Roberts v. Discover Home Loans Inc
2:17-cv-01278
D.S.C.Aug 3, 2017Background:
- Plaintiff William Roberts owned a home in Charleston and maintained a Standard Flood Insurance Policy (SFIP) issued by Allstate under the NFIP; the policy was set to renew July 31, 2015.
- Discover Home Loans originally escrowed the renewal premium; loan servicing was transferred to LenderLive, which allegedly failed to pay the premium despite sufficient escrow funds.
- Allstate (a WYO carrier) terminated the SFIP for nonpayment; Plaintiff purchased more expensive flood coverage and sued Discover, LenderLive, Allstate, and an Allstate agent in South Carolina state court alleging negligence, breach of contract, deceptive trade practices, and statutory violations.
- Allstate removed to federal court, asserting federal question jurisdiction because SFIP terms and FEMA regulations (federal law) govern disputes over SFIPs.
- Plaintiff moved to remand, arguing his claims arise under state law (procurement/notice/statutory duties) and do not present a substantial federal question or implicate the federal fisc.
- The district court denied remand, concluding Plaintiff’s negligence and related claims necessarily raise disputed, substantial federal issues because resolution requires interpretation and application of the SFIP, FEMA’s Flood Insurance Manual, and NFIP regulations.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether removal presents a federal question under 28 U.S.C. § 1331 | Roberts: claims are state-law (negligence, unfair practices, statutory notice) about procurement/notice and do not necessarily depend on federal law | Allstate: SFIP and FEMA regulations govern handling/renewal/termination; federal law and federal common law control interpretation of SFIPs, so federal question exists | Held: Removal proper — Plaintiff’s negligence and related claims necessarily raise disputed federal issues requiring interpretation of the SFIP/FEMA rules, so federal-question jurisdiction exists |
| Whether Plaintiff’s negligence claim is governed by federal law or state law | Roberts: duty arises under state law and statutory notice obligations; therefore remand appropriate | Allstate: duty and standard of care derive from SFIP and FEMA Manual because federal law governs SFIP interpretation and WYO carrier obligations | Held: Federal law governs; duty and standard require applying SFIP/FEMA rules, so federal issue is necessarily raised |
| Whether state statutory/unfair practices claims are preempted or removed as federal issues | Roberts: claims under S.C. Code §§ 38-75-1160, -1180 and SCUTPA concern procurement/notice and are state matters | Allstate: SFIP preempts state-law handling claims; whether these claims relate to procurement or handling requires federal-law analysis | Held: Court found the cancellation/notice issues fall within handling (SFIP-regulated) and federal issues are implicated; court retained supplemental jurisdiction over related state claims |
| Whether the federal issue is substantial and preserves federal-state balance | Roberts: dispute is fact-specific and not of broad federal importance; remand favored | Allstate: SFIP language and NFIP structure present substantial federal interests (uniform federal law, federal funds) | Held: The federal issue is substantial (uniform interpretation of SFIPs and FEMA rules) and federal forum does not upset the federal-state balance; removal stands |
Key Cases Cited
- Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 (2005) (tests when a state-law claim presents a substantial federal question for § 1331 jurisdiction)
- Gunn v. Minton, 133 S. Ct. 1059 (2013) (clarifies substantiality and federal-state balance inquiry under Grable)
- Caterpillar Inc. v. Lewis, 519 U.S. 61 (1996) (party seeking removal bears burden to show federal jurisdiction exists when filed)
- Battle v. Seibels Bruce Ins. Co., 288 F.3d 596 (4th Cir. 2002) (federal common law governs interpretation of SFIPs issued under NFIP)
- Newton v. Capital Assur. Co., 245 F.3d 1306 (11th Cir. 2001) (a complaint alleging breach of an SFIP raises a substantial federal question under § 1331)
- Campo v. Allstate Ins. Co., 562 F.3d 751 (5th Cir. 2009) (distinguishes procurement claims from claims-handling under SFIP preemption)
- Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006) (federal-question jurisdiction principles for cases implicating federal programs)