Milan Exp. Co., Inc. v. Western Sur. Co.

• Decision Date: 22 September 1989
• Docket Number: No. 88-5960,88-5960
• Citation: 886 F.2d 783
• Parties: MILAN EXPRESS COMPANY, INC.; Nashville Country Express, Inc., Plaintiffs-Appellants, v. WESTERN SURETY COMPANY; Old Republic Surety Company; Lawyers Surety Corporation; Northwest National Insurance Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 783

886 F.2d 783

MILAN EXPRESS COMPANY, INC.; Nashville Country Express Inc., Plaintiffs-Appellants, v. WESTERN SURETY COMPANY; Old Republic Surety Company Lawyers Surety Corporation; Northwest National Insurance Company, Defendants-Appellees.

No. 88-5960.

United States Court of Appeals Sixth Circuit.

Argued April 11, 1989.

Decided Sept. 22, 1989.

William P. Sutherland, Watkins, McGugin, McNeilly & Rowan, Nashville, Tenn., Henry E. Seaton, III (argued), Washington, D.C., for plaintiffs-appellants.

Charles W. McElroy, Eugene N. Bulso, Jr. (argued), Boult, Cummings, Conners &amp Berry, Nashville, Tenn., Lawrence V. Smart, Jr., Portland, Or., for defendants-appellees.

Herbert Liebman, Frankfort, Ky., Lawrence E. Lindeman, Alexandria, Va., Ad-Hoc Committee to end Broker Abuses (ACTEBA).

Before KEITH and KENNEDY, Circuit Judges; and MCQUADE, ^* District Judge.

KEITH, Circuit Judge.

Plaintiff motor carriers appeal from a district court order denying their motion for class certification and dismissing their freight-bonding action for lack of subject matter jurisdiction. Plaintiffs contend that their case arose under an act of Congress regulating commerce. 28 U.S.C. Sec. 1337(a). As payment for transportation services provided to allegedly delinquent property brokers, plaintiff motor carriers seek the proceeds of surety bonds prescribed by the Interstate Commerce Commission (ICC), pursuant to federal statutes and regulations. 49 U.S.C. Sec. 10927(b); 49 C.F.R. Sec. 1043.4(b). Defendant surety companies argue that because the disputed bonds must be interpreted and enforced in accordance with state law, the district court properly concluded that there is no federal question. For the reasons that follow, we REVERSE.

I.

A.

In the interstate surface transportation industry, the ICC licenses property brokers: middlemen who arrange transportation services between motor carriers and shippers of various products. Surety companies post bonds on behalf of the brokers, who bill the shippers and pay the motor carriers they retain. Each bond carries a penalty limited to $10,000.00. In the case at bar, the brokers received payments from the shippers for freight, but allegedly failed to disperse payments to the plaintiff motor carriers. Plaintiffs then sought to recover against the bonds posted on behalf of the brokers. Defendants denied plaintiffs' claims because the surety agreement's language discussed only the "protection of travelers and shippers," and did not name "motor carriers." See Broker's Surety Bond Under Section 211(c) of the Interstate Commerce Act, Form BMC-84 (Rev.1977).

To protect motor carriers and the shipping public, the ICC will issue a broker's license only if the applicant files a bond or other type of security approved by the ICC. 49 U.S.C. Sec. 10927(b). If a bond is filed, the broker must use the ICC's prescribed Form BMC-84. See 49 C.F.R. Sec. 1043.4(b). The original language of Form BMC-84 identified travelers and shippers, but not motor carriers, as the intended beneficiaries of the bonds. However, on April 9, 1987, the ICC defined the parameters of its insurance regulations, stating that it "has always interpreted the security offered by brokers to cover both shippers and motor carriers." Clarification of Insurance Regulations, 3 I.C.C.2d 689, 692 (1987). "As a matter of clarity," the ICC concluded, "we are modifying the language of the prescribed Broker Surety Bond, Form BMC-84 (Rev. 77), to specifically identify motor carriers as well as shippers as entities included within the intended statutory coverage." Id. See also Broker's Surety Bond Under 49 U.S.C. Sec. 10927, Form BMC-84 (Rev.1987) [hereinafter Form BMC-84].

B.

On September 16, 1987, plaintiffs brought this civil action pursuant to 28 U.S.C. Sec. 2201, seeking a declaratory judgment that they are the obligees under the bonds upon which defendants stand as surety. The original complaint asserted jurisdiction on the basis of diversity of citizenship. After defendants filed a motion to dismiss plaintiffs' complaint on October 28, 1987, plaintiffs moved for leave to amend their complaint. The district court granted plaintiffs' motion on December 29, 1987. In the amended complaint, the plaintiffs asserted both diversity jurisdiction, pursuant to 28 U.S.C. Sec. 1332, and subject matter jurisdiction, pursuant to 28 U.S.C. Sec. 1337(a).

On January 6, 1988, the district court referred this action to a magistrate for a report and recommendation on the various motions. On January 19, 1988, defendants subsequently filed a motion to dismiss the amended complaint for lack of subject matter jurisdiction. Plaintiffs moved, on March 11, 1988, to have this action certified as a class action.

The magistrate's report and recommendation was filed on May 2, 1988, urging that defendants' motion to dismiss be granted, and that plaintiffs' motion for class certification be denied. On June 3, 1988, plaintiffs filed objections to the magistrate's report. After making a de novo determination on the record, the district court on August 1, 1988, issued an order that adopted the magistrate's report and recommendation; denied plaintiffs' motion for class certification; and dismissed plaintiffs' case.

Plaintiffs filed a timely notice of appeal on August 23, 1988. Although plaintiffs present several arguments on appeal, only one issue is properly before this court: whether the district court erred in dismissing plaintiffs' freight-bonding action for lack of subject matter jurisdiction, pursuant to 28 U.S.C. Sec. 1337(a). ¹

II.

A.

The ICC, established by Congress in 1887, is "conventionally cited as the first of the modern administrative agencies." Fallon, Of Legislative Courts, Administrative Agencies, and Article III, 101 Harv.L.Rev. 915, 923 & n. 50 (1988). Decisions of the ICC and disputes involving the federal regulation of interstate commerce have historically been reviewed by the federal court. See Peyton v. Railway Express Agency, 316 U.S. 350, 62 S.Ct. 1171, 86 L.Ed. 1525 (1942); Louisville & Nashville R.R. Co. v. Rice, 247 U.S. 201, 38 S.Ct. 429, 62 L.Ed. 1071 (1918); Fallon, supra, at 923 & n. 50. By statute, Congress has established federal jurisdiction over such disputes:

The district courts shall have original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating commerce or protecting trade and commerce against restraints and monopolies.

28 U.S.C. Sec. 1337(a).

To determine which civil actions fall within, and which civil actions fall outside, the subject matter jurisdiction of the district courts, this court has adopted a familiar definition of the statutory phrase "arising under." Ford Motor Co. v. Transport Indemnity Co., 795 F.2d 538 (6th Cir.1986), we explained that:

"Arising under" for purposes of Section 1337(a) is interpreted similarly to the analogous "arising under" language in Section 1331, 28 U.S.C. Sec. 1331. See Peyton v. Railway Express Agency, Inc., 316 U.S. 350 [62 S.Ct. 1171, 86 L.Ed. 1525] (1942) (per curiam); Michigan Savings & Loan League v. Francis, 683 F.2d 957, 960 n. 6 (6th Cir.1982). An action will arise under a statute regulating commerce, therefore, if a federal right created by the statute is essential to the cause of action. See, e.g., Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 9 [, 103 S.Ct. 2841, 2846, 77 L.Ed.2d 420] (1983); Gully v. First National Bank in Meridian, 299 U.S. 109, 112 [, 57 S.Ct. 96, 97, 81 L.Ed. 70] (1936).

Ford Motor Co., 795 F.2d at 543-44 (emphasis added).

An examination of the relevant federal statute is often sufficient to establish the existence or lack of subject matter jurisdiction. However, in some cases, an evaluation of additional sources and the circumstances surrounding the dispute may also be required. One leading commentator has suggested that the "federal law that will support federal question jurisdiction may be the Constitution, a statute of the United States, an administrative regulation, or a treaty." C. Wright, The Law of the Federal Courts 97 (4th ed.1983). Moreover, in Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986), the Supreme Court explained that jurisdictional legislation must be interpreted " 'in light of the history that produced it, the demands of reason and coherence, and the dictates of sound judicial policy.' " Id. at 810, 106 S.Ct. at 3233 (quoting Romero v. International Terminal Operating Co., 358 U.S. 354, 379, 79 S.Ct. 468, 484, 3 L.Ed.2d 368 (1959)).

B.

In urging us to find federal jurisdiction in the case at bar, plaintiffs have directed our attention to the forms, rules, regulations, and administrative decisions of the ICC, as well as the Interstate Commerce Act ("the Act"). See 49 U.S.C. Sec. 10101 et seq. Historically, the Act initiated the federal regulation of interstate commerce, offering access and protection to public users and commercial providers of interstate transportation. See, e.g., Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 256, 85 S.Ct. 348, 357, 13 L.Ed.2d 258 (1964). To insure that property brokers meet their financial responsibilities to commercial providers in the surface transportation industry, Congress has conferred upon the ICC the power to grant, deny or revoke brokers' licenses. See 49 U.S.C. Sec. 10927(b). Recently, the ICC emphasized that:

The legislative history of [Section 10927(b) ] of the [A]ct clearly reveals that the primary purpose of Congress in regulating motor transportation brokers is to protect [motor] carriers and the traveling and shipping public against dishonest and financially unstable middlemen in the transportation industry.

Clarification of Insurance Regulations, 3 I.C.C.2d 689, 691 (1987) (emphasis added) (quoting Carla Ticket Service, Inc., Broker Application, 94 M.C.C. 579, 580 (1964)).

On appeal, plaintiff motor carriers contend that a substantial body...