Shannon v. Shannon

Decision Date30 July 1992
Docket NumberNo. 91-2494,91-2494
PartiesChristen M. SHANNON, a minor, by her Guardian ad Litem, Plaintiff-Appellant, v. James P. SHANNON and Edith A.R. Shannon, Defendants-Appellants, v. UNITED SERVICES AUTOMOBILE ASSOCIATION, Commercial Union Insurance Companies, Steven Schultz, et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

James P. Shannon, Elkhorn, Wis., for plaintiff-appellant Christen M.

Daniel C. Sullivan, Sullivan & Associates, Oak Brook, Ill., James P. Sullivan, Elkhorn, Wis., for defendants-appellants.

James T. Lucke, David R. Cross (argued), Quarles & Brady, Milwaukee, Wis., for defendant-appellee West Allis Memorial Hosp. Employee Health Protection Plan.

Before WOOD, Jr., * COFFEY, and EASTERBROOK, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

Three-year old Christen Shannon, the daughter of James P. and Edith Anne Rachel Shannon, nearly drowned in a lake next to their home on July 1, 1984. Tragically, she suffered extensive brain damage and was left a non-communicative, spastic quadriplegic, requiring 24-hour, life-sustaining, medical care, which she has received at home since December 1984: her airways must be suctioned frequently to prevent blockage, and she is fed through a gastrostomy tube that requires regular monitoring and maintenance. Because Mrs. Shannon worked for West Allis Memorial Hospital, Inc. ("WAMHI"), and was covered by the West Allis Memorial Hospital Employee Health Protection Plan ("Plan"), Christen's medical expenses were initially borne by the Plan. After paying out something over 1.3 million dollars, the Plan terminated its payments in September 1987 and was sued forthwith in federal court: that suit, Case No. 87-C-1206, is not at issue here but is not entirely irrelevant.

Through her guardian ad litem Christen, the plaintiff-appellant here, initiated a personal-injury suit against her parents, defendants-appellants, and their insurance company, United Services Automobile Association, defendants-appellees, in state court in 1985. The following year she added her next-door neighbors, Steven and Donna Schultz, who also owned lake-front property, and their insurer, Commercial Union Insurance Companies, all defendants-appellees. 1 The Plan, also a defendant-appellee here, intervened January 29, 1990, to assert subrogation and reimbursement claims under the terms of the plan against Christen and her parents. Christen and her parents each answered the Plan's cross-claims and counterclaims and raised counterclaims against the Plan.

The Plan, asserting federal jurisdiction based on the Employee Retirement Income Security Act ("ERISA"), promptly removed the case to the United States District Court for the Eastern District of Wisconsin. 29 U.S.C. §§ 1001 et seq.; 28 U.S.C. § 1441(c). Subsequently, Christen and her parents (collectively, the "Shannons") each sought remand, arguing the Plan was a governmental plan and, thus, exempt from ERISA. 28 U.S.C. § 1447(c); 29 U.S.C. § 1003(b)(1). The Plan, in turn, claiming the Shannons had raised only preempted, state-law claims, moved to dismiss the case for the Shannons' "failure to state a claim upon which relief can be granted." 29 U.S.C. § 1144; Fed.R.Civ.P. 12(b)(6).

The district court found the Plan was an ERISA plan, not a government plan, and, accordingly, denied the Shannons' motions to remand. 2 Concomitantly, the court dismissed the suit, stating that the Shannons' claims, "being state law claims, are

                preempted...."  The Shannons appeal. 3  For the reasons stated below we affirm the district court's denial of the motion to remand, but we reverse and vacate its dismissal of the case and remand with instructions
                

ANALYSIS

The Shannons question both our jurisdiction to hear this appeal and that of the district court to decide whether the Plan is a governmental plan. They contend the state court is the one that must determine whether WAMHI is an agency or instrumentality of the City of West Allis, Wisconsin ("City"), and, thus, whether the Plan is a governmental plan. 29 U.S.C. § 1002(32).

A primordial element of our jurisprudence is that federal courts have jurisdiction to determine whether they have subject matter jurisdiction. The Supreme Court, referring to its early exercise of jurisdiction to determine jurisdiction in Winchester v. Jackson, 7 U.S. (3 Cranch) 515, 2 L.Ed. 516 (1806), stated, "[T]here was jurisdiction in this court to consider and determine the question of jurisdiction of the Circuit Court...." Mansfield, Coldwater & Lake Michigan Railway v. Swan, 111 U.S. 379, 387, 4 S.Ct. 510, 514, 28 L.Ed. 462 (1884). In the eloquent words of Justice Holmes,

But even if the Circuit Court had no jurisdiction to entertain Johnson's petition [for writ of habeas corpus], and if this court had no jurisdiction of the appeal, this court, and this court alone, could decide that such was the law. It and it alone necessarily had jurisdiction to decide whether the case was properly before it.

United States v. Shipp, 203 U.S. 563, 573, 27 S.Ct. 165, 166, 51 L.Ed. 319 (1906) (citing Mansfield, 111 U.S. at 387, 4 S.Ct. at 514). See also United States Catholic Conference v. Abortion Rights Mobilization, Inc., 487 U.S. 72, 79, 108 S.Ct. 2268, 2272, 101 L.Ed.2d 69 (1988) (citing Shipp, 203 U.S. at 573, 27 S.Ct. at 166).

Our jurisdiction to determine jurisdiction is not diminished because an action is initiated in state court and subsequently removed to federal court. See, for example, Mansfield, 111 U.S. 379, 4 S.Ct. 510, 28 L.Ed. 462. Removal of a civil case is not based on a motion that a court, either state or federal, grants or denies; rather, it is a fait accomplis by the party initiating the removal petition. 28 U.S.C. §§ 1441, 1446. "Once the petition is filed in federal court, the state court is divested of jurisdiction over the case." Erwin Chimerinsky, FEDERAL JURISDICTION 234 (1989). Subsequently, "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c).

Fundamentally, removal is a procedure created by federal statute that permits but does not require a defendant in a state-court suit to move the case to federal court if the plaintiff's action could have been properly brought in federal court. Generally, a case may be removed only if "the suit--as the plaintiff framed or could easily have framed it in the complaint--would have been within the district court's original jurisdiction at the time of the removal." Federal Deposit Insurance Corp. v. Elefant, 790 F.2d 661, 667 (7th Cir.1986) (citing Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983), and Pullman Co. v. Jenkins, 305 U.S. 534, 59 S.Ct. 347, 83 L.Ed. 334 (1939)). Moreover, a defense based on the United States Constitution or federal law does not make the suit removable, and neither does a counterclaim or other similar filing based on federal law. Louisville & Nashville Railroad v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908); Elefant, 790 F.2d at 667 (citing Takeda v. Northwestern National There is an exception which controls in this case. Removal is proper even if federal jurisdiction is not evident from the complaint where, as here, "Congress has clearly manifested an intent to make causes of action within the scope of the civil enforcement provisions of [ERISA] § 502(a) removable to federal court." Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 66, 107 S.Ct. 1542, 1548, 95 L.Ed.2d 55 (1987) (citing 29 U.S.C. § 1132(a)). Accordingly, the Plan's intervention to enforce terms of the plan--namely, its alleged right to subrogation and reimbursement--more than likely invoked ERISA, preemption-based removal. 29 U.S.C. §§ 1132(a)(3)(B)(ii), 1132(e). If it did not, then the Shannons' subsequent counterclaims against the Plan surely did. Whether upon removal the district court had subject matter jurisdiction depends on whether the Plan is a governmental plan, exempt from ERISA. And that determination, in turn, depends upon whether WAMHI is a governmental or private entity. 4

Life Insurance Co., 765 F.2d 815, 822 (9th Cir.1985)).

Thus, the district court had jurisdiction to determine whether it had subject matter jurisdiction, whether WAMHI was a governmental entity, and whether the Plan was a governmental plan. It entered a final order, and we, therefore, have jurisdiction over this appeal. 28 U.S.C. § 1291.

GOVERNMENTAL PLAN

The focus of our inquiry is whether WAMHI, the non-profit, corporate lessee and operator of a city-owned hospital facility, known as the West Allis Memorial Hospital ("WAMH"), 5 is a governmental agency or instrumentality. 6 If it is, then, the parties agree the Plan is a governmental plan, 7 exempt from ERISA, and the Shannons would have their suit back in state court where they want it. Conversely, if WAMHI is not, the Plan is not exempt from ERISA, and there is preemption.

The decision whether WAMHI is a private or governmental entity must be made according to federal law. On a similar, relevant matter, the Supreme Court in NLRB v. Natural Gas Utility District of Hawkins County, Tennessee, 402 U.S. 600, 602-03, 91 S.Ct. 1746, 1748-49, 29 L.Ed.2d 206 (1971), stated, "Federal, rather than state, law governs the determination, under § 2(2) [of the National Labor Relations Act (29 U.S.C. § 152(2)) ], whether an entity created under state law is a 'political subdivision' of the State...." In this light we agree with the court in Rose v. Long Island Railroad Pension Plan, 828 F.2d 910, 915 (2nd Cir.1987), cert. denied, 485 U.S. 936, 108 S.Ct. 1112, 99 L.Ed.2d 273 (1988): "Because ERISA is a federal statute, the term 'political subdivision' must be interpreted by reference to federal law, in the absence of...

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