Spell v. BAC Home Loans Servicing, LP et al

Filing 44

OPINION AND ORDER: It is the ORDER, JUDGMENT, and DECREE of the court that plaintiff Michelle Spell's 25 Motion to Remand is granted and that, pursuant to U.S.C. § 1447(c), this case is remanded to the Circuit Court of Montgomery County, Alabama, for want of jurisdiction. It is further ORDERED that all other pending motions are left for resolution by the state court after remand. The clerk of the court is DIRECTED to take appropriate steps to effect the remand.This case is closed in this court. Signed by Honorable Judge Myron H. Thompson on 5/11/2012. (Attachments: # 1 Civil Appeals Checklist) (Deadlines terminated: Final Pretrial Conference set for 3/8/2013 and Jury Trial set for 4/1/2013.) Copy mailed to Clerk, Circuit Court of Montgomery County, AL. Copies furnished to calendar group, AG. (dmn, )

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE
MIDDLE DISTRICT OF ALABAMA, NORTHERN DIVISION

MICHELLE SPELL,

)
)
)
)
)
)
)
)
)
)

Plaintiff,
v.
BAC HOME LOANS SERVICING,
LP; et al.,
Defendants.

CIVIL ACTION NO.
2:12cv162-MHT
(WO)

OPINION AND ORDER
Plaintiff Michelle Spell brought suit in state court
against defendants BAC Home Loan Servicing, LP, Fidelity
National
Lexington

Property

and

Insurance

Casualty

Company,

and

Insurance

Company,

Southwest

Business

Corporation alleging various state-law torts relating to
the

forced

placement

policies on her home.

of

excessive

flood

insurance

Pursuant to 28 U.S.C. §§ 1331,

1337, 1441, and 1446, and 42 U.S.C. § 4072, Fidelity,
with the consent of all other defendants, timely removed
this case to federal court on a federal-question ground.
Spell moves to remand to state court, arguing that her

claims do not arise under federal law.

For the reasons

that follow, Spell’s remand motion will be granted.

I.

STANDARD

A defendant may remove an action brought in state
court to federal court if “the district courts of the
United States have original jurisdiction.”
§ 1441(a).

28 U.S.C.

In a removal action, the burden is on the

defendant to plead the basis for jurisdiction.

Fowler v.

Safeco Insurance Co. of America, 915 F.2d 616, 617 (11th
Cir. 1990) (per curiam).

Federal courts must strictly

construe removal statutes because “removal jurisdiction
raises significant federalism concerns.”

University of

South Alabama v. American Tobacco Co., 168 F.3d 405, 411
(11th Cir. 1999) (citation omitted).

Thus, any doubt

about jurisdiction is resolved in favor of remand.

Id.

Here, Fidelity invoked this court’s federal-question
jurisdiction as the basis for removal.

28 U.S.C. § 1331

(“[D]istrict courts shall have original jurisdiction of

2

all civil actions arising under the Constitution, laws,
or treaties of the United States.”).

In general, a case

“arises under” federal law if the plaintiff pleads a
cause

of

action

created

by

federal

law

or

if

a

substantial disputed area of federal law is a necessary
element of a state-law claim.

Franchise Tax Bd. v.

Constr. Laborers Vacation Trust, 463 U.S. 1, 9-10 (1983).
However, the “mere presence of a federal issue in a state
cause of action does not automatically confer federalquestion

jurisdiction.”

Merrell

Dow

Thompson, 478 U.S. 804, 813 (1986).

Pharm.

Inc.

v.

Nor are federal

issues “a password opening federal courts to any state
action embracing a point of federal law.”

Grable & Sons

Metal Products v. Darue Engineering & Manufacturing, 545
U.S.

308,

jurisdiction

314

(2005).

based

on

an

Rather,
embedded

federal-question
federal

issue

is

permissible only when “a state-law claim necessarily
raise[s] a stated federal issue, actually disputed and
substantial, which a federal forum may entertain without

3

disturbing

any

congressionally

approved

balance

federal and state judicial responsibilities.”

II.

of

Id.

BACKGROUND

The dispute in this case involves the National Flood
Insurance Program (“NFIP”), which Congress designed to
“spread the risk of flood damages among many private
insurers

and

the

federal

government,

and

make

flood

insurance ‘available on reasonable terms and conditions’
to those in need of it.”

Van Holt v. Liberty Mutual Fire

Insurance Co., 163 F.3d 161, 165 (3d Cir. 1998) (quoting
42 U.S.C. § 4001(a)).

Given NFIP’s complexity, a brief

overview is helpful before delving into the facts of this
litigation.

A.

Statutory and Regulatory Framework

The NFIP is a federally subsidized program currently
administered by the Federal Emergency Management Agency
(“FEMA”).

In 1983, FEMA authorized private insurers,

4

known as Write-Your-Own (“WYO”) insurance companies, to
serve as intermediaries in providing flood insurance.
The flood-insurance policies issued under the NFIP are
called Standard Flood Insurance Policies (“SFIP”).

FEMA

regulations establish terms, rate structures, and premium
costs of SFIPs, but WYO companies issue SFIPs in their
own name and handle claims adjustments.
Because of their role in this statutory scheme, WYO
companies are fiscal agents of the federal government.
42 U.S.C. § 4071(a)(1).

WYO companies deposit premiums

in segregated bank accounts from which they disburse
claims and make refunds.

44 C.F.R. Pt. 62, App. A.

After a deduction for a WYO company’s operating costs,
SFIP

premiums

Insurance
§ 4017(d).

Fund

are
in

deposited
the

U.S.

in

the

National

Treasury.

42

Flood
U.S.C.

If a WYO company lacks sufficient funds to

pay a claim or make a refund, it can draw on FEMA’s
letters of credit from the U.S. Treasury.

5

Of

particular

importance

here,

FEMA

provides

financial protection for WYO companies involved in SFIP
litigation.

Federal regulations mandate that “[l]oss

payments under policies of flood insurance shall be made
by

the

Company

[segregated

from

bank

Federal

accounts]

funds

and,

if

retained

the

funds

such

in

are

depleted, from Federal funds derived from drawing against
[FEMA’s] letter of credit.”
Art. III(D)(1).
“[l]oss

These regulations further specify that

payments

litigation

that

Arrangement.”

44 C.F.R. Pt. 62, App. A.,

include
arises

Id.

payments
under

Art.

the

III(D)(2).

as

a

result

scope

of

Loss

of
this

payments

encompass not only refunded premiums but also “related
expenses,” such as attorney’s fees.
default

rule

provides

for

federal

Id.

While its

reimbursement

of

litigation expenses, FEMA may deny reimbursement in whole
or in part if the “litigation is grounded in actions by
the Company that are significantly outside the scope of
this

Arrangement,

and/or

involves

6

issues

of

agent

negligence.”

Id. Art. III(D)(3)(a).

FEMA, however, may

deny reimbursement only after providing notice to the WYO
company and responding in writing to a petition for
reconsideration, if one were filed.
Fidelity has submitted an affidavit reinforcing its
position that federal funds are at stake.

After being

served with the complaint, Fidelity notified FEMA about
the litigation.

“Fidelity’s legal bills for the defense

of this lawsuit are being submitted periodically to FEMA
for

reimbursement

proceedings.”

throughout

the

course

of

these

Price Affidavit (Doc. No. 40-1) at 3.

Fidelity has not been notified by FEMA that it will
decline reimbursement for these loss payments.

B.

Id.

Factual Background

In January 1998, plaintiff Spell obtained a mortgage
loan on her home for $ 63,705.

Since 2004, defendant BAC

has serviced and/or held the note and mortgage. Beginning
in 2009, Spell claims that defendants have unlawfully

7

force-placed excessive and unnecessary flood insurance
policies on her property.

For example, Spell alleges

that BAC represented that her mortgage had a principal
balance of $ 50,914.05 on October 17, 2011.

But on

October 24, 2011, BAC force-placed a SFIP written by
defendant Fidelity on Spell’s property covering the home
in the amount of $ 137,500.

Spell characterizes the

profits from these force-placed policies as “kickbacks,
commissions, and/or compensation.”

Complaint (Doc. No.

1-1) at 5.
On January 24, 2012, Spell filed suit in a state
court

in

Montgomery

County,

Alabama.

Spell

brought

eleven state-law torts against the defendants, including
claims

of

misrepresentation,

breach

of

contract,

negligence, wantonness, outrage, and unjust enrichment.
Spell’s complaint does not include any federal claims.
Fidelity timely removed this case on a federal-question
ground, and Spell now moves to remand back to state
court.

8

III.
Although

Fidelity’s

DISCUSSION
brief

fails

to

distinguish

between some of these concepts, the court divines three
arguments in favor of removal.

Two of these arguments

can be disposed of quickly; the final argument requires
a more detailed resolution.1

A.

42 U.S.C. § 4072

Fidelity contends that this court has jurisdiction
under 42 U.S.C. § 4072, a provision that creates federal
1. The court notes that the Eleventh Circuit Court of
Appeals has held that removal jurisdiction is proper if
a plaintiff is challenging the validity of a SFIP
contract. In Newton v. Capital Assurance Co., 245 F.3d
1306 (11th Cir. 2001), the court commented that a
“federal question need not be statutory[,] federal common
law will suffice.” Id. at 1309. Recognizing that SFIP
contracts are “interpreted using principles of federal
common law rather than state contract law,” the court
held that “a complaint alleging breach of an SFIP
satisfies § 1331 by raising a substantial federal
question on its face.”
Id.
Here, by contrast, Spell
named only defendant BAC in her breach-of-contract claim:
a claim that involves the note and/or mortgage on her
property, not the SFIP contracts that Spell had with
Fidelity and the other defendants. Because Spell does
not challenge the validity of a SFIP, her complaint
raises only state-law claims on its face.
9

jurisdiction over suits involving SFIP claims disputes.
But the plain text of the statute defeats Fidelity’s
argument:
“In the event the program is carried out
as provided in section 4071 of this
title, the Director shall be authorized
to adjust and make payment of any claims
for proved and approved losses covered
by flood insurance, and upon the
disallowance by the Director of any such
claim, or upon the refusal of the
claimant to accept the amount allowed
upon
any
such
claim,
the
claimant ... may institute an action
against the Director on such claim in
the United States district court for the
district in which the insured property
or the major part thereof shall have
been situated, and original exclusive
jurisdiction is hereby conferred upon
such court to hear and determine such
action without regard to the amount in
controversy.”
42 U.S.C. § 4072 (emphasis added).
a

claims-adjustment

dispute,

If this case involved

this

exclusive original jurisdiction.

court

would

have

Hairston v. Travelers

Casualty & Surety Co., 232 F.3d 1348 (11th Cir. 2000).
But Spell’s property has not been damaged by a flood,
and she has not filed a claim for any damage.
10

This is a

case about overcharged premiums, not whether Spell is
entitled

to

compensation

pursuant

definition of a covered loss.

to

her

SFIP’s

Put simply, Fidelity

misreads the scope of 42 U.S.C. § 4072.

It cannot form

a basis for federal jurisdiction over Spell’s claims.

B.

Ordinary Preemption

Fidelity submits that federal law preempts Spell’s
state-law claims. But preemption is simply “a question of
federal law [that] is lurking in the background.”
v.

First

National

Bank,

299

U.S.

109,

117

Gully

(1936).

“[S]ince 1887 it has been settled law that a case may not
be removed to federal court on the basis of a federal
defense, including the defense of preemption.” Franchise
Tax, 463 U.S. at 14 (emphasis added).

As such, ordinary

preemption cannot serve as the ground for removal.

11

C.

Complete Preemption

Fidelity contends that FEMA’s policy of reimbursing
a WYO company’s loss payments injects a “uniquely federal
interest” into the suit that is significant enough to
confer removal jurisdiction.

As described in detail

above, federal funds are at risk in this case.

For

instance, if Spell were to prevail on her claims and seek
a refund of overcharged premiums from Fidelity, this
money would be drawn from federal funds.
In support of this argument, Fidelity relies on Boyle
v. United Technologies Corp., 487 U.S. 500 (1988), where
the Supreme Court held that “a few areas, involving
‘uniquely federal interests,’ are so committed by the
Constitution and laws of the United States to federal
control that state law is pre-empted and replaced, where
necessary, by federal law of content prescribed (absent
explicit statutory directive) by the courts-–so-called
‘federal common law.’” Id. at 504 (citations omitted).
Although Fidelity oftentimes frames this argument in

12

terms of “preemption,” this court interprets its argument
as a reference to the “complete preemption” doctrine.
Unlike ordinary preemption, complete preemption can
serve as a basis for removal jurisdiction.

“Complete

preemption occurs when the pre-emptive force of a statute
is so extraordinary that it converts an ordinary state
common-law claim into one stating a federal claim for
purposes of the well-pleaded complaint rule.”

BLAB T.V.

of Mobile, Inc. v. Comcast Cable Communications, Inc.,
182 F.3d 851, 854 (11th Cir. 1999) (internal quotation
marks omitted).
misnomer

and

preemption.

Complete preemption is a bit of a

should

not

“Stated

be

confused

simply,

with

complete

ordinary

preemption

functions as a narrowly drawn means of assessing federal
removal jurisdiction, while ordinary preemption operates
to dismiss state claims on the merits and may be invoked
in either federal or state court.” Id. at 854-55.
Fidelity misinterprets Boyle’s scope.
Court

addressed

when

federal

13

common

The Boyle
law-–in

contradistinction with federal statutory law–-preempts a
state-law claim.

“Boyle merely deals with a federal

defense to a state claim and is therefore a[n] [ordinary]
preemption

rather

than

a

complete

preemption

case.”

Goepel v. National Postal Mail Handlers Union, 36 F.3d
306, 314 (3d Cir. 1994).

Indeed, “Boyle was originally

brought in federal court on diversity jurisdiction” and,
therefore,

the

Supreme

Court

was

not

addressing

“presence of federal question jurisdiction.”

the

Lambert v.

Mail Handlers Benefit Plan, 886 F. Supp. 830, 837 n.3
(M.D. Ala. 1995) (Albritton, J.).
Even

assuming

that

Boyle

provides

a

roadmap

to

federal-question jurisdiction, this court disagrees that
the risk to federal funds creates a “uniquely federal
interest
equipment

comparable
at

issue

to

the

procurement

in

Boyle.”

Id.

at

of

military

837.

The

commonplace and bare fact that federal funds may be
dispensed as a result of litigation is insufficient to
confer removal jurisdiction.

14

See id. (explaining why

reimbursement pursuant to the Federal Employees Health
Benefits

Act

did

not

trigger

jurisdiction for removal purposes).

federal-question
Fidelity’s argument

is better suited for why federal law controls this case,
not where the case is heard.
jurisdiction

and

are

“State courts have plenary

competent

to

hear

require the application of federal law.”

claims

that

Weathington v.

United Behavioral Health, 41 F. Supp. 2d 1315, 1319 (M.D.
Ala. 1999) (Albritton, J.).
betray

the

balance

struck

Fidelity’s position would
between

federal

and

state

courts.2
Furthermore,
jurisdiction

this

under

court

lacks

traditional

federal-question

complete

preemption

principles. Recognizing the numerous formulations of the
2. Other federal district courts have adopted
Fidelity’s position that the risk to the federal fisc is
a “uniquely federal interest” sufficient to confer
removal jurisdiction. See Harbour Light Towers Ass’n v.
Ameriflood, LLC, 2011 WL 2517222 (M.D. Fla. June 23,
2011) (Covington, J.); Southpointe Villas Homeowners
Ass’n v. Scottish Insurance Agency, Inc., 213 F. Supp. 2d
586 (D.S.C. 2002) (Duffy, J.). Because Boyle does not
address complete preemption, this court declines to
follow their lead.
15

complete-preemption

test,

the

Eleventh

Circuit

has

instructed courts to “determine whether Congress not only
intended a given federal statute to provide a federal
defense to a state cause of action that could be asserted
either in a state or federal court, but also intended to
grant a defendant the ability to remove the adjudication
of the cause of action to a federal court by transforming
the state cause of action into a federal [one].”
T.V., 182 F.3d at 857 (alteration in original).

BLAB
In

ascertaining congressional intent, courts look to various
sources,

including

legislative history.

jurisdictional

provisions

and

Id. at 856-57.

A comparison with the Employee Retirement Income
Security

Act

(ERISA),

29

U.S.C.

§§

1001-1461,

the

paradigmatic example of complete preemption, is helpful.
ERISA’s jurisdictional clause reads:
“Except for actions under subsection
(a)(1)(B) of this section, the district
courts of the United States shall have
exclusive jurisdiction of civil actions
under this subchapter brought by the
Secretary
or
by
a
participant,
16

beneficiary, fiduciary, or any person
referred to in section 1021(f)(1) of
this title. State courts of competent
jurisdiction and district courts of the
United States shall have concurrent
jurisdiction of actions under paragraphs
(1)(B) and (7) of subsection (a) of this
section.”
29 U.S.C. § 1132(e)(1).3 “The jurisdictional provision in
ERISA grants federal courts jurisdiction in all cases for
benefits.”

Lambert, 886 F. Supp. at 836.

As described above, NFIP’s jurisdictional provision
creates original and exclusive federal jurisdiction for
civil suits related to claims adjustments. See 42 U.S.C.
§ 4072; see also supra section III.A.

Although courts

have interpreted § 4072 to confer a private cause of
action against WYO companies for claims adjustments, see
Van Holt, 163 F.3d at 166-67, the text of the statute
permits suits against only FEMA’s Director. Congress,
therefore, specifically chose to limit the types of suits

3. For context, ERISA subsection (a)(1)(B) provides
a cause of action to plan participants and beneficiaries
to recover benefits under a plan; by contrast, subsection
(a)(7) refers to actions brought by a State.
17

that must be filed in federal court.

Viewed another way,

Congress declined to confer federal jurisdiction over
policy-procurement disputes like the instant suit. Thus,
42 U.S.C. § 4072 cuts against Fidelity’s position by
revealing

Congress’s

jurisdiction-–an

narrow

intent

that

grant
is

of

far

short

federal
of

the

“extraordinary pre-emptive power” of statutes such as
ERISA and § 301 of the Labor Management Relations Act
(LMRA), 29 U.S.C. § 185.

Metropolitan Life Insurance Co.

V. Taylor, 481 U.S. 58, 65 (1987).

Lacking a broad

jurisdictional provision to point to, Fidelity’s argument
in favor of complete preemption must fail.

See BLAB

T.V., 182 F.3d at 856 (“A narrow reading of Metropolitan
Life suggests that complete preemption occurs only when
a

federal

cause

of

action

features

jurisdictional

language that closely parallels that of section 301 of
the LMRA as well as an express statement within the
legislative history that Congress intends for all related

18

claims to arise under federal law in the same manner as
section 301.”).4
Finally, the court notes that “all doubts about
jurisdiction should be resolved in favor of remand to
University of South Alabama, 168 F.3d at

state court.”
411.
and

This concern for the proper balance between state
federal

courts

is

particularly

salient

in

cases

involving the complete-preemption doctrine: “although the
Supreme

Court

recognizes

the

complete

preemption

doctrine, the Court does so hesitatingly and displays no
enthusiasm to extend the doctrine into areas of law
beyond the LMRA and ERISA.”

BLAB T.V., 182 F.3d at 856.

4. The court notes that Fidelity, which bears the
burden to establish removal jurisdiction, has not cited
any legislative history concerning the passage of the
National Flood Insurance Act of 1968, an omission partly
explained by Fidelity’s advancement of Boyle as the font
of jurisdiction rather than the complete-preemption
doctrine.
While Fidelity has provided detailed
information concerning FEMA’s position on ordinary
preemption, it is Congress’s intent that is relevant to
the complete-preemption inquiry. See Weathington, 41 F.
Supp. 2d at 1321 (commenting that “agency regulations
alone cannot indicate congressional intent to create
federal removal jurisdiction”) (emphasis added).
19

This court, therefore, declines to adopt Fidelity’s broad
position

that

the

potential

for

any

expenditure

of

federal funds confers removal jurisdiction.5

*

*

*

Accordingly, it is the ORDER, JUDGMENT, and DECREE of
the

court

that

plaintiff

Michelle

Spell’s

motion

to

remand (Doc. No. 25) is granted and that, pursuant to 28
U.S.C. § 1447(c), this case is remanded to the Circuit
Court

of

Montgomery

County,

Alabama,

for

want

of

jurisdiction.

5. Fidelity also contends that removal jurisdiction
exists pursuant to 28 U.S.C. § 1337(a), which provides
that federal “district courts shall have original
jurisdiction of any civil action or proceeding arising
under any Act of Congress regulating commerce or
protecting trade and commerce against restraints and
monopolies.”
Spell’s claims, however, are common law
torts. The Supreme Court has “not distinguished between
the ‘arising under’ standards of § 1337 and § 1331."
Franchise Tax, 463 U.S. at 8 n.7.
As such, Spell’s
claims do not “arise under” an Act of Congress that
regulates commerce or monopolies.
20

It is further ORDERED that all other pending motions
are left for resolution by the state court after remand.
The

clerk

of

the

court

is

DIRECTED

to

appropriate steps to effect the remand.
This case is closed in this court.
DONE, this the 11th day of May, 2012.
/s/ Myron H. Thompson
UNITED STATES DISTRICT JUDGE

take