Newton v. Capital Assurance Company, PLAINTIFF-APPELLEE

• Decision Date: 20 April 2000
• Docket Number: No. 98-7015,99-10305,DEFENDANT-APPELLANT,PLAINTIFF-APPELLEE,98-7015
• Citation: 209 F.3d 1302
• Parties: (11th Cir. 2000) ALEX W. NEWTON,, v. CAPITAL ASSURANCE COMPANY, INC.,
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1302

209 F.3d 1302 (11th Cir. 2000)

ALEX W. NEWTON, PLAINTIFF-APPELLEE, v. CAPITAL ASSURANCE COMPANY, INC., DEFENDANT-APPELLANT.

No. 98-7015, 99-10305.

United States Court of Appeals, Eleventh Circuit.

April 20, 2000

Appeals from the United States District Court for the Southern District of Alabama.

Before Anderson, Chief Judge, and Cox and Hull, Circuit Judges.

Cox, Circuit Judge

Capital Assurance Company, Inc. appeals the award of prejudgment interest in an insurance contract action based on a federally-subsidized Standard Flood Insurance Policy it issued under Part B of the National Flood Insurance Act of 1968, 42 U.S.C. §§ 4001-4041, 4071-4129 (1994 & Supp. II 1996) (NFIA). We address, for the first time in this circuit, whether a district court violates sovereign immunity principles by awarding prejudgment interest against a so-called "Write-Your-Own" company empowered to issue flood insurance by the Federal Emergency Management Agency. We hold that it does not.

I. Background

Alex W. Newton (Newton) owns a vacation home on the Gulf of Mexico in Orange Beach, Alabama. Capital Assurance Company, Inc. (Capital) sold Newton a federally-subsidized Standard Flood Insurance Policy (SFIP) covering the property. The Federal Emergency Management Agency (FEMA) utilizes "Write-Your-Own" (WYO) companies like Capital to aid it in its statutory duty to administer the National Flood Insurance Program (NFIP). See 42 U.S.C. § 4081(a) (permitting FEMA's Director to enter into arrangements with private insurance companies in order to make use of their "facilities and services"); 44 C.F.R. § 62.23(a)-(d) (establishing the WYO program to permit private insurers to sell and administer SFIPs). In 1995 Newton's home suffered extensive flood damage from Hurricane Opal, and Newton filed a claim. ¹

After Capital denied a portion of Newton's claim, Newton sued in an Alabama state court. The defendants removed the case to the United States District Court for the Southern District of Alabama, asserting original jurisdiction under 28 U.S.C. § 1331 and 42 U.S.C. § 4053. Following a bench trial, the court awarded Newton compensatory damages, prejudgment interest, and costs. Capital appeals only the award of prejudgment interest. ²

II. Subject-Matter Jurisdiction

Although neither party has challenged the subject-matter jurisdiction of the federal courts over this suit, we are compelled to address the question sua sponte, see, e.g., University of South Ala. v. American Tobacco Co., 168 F.3d 405, 410 (11th Cir.1999), because both the record and answers we received to questions posed at oral argument evidence some confusion on the issue. In the district court, Newton at first filed a motion to remand for lack of federal-question jurisdiction. Capital opposed the motion, again asserting jurisdiction under 28 U.S.C. § 1331 and 42 U.S.C. § 4053. For reasons unclear from the record, Newton later conceded federal-question jurisdiction. We now clarify that the district court had federal question jurisdiction under 28 U.S.C. § 1331.

There are three statutes that potentially affect federal-question jurisdiction in this case: the general "arising under" jurisdiction provision of 28 U.S.C. § 1331 and two provisions of the NFIA, 42 U.S.C. § 4053 and 42 U.S.C. § 4072. We begin by dispensing with § 4053; Capital's reliance on that section was misplaced. Under 42 U.S.C. § 4041, the Director of FEMA may implement the NFIP using one of two different institutional structures, each of which specifies a different role for private insurance companies. The first scheme, described in 42 U.S.C. §§ 4051-4056, includes a provision for suing private insurers, § 4053. The NFIP is, however, not currently implemented under that scheme. It is instead implemented under the alternative structure set forth in 42 U.S.C. §§ 4071-4072. See Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 165 (3d Cir.1998). It is thus clear from the statute and the current implementation of the program that § 4053 does not apply to this suit.

We next turn to 28 U.S.C. § 1331. Under that section, federal courts have federal-question jurisdiction over suits "in which a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law." See Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 27-28, 103 S.Ct. 2841, 2856, 77 L.Ed.2d 420 (1983). While the federal cause of action or question of federal law must be apparent from the face of the well-pleaded complaint and not from a defense or anticipated defense, see Franchise Tax Bd., 463 U.S. at 9-11, 103 S.Ct. at 2846-47, it need not be statutory; federal common law will suffice, see National Farmers Union Ins. Co. v. Crow Tribe, 471 U.S. 845, 850, 105 S.Ct. 2447, 2451, 85 L.Ed.2d 818 (1985). Here, the complaint alleged, among other things, breach of an SFIP contract. SFIP contracts are interpreted using principles of federal common law rather than state contract law. See, e.g., Carneiro Da Cunha v. Standard Fire Ins. Co./Aetna Flood Ins. Program, 129 F.3d 581, 584 (11th Cir.1997) (" 'As contracts, the standard policies issued under the Program are governed by federal law, applying "standard insurance law principles." ' " (quoting Wright v. Director, Fed. Emergency Management Agency, 913 F.2d 1566, 1570 (11th Cir.1990))). Thus a complaint alleging breach of an SFIP satisfies § 1331 by raising a substantial federal question on its face.

This leaves us only to question whether 42 U.S.C. § 4072, the provision for suits against FEMA under the NFIP as currently implemented, affects our jurisdiction. On its face, § 4072 provides only for suits against FEMA. It does not discuss the WYO program, and we therefore do not read it as addressing suits against WYO companies. It does not, therefore, abrogate § 1331 jurisdiction. See Carneiro Da Cunha, 129 F.3d at 586-87 (implicitly recognizing federal subject-matter jurisdiction over a suit against a WYO company after the implementation of § 4072). We need not consider the opposite question: whether it provides an additional basis for jurisdiction against WYO companies, see Van Holt, 163 F.3d at 165-66 (finding WYO companies subject to jurisdiction under § 4072 (as well as § 1331) because a suit against a WYO company is the "functional equivalent" of a suit against FEMA), because our conclusion regarding jurisdiction under § 1331 is sufficient to answer the jurisdictional question we raise.

III. The No-Interest Rule

The issue Capital presents in this appeal is whether prejudgment interest awards in suits against WYO companies selling federally-subsidized SFIP contracts violate the "no-interest rule"-the sovereign immunity principle that "[i]n the absence of express congressional consent to the award of interest separate from a general waiver of immunity to suit, the United States is immune from an interest award." Library of Congress v. Shaw, 478 U.S. 310, 314, 106 S.Ct. 2957, 2961, 92 L.Ed.2d 250 (1986). Although suits against WYO companies are not suits against the federal government, Capital nevertheless contends that prejudgment interest awards against WYO companies always violate the no-interest rule because such awards constitute-as a legal conclusion derived from the NFIA and its implementing regulations-"direct charge[s] on the public treasury." In re Estate of Lee, 812 F.2d 253, 256 (5th Cir.1987). Newton, on the other hand, argues that the controlling laws give the government no more than a "financial stake" in the payment of prejudgment interest by WYO companies, which is, as the district court held, insufficient by itself to invoke the no-interest rule in a given case. West v. Harris, 573 F.2d 873, 882 (5th Cir.1978). ³ We review the question de novo, see Powers v. United States, 996 F.2d 1121, 1123 (11th Cir.1993), and hold that the no-interest rule does not prohibit awards of prejudgment interest against WYO companies.

We start our analysis by recognizing that those circuits considering the question have, for important reasons, found the no-interest rule to bar awards of interest in suits directly against FEMA. See Sandia Oil Co. v. Beckton, 889 F.2d 258, 263 (10th Cir.1989) (holding, on reasoning equally applicable to awards of prejudgment interest, that postjudgment interest may not be awarded in suits directly against FEMA); Lee, 812 F.2d at 256. To begin with, the cases note that nothing in the NFIA indicates a Congressional waiver of immunity from interest awards. See Lee, 812 F.2d at 256; see also Sandia Oil, 889 F.2d at 262 (citing Lee ). Nor, as one court has further concluded, does the NFIP produce a profit for the federal government against which interest awards may sometimes be appropriate because the government's role resembles that of a profit-making, private entity. The NFIP is a subsidy program. ⁴ The holdings of our sister circuits are consistent with the Supreme Court's articulation of the no-interest rule. See Shaw, 478 U.S. at 314-17, 106 S.Ct. at 2961-63. Moreover, Newton concedes that both Lee and Sandia Oil were correctly decided. We use their conclusions as a starting point and examine the relationship between FEMA and WYO companies to determine whether the no-interest rule bars prejudgment interest awards against WYO companies as well.

Capital urges us to accept a dictum from the Fifth Circuit that any award of prejudgment interest against a flood insurer is "a direct charge on the public treasury" indistinguishable from identical awards in suits against FEMA itself and thus precluded by the no-interest rule. Lee, 812 F.2d at 256 (making the statement in the context of a suit directly against FEMA). Cf. Gowland v. Aetna, 143 F.3d 951, 954-55 (5th Cir.1998) (referring to Lee 's "direct charge" language and prohibiting application of the doctrine of equitable estoppel against a WYO company...