Napoleon Hardwoods, Inc. v. Professionally Designed Benefits, Inc., 92-1511

• Decision Date: 27 January 1993
• Docket Number: No. 92-1511,92-1511
• Citation: 984 F.2d 821
• Parties: 16 Employee Benefits Cas. 1637 NAPOLEON HARDWOODS, INC., Plaintiff-Appellee, v. PROFESSIONALLY DESIGNED BENEFITS, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 821

984 F.2d 821

16 Employee Benefits Cas. 1637

NAPOLEON HARDWOODS, INC., Plaintiff-Appellee, v. PROFESSIONALLY DESIGNED BENEFITS, INC., Defendant-Appellant.

No. 92-1511.

United States Court of Appeals Seventh Circuit.

Submitted Dec. 1, 1992.

Decided Jan. 27, 1993.

Larry L. Eaton, Eaton & Romweber, Versailles, IN, for plaintiff-appellee.

Charles A. Sweeney, Jr., Sweeney, Pfeifer & Blackburn, South Bend, IN, Barry N. Bitzegaio, Timothy J. Naville, Lorch & Naville, New Albany, IN, for defendant-appellant.

Before BAUER, Chief Judge, POSNER, Circuit Judge, and WILL, Senior District Judge. ^*

WILL, Senior District Judge.

This suit was originally filed in Indiana state court by Napoleon Hardwoods (Napoleon) which alleged that Professionally Designed Benefits (PDB) had breached a contract to obtain insurance and negligently performed a duty arising under a contract to procure insurance. PDB petitioned to have the case removed to federal court on the basis of asserted ERISA issues. The case was removed, and the magistrate judge found that there was federal question jurisdiction under ERISA, 29 U.S.C. § 1132(e). A bench trial followed at which the magistrate judge found that the defendant had been negligent in procuring insurance. Napoleon had been sued in state court by a former employee who had tried to elect continued health coverage under the COBRA ¹ amendments to ERISA, but had been unsuccessful because of the events surrounding Napoleon's change of insurance carriers. Napoleon had been forced to pay for over $17,000 in medical bills, plus $80,000 in punitive damages following the state court action. It sought to recover these amounts from PDB. The magistrate judge awarded plaintiff $17,201 damages--the amount of the medical bills--but denied indemnification for the amount of the punitive damages, finding that would be contrary to state policy. This appeal followed.

Although several challenges were made to the court's findings of fact and conclusions of law, it is not necessary to give further facts from this case since we rest our decision on the jurisdictional issue raised.

* * * * * *

It is perhaps unseemly for a defendant, which asked for a suit to be removed to federal court, to claim there is no federal jurisdiction because it is displeased with the outcome. However, since jurisdiction cannot be waived, and, if in doubt, we would even have to raise it sua sponte, the issue must be addressed. Mansfield, Coldwater & Lake Michigan Railway Co. v. Swan, 111 U.S. 379, 382, 4 S.Ct. 510, 511, 28 L.Ed. 462 (1884). Jurisdiction cannot be based on consent of the parties; even the party which invoked federal jurisdiction may later challenge it as PDB has done here. American Fire & Casualty Co. v. Finn, 341 U.S. 6, 17-18, 71 S.Ct. 534, 541-42, 95 L.Ed. 702 (1951).

Under 28 U.S.C. § 1331, district courts have federal question jurisdiction in civil cases "arising under the Constitution, laws, or treaties of the United States." The test for whether a case arises under the Constitution or laws of the United States was explained in Franchise Tax Board v. California Laborers Vacation Trust, 463 U.S. 1, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). Under the well-pleaded complaint rule, federal law must create the cause of action, or some substantial, disputed question of federal law must be an element in the claim. Franchise Tax Board, 463 U.S. at 27-28, 103 S.Ct. at 2855-56. Napoleon's claim for breach of a contract or negligent performance of a duty imposed by a contract to procure insurance is a state law claim. It is not a cause of action created by federal law. Thus, the only basis of jurisdiction would be if a substantial question of federal law was an element of Napoleon's state law claim. Napoleon's complaint mentions COBRA twice. One is in a factual allegation--that a former employee, James Peetz elected coverage under COBRA. This is not a disputed issue. The second is that Napoleon is responsible under COBRA for Peetz to be able to continue his...