Jaaat Technical Servs., LLC v. Tetra Tech Tesoro, Inc.

• Decision Date: 11 September 2017
• Docket Number: Civil Action No. 3:15cv235
• Court: U.S. District Court — Eastern District of Virginia
• Parties: JAAAT TECHNICAL SERVICES, LLC, Plaintiff, v. TETRA TECH TESORO, INC., Defendant.

JAAAT TECHNICAL SERVICES, LLC, Plaintiff,
v.
TETRA TECH TESORO, INC., Defendant.

Civil Action No. 3:15cv235

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA Richmond Division

September 11, 2017

MEMORANDUM OPINION

This matter is before the Court on its sua sponte reconsideration of subject-matter jurisdiction. For the reasons that follow, the Court finds that it does not have subject-matter jurisdiction over this action. The Court will dismiss the action without prejudice.¹

I. Relevant Background²

A. The Contract Dispute

The dispute in this case arises from Defendant Tetra Tech Tesoro, Inc.'s ("Tesoro") alleged breach of five subcontracts regarding five construction projects at three military bases

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(the "Military Base Projects").³ At each Military Base Project, Plaintiff JAAAT Technical Services, LLC ("JAAAT") acted as the general contractor and Tesoro acted as a subcontractor. Both parties are Virginia companies. JAAAT alleges that Tesoro breached its duties under five subcontracts by "fail[ing] to adequately perform the work required" and incurring "substantial delays in the performance of its work on each project." (Am. Compl. ¶ 28, ECF No. 16.) JAAAT alleges that it has suffered damages as a result of Tesoro's breaches and seeks damages, costs and expenses, and pre- and post-judgment interest.

Tesoro filed an answer, which included ten counterclaims. Tesoro alleged its own breach of contract claims against JAAAT as to the same five subcontracts. Tesoro also included an unjust enrichment or quantum meruit claim (Count 6), a constructive trust or breach of fiduciary duty claim (Count 7), an accounting claim (Count 8), a conversion claim (Count 9), and a fraud claim (Count 10). In its counterclaims, Tesoro seeks damages, costs and expenses, and pre- and post-judgment interest.

Two facts are crucial to the question of subject-matter jurisdiction here. First, each of the Military Bases is a federal enclave and is therefore governed not by simple state or federal law but, as discussed more fully later, by "federalized" state law. Second, each subcontract contains a choice-of-law clause stating that "all disputes under [the subcontracts] shall be determined and interpreted pursuant to the laws of the Commonwealth of Virginia." (Am. Compl. ¶ 54.) Thus, if no enforceable choice-of-law provision governs the parties' subcontracts, federalized state law would likely govern these claims.

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B. The Court Revisits Subject-Matter Jurisdiction Because Federal Question Jurisdiction Exists Only When Federal Law Creates the Cause of Action or When Plaintiff's Relief Necessarily Depends on the Resolution of a Substantial Federal Question

The Court revisits subject-matter jurisdiction because federal question subject-matter jurisdiction exists when federal law creates the cause of action or when plaintiff's relief necessarily depends on the resolution of a substantial federal question. See Aegis Def. Servs., LLC v. Chenega-Patriot Grp., LLC, 141 F. Supp. 3d 479, 483-84 (E.D. Va. 2015) (citing Interstate Petroleum Corp. v. Morgan, 249 F.3d 215, 219 (4th Cir. 2001)). Neither circumstance exists here.

As a court of limited subject-matter jurisdiction, United States ex rel. Vuyvuru v. Jadhav, 555 F.3d 337, 347 (4th Cir. 2009) (citing Exxon Mobile Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005)), this federal court must determine whether it has jurisdiction over the claims at issue, see Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998) ("The requirement that jurisdiction be established as a threshold matter 'spring[s] from the nature and limits of the judicial power of the United States' and is 'inflexible and without exception.'" (quoting Mansfield, C. & L.M.R. Co. v. Swan, 111 U.S. 379, 382 (1884))). "The objection that a federal court lacks subject-matter jurisdiction . . . may be raised by a party, or by a court on its own initiative, at any stage in the litigation . . . ." Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006) (citing Fed. R. Civ. P. 12(b)(1)). "Subject-matter jurisdiction cannot be conferred by the parties, nor can a defect in subject-matter jurisdiction be waived by the parties. Accordingly, questions of subject-matter jurisdiction may be raised at any point in the proceedings and may (or, more precisely, must) be raised sua sponte by the court." Brickwood Contractors, Inc. v. Datanet Engineering, Inc., 369 F.3d 385, 390 (4th Cir. 2004) (internal citations omitted); see also Fed. R.

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Civ. P. 12(h)(3) ("If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.").

Federal district courts commonly exercise jurisdiction over civil actions in two circumstances. First, federal district courts exercise jurisdiction in "federal question" cases—"civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. "[I]n order for federal question jurisdiction to exist[:] (i) federal law must create the cause of action[;] or[,] (ii) the plaintiff's right to relief must necessarily depend on the resolution of a substantial federal question." Aegis Def. Servs., LLC, 141 F. Supp. 3d at 483-84 (emphasis added) (citing Interstate Petroleum Corp., 249 F.3d at 219). Second, federal district courts exercise jurisdiction in "diversity" cases—when the parties are, inter alia, citizens of different states and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332(a)(1).

Thus, in order to exercise jurisdiction over this case, the Court must find that one of three circumstances exists—either: (1) federal law creates JAAAT's cause of action; (2) JAAAT's right to relief necessarily depends on the resolution of a substantial federal question;⁴ or,

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(3) JAAAT and Tesoro are citizens of different states and the amount in controversy exceeds $75,000. Because, given the parties' citizenship and the enforceability of their choice-of-law provision, none of these circumstances are present, the Court lacks subject-matter jurisdiction over this action and must dismiss it.

C. When, as Here, Congress Fails to Enact New Civil Contract Law, the Federal Enclave Doctrine Provides that State Contract Law at Time of Cession Governs the Dispute

This apparently straightforward breach-of-contract case involves an unusual and knotty legal issue because the Military Bases qualify as federal enclaves and, therefore, would typically be governed by "federalized" state law. Under this doctrine, contract law in place in early 1900s North Carolina and Georgia—the time these Military Bases were ceded—would govern this dispute.

As this Court noted in its March 2016 Opinion, "[a] federal enclave is created when a state cedes jurisdiction over land within its border to the federal government and Congress accepts that cession." Allison v. Boeing Laser Tech. Servs., 689 F.3d 1234, 1235 (10th Cir. 2012). The federal enclave doctrine, which grants Congress the exclusive right to regulate properties acquired from state governments, arises from Article I, section 8, clause 17 of the United States Constitution (the "Federal Enclave Clause"):

Congress shall have the Power . . . To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings . . . .

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U.S. Const. art. I, § 8, cl. 17 (emphasis added). Under the federal enclave doctrine, when "the United States acquires with the 'consent' of the state legislature land within the borders of that State . . . the jurisdiction of the Federal Government becomes 'exclusive.'" Paul v. United States, 371 U.S. 245, 264 (1963). This legislative "power of Congress over federal enclaves . . . is obviously the same as the power of Congress over the District of Columbia" and "by its own weight, bars state regulation without specific congressional action." Id. at 263.

In the absence of subsequent federal legislation displacing state law, "the [state] law in effect at the time of the transfer of jurisdiction [from the state to United States] continues in force" on the federal enclave. James Stewart & Co. v. Sadrakula, 309 U.S. 94, 100 (1940).⁵ Importantly, "future statutes of the state are not a part of the body of laws in the ceded area," and "Congressional action is necessary to keep [the laws of the federal enclave] current." Id. at 100; see also Paul, 371 U.S. at 268 ("Since a State may not legislate with respect to a federal enclave unless it reserved the right to do so when it gave its consent to the purchase by the United States, only state law existing at the time of the acquisition remains enforceable, not subsequent laws."). Subsequent state common law also does not apply. Allison, 689 F.3d at 1240 (explaining that "[w]hen a state speaks through its courts, it creates new law no less than when it speaks through the legislature").

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Thus, the law in force on federal enclaves, although derived from state law, becomes exclusively federal law once the enclave is ceded to the federal government.⁶ See Pac. Coast Dairy v. Dep't of Ag. of Cal., 318 U.S. 285, 294 (1943); see also Allison, 689 F.3d at 1237 ("The central principle of [the] federal enclave doctrine is that Congress has exclusive legislative authority over these enclaves."). And as the Court discussed in its March 2016 Opinion, this so-called "federalized" state law can confer on federal courts subject-matter jurisdiction over claims that would otherwise be matters of state law, such as the contract disputes at issue here. See March 2016 Opinion, at *3 (citing Allison, 689 F.3d at 1235).

D. This Court Erred in its March...