Kormendi/Gardner Partners v. Surplus Acquis. Vent.

• Decision Date: 31 March 2009
• Docket Number: Civil Action No. 08-00423 (HHK).
• Citation: 606 F.Supp.2d 114
• Parties: KORMENDI/GARDNER PARTNERS, Plaintiff, v. SURPLUS ACQUISITION VENTURE, LLC, et al., Defendants.
• Court: U.S. District Court — District of Columbia

Page 114

606 F.Supp.2d 114

KORMENDI/GARDNER PARTNERS, Plaintiff, v. SURPLUS ACQUISITION VENTURE, LLC, et al., Defendants.

Civil Action No. 08-00423 (HHK).

United States District Court, District of Columbia.

March 31, 2009.

Kenneth B. Weckstein, Silver Spring, MD, Howard A. Wolf-Rodda, Brown Rudnick, LLP, Washington, DC, for Plaintiff.

Craig A. Holman, Matthew Dwight Michael, Arnold & Porter LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION

HENRY H. KENNEDY, JR., District Judge.

Kormendi/Gardner Partners ("KGP") brings this action as a third-party beneficiary of a contract between a United States Department of Defense agency, Defense Reutilization and Marketing Service ("DRMS"), and Surplus Acquisition Venture, LLC and Government Liquidation.Com, LLC (collectively "Surplus"). The complaint, which seeks damages for breach of contract or, in the alternative, a recovery in quantum meruit, was filed in the Superior Court of the District of Columbia ("Superior Court"). Surplus removed the action to this court.

Before the court are KGP's motion to dismiss (# 4) and its motion remand this action to the Superior Court [# 9]. Upon consideration of the motions, the oppositions thereto, and the record of this case, the court concludes that KGP's motion to remand should be granted and its motion to dismiss likewise should be remanded to the Superior Court.

I

The facts material to the issues presented by KGP's motion to remand are as follows. KGP provided financial advisory services to DRMS in connection with the sale by DRMS of military surplus property on the private market. KGP and DRMS agreed that KGP would be paid a percentage of the net proceeds of these sales directly by the purchaser of the property. At some point thereafter, Surplus contracted with DRMS to purchase military surplus property from DRMS and to resell this property on the open market. Pursuant to the terms of its contract with DRMS, Surplus paid a percentage of the purchase price and a percentage of the resale price to KGP. According to KGP, DRMS and Surplus subsequently modified their contract to eliminate the payments to KGP without KGP's consent.

II

KGP argues that this case should be remanded to the Superior Court because this court does not have subject matter jurisdiction. Surplus rejoins that this court has subject matter jurisdiction over KGP's claim for two reasons. First, Surplus argues that disputes, like this one, that arise from federal government contracts or contracts involving a uniquely federal interest must be resolved under federal common law, and thus are properly brought in federal court.¹ Second, Surplus argues that this court has jurisdiction under the Federal Officer Removal Statute, 28 U.S.C. § 1442(a)(1) ("FORS"), because KGP's alleged damages resulted from a contract modification initiated by DRMS. Surplus' arguments are without a merit.

A. Federal Question

Although Surplus does not contest that KGP's complaint seeks relief under state law, Surplus argues that federal question jurisdiction exists because: (1) federal common law must be applied to federal government contracts, and (2) the contract at issue involves an area of unique federal interest in which federal law displaces state law. Neither argument is availing.

1. Federal Government Contracts

Surplus contends that federal common law pre-empts state law² when the claim involves a federal government contract. According to Surplus, the court must apply federal common law to KGP's claim because the contract giving rise to KGP's claim was awarded to Surplus by a federal agency. KGP rejoins that its complaint does not seek relief pursuant to federal law and that federal question jurisdiction does not exist simply because principles of federal law may govern the interpretation and enforcement of the contract. KGP is correct.

With very few exceptions, "[t]he presence or absence of federal question jurisdiction is governed by the `well-pleaded complaint rule,' which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987) (citation omitted). Under this rule, plaintiff is "the master of the claim" and "may avoid federal jurisdiction by exclusive reliance on state law." Id. KGP's complaint sets forth a state law cause of action for breach of contract. KGP's complaint does not seek relief pursuant to federal law or set forth any claim that relies on federal law.

Surplus attempts to circumvent the "well-pleaded complaint rule" by arguing that federal common law pre-empts state law because KGP is bringing suit as a third party beneficiary of a contract between Surplus and a federal agency. Surplus' argument cannot be sustained. It is "settled law that a case may not be removed to federal court on the basis of a federal defense, including the defense of pre-emption." Id. at 393, 107 S.Ct. 2425. This bar to removal applies "even if the defense is anticipated in the plaintiff's complaint." Id. Furthermore, the fact that Surplus might ultimately prove that KGP's claims are pre-empted still "does not establish that [the claim is] removable to federal court."³ Id. at 398, 107 S.Ct. 2425. As KGP brings a state-law breach-of-contract claim that does not arise under or seek relief pursuant to federal law, Surplus' removal of this case invoking this court's federal question jurisdiction cannot be sustained.

2. The Boyle Exception

In Boyle v. United Technologies Corp., 487 U.S. 500, 504, 108 S.Ct. 2510, 101 L.Ed.2d 442 (1988), the Supreme Court set forth an exception to the general rule that state law is not displaced by federal law absent "a clear statutory prescription" or a direct conflict between the two bodies of law. This exception applies when two criteria are met: first, the case must involve "an area of uniquely federal interest"; and second, there must exist "a significant conflict . . . between an identifiable federal policy or interest and the [operation] of state law." Id. at 507, 108 S.Ct. 2510 (internal quotation omitted). The party seeking to displace state law bears the burden of demonstrating that both conditions exist. Id.

Boyle was a military procurement case concerning the imposition of civil tort liability on a government contractor for manufacturing a helicopter with an allegedly defective escape hatch, id. at 502-03, 108 S.Ct. 2510, that had been manufactured according to government specifications, id. at 509, 108 S.Ct. 2510. The Boyle court held that "the procurement of equipment by the United States is an area of uniquely federal interest," id. at 507, 108 S.Ct. 2510, and that the design allegedly required by state law was "precisely contrary" to the design specified by the government contract, id. at 509, 108 S.Ct. 2510. Accordingly, the Boyle court held that federal jurisdiction existed because imposing tort liability on contractors for following government specifications in the procurement context would "directly affect the terms of Government contracts: either the contractor will decline to manufacture the design specified by the Government, or it will raise its price." Id. at 507, 108 S.Ct. 2510.

Surplus argues that Boyle governs here. Specifically, Surplus contends that the sale of surplus military property implicates unique federal national security interests and that a significant conflict may exist between federal and state law in the interpretation of the contracts governing those sales. KGP counters that there are no national security or uniquely federal interests implicated in the government's disposal of surplus or scrap property. KGP further contends that there are no significant conflicts between state and federal law with respect to the rights of third-party beneficiaries.

The court agrees with KGP. This case does not involve tort claims arising from military procurement but rather contract claims relating to the disposal of surplus federal property; as such, it does not fall within the Boyle rule that military procurement implicates a unique federal interest. See id. at 507, 108 S.Ct. 2510. Indeed, the claims raised by KGP do not implicate unique federal interests at all: KGP seeks relief from a private litigant; and a judgment in KGP's favor will not affect the federal government's ability to dispose of surplus military property.⁴ Thus, this case is more like Miree v. DeKalb County, 433 U.S. 25, 97 S.Ct. 2490, 53 L.Ed.2d 557 (1977), than it is like Boyle. Miree involved the question of "whether certain private parties could sue as third-party beneficiaries to an agreement between a municipality and the Federal Aviation Administration." Boyle, 487 U.S. at 506, 108 S.Ct. 2510 (citing Miree, 433 U.S. at 30, 97 S.Ct. 2490.) The court held that federal common law did not govern the action based on its conclusion that "the resolution of petitioners' breach-of-contract claim against respondent [would] have no direct effect upon the United States or its treasury." Miree, 433 U.S. at 29, 97 S.Ct. 2490. As in Miree, the claims here will have no direct effect on the United States or its treasury. See id. Accordingly, the court rejects Surplus' contention that federal jurisdiction exists under Boyle.⁵

B. Federal Officer Removal Statute

The FORS is an exception to the well-pleaded complaint rule and permits a defendant to remove an action to federal court if the action is brought against "[t]he United States or any agency thereof or any officer (or any person acting under that officer) of the United States or of any agency thereof, sued in an official or individual capacity for any act under color of such office . . . ." 28 U.S.C. § 1442(a)(1) (emphasis added); see Mesa v. California, 489 U.S. 121, 136, 109 S.Ct. 959, 103 L.Ed.2d 99 (1989) ("The removal statute itself merely serves to overcome the `well-pleaded complaint' rule which would otherwise...