by the County Executive after determining that the County Executive's finding was not arbitrary and capricious. Because the district court is "a court of original jurisdiction," not "an appellate tribunal," Stude, 346 U.S. at 581, 74 S.Ct. at 295; Burford, 319 U.S. at 317, 63 S.Ct. at 1099, and, thus, is without jurisdiction "to review on appeal action taken administratively or judicially in a state proceeding," Stude, 346 U.S. at 581, 74 S.Ct. at 295, it was without jurisdiction to conduct such a review of the County Executive's finding. We, therefore, reverse the district court's order affirming the County Executive's decision and remand for the district court to further remand the case to Virginia Circuit Court, which properly has jurisdiction over the appeal from the County Executive.

Before concluding, we will respond to the points raised in the dissenting opinion. Initially, the dissent contends that the review procedure set forth in section 11-71 is a de novo trial,...