Spell v. BAC Home Loans Servicing, LP et al
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
BAC HOME LOANS SERVICING,
LP; et al.,
CIVIL ACTION NO.
OPINION AND ORDER
Plaintiff Michelle Spell brought suit in state court
against defendants BAC Home Loan Servicing, LP, Fidelity
Corporation alleging various state-law torts relating to
policies on her home.
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.
A defendant may remove an action brought in state
court to federal court if “the district courts of the
United States have original jurisdiction.”
In a removal action, the burden is on the
defendant to plead the basis for jurisdiction.
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.”
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.
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
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
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
Thompson, 478 U.S. 804, 813 (1986).
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
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
federal and state judicial responsibilities.”
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
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
Statutory and Regulatory Framework
The NFIP is a federally subsidized program currently
administered by the Federal Emergency Management Agency
In 1983, FEMA authorized private insurers,
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”).
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,
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.
financial protection for WYO companies involved in SFIP
Federal regulations mandate that “[l]oss
payments under policies of flood insurance shall be made
depleted, from Federal funds derived from drawing against
[FEMA’s] letter of credit.”
These regulations further specify that
44 C.F.R. Pt. 62, App. A.,
encompass not only refunded premiums but also “related
expenses,” such as attorney’s fees.
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
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.
served with the complaint, Fidelity notified FEMA about
“Fidelity’s legal bills for the defense
of this lawsuit are being submitted periodically to FEMA
Price Affidavit (Doc. No. 40-1) at 3.
Fidelity has not been notified by FEMA that it will
decline reimbursement for these loss payments.
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
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.
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
eleven state-law torts against the defendants, including
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
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
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.”
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.
jurisdiction over suits involving SFIP claims disputes.
But the plain text of the statute defeats Fidelity’s
“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
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
42 U.S.C. § 4072 (emphasis added).
If this case involved
exclusive original jurisdiction.
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.
This is a
case about overcharged premiums, not whether Spell is
definition of a covered loss.
Put simply, Fidelity
misreads the scope of 42 U.S.C. § 4072.
It cannot form
a basis for federal jurisdiction over Spell’s claims.
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.”
“[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.
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.
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
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.
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.”
of Mobile, Inc. v. Comcast Cable Communications, Inc.,
182 F.3d 851, 854 (11th Cir. 1999) (internal quotation
Complete preemption is a bit of a
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.
contradistinction with federal statutory law–-preempts a
“Boyle merely deals with a federal
defense to a state claim and is therefore a[n] [ordinary]
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,
“presence of federal question jurisdiction.”
Mail Handlers Benefit Plan, 886 F. Supp. 830, 837 n.3
(M.D. Ala. 1995) (Albritton, J.).
federal-question jurisdiction, this court disagrees that
the risk to federal funds creates a “uniquely federal
commonplace and bare fact that federal funds may be
dispensed as a result of litigation is insufficient to
confer removal jurisdiction.
See id. (explaining why
reimbursement pursuant to the Federal Employees Health
jurisdiction for removal purposes).
is better suited for why federal law controls this case,
not where the case is heard.
“State courts have plenary
require the application of federal law.”
United Behavioral Health, 41 F. Supp. 2d 1315, 1319 (M.D.
Ala. 1999) (Albritton, J.).
Fidelity’s position would
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.
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).
ascertaining congressional intent, courts look to various
Id. at 856-57.
A comparison with the Employee Retirement Income
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
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
29 U.S.C. § 1132(e)(1).3 “The jurisdictional provision in
ERISA grants federal courts jurisdiction in all cases for
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.
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.
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
“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.
T.V., 182 F.3d at 856 (“A narrow reading of Metropolitan
Life suggests that complete preemption occurs only when
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
claims to arise under federal law in the same manner as
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
This concern for the proper balance between state
involving the complete-preemption doctrine: “although the
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
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).
This court, therefore, declines to adopt Fidelity’s broad
federal funds confers removal jurisdiction.5
Accordingly, it is the ORDER, JUDGMENT, and DECREE of
remand (Doc. No. 25) is granted and that, pursuant to 28
U.S.C. § 1447(c), this case is remanded to the Circuit
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
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.
It is further ORDERED that all other pending motions
are left for resolution by the state court after remand.
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
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