JAAAT Technical Service, LLC, v. Tetra Tech Tesoro, Inc.

Filing 99

MEMORANDUM OPINION. See for complete details. Signed by District Judge M. Hannah Lauck on 09/11/2017. (nbrow)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division
JAAAT TECHNICAL SERVICES, LLC,
Plaintiff,

v.

Civil Action No. 3:15cv235

TETRA TECH TESORO, INC.,
Defendant.
MEMORANDUM OPINION
This matter is before the Court on its sua sponte reconsideration of subject-matter
jurisdiction. For the reasons that follow, the Court finds that it does not have subject-matter
jurisdiction over this action. The Court will dismiss the action without prejudice. 1

I. Relevant Background2
A.

The Contract Dispute

The dispute in this case arises from Defendant Tetra Tech Tesoro, Inc. 's ("Tesoro")
alleged breach of five subcontracts regarding five construction projects at three military bases

1

Because the Court finds that it lacks subject matter jurisdiction over this case, it will
deny as moot the following outstanding motions: (1) JAAAT's Motion to Quash Subpoena
Duces Tecum, (ECF No. 70); (2) Tesoro's Motion to Compel, (ECF No. 71); and, (3) Tesoro's
Motion to Strike Testimony of Eddie Cummings, (ECF No. 77).
2

The Court assumes familiarity with the facts and procedural background of this case as
set forth in its Memorandum Opinion denying Tesoro's Motion to Dismiss for Lack of SubjectMatter Jurisdiction, JAAAT Tech. Servs., LLC v. Tetra Tech Tesoro, Inc., No. 3:15cv235, 2016
WL 1271039 (E.D. Va. Mar. 29, 2016) (ECF No. 32) (the "March 2016 Opinion"), and its
Memorandum Order denying JAAAT's Motion to Dismiss Counts 7 through 10 ofTesoro's
Counterclaims, JAAAT Tech. Servs., LLC v. Tetra Tech Tesoro, Inc., No. 3:15cv235 (E.D. Va.
Sept. 26, 2016) (ECF No. 73) (the "September 2016 Memorandum Order").

(the "Military Base Projects"). 3 At each Military Base Project, Plaintiff JAAAT Technical
Services, LLC ("JAAAT") acted as the general contractor and Tesoro acted as a subcontractor.
Both parties are Virginia companies. JAAAT alleges that Tesoro breached its duties under five
subcontracts by "fail[ing] to adequately perform the work required" and incurring "substantial
delays in the performance of its work on each project." (Am. Compl., 28, ECF No. 16.)
JAAAT alleges that it has suffered damages as a result ofTesoro's breaches and seeks damages,
costs and expenses, and pre- and post-judgment interest.
Tesoro filed an answer, which included ten counterclaims. Tesoro alleged its own breach
of contract claims against JAAAT as to the same five subcontracts. Tesoro also included an
unjust enrichment or quantum meruit claim (Count 6), a constructive trust or breach of fiduciary
duty claim (Count 7), an accounting claim (Count 8), a conversion claim (Count 9), and a fraud
claim (Count 10). In its counterclaims, Tesoro seeks damages, costs and expenses, and pre- and
post-judgment interest.
Two facts are crucial to the question of subject-matter jurisdiction here. First, each of the
Military Bases is a federal enclave and is therefore governed not by simple state or federal law
but, as discussed more fully later, by "federalized" state law. Second, each subcontract contains
a choice-of-law clause stating that "all disputes under [the subcontracts] shall be determined and
interpreted pursuant to the laws of the Commonwealth of Virginia." (Am. Campi., 54.) Thus,
if no enforceable choice-of-law provision governs the parties' subcontracts, federalized state law
would likely govern these claims.

3

The military bases at issue are: (1) Fort Bragg (located in North Carolina); (2) Fort
Gordon (located in Georgia); and, (3) Fort Benning (located in Georgia) (collectively, the
"Military Bases").

2

B.

The Court Revisits Subject-Matter Jurisdiction Because Federal
Question Jurisdiction Exists Only When Federal Law Creates the
Cause of Action or When Plaintiff's Relief Necessarily Depends on
the Resolution of a Substantial Federal Question

The Court revisits subject-matter jurisdiction because federal question subject-matter
jurisdiction exists when federal law creates the cause of action or when plaintiffs relief

necessarily depends on the resolution of a substantial federal question. See Aegis Def Servs.,
LLC v. Chenega-Patriot Grp., LLC, 141 F. Supp. 3d 479, 483-84 (E.D. Va. 2015) (citing
Interstate Petroleum Corp. v. Morgan, 249 F.3d 215, 219 (4th Cir. 2001)). Neither circumstance
exists here.
As a court of limited subject-matter jurisdiction, United States ex rel. Vuyvuru v. Jadhav,
555 F.3d 337, 347 (4th Cir. 2009) (citing Exxon Mobile Corp. v. Allapattah Servs., Inc., 545 U.S.
546, 552 (2005)), this federal court must determine whether it has jurisdiction over the claims at
issue, see Steel Co. v. Citizens for a Better Env 't, 523 U.S. 83, 94-95 (1998) ("The requirement
that jurisdiction be established as a threshold matter 'spring[s] from the nature and limits of the
judicial power of the United States' and is 'inflexible and without exception."' (quoting

Mansfield, C. & L.MR. Co. v. Swan, 111 U.S. 379, 382 (1884))). "The objection that a federal
court lacks subject-matter jurisdiction ... may be raised by a party, or by a court on its own
initiative, at any stage in the litigation ...." Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006)
(citing Fed. R. Civ. P. 12(b)(l)). "Subject-matter jurisdiction cannot be conferred by the parties,
nor can a defect in subject-matter jurisdiction be waived by the parties. Accordingly, questions
of subject-matter jurisdiction may be raised at any point in the proceedings and may (or, more
precisely, must) be raised sua sponte by the court." Brickwood Contractors, Inc. v. Datanet

Engineering, Inc., 369 F.3d 385, 390 (4th Cir. 2004) (internal citations omitted); see also Fed. R.

3

Civ. P. 12(h)(3) ("If the court determines at any time that it lacks subject-matter jurisdiction, the
court must dismiss the action.").
Federal district courts commonly exercise jurisdiction over civil actions in two
circumstances. First, federal district courts exercise jurisdiction in "federal question" cases"civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C.

§ 1331. "[l]n order for federal question jurisdiction to exist[:] (i) federal law must create the
cause of action[;] or[,] (ii) the plaintiffs right to relief must necessarily depend on the resolution
of a substantial federal question." Aegis Def Servs., LLC, 141 F. Supp. 3d at 483-84 (emphasis
added) (citing Interstate Petroleum Corp., 249 F.3d at 219). Second, federal district courts
exercise jurisdiction in "diversity" cases-when the parties are, inter alia, citizens of different
states and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332(a)(l ).
Thus, in order to exercise jurisdiction over this case, the Court must find that one of three
circumstances exists-either: (1) federal law creates JAAAT's cause of action; (2) JAAAT's
right to relief necessarily depends on the resolution of a substantial federal question; 4 or,

4

If state law creates the cause of action, federal question jurisdiction will lie only if"it
'appears from the [complaint] that the right to relief depends upon the construction or application
of[federal law]."' Grable & Sons Metal Prods. v. Darue Eng'g & Mfg., 545 U.S. 308, 313
(2005)(quoting Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 199 (1921)). This
standard is met in only a "'special and small category' of cases." Gunn v. Minton, 568 U.S. 251,
258 (2013) (quoting Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677,
699 (2006)).
"In recent years, the Supreme Court has brought greater clarity to what it describes as a
traditionally 'unruly doctrine,' emphasizing its 'slim contours."' Flying Pigs, LLC v. RRAJ
Franchising, LLC, 757 F.3d 177, 182 (4th Cir. 2014) (quoting Gunn, 568 U.S. at 258).
Specifically, under Grable and Gunn, "federal jurisdiction over a state law claim will lie [only] if
a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of
resolution in federal court without disrupting the federal-state balance approved by Congress."
Gunn, 568 U.S. at 258. "Where all four of these requirements are met, ... jurisdiction is proper
because there is a 'serious federal interest in claiming the advantages thought to be inherent in a
federal forum,' which can be vindicated without disrupting Congress's intended division oflabor
between state and federal courts." Id (quoting Grable, 545 U.S. at 313-14). The parties here do

4

(3) JAAAT and Tesoro are citizens of different states and the amount in controversy exceeds
$75,000. Because, given the parties' citizenship and the enforceability of their choice-of-law
provision, none of these circumstances are present, the Court lacks subject-matter jurisdiction
over this action and must dismiss it.

C.

When, as Here, Congress Fails to Enact New Civil Contract
Law, the Federal Enclave Doctrine Provides that State
Contract Law at Time of Cession Governs the Dispute

This apparently straightforward breach-of-contract case involves an unusual and knotty
legal issue because the Military Bases qualify as federal enclaves and, therefore, would typically
be governed by "federalized" state law. Under this doctrine, contract law in place in early 1900s
North Carolina and Georgia-the time these Military Bases were ceded-would govern this
dispute.
As this Court noted in its March 2016 Opinion, "[a] federal enclave is created when a
state cedes jurisdiction over land within its border to the federal government and Congress
accepts that cession." Allison v. Boeing Laser Tech. Servs., 689 F.3d 1234, 1235 (10th Cir.
2012). The federal enclave doctrine, which grants Congress the exclusive right to regulate
properties acquired from state governments, arises from Article I, section 8, clause 17 of the
United States Constitution (the "Federal Enclave Clause"):
Congress shall have the Power ... To exercise exclusive Legislation in all Cases
whatsoever, over such District (not exceeding ten Miles square) as may, by
Cession of particular States, and the Acceptance of Congress, become the Seat of
the Government of the United States, and to exercise like Authority over all
Places purchased by the Consent of the Legislature of the State in which the Same
shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other
needful Buildings ....

not contend that this case fits within the "'special and small category' of cases" contemplated by
the standard set forth in Grable and Gunn.
5

U.S. Const. art. I,§ 8, cl. 17 (emphasis added). Under the federal enclave doctrine, when "the
United States acquires with the 'consent' of the state legislature land within the borders of that
State ... the jurisdiction of the Federal Government becomes 'exclusive."' Paul v. United

States, 371 U.S. 245, 264 (1963). This legislative "power of Congress over federal enclaves ...
is obviously the same as the power of Congress over the District of Columbia" and "by its own
weight, bars state regulation without specific congressional action." Id. at 263.
In the absence of subsequent federal legislation displacing state law, "the [state] law in
effect at the time of the transfer of jurisdiction [from the state to United States] continues in
force" on the federal enclave. James Stewart & Co. v. Sadrakula, 309 U.S. 94, 100 (1940).

5

Importantly, "future statutes of the state are not a part of the body of laws in the ceded area," and
"Congressional action is necessary to keep [the laws of the federal enclave] current." Id at 100;

see also Paul, 371 U.S. at 268 ("Since a State may not legislate with respect to a federal enclave
unless it reserved the right to do so when it gave its consent to the purchase by the United States,
only state law existing at the time of the acquisition remains enforceable, not subsequent laws.").
Subsequent state common law also does not apply. Allison, 689 F.3d at 1240 (explaining that
"[w]hen a state speaks through its courts, it creates new law no less than when it speaks through
the legislature").
5

The continuation of state law as federal law "assures that no area however small will be
left without a developed legal system for private rights." James Stewart & Co., 309 U.S. at 100.
Congress has assimilated some laws, particularly criminal laws, to apply in federal enclaves.
Allison, 589 F.3d at 1237. Congress also has allowed application of current state law to some
civil claims, including wrongful death, workers' and unemployment compensation, and fish and
game regulation. Id. "But in many important areas of law that are traditionally the responsibility
of states ... [including contract law] ... there is no federal assimilative statute." Id at 1237-38.
This circumstance rightly has drawn criticism. See, e.g., Chad Deveaux, Trapped in the
Amber: State Common Law, Employee Rights, and Federal Enclaves, 77 Brook. L. Rev. 499,
503 (2012) ("With respect to legal areas neglected by Congress, federal enclaves have devolved
into jurisprudential Jurassic Parks, 'sanctuar[ies] for the obsolete restrictions of the common
law.'" (quoting Capetola v. Barclay-White Co., 48 F. Supp. 797, 800 (E.D. Pa. 1943))).

6

Thus, the law in force on federal enclaves, although derived from state law, becomes
exclusively federal law once the enclave is ceded to the federal government. 6 See Pac. Coast
Dairy v. Dep 't ofAg. of Cal., 318 U.S. 285, 294 (1943); see also Allison, 689 F.3d at 1237 ("The

central principle of [the] federal enclave doctrine is that Congress has exclusive legislative
authority over these enclaves."). And as the Court discussed in its March 2016 Opinion, this socalled "federalized" state law can confer on federal courts subject-matter jurisdiction over claims
that would otherwise be matters of state law, such as the contract disputes at issue here. See
March 2016 Opinion, at *3 (citing Allison, 689 F.3d at 1235).

D.

This Court Erred in its March 2016 Opinion When Finding that Federal
Question Jurisdiction Existed Because It Applied Tenth Circuit Dicta
Without Considering Choice-of-Law Issues First

In March 2016, the Court held, as a matter of first impression, that it had federal question
subject-matter jurisdiction over the breach of contract claims at bar because federalized state law
governed causes of action that arose on these federal enclaves and the parties could not "contract
around" the Constitution. However, on review, the Court sees that it jumped the gun in relying
on nonbinding dicta about federalized law operating as a choice-of-law doctrine from the United
States Court of Appeals for the Tenth Circuit, see Allison, 689 F.3d at 1235, before fully
analyzing, as a threshold matter, the effect of the parties' choice-of-law clause. See Fransmart,
LLC v. Freshii Dev., LLC, 768 F. Supp. 2d 851, 858 (E.D. Va. 2011) (explaining that "the

6

The Supreme Court of the United States recognizes at least three exceptions to the rule
that the United States holds exclusive legislative jurisdiction over federal enclaves, none of
which apply in this case:
1) where Congress has, by statute, provided a different rule; 2) where the state
explicitly retained the right to legislate over specific matters at the time of
cession; and[,] 3) where minor regulatory changes modify laws existing at the
time of cession.
Allison, 689 F.3d at 1237.

7

choice-of-law question is a threshold issue"). Unlike this Court, the Allison court had no choiceof-law clause to evaluate in the first instance. 7
In March 2016, the Court mistakenly began with the "longstanding position" that the
federal enclave doctrine requires courts to apply federalized state law to causes of action that
arise on federal enclaves. See, e.g., Stokes v. Adair, 265 F.2d 662, 665-66 (4th Cir. 1959)
(finding federal district court possessed jurisdiction over non-diverse parties for personal injuries
on a federal enclave); accord Durham v. Lockheed Martin Corp., 445 F.3d 1247, 1250 (9th
Cir. 2006) (finding removal proper where tort claims allegedly occurred on a federal enclave);

Akin v. Ashland Chem. Co., 156 F.3d 1030, 1034 (10th Cir. 1998) (finding that "[p]ersonal injury
actions which arise from incidents occurring in federal enclaves may be removed to federal
district court as part of federal question jurisdiction"); Mater, 200 F.2d at 124-25 (finding that
federal courts have jurisdiction over torts committed on federal enclaves). Relying on the wide
body of law supporting that position, the Court concluded that "it is undisputed that 'claims
arising on a federal enclave provide a separate and independent basis for federal question
jurisdiction."' Id (footnote omitted) (quoting Federico v. Lincoln Military Hous., 901 F. Supp.
2d 654, 663 n.2 (E.D. Va. 2012).
Misapplying dicta from a United States Court of Appeals for the Tenth Circuit opinion,
the Court stated that the "' [f]ederal enclave doctrine operates as a choice of law doctrine that
7

In Allison, the Tenth Circuit decided a wrongful discharge claim brought by a former
Boeing employee seeking to apply common law employment principles developed by New
Mexico courts after the military base at issue had been ceded to the federal government. The
Allison court found that, because it had not been displaced by federal statutory law, New Mexico
law as it existed at the time of cession governed the causes of action. The Tenth Circuit had no
occasion to assess a choice-of-law clause, as this Court must do here. The dicta about "a choice
of law doctrine" meant to communicate simply that, absent any basis dictating otherwise, courts
apply the federalized state law of the state in which the federal enclave sits, i.e., the state that
ceded its land to the federal government. The existence of a choice-of-law clause, of course,
adds an important wrinkle to this Court's analysis.
8

dictates which law applies to causes of action arising on these lands."' March 2016 Opinion, at
*6 (quoting Allison, 689 F.3d at 1235). Proceeding on this principle-that the federal enclave
doctrine operates as a choice-of-law doctrine-the Court explained that "[i]n light of the
Supremacy Clause [of the United States Constitution8], only federal law may apply to JAAAT's
claims." March 2016 Opinion, at *7. In essence, the Court concluded that the parties' choice-oflaw provision was invalid because the Supremacy Clause prevented the parties from contracting
around the application of federal law to their breach of contract claims. See id ("The parties'
election [to apply Virginia, not federal law] does not override the Constitution."). Because
federalized state law governed the breach of contract claims at issue, the Court ruled that "only
federal law may apply to JAAAT's claims .... , the claims arise under federal law, and subject
matter jurisdiction is appropriate here." March 2016 Opinion, at *7.
The upshot of the Court's ruling that the parties' choice-of-law provision was invalid and
it had subject-matter jurisdiction over JAAAT's breach of contract claims was the following:
(1) federalized Georgia contract law (i.e., Georgia contract law as of 1917 or 1922) governed the
cause of action that occurred on federal enclaves in Georgia; and, (2) federalized North Carolina
contract law (i.e., North Carolina contract law as of 1919) governed the causes of action that

8

The Supremacy Clause establishes that the Constitution, federal laws, and treaties are
the supreme law of the land, and that federal law prevails in the event of a conflict between
federal law and state law. See, e.g., Crosby v. Nat'! Foreign Trade Council, 530 U.S. 363, 372
(2000) ("A fundamental principle of the Constitution is that Congress has the power to preempt
state law."). The Supremacy Clause provides:
This Constitution, and the Laws of the United States which shall be made in
Pursuance thereof; and all Treaties made, or which shall be made, under the
Authority of the United States, shall be the supreme Law of the Land; and the
Judges in every State shall be bound thereby, any Thing in the Constitution or
Laws of any State to the Contrary notwithstanding.
U.S. Const. art. VI, cl. 2.
9

occurred on federal enclaves in North Carolina. (See Sept. 26 Mem. 0. 5, ECF No. 73.) But the
parties did not see it that way.

E.

The Parties' Submissions Relying Only on Current Virginia Law Required
this Court to Revisit the Issue of Federal Question Jurisdiction

After the Court found subject-matter jurisdiction through the federal enclave doctrine,
Tesoro filed its answer and counterclaims. JAAAT then moved to dismiss Counts 7 through 10
of Tesoro's counterclaims, asserting, under current Virginia law, that the causes of action failed
to state a claim for which relief can be granted. Tesoro responded, likewise relying on current
Virginia law. Of course, as discussed, the basis for the Court's finding that it had subject-matter

jurisdiction was the Court's conclusion that the parties' choice-of-law provision electing Virginia
law was unenforceable, meaning that North Carolina and Georgia federalized state law governed
the causes of action in this case. See March 2016 Opinion, at *5-7.
Sensing confusion from the parties regarding this novel and complex legal issue, the
Court expressed a willingness to "reconsider its earlier holding upon briefing by the parties."
(Sept. 26 Mem. 0. 5-6, ECF No. 73.) Reminding the parties that "a finding that Virginia law
governs the substantive causes of action in this case would necessarily affect this Court's earlier
holding that it has subject matter jurisdiction," the Court ordered additional briefing on the basis
for this Court to exercise subject-matter jurisdiction over these contract disputes. 9 (Id. at 5-6.)
The parties submitted additional briefing. (ECF Nos. 76, 79, 85, 86.) The Court, with this
additional input from the parties, now reconsiders whether subject-matter jurisdiction exists in
this case. It does not.

9

The Court invited briefing because a case applying only Virginia law would not be one
in which federal law created the cause of action, nor one in which the right to relief necessarily
depends on the resolution of a substantial federal question.
10

II. Analysis
In federal cases, courts typically address the choice-of-law question-and particularly,
the enforceability of a choice-of-law clause-as a threshold matter. See Fransmart, LLC, 768 F.
Supp. 2d at 858 (explaining in a diversity case that "the choice-of-law question is a threshold
issue"); see also Bunker Holdings, Ltd. v. Green Pacific AIS, 346 F. App'x 969, 972 (4th
Cir. 2009) (beginning "analysis [in a maritime case] by determining whether the choice-of-law
provisions set forth in the contracts ... are enforceable"). The March 2016 Opinion ill-advisedly
skipped this preliminary level of analysis. Because needs for predictability and uniformity exist
here with verve, the Court will assess the enforceability of the choice-of-law clause at bar before
addressing other jurisdictional matters.

A.

The Court Should Evaluate the Enforceability of the Choice-of-Law
Clause Before Addressing Other Matters

The United States Court of Appeals for the Fourth Circuit indicates that a court should
first evaluate the enforceability of a choice-of-law clause. See Bunker Holdings, Ltd., 346 F.
App'x at 972 (beginning "analysis by determining whether the choice-of-law provisions set forth
in the contracts ... are enforceable"). Common sense suggests the same. Evaluating the parties'
election to apply the law of their choosing encourages predictability and uniformity. More
specifically, it could promote certainty and consistency in circumstances such as this, where the
same parties are engaged in business across different federal enclaves that would, in the absence
of choice-of-law clauses, involve the application of various federalized state laws.
Of course, to assess enforceability, the Court needs to determine the applicable choice-oflaw rules it should use in order to evaluate enforceability. See Gulf Ins. Co. v. Davis, 65 F.3d
166 (4th Cir. 1995) ("The threshold issue that we must resolve is the appropriate choice of law

11

rule."). Under these odd facts, identifying the law to utilize when undertaking the choice-of-law
analysis is, in and of itself, no mean task.
Indeed, determining the applicable choice-of-law rules requires, at a minimum, creative
reasoning. Here, we have a case in which a plaintiff invokes federal question jurisdiction, but
otherwise claims that state law wholly governs the dispute. The defendant seems to agree with
that incongruous procedural and substantive posture. No precedent applying these unique facts
exists. Because the parties persist in claiming that federal question jurisdiction exists over what
they acknowledge is a contract dispute wholly governed by Virginia state law, the Court
undertakes a choice-of-law analysis under what it sees-in a most generous reading-as the
three possible choice-of-law rules that could apply in this circumstance.
First, the Court could apply federal choice-of-law rules because, even if it did so
improperly, JAAAT invoked federal question jurisdiction in the Amended Complaint. Some
courts have explained that "[w]here federal question jurisdiction is invoked, . .. federal courts
generally apply federal common law principles to resolve choice of law disputes." See, e.g.,
Nat'/ Fair Hous. All., Inc. v. Prudential Ins. Co. ofAm., 208 F. Supp. 2d 46, 62 (D.D.C. 2002)
(emphasis added) (citing Alvarez-Machain v. United States, 266 F.3d 1045, 1061 (9th Cir.
2001); A.1 Trade Finance, Inc. v. Petra Int'l Banking Corp., 62 F.3d 1454, 1458, 1463-64 (D.C.
Cir. 1995)).
Second, the Court conceivably could employ Virginia choice-of-law principles because
this Court sits in Virginia or because the parties agreed to apply Virginia law. But the Court sees
no basis for applying Virginia choice-of-law rules for either of those reasons. The holding in
Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496 (1941), which requires
federal courts to apply the choice-of-law rules of the state in which the court sits, pertains only to

12

those courts exercising diversity jurisdiction. Were the Court to apply Klaxon here, it would be
stuck predicting how the Supreme Court would extend Klaxon under the facts of this non-diverse

°

federal matter. 1 Further, it would make little sense to apply the parties' chosen law to determine
whether that choice was valid in the first place.
Third, the Court could utilize the federalized state law choice-of-law rules from the states
relevant in this contract dispute-the choice-of-law rules in North Carolina and Georgia as they
existed at the time the United States acquired those federal enclaves in the early 1900s. 11

B.

Regardless of the Choice-of-Law Rules Applied, the Parties'
Choice-of-Law Clause Likely Would Be Enforceable

As it turns out, this Court need not reach the issue of which jurisdiction's choice-of-law
rules should apply to determine the enforceability of the choice-of-law clause. As the Court will
explain below, each inquiry garners the same result: favoring the enforceability of the parties'
choice-of-law clause and, consequently, their election to apply Virginia law.

10

Extending Klaxon's holding to this non-diversity case walks a tenuous path perhaps
better left untrod. But for the sake of a full analysis, the Court will explore Virginia's choice-oflaw rules.
11

In its Amended Complaint, JAAAT attached numerous exhibits it defined as
"Jurisdictional Documents." (See Am. Compl. ~ 12.) These documents purport to establish that
the Military Bases are federal enclaves over which the United States has exclusive jurisdiction.
(See ECF Nos. 16-1 to 16-11.) Specifically, the Jurisdictional Documents indicate that the
Military Bases were ceded to the United States on the following dates: Fort Gordon (Georgia)1917; Fort Benning (Georgia)-1927; Fort Bragg (North Carolina)--two of the projects are on land
acquired on or before 1919, the other project is on land acquired between 1919 and 1940. (See
Am. Compl. if~ 11-21; ECF Nos. 16-1 to 16-11.)
This means that, under the federal enclave doctrine, Georgia law as it existed in 1917
would govern the breach of contract claims for work that occurred on Fort Gordon; Georgia law
as it existed in 1927 would govern the breach of contract claims for work that occurred on Fort
Benning; North Carolina law as it existed on or before 1919 would govern the breach of contract
claims for work that occurred on two of the project sites on Fort Bragg; and North Carolina law
as it existed between 1919 and 1940 would govern the breach of contract claims for work that
occurred on the third project site on Fort Bragg.
13

Unfortunately, such a result then deprives this Court of jurisdiction. The parties' choiceof-law clause seeks to apply Virginia law to all pending causes of action, meaning that this case
does not "aris[e] under the Constitution, laws, or treaties of the United States." 28 U.S.C.
§ 1331. The Court cannot exercise federal question jurisdiction over the claims before it because
federal law would not create the causes of action and the parties' relief would not necessarily
depend on the resolution of a substantial federal question. See Aegis Def Servs., LLC, 141 F.
Supp. 3d at 483-84 (citing Interstate Petroleum Corp., 249 F.3d at 219). Because the parties are
not diverse, the Court cannot exercise diversity jurisdiction over the claims before it. Thus, for
the reasons explained below, the Court will dismiss the action without prejudice for lack of
subject-matter jurisdiction.

1.

The Parties' Choice-of-Law Provision Likely Would Be Enforceable
Under Federal Choice-of Law Rules

Were the Court to apply federal choice-of-law rules, the parties' choice-of-law clause
would be enforceable and Virginia law would apply. "Federal common law follows the
approach of the Restatement (Second) of Conflicts of Laws." Pyott-Boone Elecs. Inc. v. IRR
Trust for Donald L. Fetterolf, 918 F. Supp. 2d 532, 541 (W.D. Va. 2013) (quoting Paul Bus.
Sys., Inc. v. Canon U.S.A., Inc., 397 S.E.2d 804, 807 (Va. 1990)). Under§ 187 of the Second
Restatement of Conflict of Laws, a choice-of-law provision will not be enforced if either of the
following two conditions is satisfied:
(a) the chosen state has no substantial relationship to the parties or the transaction
and there is no other reasonable basis for the parties' choice, or
(b) application of the law of the chosen state would be contrary to a fundamental
policy of a state which has a materially greater interest than the chosen state in the
determination of the particular issue ....
Restatement (Second) of Conflict of Laws § 187 ( 1971 ). Here, the chosen state-Virginiacertainly has a substantial relationship to the parties, which are both domiciled there. (Am.

14

Campi. if~ 1, 2.) For the same reason, a reasonable basis exists for the parties' choice.
Moreover, applying Virginia law would not "be contrary to a fundamental policy" of any other
state that may have an interest in the outcome of this case. Upon review of the record before the
Court, only North Carolina and Georgia appear to have a relationship to the parties or the
transaction and only because those states serve as the location of the federal enclaves on which
the causes of action arose. Given that in the absence of a choice-of-law provision, federalized
state law would apply (and not North Carolina or Georgia law), the Court cannot discern how the
application of Virginia law would be contrary to the policies of either North Carolina or Georgia.
Accordingly, under federal choice-of-law rules, the parties' choice-of-law provision likely would
be enforceable, and Virginia law would govern this action.

2.

The Parties' Choice-of-Law Provision Likely Would Be Enforceable
Under Virginia Choice-of Law Rules

Were the Court to apply Virginia choice-of-law rules, the parties' choice-of-law clause
would be enforceable and Virginia law would apply. Federal courts exercising diversity
jurisdiction must apply the choice-of-law rules of the state in which the court is sitting. Klaxon,
313 U.S. at 496. While no diversity jurisdiction exists here, ifthe Court extended the Klaxon
holding to this non-diverse case, this Court would look to Virginia's choice-of-law rules.

12

"Virginia courts generally enforce choice-of-law clauses, 'unless the party challenging
enforcement establishes that such provisions are unfair or unreasonable, or are affected by fraud
or unequal bargaining power."' Pyott-Boone Elecs. Inc., 918 F. Supp. 2d at 541 (quoting Paul

Bus. Sys., Inc., 397 S.E.2d at 807). Here, neither party challenges the fairness or reasonableness
of the choice-of-law provision, or claims that the choice-of-law provision was affected by fraud

12

No case directs what choice-of-law rules a federal court should apply in a non-diverse
case involving a choice-of-law clause that directs the application of substantive state law.
15

or unequal bargaining power. Thus, ifthe Court applied Virginia's choice-of-law rules, Virginia
law likely would govern this action.

3.

The Parties' Choice-of-Law Provision Likely Would
Be Enforceable Under Either North Carolina or
Georgia Choice-of-Law Rules at the Time of Cession

If the Court were to apply the law of the federal enclave on which the contracts were
performed to determine whether the parties' choice-of-law provision is enforceable, either North
Carolina law at the time of cession or Georgia law at the time of cession would govern the
subcontracts. As discussed earlier, North Carolina law as it existed on or before 1919 would
govern the claims for work that occurred on two of the project sites on Fort Bragg, and North
Carolina law as it existed between 1919 and 1940 would govern the claims for work that
occurred on the third project site on Fort Bragg. Georgia law as it existed in 1917 would govern
the claims for work that occurred on Fort Gordon, and Georgia law as it existed in 1927 would
govern the claims for work that occurred on Fort Benning. Even under those federalized state
laws, the parties' choice-of-law provision likely would be enforceable.

a.

The Parties' Choice-of-Law Provision Likely
Would Be Enforceable Under North Carolina
Choice-of-Law Rules at the Time of Cession

As early as 1907, it was "well settled" in North Carolina that, absent some statute
providing otherwise, "the parties may agree upon the place of the contract." Williams v. Mui.

Reserve Fund Life Ass 'n, 58 S.E. 802, 803 (N.C. 1907). In that timeframe, situations existed in
which courts declined to enforce choice-of-law provisions, but the Court sees none analogous to
the situation at bar. Given the "well settled" rule in North Carolina that, absent some statute
providing otherwise, "the parties may agree upon the place of the contract," Williams, 58 S.E. at
803, and the absence of any of the traditional rules for declining to enforce choice-of-law

16

provisions, the parties' choice-of-law provision likely would be enforceable under North
Carolina law as it existed on or before 1919 and between 1919 and 1940.

13

Even a 1906 North Carolina decision refusing to apply the parties' choice-of-law
provision does not countermand such a finding. In Blackwell v. Mutual Reserve Fund Life, 53
S.E. 833 (N.C. 1906), a North Carolina resident attempted to recover premiums under a life
insurance contract. The insurance contract provided that "this contract shall be governed by,
subject to, and construed only according to the laws of the state of New York." Id at 835. The
1906 Blackwell court found that the contract provision "[wa]s void so far as the courts of [North
Carolina] are concerned" because it left the plaintiff, who "entered into a contract of insurance
with a corporation having no capital or assets within reach of the courts of his state, and with but
little, if any, substantial guaranties of compliance with its contract." Id. at 835. The Blackwell
court refused to enforce the choice-of-law provision in the contract because it would have left the
North Carolina plaintiff with insufficient redress. See id. At most, Blackwell instructs that, in
1906, North Carolina courts could refuse to enforce choice-of-law provisions that were contrary
13

The Court finds nothing indicating that North Carolina's preference for applying
choice-of-law rules changed between 1919 and 1940. Moreover, cases indicate that North
Carolina's approach to choice-of-law provisions remained the same in that time period.
Bundy v. Commercial Credit Co., 157 S.E. 860, 863 (N .C. 1931 ), involved a contract for
the loan of money to a North Carolina citizen, executed in the state of Maryland, and containing
a provision that all aspects of the contract would be controlled by Delaware law, 157 S.E. at 862.
The plaintiff argued that the contract was void because the choice-of-law provision was included
to avoid the anti-usury laws of North Carolina. Id. The Supreme Court of North Carolina
ultimately found the contract stipulation as to Delaware law "immaterial" because nothing in the
case involved Delaware. Id at 863. Bundy thus teaches that, in 1931, North Carolina courts
could refuse to honor a choice-of-law provision that applied the law of a state with no connection
to the parties or the transaction or occurrence at issue. This exception is consistent with other
exceptions to the application of choice-of-law provisions. See, e.g., Restatement (Second) of
Conflict of Laws§ 187(a) (1971) (stating that a choice-of-law provision will not be honored if
"the chosen state has no substantial relationship to the parties or the transaction and there is no
other reasonable basis for the parties' choice"). And the need to refuse to honor a choice-of-law
provision would not exist here. Two Virginia companies chose to employ Virginia law, thereby
demonstrating a kind of connection absent from the Bundy case.
17

to a fundamental policy of the state, which is consistent with other general exceptions to
honoring parties' choice-of-law provisions. See, e.g., Restatement (Second) of Conflict of Laws
§ 187(b) (1971) (stating that a choice-of-law provision will not be honored if"application of the
law of the chosen state would be contrary to a fundamental policy of a state which has a
materially greater interest than the chosen state in the determination of the particular issue").

Blackwell does not, however, suggest that North Carolina courts would have declined to
recognize a choice-of-law provision electing to apply Virginia law to a contract dispute
involving two Virginia companies. Therefore, if the Court were to apply the federalized state
law that governs the three projects on Fort Bragg, the parties' choice-of-law provision likely
would be enforceable.

b.

The Parties' Choice-of-Law Provision Likely
Would Be Enforceable Under Georgia
Choice-of-Law Rules at the Time of Cession

In 1898, the Supreme Court of Georgia stated that Georgia would enforce parties' choiceof-law provisions "so far as that can be done without violating the law of this state or its
established policy." Mass. Ben. Life Ass 'n v. Robinson, 30 S.E. 918, 931 (Ga. 1898) ("Whenever
a contract made in a place outside of the territorial jurisdiction of this state is sought to be
enforced in this state, courts here will enforce the contract, and give effect to the laws of the
place in which it was executed, so far as that can be done without violating the law of this state
or its established policy."). The court in Robinson held that the parties' choice-of-law provision
declaring "that the place of the contract is the city of Boston, and that [the contract] is to be
governed and construed only according to the laws of the state of Massachusetts," was
enforceable, and because nothing in the contract was "violative either of the law or the public
policy of this state, ... this court will deal with the same as a Massachusetts contract." Id.

18

The Court sees nothing in the parties' contract that is "violative either of the law or the
public policy" of Georgia, and nothing indicating that Georgia changed its choice-of-law rules
between 1898 and 1917, the date Georgia ceded Fort Gordon to the United States, or 1927, the
date Georgia ceded Fort Benning to the United States. Therefore, if the Court were to apply the
federalized state law that governs the projects on Fort Gordon and Fort Benning, the parties'
choice-of-law provision would be enforceable.

C.

The Parties' Choice-of-Law Clause is Enforceable Even Though
Federalized State Law Would Otherwise Apply

The Court next addresses why it should honor the parties' decision to apply state law to
their dispute, even though federalized state law would apply absent their choice-of-law
provision. In the context of federal enclaves, this presents a matter of first impression, and the
parties have directed the Court to no case law providing otherwise. 14
Permitting parties to apply the law of their choosing provides certainty and consistency in
circumstances such as this, where the same parties are engaged in business across different
federal enclaves. The absence of a choice-of-law provision would result in the application of a
patchwork of federalized state laws to substantially similar causes of action. The analysis
undertaken above, see supra Section l.D, plainly demonstrates that the application of federalized

14

Tesoro points to federal maritime law as an analogous context in which parties may
elect to apply state law, even in the face of federal law that would otherwise govern the parties'
rights. See, e.g., Dinn v. Hooking Bull Boatyard, Inc., No. CIV.A. C-08-309, 2009 WL 2161676,
at *3 (S.D. Tex. July 16, 2009) ("Under federal maritime law, 'where the parties have included a
choice of law clause, that state's law will govern unless the state has no substantial relationship
to the parties or the transaction or the state's law conflicts with the fundamental purposes of
maritime law."' (quoting Stoot v. Fluor Drilling Services, Inc., 851 F.2d 1514, 1517 (5th Cir.
1988)) (citing Hale v. Co-Mar Offshore Corp., 588 F. Supp. 1212, 1215 (D.C. La. 1984);
Restatement (Second) of Conflict of Laws§ 187(2) (1971)).
Recognizing the sui generis nature of federal maritime law, the Court will not extend the
maritime rule to a non-maritime context. That said, the Court acknowledges that, even in federal
maritime law, where uniformity in the law has long been favored, courts honor choice-of-law
provisions.
19

state law, by its very nature, would do anything but assure uniformity because different laws
would apply in each federal enclave. Nor would it promote judicial efficiency. Thus, the Court
sees no policy basis for rejecting the parties' effort to ensure predictability in their dealings.

D.

Applying Federal Common Law-or Federalized State Law-to
Determine the Enforceability of the Choice-of-Law Clause Does Not
Confer Federal Question Jurisdiction

Because Virginia law applies to the pending causes of action, this Court lacks federal
question jurisdiction. JAAAT, however, suggests that the use of federal common law in the
Court's choice-of-law determination necessarily means that this is a federal case for
jurisdictional purposes. JAAAT's argument does not persuade. 15
JAAAT invokes 28 U.S.C. § 1331 as the basis for this Court's jurisdiction. Section 1331
provides: "The district courts shall have original jurisdiction of all civil actions arising under the
Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. "[I]n order for federal
question jurisdiction to exist[:] (i) federal law must create the cause of action[;] or[,] (ii) the
plaintiffs right to relief must necessarily depend on the resolution of a substantial federal
question." Aegis Def Servs., LLC v. Chenega-Patriot Grp., LLC, 141 F. Supp. 3d 479, 483-84
(E.D. Va. 2015) (emphasis added) (citing Interstate Petroleum Corp. v. Morgan, 249 F.3d 215,
219 (4th Cir. 2001)); see also Interstate Petroleum Corp., 249 F.3d at 219 ("Congress has given
the lower federal courts jurisdiction to hear 'only those cases in which a well-pleaded complaint
establishes either that federal law creates the cause of action or that the plaintiffs right to relief

15

Applying federalized state law to determine whether the parties' choice-of-law
provision is valid does not confer federal question jurisdiction for the same reasons that applying
federal common law to the same determination does not. Federal question jurisdiction turns on
the substantive law a court applies to decide a party's claims. See, e.g., Aegis Def Servs., LLC,
141 F. Supp. 3d at 484. Because the Court would apply federalized state law only to make the
threshold choice-of-law determination, Fransmart, LLC, 768 F. Supp. 2d at 858, that is
insufficient to confer federal question jurisdiction.
20

necessarily depends on resolution of a substantial question of federal law.'" (quoting Franchise
Tax Bd. v. Const. Laborers Vacation Trust, 463 U.S. 1, 27 (1983))).
Because the parties' choice-of-law provision is enforceable, Virginia law governs the
claims at bar. As such, the pertinent causes of action were necessarily created under the law of
Virginia, not federal law. A complaint that asserts ''causes of action that are exclusively state
law claims" does not depend on federal law. See Aegis Def Servs., LLC, 141 F. Supp. 3d at 484.
"This alone is typically sufficient" to preclude the exercise of federal question jurisdiction. Id.
Also, the right to relief under Virginia contract claims does not depend on the resolution of a
substantial question of federal law because "the right to relief [does not depend] upon the
construction or application of the Constitution or laws of the United States." Smith v. Kansas
City Title & Trust Co., 255 U.S. 180, 199 (1921). JAAAT does not argue otherwise. See, e.g.,
Int'! Longshoremen's Ass'n v. Va. Int'! Terminals, Inc., 914 F. Supp. 1335, 1338 (E.D. Va. 1996)
(citing McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189 (1936)).
Thus, because the parties' choice-of-law clause, which provides that Virginia law applies
to any contract disputes, is enforceable, Virginia law applies to JAAAT's breach of contract
claims. As a consequence, the suit necessarily "aris[es] under" Virginia law, not federal law, see
Interstate Petroleum Corp., 249 F.3d at 222 ("The cause of action in this case was created under
the law of West Virginia, so the suit arises under that law, not federal law."), and the Court lacks
subject-matter jurisdiction over the claims. 16
The Court will vacate the March 2016 Opinion and accompanying order, and dismiss this
case for lack of subject-matter jurisdiction.

16

The Court obviously lacks diversity jurisdiction because the parties are both domiciled,
for the purpose diversity jurisdiction, in Virginia.
21

III. Conclusion
For the foregoing reasons, the Court wi ll vacate the March 2016 Opinion and the
accompanying order, (ECF Nos. 32, 33), and will dismiss, without prejudice, this case for lack of
subject-matter jurisdiction. The Court wi ll deny as moot the following outstanding motions:

( I ) JAAAT's Motion to Quash Subpoena Duces Tecum, (ECF No . 70); (2) Tesoro's Motion to
Compel, (ECF No. 71); and, (3) Tesoro 's Motion to Strike Testimony of Eddie Cummings, (ECF
No. 77).
An appropriate Order shall issue.

Richmond, V irginia
Date:

f1/ll/\r

22