Rio Grande Underwriters v. Pitts Farms Inc., 01-40823

• Decision Date: 18 December 2001
• Docket Number: No. 01-40823,01-40823
• Citation: 276 F.3d 683
• Parties: (5th Cir. 2001) RIO GRANDE UNDERWRITERS, INC., Plaintiff-Appellant, v. PITTS FARMS, INC., Defendant-Appellee. Summary Calendar
• Court: U.S. Court of Appeals — Fifth Circuit

Page 683

276 F.3d 683 (5th Cir. 2001)

RIO GRANDE UNDERWRITERS, INC., Plaintiff-Appellant, v. PITTS FARMS, INC., Defendant-Appellee.

No. 01-40823

Summary Calendar

UNITED STATES COURT OF APPEALS, FOR THE FIFTH CIRCUIT

December 18, 2001

Appeal from the United States District Court for the Southern District of Texas

Before REAVLEY, HIGGINBOTHAM and WIENER, Circuit Judges.

REAVLEY, Circuit Judge:

Rio Grande Underwriters, Inc. (Rio Grande) appeals the district court's order dismissing, for lack of subject matter jurisdiction, its petition for a stay and order compelling arbitration. For the reasons that follow we AFFIRM.

Pitts Farms, an onion grower, filed suit in state court alleging state law claims against Rio Grande for its failure to procure the right crop insurance coverage on Pitts' behalf.¹ When Pitts Farms sustained losses to its onion crop, it found that the insurance policy in place failed to designate its red and yellow onions into separate units. According to Pitts Farms, the failure to designate the onion types as separate insurable units as permitted by federal regulations prevented Pitts from fully recovering for its losses.

Rio Grande seeks to avoid the litigation in state court by enforcing arbitration provisions in its contracts with Pitts Farms. Unable to obtain relief in state court, Rio Grande filed a petition in federal court requesting a stay and order compelling arbitration. Such relief is available in federal district court under the Federal Arbitration Act (FAA) only if the court would have had subject matter jurisdiction over the underlying civil action. 9 U.S.C. § 4. Although Rio Grande has suggested numerous bases for jurisdiction, the district court properly found them to be without merit.

First, Rio Grande argues that because its contracts with Pitts Farms relate to interstate commerce, it follows that the FAA applies and that the case may therefore be heard in federal court. This argument plainly misreads § 4 of the FAA. The FAA is not an independent source of jurisdiction. A party may obtain relief in federal court under the FAA only when the underlying civil action would otherwise be subject to the court's federal question or diversity jurisdiction. 9 U.S.C. § 4.

Rio Grande next argues that the FAA's preemption of the Texas General Arbitration Act creates a federal question. However, conflict preemption is a defense, not an independent basis for jurisdiction. Copling v. The Container Store, Inc.²

Appellant maintains that the state court petition states a claim directly under a federal regulation, and so contains a federal question on the face of the complaint. Despite confusing phrasing, a fair reading of the petition reveals an attempt to assert only state law claims. Pitts' allegations with respect to the regulation are simply that Rio Grande breached duties to Pitts by failing to separate the onion crop into different insurable categories as the regulation would have allowed. See 7 C.F.R. § 457.135. This reading is supported by paragraph 11 of the petition, in which Pitts Farms states that it is suing for various violations of statutory and common law duties, without mention of a private right of action under federal regulations.

Rio Grande also argues that the district court would have had jurisdiction over the underlying state court petition because the Federal Crop Insurance Act (FCIA), 7 U.S.C. § 1501 et seq., completely preempts state law claims against agents who sell federally reinsured crop insurance. "If a federal law is found to completely preempt a field of state law, the state-law claims in the plaintiff's complaint will be recharacterized as stating a federal cause of action." Hart v. Bayer Corp.³ In contrast to conflict preemption, complete preemption is an exception to the well-pleaded complaint rule and creates federal question jurisdiction. Id.

Although an issue of first impression in this circuit, the three circuits deciding the question agree that the FCIA does not completely displace state law remedies against crop insurers or their agents. Meyer v. Conlon⁴ (holding in context of conflict preemption that the FCIA has only a limited preemptive effect); Williams Farms of Homestead, Inc. v. Rain and Hail Ins. Servs., Inc.⁵ (holding that the FCIA does not completely preempt state law claims against agents and insurers); Holman v. Laulo-Rowe Agency⁶ (holding that claims against agents selling FCIC insurance are not completely preempted). The Fifth Circuit will not find a congressional intent to "occupy the field" and completely displace state law unless the statute (1) contains a civil enforcement provision, (2) includes a specific grant of federal subject matter jurisdiction, and (3) reflects "a clear manifestation of congressional intent to make preempted state-law claims removable to federal court." Hart.⁷

In applying the Fifth Circuit test, the court looks both to the language of the statute and to the FCIC regulations promulgated thereunder, as Rio Grande argues that those regulations support a finding of congressional intent to preempt the entire field of claims relating to federally reinsured crop insurance. As a general rule, "[f]ederal regulations have no less preemptive effect than federal statutes." Fidelity Federal Sav. & Loan Ass'n v. De la Cuesta.⁸ The statutory scheme as interpreted and implemented by FCIC regulations nevertheless fails all three parts of the Fifth Circuit complete preemption test.

First, neither the FCIA nor the regulations issued by the FCIC under its authority contain any civil enforcement provisions that would create a federal cause of action against crop insurance agents.⁹ The absence of a federal remedy makes it difficult to conclude that Congress intended to displace state law. See Aaron¹⁰ (describing the importance of the federal remedies created by the LMRA and ERISA). Second, the FCIA's express grant of federal jurisdiction is limited to suits by and against the FCIC, not other parties. 7 U.S.C. §§ 1506(d), 1508(j)(2)(A).

Third, the statute does not contain a clear manifestation of congressional intent to displace all state law claims by insureds against crop insurance agents. 7 U.S.C. § 1506(l). Section 1506(l) provides only that state laws and rules "shall not apply to contracts, agreements, or regulations of the Corporation or the parties thereto to the extent that such contracts, agreements or regulations provide that such laws shall not apply," or to the extent that there is a conflict. The regulation on which Rio Grande relies to prove complete preemption prohibits state or local governmental bodies from promulgating rules or regulations, or passing laws that directly or indirectly...