HICA Education Loan Corporation v. Merzenich

Filing 13

ORDER DISMISSING this case for lack of subject matter jurisdiction. Signed by Judge Frederick J Martone on 6/27/2012. (KMG)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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HICA Education Loan Corporation,
Plaintiff,

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vs.

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Angela R. Merzenich,
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Defendant.
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No. CV-12-0412-PHX-FJM
ORDER

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Plaintiff HICA Education Loan Corporation, a corporation organized under the laws

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of South Dakota, is the holder of promissory notes (“Notes”) representing student loans

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issued to defendant in the unpaid principal amount of $12,599.72. Defendant allegedly has

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defaulted on the repayment of the loan under the terms of the Notes, prompting HICA to file

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this action for breach of contract. Plaintiff asserts federal question jurisdiction pursuant to

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28 U.S.C. § 1331, over what on its face is presented as a state law breach of contract claim.

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Because we have a sua sponte obligation to determine subject matter jurisdiction, we asked

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plaintiff to file a supplemental brief addressing the jurisdictional issue. Based on our review

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of the supplemental brief, as well as the relevant law, we conclude that we do not have

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subject matter jurisdiction and accordingly dismiss the case.

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28 U.S.C. § 1331 vests original jurisdiction in federal courts over “all civil actions

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arising under the Constitution, laws, or treaties of the United States.” A case “arise[s] under”

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federal law if “a well-pleaded complaint establishes either that federal law creates the cause

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of action or that the plaintiff’s right to relief necessarily depends on resolution of a

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substantial question of federal law.” Franchise Tax Bd. of Cal. v. Construction Laborers

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Vacation Trust, 463 U.S. 1, 27-28, 103 S. Ct. 2841, 2586 (1983). Generally, federal question

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jurisdiction arises when a complaint asserts a cause of action created by federal law. Less

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frequently, federal “arising under” jurisdiction is invoked over state law claims that

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“implicate significant federal issues.” Grable & Sons Metal Prods., Inc. v. Darue Eng’g &

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Mfg., 545 U.S. 308, 312, 125 S. Ct. 2363, 2366-67 (2005). Therefore, even when there is

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no federal cause of action, federal question jurisdiction may nevertheless exist where “a

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state-law claim necessarily raise[s] a stated federal issue, actually disputed and substantial,

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which a federal forum may entertain without disturbing any congressionally approved

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balance of federal and state judicial responsibilities.” Id. at 314, 125 S. Ct. at 2368.

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Plaintiff alleges in its complaint that federal jurisdiction exists because the claims

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“arise under the laws of the United States.” Compl. ¶ 3. It asserts that the Notes at issue

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relate to a federal student loan insurance program called the Health Education Assistance

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Loan (“HEAL”) program, see 42 U.S.C. §§ 292, et seq; 42 C.F.R. Part 60, and that therefore,

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it has pled “a cause of action created by federal law.” Suppl. Brief at 3. We disagree.

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The complaint asserts one claim only–a state law breach of contract claim. The claim

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does not present a federally-created cause of action. Therefore, we have jurisdiction over this

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state law claim only if the claim also presents (1) a stated federal issue, that is (2) actually

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disputed, and (3) substantial. None of these factors is satisfied here. There is no “actually

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disputed” federal issue presented, substantial or otherwise. To raise an “actually disputed”

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federal issue, a state cause of action must “really and substantially involv[e] a dispute or

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controversy respecting the validity, construction or effect of [federal] law.” Grable, 545 U.S.

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at 313, 125 S. Ct. at 2363 (alterations in original) (quoting Shulthis v. McDougal, 225 U.S.

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561, 569, 32 S. Ct. 704, 706 (1912)).

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In Grable, for example, the state law claim turned on the interpretation of “service”

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under the federal tax statute. Here, in contrast, there is no real or apparent dispute over the
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interpretation or application of the HEAL loan statute or its regulations. Instead, plaintiff

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alleges that defendant has “failed to make the payments due and owing under the terms of

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the Notes, which constitutes breaches of contract.” Compl. ¶ 16. The only issue is whether

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the defendant defaulted on her loan obligation, the resolution of which will be governed by

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the facts of the case, the loan document itself, and state contract law principles. Again, no

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federal issue is presented.

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It is not enough, as plaintiff contends, that the Notes “relate to” a federally insured

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student loan program, Suppl. Brief at 2, or that federal regulations define the parameters of

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the loans, including, for example, the maximum rate of interest, repayment terms, and

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establishment of a loan default reduction program. Nor is it enough that the federal

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government has a “strong interest” in the outcome of the case. Plaintiff contends that its

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contract claim implicates federal interests because collection under the student loans directly

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affects the federal government’s insurance obligation under the HEAL program. But plaintiff

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has not shown a “significant conflict . . . between an identifiable federal policy or interest and

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the operation of state law,” Empire Healthcare Assur., Inc. v. McVeigh, 547 U.S. 677, 693,

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126 S. Ct. 2121, 2132 (2006) (quoting Boyle v. United Tech. Corp., 487 U.S. 500, 507, 108

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S. Ct. 2510, 2516 (1988)), that would warrant the displacement of state law or the exercise

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of federal jurisdiction.

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Because no federal cause of action or significant or contested federal issue is
presented in this case, we are without subject matter jurisdiction.

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IT IS ORDERED DISMISSING this case for lack of subject matter jurisdiction.

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DATED this 27th day of June, 2012.

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