HARTLAND LAKESIDE JOINT NO. 3 SCHOOL DISTRICT, OCONOMOWOC Area School District, and Arrowhead Union High School District, Plaintiffs-Appellants, v. WEA INSURANCE CORPORATION, et al., Defendants-Appellees.
No. 13-3787.
United States Court of Appeals, Seventh Circuit.
Argued May 23, 2014. Decided June 27, 2014.
756 F.3d 1032
Stephen A. DiTullio, Attorney, Joseph A. Ranney, III, Attorney, Scott M. Paler, Attorney, DeWitt Ross & Stevens S.C., Madison, WI, for Defendants-Appellees.
Before BAUER and EASTERBROOK, Circuit Judges, and ST. EVE, District Judge.*
EASTERBROOK, Circuit Judge.
Sеction 1102 of the Patient Protection and Affordable Care Act,
Three districts that did switch filed this suit, in Wisconsin court, contеnding that state law requires WEA to apply the receipts so that the school districts whose expenses justified the federal payments receive the economic benefit. The school districts characterize WEA‘s сhoice to allocate none of the money to districts that switch carriers as a form of conversion. All of the complaint‘s claims arise under state law, and all litigants are citizens of Wisconsin. WEA nonetheless remоved to federal court, contending that
Removal was proper if, and only if, the school districts’ claim arises under federal law.
“Rarely” differs from “never,” and WEA relies on Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005), for the proposition that, when the principal issue is federal, removal is permitted. The magistrate judge agreed, writing that WEA has a good defense if federal law (including the regulations) allows insurers to collect the payments as the effective sponsors of the healthcare plans. Thе magistrate judge did not conclude that federal law occupies the field (the misleadingly named doctrine that “complete preemption” supplies federal jurisdiction); nothing in
Grable announced a multifactor approach that has been hard to use consistently. Its application here is doubtful, since WEA does not contend that the only material issue is federal. To make such an argument, it would have to concede that the school districts have a good claim under state law. Yet far from concеding this, WEA denies that the districts have valid state-law claims. Thus even from
Moreover, it is difficult to see a federal defense. There is no dоubt a federal issue. The school districts have argued that WEA, as an insurer rather than either a sponsor or fiduciary of a welfare-benefit plan governed by ERISA, see Wisconsin Education Association Insurance Trust v. Iowa State Board of Public Instruction, 804 F.2d 1059 (8th Cir.1986), is ineligible to collect funds under
The magistrate judge thought otherwisе, ruling that the statute and regulations allow WEA to treat itself as a plan sponsor rather than (solely) as the school districts’ agent for collection. The judge added that reducing premiums in future years complies with the federal statute or regulations. Suppose that‘s right: Where‘s the federal defense? To say that a particular plan of distribution complies with federal law (as a rebate also would) is not the end of the line. Many things comply with fedеral law but violate state law. To displace state law, federal law must require a particular course of action at odds with state rules, and the magistrate judge did not conclude that
But we are getting ahead of ourselves. The magistrate judge thought that a federal rule blocks the districts’ recovery. If Grable allows federal-issue removal, and the magistrate judge is wrong, that would be a reason to reverse on the merits, not to send the case back to state court. See, e.g., Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946). We must approach subject-matter jurisdiction on the assumption that WEA‘s federal arguments are not frivolous.
WEA‘s understanding of Grable is the sticking point. WEA treats it as allowing the removal of cases in which the predоminant issue concerns federal law. Some language in Grable might be understood that way. But the Court held in Gunn that this understanding is unsound. The Justices wrote that “federal jurisdiction over a state law claim will lie 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.” 133 S.Ct. at 1065. Gunn gives teeth to parts (1) and (4) by holding that a legal malpractice case could not be removed even though analysis of the claim depended on understanding and application of federal patent law. Whether the lawyers had provided competent work depended on how well they had dealt with issues of patent law, and that couldn‘t be decided without considering the substance of the ex-client‘s contention that their former lawyers should have made particular patent-specific arguments. Yet the Court held that the litigation belonged in state court, for state law defined the lawyers’ duties to their clients.
Gunn also observed that the litigation in Grable had depended on federal law from the outset, which limits Grable‘s scope. And other post-Grable decisions, including Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 126 S.Ct. 2121, 165 L.Ed.2d 131 (2006), and Pollitt v. Health Care Service Corp., 558 F.3d 615 (7th Cir. 2009), hold that a federal role in insurance is not enough to establish that a state-law suit really arises under federal law. In Empire the Court held that a suit to recоup health benefits paid under a plan for federal employees arose under state law, even though the plan was a federal creation.
As for (4) on Gunn‘s list: how can one resolve a dispute between an insurer and its clients about the size of premiums without stepping on states’ toes? The McCarran-Ferguson Act,
Approaching this subject from a different angle confirms our perspective. The parties do not contend that
Many federal programs create entitlements while leaving ownership to state law. Think of patent law, which confers a property right on the inventor but allows free transfer to othеrs by contract. Copyright law works the same way. T.B. Harms Co. v. Eliscu, 339 F.2d 823 (2d Cir.1964) (Friendly, J.), holds that disputes about ownership of intellectual property arise under state law unless the (asserted) copyright proprietor seeks one of the remedies рrovided by federal law (for example, by maintaining that someone is liable for infringement). Our circuit has reached the same conclusion. See, e.g., Affymax, Inc. v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., 660 F.3d 281 (7th Cir.2011) (collecting cases). See also Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159 (7th Cir.1994) (rights under a contract that is part of a sale in bankruptcy arise under state law).
The current litigation is about ownership following distribution by the national government. Consider a lender that asserts a
We appreciate that the school districts, which initially wanted a remand, now prefer a final decision in federal court, where they believe (despite thеir loss in the district court) that they can prevail outright. If this case is returned to state court, it must start a new—the magistrate judge‘s decision will have no effect beyond the force of its reasoning—and more than two years will have been lost. But practical considerations never justify a federal court‘s adjudication of a suit over which it lacks subject-matter jurisdiction. When we asked for supplemental jurisdictional briefs, the school districts admirably told us what they wanted (immediate decision in their favor) yet carefully explained why they had concluded that they are not entitled to that relief, because the federal courts lack jurisdiction. Right they are.
The judgment of the district court is vacated, and the case is remanded with instructions to return the litigation to state court.