Hospital Bonanova et al v. Kaiser Foundation Hospitals et al

Filing 43

ORDER DISMISSING CASE FOR LACK OF JURISDICTION. *Civil Case Terminated.. Signed by Judge Richard Seeborg on 5/16/11. (cl, COURT STAFF) (Filed on 5/16/2011)

*E-Filed 5/16/11*

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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SAN FRANCISCO DIVISION

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For the Northern District of California

United States District Court

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HOSPITAL BONANOVA, et al.,

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No. C 10-3948 RS

Plaintiffs,

ORDER DISMISSING CASE FOR
LACK OF JURISDICTION

v.
KAISER FOUNDATION HOSPITALS, et
al.,
Defendants.
____________________________________/

I. INTRODUCTION
On March 3, 2011, this Court dismissed the matter for want of federal question jurisdiction.
As explained in more detail in that Order, plaintiffs brought two breach of contract claims against

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Kaiser Foundation Hospitals, Kasier Foundation Health Plan and Southern California Permanente

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Medical Group (collectively, “Kaiser” or “defendants”). Seemingly in anticipation of a defense that

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plaintiffs must seek an administrative remedy rather than pursue their contract claims directly,

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plaintiffs presented an elaborate explanation of why certain federal statutes (those that would

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impose the administrative exhaustion requirement) do not apply to plaintiffs. The non-applicability,

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as it were, of the Social Security Act was presented as plaintiff’s “federal question.” In its Order

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dismissing the matter, this Court expressed concern as to whether the approach was sufficient to
NO. C 10-3948 RS
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establish federal jurisdiction. The Order then cited the long-established rule that “a defense is not

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part of a plaintiff’s properly pleaded statement of his or her claim.” Rivet, 522 U.S. at 471 (citing

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Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987)). Cf. Franchise Tax Bd., 463 U.S. at 14

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(“[A] case may not be removed to federal court on the basis of a federal defense, . . . even if the

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defense is anticipated in the plaintiff’s complaint, and even if both parties admit that the defense is

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the only question truly at issue in the case.”). As it is difficult to understand plaintiffs’ reliance on

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federal law as anything but a defense, the Order proceeded to dismiss plaintiffs’ claims.

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For the Northern District of California

United States District Court

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Because the Order raised the jurisdictional question sua sponte, it also allowed plaintiffs an
opportunity to request reconsideration. Specifically, the Order invited plaintiffs to present a concise
argument that their Complaint “necessarily” raises a “disputed and substantial” federal issue
embedded in the contract claims. As reiterated by the Supreme Court in Grable & Sons Metal
Prod., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 (2005), a federal question may also arise where a
state-law claim “necessarily raise[s] a stated federal issue, actually disputed and substantial, which a
federal forum may entertain without disturbing any congressionally-approved balance of federal and

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state judicial responsibilities.” Id. at 314. The federal issue must be “a substantial one, indicating a
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serious federal interest in claiming the advantages thought to be inherent in a federal forum.” Id. at
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313. As the Ninth Circuit recently emphasized, however, “Grable did not implicitly overturn the
well-pleaded complaint rule” “in favor of a new ‘implicate[s] significant federal issues’ test . . . .”
California Shock Trauma Air Rescue v. State Compensation Ins. Fund, 636 F.3d 538, 542 (9th Cir.
2011). “Grable stands for the proposition that a state-law claim will present a justiciable federal

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question only if it satisfies both the well-pleaded complaint rule and passes the ‘implicate[s]

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significant federal issues’ test.” Id. (emphases in original).

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Plaintiffs timely filed such a request for reconsideration, and perhaps unsurprisingly argued

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Grable absolutely controls. They insisted a court would inevitably have to decide whether or not

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the Mexican hospital must seek a recovery pursuant to Medicare’s administrative ambit. Plaintiffs

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assume, of course, defendants would move to dismiss on the grounds that it is not Kaiser who is
NO. C 10-3948 RS
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bound by contract to repay plaintiffs, but the Medicare program. What is troubling, and distinct

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from Grable or any other case on which plaintiffs rely, is that plaintiffs are not arguing that federal

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law establishes their right to recover. In Grable, the plaintiff filed a state common law quiet title

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action alleging superior title to a piece of land previously seized by the Internal Revenue Service.

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545 U.S. at 311. In his complaint, the plaintiff alleged as the basis for his claim to superior title a

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failure on the part of the IRS to comply with notice requirements established in 26 U.S.C. section

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6335(a). Id. The Court ultimately found the defendant’s removal proper because “the claim of title

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depended on the interpretation of . . . federal tax law.” Id.

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Here, plaintiffs’ jurisdictional argument runs as follows: plaintiffs insist they have a right to
recover under state law because the federal law on which defendants rely to defeat the contract

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For the Northern District of California

United States District Court

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claims arguably does not apply to plaintiffs. In other words, plaintiffs’ reliance on federal law is

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inescapably framed as an anticipatory defense. Plaintiffs have not demonstrated how a case like this

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fits within Grable’s analytical framework, or introduced any authority analyzing a scenario similar

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to the one here and supportive of their position. On the other hand, there is binding authority for the

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proposition that reliance on federal law as an anticipated defense is not sufficient to establish federal

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question jurisdiction. In California Shock Trauma, for example, the Ninth Circuit rejected an

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argument similar to plaintiffs’. There, the plaintiff brought state law claims in federal court for

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recovery based on a theory, among others, of quantum meruit and unjust enrichment. In its

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complaint, the plaintiff asked the court to decide whether or not federal law preempted a certain

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state provision on which defendants would likely rely to foreclose plaintiff’s recovery. The Court

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found plaintiff’s reliance on federal law “merely a potential response to a defense.” 636 F.3d at 541.

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The Court then recognized that it lacked federal jurisdiction. These facts warrant the same

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conclusion. Even in light of plaintiffs’ further briefing, then, the prior analysis finding a lack of

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subject matter jurisdiction remains persuasive. The proper remedy for dismissal of the matter in

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state court was not to file the identical suit in federal court, but to seek appellate relief. The matter

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must be dismissed.

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NO. C 10-3948 RS
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IT SO ORDERED.

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Dated: 5/16/11

______________________________________
Richard Seeborg
UNITED STATES DISTRICT JUDGE

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For the Northern District of California

United States District Court

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NO. C 10-3948 RS
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