Reimers v. Farm Credit Services AgCountry, Civ. No.: A3-00-168 (D. N.D. 6/22/2001)

Decision Date22 June 2001
Docket NumberCiv. No.: A3-00-168.
PartiesDale Reimers, James Reimers, Lawrence Reimers, Reimers Joint Venture and Reimers Land Co., Plaintiffs, v. Farm Credit Services AgCountry, ACA and Great American Insurance Companies, Defendants.
CourtU.S. District Court — District of North Dakota
MEMORANDUM AND ORDER

RODNEY S. WEBB, Chief Judge.

Before the Court is defendant Great American Insurance Companies' (Great American) motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. #12). Plaintiffs resist dismissal. (Doc. #21). Defendant Farm Credit Services AgCountry, ACA, (AgCountry) has not joined Great American's motion and takes no position with regard to dismissal. The motion came on for hearing on June 11, 2001; at the close of the hearing, the matter was taken under advisement. Upon consideration of the matter, along with a review of the entire file and in light of the parties arguments, the Court determines that this case was improperly removed to federal court and hereby REMANDS it to District Court, for Stutsman County, State of North Dakota.

I. Background

This case involves five farmers which had federally reinsured "multi-peril" crop insurance (MPCI) policies issued by Great American, an Ohio corporation. The farmers obtained the MPCI policies through AgCountry a federally chartered corporation headquarter in Fargo, North Dakota. During the crop year of 1999, the farmers made claims for crop losses based on the MPCI policies. Some of the claims were paid by Great American and some were not. The farmers appealed the denials to the Risk Management Services Agency (RMA). RMA supported Great American's decisions.

In November 2000, plaintiffs filed this action in Stutsman County District Court for the State of North Dakota. The complaint set forth five claims: breach of contract; professional negligence; misrepresentation and fraud; a statutory violation of the North Dakota Insurance Code, ch. 26.1-04 of the N.D. Century Code; and a statutory violation of the North Dakota Consumer Fraud Code, ch. 51-15 of the N.D. Century Code. Defendants jointly removed the case to this Court ostensibly on the basis of federal question jurisdiction (28 U.S.C. § 1331) and the Federal Crop Insurance Act (FCIA), 7 U.S.C. § 1501, et. seq. Plaintiffs did not challenge the removal. Nevertheless, the Court has a sua sponte duty to examine whether jurisdiction is appropriate in federal court. See Magee v. Exxon Corp., 135 F.3d 599, 601 (8th Cir. 1998) (explaining that subject-matter jurisdiction cannot be waived).

II. Analysis

A defendant may remove a state court case to federal court only if the claim originally could have been filed in federal court. See 28 U.S.C. § 1441(a), (b); Gore v. Trans World Airlines, 210 F.3d 944, 948 (8th Cir. 2000). Where, as here, there is no diversity jurisdiction, federal question jurisdiction (or some other basis for federal jurisdiction) must exist for removal to be proper. See Trans World, 210 F.3d at 948. Whether federal question jurisdiction exists is determined by the "well-pleaded complaint" rule which provides that a federal question must be presented on the face of the complaint to invoke federal court jurisdiction. See id. A defendant is not permitted to inject a federal question into an otherwise state law claim and thereby transform the action into one arising under federal law. Id. Put differently, a federal defense is not a basis for removal. Id. This is so because the plaintiff is the master of the complaint and allowing removal on the basis of a federal defense would deprive the plaintiff of that right. Id.

There are exceptions, however, to the well-pleaded complaint rule. The doctrine of complete preemption is one such exception. Id. at 949. Complete preemption "converts an ordinary state-law claim into a federal claim where the pre-emptive force of a statute is so extraordinary that it converts an ordinary state common-law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule." Id. (internal quotations omitted). Thus, the doctrine of complete preemption is a jurisdictional conferring doctrine. See Gaming Corp. of America v. Dorsey & Whitney, 88 F.3d 536, 543 (8th Cir. 1996).

In that respect, complete preemption is far different from preemption used only as a defense to a lawsuit. See id. Defensive preemption may prevent a claim from proceeding, in either state or federal court, but it does not create federal jurisdiction where it is otherwise lacking.1 See id. In contrast, as the Supreme Court has explained, "once an area of state law has been completely pre-empted, any claim purportedly based on that pre-empted state law is considered, from its inception, a federal claim, and therefore arises under federal law." See Magee, 135 F.3d at 601 (quoting Caterpillar Inc. v. Williams, 482 U.S. 386, 393 (1987)). Whether federal law completely preempts a state law cause of action is a question of congressional intent: Congress must have clearly manifested an intent to make a cause of action pleaded under state law removable to federal court. Id. at 601-02.

Courts are reluctant to find this "extraordinary pre-emptive power" absent clear direction from Congress. See Gaming Corp. of America, 88 F.3d at 543; Magee, 135 F.3d at 602. As a testament to the rare and extraordinary nature of this doctrine, the Supreme Court has recognized complete preemption in only three areas: actions under § 502(a) the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132(a); actions under § 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 185; and in the area of Native American possessory interest in lands obtained by treaty. See Gaming Corp. of America, 88 F.3d at 543. The Eighth Circuit has extended the doctrine to only a few other areas of special federal interest including the Federal Railroad Safety Act, 45 U.S.C. § 434, the Railway Labor Act, 45 U.S.C. § 151, et. seq., and the Indian Gaming Regulatory Act, 25 U.S.C. § 2701, et. seq. Id.

In this case, the parties agree and the Court concurs that the only arguable basis for federal jurisdiction is the complete preemption doctrine.2 Diversity jurisdiction is lacking and no federal cause of action is stated on the face of the complaint. Plaintiffs simply claim five state law claims including breach of contract, professional negligence, misrepresentation and fraud, and two statutory violations of North Dakota Century Code. Thus, the question is whether the FCIA so completely preempts state law, that the plaintiffs' state law claims against the defendants are considered to arise from federal law. If complete preemption does not exist, the case must be remanded for lack of jurisdiction. See Magee, 135 F.3d at 602.

This Court is not the first to face this precise issue. While the Eighth Circuit has not spoken, several other district courts and one circuit court have. The majority holds that the FCIA does not completely preempt state law causes of action. See Holman v. Laulo-Rowe Agency, 994 F.2d 666, 669 (9th Cir. 1993); Halfmann v. USAG Ins. Servs., Inc., 118 F.Supp.2d 714 (N.D. Tex. 2000); Bullard v. Southwest Crop Ins. Agency, Inc., 984 F.Supp. 531 (E.D. Tex. 1997); Horn v. Rural Cmty. Ins. Servs., 903 F.Supp. 1502 (M.D. Ala. 1995); Hyzer v. Cigna Prop. Cas. Ins. Co., 884 F.Supp. 1146 (E.D. Mich. 1995); O'Neal v. Cigna Prop. Cas. Ins. Co., 878 F.Supp. 848 (D. S.C. 1995).

In fact, only two district courts have held in favor of complete preemption under the FCIA. See Brown v. Crop Hail Mgmt., Inc., 813 F.Supp. 519 (S.D. Tex. 1993); Owen v. Crop Hail Mgmt., 841 F.Supp. 297 (W.D. Mo. 1994). These cases have been roundly criticized. See Bullard, 984 F.Supp. at 536 (declining to follow Brown); Halfmann, 118 F.Supp.2d at 717 (disagreeing with Brown and siding with Bullard); Horn, 903 F.Supp. at 1505 (Brown interpretation is contrary to plain language of statute); Hyzer, 884 F.Supp. at 1150 (disregarding the Brown and Owen cases and following instead the Ninth Circuit's opinion).

In addition, several other courts have determined that the FCIA and its regulations do not preempt state law causes of action under the defense of federal preemption. See Meyer v. Conlon, 162 F.3d 1264, 1268 (10th Cir. 1998) (federal law does not preempt state law causes of action consistent with the FCIA and FCIC regulations); Williams Farms of Homestead v. Rain and Hail Ins. Servs., Inc., 121 F.3d 630, (11th Cir. 1997) (Congress did not draft the FCIA to expressly preempt state law claims, nor does the wording of the statute or its legislative history evince an intent to preempt state law claims); Nobles v. Rural Cmty. Ins. Servs., 122 F.Supp.2d 1290, 1294-95 (M.D. Ala. 2000) (the Act in no way prevents farmers from suing their private insurance company when that insurance company denies their claim). These cases are persuasive since it follows that if the FCIA does not rise to the level of defensive preemption, then it likewise does not rise to the extraordinary level of complete preemption.

Having considered both positions, the Court is persuaded that the majority is correct: the FCIA does not have the extraordinary preemptive force necessary for the application of the doctrine of complete preemption.3 See, e.g., Holman, 994 F.2d at 669. First, the text and jurisdictional framework of the statute, do not indicate such an extraordinary preemptive force. The FCIA contains no section or language expressly limiting the right to bring state causes of action against private insurers in state court. In contrast, the FCIA grants exclusive federal jurisdiction over actions against the FCIC. Section 1506(d) provides, in part:

The Corporation [FCIC] subject to the [statute of limitations] may sue and be sued in its corporate name . . . . The district courts of the United States . . . shall have exclusive original jurisdiction, without regard to the amount in controversy, of all...

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