HOUSING AUTHORITY OF THE CITY OF HOBOKEN v. GARCIA

Filing 27

OPINION. Signed by Judge Kevin McNulty on 1/5/2016. (JB, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
HOUSING AUTHORITY OF THE CITY
OF HOBOKEN,

Civ. No. 16-cv-4069 (KM)

Plaintiff,
OPINION

V.

CARMELO GARCIA,
Defendant.

KEVIN MCNULTY, U.S.D.J.:
This matter comes before the Court on the motion of the plaintiff,
Housing Authority of the City of Hoboken (the “Authority”), pursuant to 28
U.S.C.

§ 1447, to remand this removed action to State court. (ECF no. 7) For

the reasons stated herein, the motion to remand is granted.
A.

Procedural History

On April 29, 2016, the Authority filed a complaint against the defendant,
Carmelo Garcia, former Executive Director of the Authority (“Garcia”), in the
Superior Court of New Jersey. Housing Authority of the City of Hoboken v.
Garcia, Docket No. L-1722-16 (Law Division, Hudson County).’ The complaint
asserts only state law claims: breach of an employment contract (count one),

‘The following abbreviations are used herein:
Compi.
CCS
Br.
7-1

=

=

=

Complaint in removed case, ECF no. 1-1

Civil Cover Sheet, ECF no. 1-3

Memorandum of Law in Support of Plaintiffs Motion to Remand, ECF no.

Opp. = Memorandum of Law in Opposition to Plaintiffs Motion to Remand, ECF
no. 16
Reply = Memorandum of Law Supporting Plaintiffs Motion to Remand and
Reply to Defendant’s Opposition, ECF no. 17
1

breach of the covenant of good faith and fair dealing (count two), and breach of
fiduciary duty (count three). The gravamen of the complaint is that Garcia
accepted political bribes in exchange for awarding contracts to unqualified
contractors. In so doing, the Authority alleges, Garcia violated internal policie
s
and state ethical laws; he also allegedly failed to follow federal and similar (but
stricter) state procurement laws. The Authority was allegedly damaged
financially as a result.
2
On July 6, 2016, Garcia filed a notice of removal to this Court, attaching,
inter alia, the state court complaint. (“Notice”, ECF no.1) The Notice invoke
s the
court’s federal-question jurisdiction under 28 U.S.C. 1331, asserting
as a
§
basis the pertinence of the Authority’s claims “to the application of U.S.
Department of Housing and Urban Development (“HUD”) regulations
and
federal procurement law.” (Notice

¶f 5—6)

On October 5, 2015, the Authority filed this motion to remand the action
to State Court. (ECF no. 7) Garcia has filed papers in opposition (ECF
no. 16),
to which the Authority has filed a reply (ECF no. 17).
B.

Discussion

Garcia removed this case pursuant to the federal removal statute,
28
U.S.C. § 1441. Under 28 U.S.C. § 144 1(a), a defendant may remove
a civil
action from the state court if the case could have been brought origina
lly in
federal court. What that means, in this context, is that the complaint
either
asserts a federal-law claim, see 28 U.S.C. § 1331, or the parties are
citizens of
different states and the amount in controversy exceeds $75,00 see
0,
28 U.S.C.

§ 1332(a). As in any federal litigation, “the party asserting federal jurisdiction
in a removal case bears the burden of showing, at all stages of the
litigation,
that the case is properly before the federal court.” Frecierico v. Home Depot,
507
F.3d 188, 193 (3d Cir. 2007). Removal is strictly construed and doubts
are
Garcia did not answer the complaint. Instead, Garcia filed his own action
in the
same State court on May 6, 2016, seven days after the Authority filed its
complaint.
According to the Authority, Garcia’s complaint pleads state law claims arising
out of
the facts, relating to the Authority’s termination of Garcia’s employment. (See
Notice
¶3, P1. Br. 3—4)
2

2

resolved in favor of remand. See Samuel—Bassett v. Kia Motors Am., Inc., 357
F.3d 392, 396 (3d Cir. 2004).
Garcia’s basis for removal of the case is this Court’s federal question
jurisdiction under 28 U.S.C. § 1331. That section provides that “[t]he district
courts shall have original jurisdiction of all civil actions arising under the
Constitution, laws, or treaties of the United States.” Id.
The plaintiff—here, the Authority—is master of its complaint, and can
decide whether to assert a federal claim, a state claim, or both. See Caterp
illar
Inc. v. Williams, 482 U.S. 386, 392, 107 S. Ct. 2425 (1987). In analyzing federal
subject matter jurisdiction, the courts have traditionally looked to the “wellpleaded complaint” rule. Id. That rule holds that a cause of action “arises
under’ federal law, and removal is proper, only if there is a federal questio
n
presented on the face of the plaintiff’s properly pleaded complaint.” DeJose
ph v.
ContinentalAirlines, Inc., 18 F. Supp. 3d 595, 599 (D.N.J. 2014) (citing Dukes
v.
U.S. Healthcare, 57 F.3d 350, 353 (3d Cir. 1995)). See also Holmes Grp., Inc.
v.
Vomado Air Circulation Sys., Inc., 535 U.S. 826, 832, 122 S. Ct. 1889
(2002)
(particularly instructive in that it took a subsequent statutory amendment
to
create an exception to the well-pleaded complaint rule that now encom
passes
patent-law counterclaims, see 28 U.S.C.

§ 1454(a)). Thus, for example, “a case

may not be removed to federal court on the basis of a federal defense,’ even
if
the plaintiffs complaint anticipates such defense.” Green Tree Servicing
LLC v.
Dillard, 88 F. Supp. 3d 399, 401 (D.N.J. 2015) (quoting Caterpillar, 482
U.S. at
392). Likewise, “a counterclaim—which appears as part of the defendant’s
answer, not as part of the plaintiffs complaint—cannot serve as the
basis for
‘arising under’ jurisdiction.” Holmes Grp., Inc., 535 U.S. at 831.
This is an action based on breach of contract and breach of fiduciary
duty—quintessential state law claims. The notice of removal nevertheless
Diversity of citizenship is not alleged. See 28 U.S.C. 1332. At any rate, the
§
complaint indicates that the Authority transacts business, and Garcia resides
, in
Hudson County, New Jersey. (See also CCS (listing both parties as Hudson County
residents).)
3

3

asserts that the Authority’s claims arise under federal law. (See Notice 5) In
¶
support of that assertion, Garcia advances two arguments: first, that the
Authority’s breach of contract and fiduciary duty claims are based in part on
allegations that Garcia failed to comply with HUD regulations and federal
procurement law (id.); and second, that the HUD Litigation Handbook requires
4
the Authority to obtain prior written approval from HUD Regional Counsel
before initiating this lawsuit against Garcia. (id. 5—6).
1. Grable “Embedded” Jurisdiction
The Authority’s complaint asserts state-law causes of action, and
contains no claim expressly arising under federal law. Nevertheless, the United
States Supreme Court has recognized a “special and small category’ of cases in
which arising under jurisdiction still lies,” even though the claims originate in
state law. Gunn v. Minton, 133 S. Ct. 1059, 1064 (2013) (quoting Empire
Garcia also states, without fully developing any argument, that the Complaint
makes HUD a party to the action. (Opp. 3—4) It is true that 28 U.S.C. 1345 provides
§
that district courts have original jurisdiction over “all civil actions, suits or
proceedings commenced by the United States, or by any agency or officer thereof
expressly authorized to sue by Act of Congress” except where otherwise provided by
Congress. HUD, however, is not actually a plaintiff in this action. HUD is not included
in the complaint’s case caption, the civil cover sheet submitted by Garcia’s attorney, or
the caption for any brief or paper filed in this case. There is no indication that the
Authority intends to amend the complaint to include HUD as a plaintiff. The
Authority’s complaint is not brought under any statute expressly authorizing HUD to
sue Garcia.
4

Garcia’s contention is based on the Complaint’s inclusion of identificying
information about HUD in a section of the Complaint entitled “parties.” (See Compl.
4 (The United States Department of Housing and Urban Development (“HUD”) is a
federal agency”); cf id. ¶ 1 (“Plaintiff is a New Jersey quasi-municipal corporation
governed by the New Jersey Local Redevelopment and Housing Law.
. .“); see also
CCS) This is clearly offered as necessary background; HUD is not a party.
Moreover, Garcia’s second argument against remand contradicts the notion that
HUD is a party to this lawsuit. That argument rests on his citation of section 3-3(b) of
the HUD Litigation Handbook, a provision specific to “non-federal party litigation.”
Such non-federal party litigation is defined as “litigation in which the Department has
an interest because of the involvement of a HUD Assistance Recipient’s HUD-funded
activities but in which neither the Department nor an employee in an official capacity is
a party.” (Opp. Ex. A at 1-3 (emphasis added))
.

4

Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 699, 126 S. Ct.
2121
(2006)). This case does not fall into that special and small category.
The seminal case describing such “embedded,” or implied, federal
question jurisdiction is Grable & Sons Metal Products, Inc. v. Darue Engine

ering
& Mfg., 545 U.S. 308, 125 S. Ct. 2363 (2005). Citing Grable, the Third
Circuit
has identified certain relevant factors:
First, the plaintiffs state law claim must “necessarily
raise a stated federal issue,” Grable, 545 U.S. at 314,
125 S. Ct. 2363, meaning that an element of the state
law claim requires construction of federal law.
Manning, 772 F.3d at 163. Second, this federal
element must be “actually disputed and substantial.”
Grable, 545 U.S. at 314, 125 S. Ct. 2363. With respect
to this factor, the Supreme Court has distinguished
cases such as Grable that present a “nearly pure issue
of law” that would govern numerous other cases, from
those that are “fact-bound and situation-specific.”
Empire, 547 U.S. at 700-01, 126 S. Ct. 2121 (internal
quotation marks omitted). Relatedly, for a case to
involve a “substantial” federal issue, it must be one
significant “to the federal system” as opposed to only
the parties. Gunn v. Minton,
U.S.
, 133 S. Ct.
1059, 1065—66, 185 L.Ed.2d 72 (2013). Third, the case
must be one “which a federal forum may entertain
without disturbing any congressionally approved
balance of federal and state judicial responsibilities.”
Grable, 545 U.S. at 314, 125 S. Ct. 2363.
—

MHA LLC v. HealthFirst, Inc., 629 F. App’x 409, 4 12—13 (3d Cir.
2015) (footnote
omitted).
The Authority argues that none of these Grable factors are presen
t here.
(See Opp. 8-14). Desktop Alert, Inc. v. ATHOC, Inc., No. 215CV
8337ESJAD,
2016 WL 1477029, at *5 (D.N.J. Feb. 24, 2016), report and recomm
endation
adopted, No. CV158337ESJAD, 2016 WL 1450551 (D.N.J. Apr.
13, 2016) (The

5

Grable factors are “conjunctive, and thus a failure of even a single
factor will
render federal ‘arising under’ jurisdiction inappropriate.”). I agre
5
e.
The first factor is not satisfied because no element of the Authority’s
state law claims requires construction of HUD regulations or federal
procurement laws. Under New Jersey law, “[t]o prove a breach of
fiduciary
duty, the plaintiff must prove: (1) the existence of a fiduciary relationship
between the parties, (2) the breach of a duty imposed by that relatio
nship, and
(3) harm to the plaintiff.” Inventory Recovery Corp. v. Gabriel, No.
2:1 1-CV01604 WJM, 2012 WL 2990693, at *4 (D.N.J. July 20, 2012). “To
plead a
breach of contract claim in New Jersey, Plaintiff, must allege that
(1) there was
a contract; (2) that contract was breached; (3) the breach resulted
in damages;
and (4) the person suing for breach performed his own contractual
duties.” Id.
As to the implied covenant of good faith and fair dealing:
This obligation to perform contracts in good faith has
been interpreted in New Jersey to mean that “neither
party shall do anything which will have the effect of
destroying or injuring the right of the other party to
receive the fruits of the contract.” Id. at 170. New
Jersey law also holds that a party to a contract can
breach the implied duty of good faith even if that party
abides by the express and unambiguous terms of that
contract if that party “acts in bad faith or engages in
some other form of inequitable conduct.” Id. A claim
for breach of an implied obligation can be pled
alongside a breach of contract claim as an alternative
form of liability. See Id. at 163.
Inventory Recovery Corp. v. Gabriel, No. 2:1 1-CV-01604 WJM,
2012 WL
*5 (D.N.J. July 20,
2990693, at
2012).
I go beyond formalism, however, and consider the particular breach
es
that are alleged. Count one of the complaint alleges that Garcia
breached his
employment agreement by “failing to comply with N.J.S.A. 40A-1
1-1 et seq.,
N.J.S.A. 40A:12A-17 and N.J.S.A. 40A:12A-18 in his dealings with
Authority
5

Grable has variously been described as identifying three or four factors
.
Compare MHC, supra (three factors), with Desktop Alert, supra (four).
This disparity
seems to reflect different methods of counting, not any difference
in substance.
6

vendors/contractors and in his dealings with the Board.”
6 The breach of
contract alleged, then, is that Garcia failed to comply with
New Jersey statutes,
not federal law or regulations. Even if federal laws could
be cited as evidence,
as background, or as an alternative basis for a claim, their
construction would
not be necessary for the Authority to prevail on its claim
7
.
Count three alleges that Garcia breached a fiduciary duty
owed to the
Authority, in part by “not complying fully with state and
federal regulations
when procuring contracts . . . .“ (Compi.
¶ 153). True, “federal regulations” are
mentioned. But again it is clear that construction of fede
ral regulations is not
necessary in order for the Authority to prevail; the Auth
ority can, and does,
rely on noncompliance with state regulations. See Sulli
van v. Novartis Pharm.
Corp., 602 F. Supp. 2d 527, 534—35 (D.N.J. 2009) (Gra
ble test not met where
federal issues embedded in punitive damages claim were
not dispositive); Lougy
v. Volkswagen Grp. ofAm., Inc., No. CV 16-1670 (JLL),
2016 WL 3067686, at *3
(D.N.J. May 19, 2016) (rejecting jurisdiction under Grab
le where claim was
“based on alternative theories, at least three of whic
h have no necessary federal
element.”); Urata v. Canare Elec. Co., No. CIV.A. 12-5
704 JLL, 2013 WL
*7 (D.N.J. May
2395049, at
29, 2013) (declining Grable jurisdiction where “[i}t
is clear from the Complaint and briefing that Urata can
prove all the elements
of his claims without resorting to any analysis or inter
pretation of any federal
issue.”).
Those cited statutes govern creation of a housing auth
ority and the office of
Executive Director.
6

7

It is not enough to hypothesize that one alternative theo
ry underlying a claim
might implicate federal law. Christianson v. Colt Indus.
Operating Corp., 486 U.S. 800,
810, 108 S. Ct. 2166, 2174 (1988), held that “a claim supp
orted by alternative theories
in the complaint may not form the basis for 1338(a) juris
diction unless [federall law
§
is essential to each of those theories.” That case pertained
to jurisdiction under 28
U.S.C. § 1338, which is specific to patents, plant variety
protection, copyrights, and
trademarks. But the same reasoning applies here. Where
alternative theories may
form the basis for stating a claim, and not all theories implic
ate federal issues, it
follows, logically, that construction of federal law is not requ
ired to meet an element of
the state law claim. See also Gunn v. Minton, 133 S. Ct.
1059, 1064, 185 L. Ed. 2d 72
(2013) (“[WIe have interpreted the phrase ‘arising under’ in
both sections identically,
applying our § 1331 and § 1338(a) precedents interchangeab
ly”).
7

I turn to the Grable factor concerning whether any federal issue is
“actually disputed and substantial.” I accept arguendo that federal
procurement laws and regulations might be implicated, at least in a genera
l
way, as evidence of whether Garcia breached his contract and duties.
But the
parties have not “identified a dispute over the meaning of particular [federa
l]
statutory text.” MHA LLC v. HealthFirst, Inc., 629 F. App’x 409, 414
(3d Cir.
2015). Nor have they “call[ed] into question the validity of a federal statute
or
the conduct of a federal actor.” Id. Rather, the complaint presents the
8
type of
“fact-bound and situation-specific” scenario, significant to the parties
, but not
of consequence to the interpretation or development of federal law. Empir
e
HealthchoiceAssur., inc. v. McVeigh, 547 U.S. 677, 701, 126 S. Ct.
2121, 2137
(2006); Gunn v. Minton, 133 S. Ct. 1059, 1066 (2013) (“[I]t is not enough
that
the federal issue be significant to the particular parties in the immed
iate suit
The substantiality inquiry under Grable looks instead to the import
ance of
•

.

the issue to the federal system as a whole.”); see also Merrell Dow
Pharm. Inc. v.
8

Garcia was not a “federal actor” as such, but rather an employee of a “quasi
municipal corporation.
governed by an independent Board of Commissioners.”
(Compl. ¶ 1) Although “a housing authority is an agency of municipal,
state and
federal government,” Wester v. City of Asbury Park, 299 N.J. Super. 358,
364, 690
A.2d 1130, 1134 (Law. Div. 1996), courts have generally declined to consid
er housing
authorities federal agents. See, e.g., Staten v. Hous. Auth. of City of Pittsbu
rgh, 638
F.2d 599, 603 (3d Cir. 1980) (“While a great deal of funding for the Housin
g Authority
comes from the federal government, that funding alone does not establi
sh an agency
relationship between the Housing Authority and the federal government.
Rather, if the
State agency qualifies for Federal assistance (42 U.S.C. 1440(b)(1)),
the federal
§
government becomes a guarantor of the Authority’s obligations.
Given both the
federal and state statutory schemes for Housing Authorities, we fmd
that defendant,
Housing Authority is not an ‘agency’ of the United States immune
under section
2412.”); Hous. Auth. of City of Bayonne v. Hanna, No. CIV. A. 08-598
8 FSH, 2009 WL
1312605, at *3 (D.N.J. May 11, 2009) (declining to fmd federal questio
n jurisdiction in
suit brought by housing authority “simply because federal fundin
g or reference to
federal regulations in [a contested] lease is involved”); see also O’Kee
fe v. Dunn, 89
N.J. Super. 383, 395, 215 A.2d 66, 73 (Law. Div. 1965), aff’d, 47 N.J.
210, 219 A.2d
872 (1966) (“[T]he statutory provisions providing for the establishmen
t of a housing
authority created an independent public corporation unique in charac
ter. It is unique
because it is to be simultaneously an agency of municipal, state and
federal
government.”) Additionally, as noted, the provisions of the HUD Litigat
ion Handbook
that Garcia himself cites are directed to “non-federal party litigation.”
(See Opp. 5—6 &
Ex. A)
.

.

.

8

.

.

Thompson, 478 U.S. 804, 817, 106 S. Ct. 3229, 3237 (1986) (stat law
e
negligence suit which relied on an asserted violation of the federal
Food, Drug,
and Cosmetic Act to establish a rebuttable presumption of negligence
did not
arise under federal law).
Indeed, presaging Grable, the Third Circuit long ago explained:
[A]n action under 28 U.S.C. § 133 1(a) arises only if the
complaint seeks a remedy expressly granted by federal
law or if the action requires construction of a federal
statute, or at least a distinctive policy of a federal
statute requires the application of federal legal
principles. “[T]he fact that a contract is subject to
federal regulation does not, in itself, demonstrate that
Congress meant that all aspects of its performance or
nonperformance are to be governed by federal law
rather than by the state law applicable to similar
contracts in businesses not under federal regulation.”
Virgin Islands Hous. Auth. v. Coastal Geri. Const. Servs. Corp.,
27 F.3d 911, 916
(3d Cir. 1994) (quoting Lindy v. Lynn, 501 F.2d 1367, 1369
(3d Cir. 1974)).
Here, neither party has even alleged this much—i.e, that Garcia
’s employment
contract was subject to federal regulation—let alone that the
question of
performance and breach is governed by federal law.
The final factor (the federal-state balance) is by its nature som
ewhat
amorphous. But it is Garcia who bears the burden of estab
lishing federal
jurisdiction. He raises no reason to think that this case is
one “which a federal
forum may entertain without disturbing any congressional
ly approved balance
of federal and state judicial responsibilities.” Grable, 545
U.S. at 314.
Garcia’s brief does not address the Grable test at all; he simply
cites
“numerous references to federal law in [the Authority’s] compla
int.” (Opp. 4).
Under the Grable case law, however, it is not sufficient that
a party to a state
law contract operates within a web of federal laws or regu
lations. Nor do mere
references to federal law create federal jurisdiction unless
the Grable factors
are satisfied. In sum, the Authority’s complaint does not,
by referring to HUD
regulations and federal procurement laws, fall into the “specia
l and small”

9

category of cases asserting state law claims that nevertheless arise
under
federal law.

2. HUD Authorization to Litigate
Garcia’s second theory is that the Authority was required to obtain
approval from HUD Regional Counsel before initiating its lawsui
t, and that the
question of whether it did so is a federal law question. This theory
fails to
persuade.
First, the cited preapproval requirement appears in a HUD Litigat
ion
Handbook. (Garcia appends a copy to his brief in opposition
to the Authority’s
motion. See Opp., Ex. A (ECF no. 16-1).) There is no showing,
however, that the
Handbook creates enforceable rights, and the law is generally
to the contrary.
See, e.g., Thorpe v. Housing Auth. of City of Durham, 393 U.S.
268, 275, 89 S.
Ct. 518 (1969) (“[TJhe various ‘handbooks and ‘booklets’ issued
by HUD
contain mere ‘instructions,’ ‘technical suggestions,’ and ‘items
for
consideration.”); Vandermark v. Hous. Autlt of City of York,
663 F.2d

436, 441

(3d Cir. 1981) (declining to give HUD’s Section 8 handbook the
same force as a
regulation); Williams v. Hanover Housing Auth., 871 F. Supp.
527, 531—32 (D.
Mass. 1994) (collecting cases and stating: Courts have consis
tently held that
government agenc[iejs’ handbooks are not legally bindin
g, but merely
advisory”).
Second, the factual predicate of this issue (to the extent it
may be an
issue) is lacking. The Authority has submitted a letter of approv
al from HUD
Regional Counsel that expressly grants the Authority permis
sion to commence
its lawsuit against Garcia. The approval letter is dated April
15, 2016 (i.e., two
weeks before the Authority filed its complaint on April 29,
2016). (See Affidavit
of Joseph A. Manfredi, Ex. A (ECF No. 17-2)).9 This administrative
step,
however necessary, does not raise a “substantial and dispute
d” issue.’°
The Authority’s motion attaches this extrinsic approval letter, just
response, attaches the HUD Litigation Handbook. Because this motion as Garcia, in
for remand
9

10

C.

Conclusion

For the reasons stated above, the motion of the plaintiff, Housing
Authority of the City of Hoboken, to remand this case to state court,
pursuant
to 28 U.S.C. § 1447, is GRANTED. A separate order will issue.
Dated: January 5, 2017

/Z

/c

Jy

HON. KEVIN MCNULTY, U.S.i4

presents a jurisdictional challenge, it is permissible for the Court
to consider them:
“ITihe Court may look to documents outside the pleadings in order to assess
jurisdictional facts sufficient to assure the Court of the propriety
of its adjudication of
a particular claim.” Christie v. Pub. Serv. Elec. & Gas Co., No. CIV.
04-5978 (HAA),
2006 WL 462588, at *6 (D.N.J. Feb. 24, 2006).
10
To venture a little farther into the realm of alternative arguments,
this alleged
federal-law theory, if it could be asserted, would probably be asserte
d as a defense. As
explained supra, under the well-pleaded complaint rule, a defendant’s
federal defense
is not a basis for federal jurisdiction. Caterpillar Inc., 482 U.S.
at 392.

11