Casey v. Rainbow Group, Ltd

UNITED STATES COURT OF APPEALS
For the Fifth Circuit

No. 95-50710

Jennifer Casey, et al.,

Plaintiffs/Appellants/Cross-Appellees,

VERSUS

Rainbow Group, Ltd. and Alan Sager,

Defendants/Appellees/Cross-Appellants.

Appeal from the United States District Court
For the Western District of Texas
(A-93-CV-556)
February 19, 1997

Before GARWOOD, BARKSDALE AND DENNIS, Circuit Judges.1

DENNIS, Circuit Judge:

The Plaintiffs/Appellants/Cross-Appellees in this case, as

representatives of a class, challenge two rulings of the district

court: 1) a final judgment, entered August 31, 1995, dismissing

plaintiffs’ case with prejudice; and, 2) an order, entered December

1
Pursuant to Local Rule 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in Local Rule 47.5.4.

1
9, 1993, denying plaintiffs’ motion to remand.

Defendants/Appellees/Cross-Appellants appeal the final judgment to

the extent that the court required each party to bear its own

costs.2

The issue before this court is one of federal question

jurisdiction. The complaint which led to removal from state court

alleged a cause of action for breach of contract supported by two

separate theories. The second theory relied, in part, on Fair

Labor Standards Act (“FLSA”) requirements that were allegedly

incorporated into oral contracts made between the parties. See 29

U.S.C. § 201 et seq. On this basis, the defendants removed the

case to federal court. Because we find that the district court

lacked subject matter jurisdiction, we vacate the district court’s

orders with directions to remand the action to state court.

Facts and Proceedings Below

On February 20, 1992, Josephine Johnson, Jennifer Casey,

Seantel Wilmes, and Ava Lott filed suit in Texas state court

alleging breach of contract by the defendants, Rainbow Group, a

limited partnership, and Alan Sager, its general partner. Rainbow

Group operates a franchise of discount hair cutting establishments

2
The defendants’ notice of cross-appeal indicates
dissatisfaction with two additional rulings of the court. However,
the defendants did not advance any arguments related to these
matters in their briefs, and thus we consider the issues waived.
Fed. R. App. P. 28(a); see also Carmon v. Lubrizol Corp., 17 F.3d
791 (5th Cir. 1994).

2
known as “Supercuts” throughout Texas though mainly concentrated in

the Austin area. Plaintiffs moved for class certification, and in

July of 1993, their request was granted, allowing for

representation of “[a]ll hairstylists employed by Defendants

Rainbow Group, Ltd. and Alan Sager at anytime between February 20,

1988 and the present.” The court then granted defendants’

previously filed special exceptions which asserted, inter alia,

that the original complaint failed to plead all of the elements

necessary to demonstrate a breach of contract. See Tex. R. Civ. P.

91.

Plaintiffs’ response, filed on August 26, 1993, developed the

claim in more detail. Specifically, plaintiffs alleged that: 1)

oral contracts between the plaintiffs and the defendants “provided

that hairstylists would be paid for all hours during which they

were required to be at their prescribed place of work;” 2) “[i]n

addition, or in the alternative,” the contracts were required by

law, “including the Fair Labor Standards Act, 29 U.S.C. § 207 and

29 C.F.R. Part 778," to provide the same; and, 3) that defendants

breached the agreements by refusing to pay for time spent waiting

for customers and time devoted to mandatory meetings.

On the basis of the second petition, defendants removed the

case to federal court asserting that it presented a federal

question. Plaintiffs filed a motion for remand. By the consent of

the parties, the remainder of the case, including plaintiffs’

3
motion, was heard by a magistrate judge (hereinafter “court” or

“judge”). The court, without elaboration, denied remand.

During the four-day proceeding which followed, the court heard

testimony related to Supercuts managers’ keeping plaintiffs “off

the clock” -- i.e. not allowing the plaintiffs to count hours on

their timesheets despite being present at the work site. The judge

ruled that: 1) the practice of holding stylists off the clock was

so routine as to constitute a modification of the contracts; and,

2) the FLSA did not establish any of the terms of the contracts.

The court made it clear that it considered the plaintiffs’ cause of

action to be for breach of contract only, yet it “reaffirm[ed]”

that it had subject matter jurisdiction “to determine whether the

Plaintiffs are entitled to relief under the FLSA.” Plaintiffs now

appeal.

Standard of Review

The denial of a motion to remand an action removed from state

to federal court is a question of both federal subject matter

jurisdiction and statutory construction and is therefore reviewed

by this court de novo. Carpenter v. Wichita Falls Indep. Sch.

Dist., 44 F.3d 362, 365 (5th Cir. 1995)(citation omitted). The

burden of establishing federal jurisdiction over a state court suit

is placed on the defendant. Id.

Discussion

The right to remove a case to federal court derives from the

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statutory grant of jurisdiction in 28 U.S.C. § 1441. The statute

allows for removal of “any civil action brought in a State court of

which the district courts of the United States have original

jurisdiction.” 28 U.S.C. § 1441(a). Here, there is no allegation

of diversity of citizenship between the parties, and therefore

removal must be predicated upon the federal question jurisdiction

of the district courts. This requirement usually implicates § 1331

of the Judicial Code. Section 1331 grants original jurisdiction

for “all civil actions arising under the Constitution, laws, or

treaties of the United States.” 28 U.S.C. § 1331. Because the

FLSA is potentially involved in this action, we look to § 1337,

which provides for original jurisdiction “of any civil action or

proceeding arising under any Act of Congress regulating commerce.”3

However, for our purposes, the distinction is irrelevant in light

of the fact that courts “have not distinguished between the

‘arising under’ standards of § 1337 and § 1331.” Franchise Tax Bd.

v. Constr. Laborers Vacation Trust, 463 U.S. 1, 8 n.7 (1983); see

also Beers v. North Am. Van Lines, Inc., 836 F.2d 910, 913 n.1 (5th

Cir. 1988).

The question is thus reduced to determining whether the

plaintiffs’ action will be considered to “arise under” the FLSA.

3
28 U.S.C. § 1337(a). See, e.g., Brown v. Masonry Prod. Inc.,
874 F.2d 1476, 1478 (11th Cir. 1989)(ruling that the court had
jurisdiction of a Fair Labor Standards Act claim under § 1337
regardless of amount in controversy or diversity of citizenship and
citing cases in accord), cert. denied, 493 U.S. 1087 (1990).

5
Unfortunately, the meaning of this seemingly simple standard has

resisted all efforts by the courts to arrive at a coherent, easily

applicable characterization. As noted by Wright and Miller, “[t]he

most difficult single problem in determining whether federal

question jurisdiction exists is deciding when the relation of

federal law to a case is such that the action may be said to be one

‘arising under’ that law.” 13B Charles A. Wright & Arthur R.

Miller, Federal Practice and Procedure § 3562 (1984)(footnotes

omitted). The phrase “masks a welter of issues regarding the

interrelation of federal and state authority and the proper

management of the federal judicial system.” Franchise Tax Bd., 463

U.S. at 8(footnote omitted).

Well-Pleaded Complaint

We begin our inquiry with the cornerstone to any determination

of jurisdiction: the well-pleaded complaint rule. The rule

provides that a plaintiff’s well-pleaded complaint alone -- not the

removal petition or a defendant’s responses -- determines the

existence of a federal question. E.g., Merrell Dow Pharmaceuticals

Inc. v. Thompson, 478 U.S. 804, 808 (1986); Carpenter, 44 F.3d at

366. Thus, as throughout our jurisprudence, the plaintiff is the

master of his complaint. Carpenter, 44 F.3d at 366 (citations

omitted). He is free to proceed in state court and ignore claims

that could have been asserted under federal law. Of course, this

carries the risk of federal claims being precluded, but it does not

6
provide a handhold by which a defendant can haul a suit into

federal court. Id. (citations omitted).

The plaintiffs asserted in their amended petition that “oral

employment contracts” provided that stylists “be paid for all hours

during which they were required to be at their prescribed place of

work.” They also claimed that:

In addition, or in the alternative, the contracts offered to
hairstylists were required by law, including the Fair Labor
Standards Act, 29 U.S.C. § 207 and 29 C.F.R. Part 778, to
offer payment at the specified hourly rate for all hours
during which stylists were required to be at a prescribed
place of work. This legal requirement, incorporated into the
stylists [sic] work contracts as a matter of law, could not be
waived by the hairstylists.

Finally, they alleged that these terms were violated and prayed for

compensation. It is evident from the petition that plaintiffs’

claim for breach of contract is premised on two alternate theories.

Obviously, the second has at least some relation to federal law.

However, the first theory, that oral contracts created the

obligation to pay the plaintiffs for all hours spent on-site, is

grounded purely in state law and indicates no reliance on federal

standards.

Whether such a scenario can provide for federal jurisdiction

was squarely addressed by this court in Willy v. Coastal Corp., 855

F.2d 1160 (5th Cir. 1988). Relying on the Supreme Court’s decision

in Christianson v. Colt Indus. Operating Corp., 486 U.S. 800

(1988), the court in Willy recognized that the “‘well-pleaded

7
complaint rule . . . focuses on claims, not theories.’” Willy, 855

F.2d at 1170 (quoting Christianson, 486 U.S. at 811). When the

federal aspect of a plaintiff’s claim “is not necessary to the

overall success” of the claim, it cannot be said to “arise under”

federal law. Christianson, 486 U.S. at 810; see also Willy, 855

F.2d at 1170-71. In this case, the plaintiffs could prevail solely

on their allegation that oral contracts specifically provided that

they be paid for the hours in dispute, and it is of no concern to

this court which theory ultimately proves successful. In light of

our decision in Willy, it is clear that the plaintiffs’ allegations

on their face do not allow for federal question jurisdiction. See

also Rains v. Criterion Systems, Inc., 80 F.3d 339 (9th Cir

1996)(citing Willy).

Artful Pleading

The well-pleaded complaint rule, although firmly established

and fundamental to a determination of jurisdiction, has not

survived inviolate. In certain instances “where the plaintiff

necessarily has available no legitimate or viable state cause of

action, but only a federal claim, he may not avoid removal by

artfully casting his federal suit as one arising exclusively under

state law.” Carpenter, 44 F.3d at 366. Thus, if the defendants

here can demonstrate that the plaintiffs’ claim is in fact federal

in character, federal jurisdiction will stand. This corollary to

the well-pleaded complaint rule is most often applied in the

8
context of “complete preemption.”4 Although federal preemption

alone ordinarily serves only as a defense, it occasionally “may so

forcibly and completely displace state law that the plaintiff’s

cause of action is either wholly federal or nothing at all.”

Carpenter, 44 F.3d at 366.

Since its inception, courts have applied the complete

preemption doctrine sparingly and usually with great reluctance.

In fact, the Supreme Court has clearly sanctioned its use in only

three instances. See Metropolitan Life Ins. Co. v. Taylor, 481

U.S. 58 (1987)(finding that § 502(a)(1)(B) of the Employee

Retirement Income Security Act of 1974 (“ERISA”) completely

preempted a plaintiff’s common law contract and tort claims); Avco

Corp. v. Aero Lodge No. 735, Int’l Ass’n of Machinists, 390 U.S.

557 (1968)(finding that § 301 of Labor Management Relations Act of

4
Case law within this circuit also indicates that a plaintiff’s
motive in asserting a preempted state law cause of action can be
relevant to a determination that he has “artfully pled.” See Aaron
v. Nat’l Union Fire Ins. Co., 876 F.2d 1157, 1161 (5th Cir. 1989),
cert. denied, 493 U.S. 1074 (1990). Defendants do not
affirmatively argue that the plaintiffs fraudulently concealed a
federal claim, although they do state in their brief that they do
not consider the purely state law theory to be “viable.” We
acknowledge that, prior to filing this case, the plaintiffs did
allege a claim under the Fair Labor Standards Act in federal court
before voluntarily moving for dismissal. However, this, standing
alone, will not support a finding of federal jurisdiction, and we
find no other evidence indicating forum manipulation. Cf.
Carpenter v. Wichita Falls Indep. Sch. Dist., 44 F.3d 362, 369 n.7
(5th Cir. 1995)(reading the Supreme Court’s decision in Caterpillar
Inc. v. Williams, 482 U.S. 386 (1987), as suggesting that the
artful pleading doctrine “should be limited to cases involving
complete preemption of the state cause of action”).

9
1947 (“LMRA”) completely preempted a plaintiff’s action to enjoin

a strike which was allegedly in violation of a collective

bargaining agreement); see also Oneida Indian Nation v. County of

Oneida, 414 U.S. 661 (1974)(finding complete preemption for a state

law complaint asserting a right of possession to Indian tribal

lands). Although its boundaries and precise contours remain

somewhat unsettled, our circuit and the Supreme Court have provided

enough guidance for us to find that the FLSA will not satisfy the

daunting standard required to completely preempt plaintiffs’ breach

of contract claim.

Complete preemption was first enunciated by the Supreme Court

in Avco and is sometimes referred to as the “Avco exception.” The

Court, without extensive discussion, ruled that based upon § 301 of

the LMRA federal jurisdiction existed over a suit seeking an

injunction under state law for the breach of a collective

bargaining agreement. Avco, 390 U.S. at 560. The court did not

revisit the issue of complete preemption in any depth until 1983

when, in Franchise Tax Board, the Court explained that the result

in Avco occurred because “the pre-emptive force of § 301 is so

powerful as to displace entirely any state cause of action ‘for

violation of contracts between an employer and a labor

organization.’” Franchise Tax Bd., 463 U.S. at 23 (footnote

omitted). Later cases have only re-emphasized the doctrine’s

limited nature. The Court in Taylor observed that even with the

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“unique pre-emptive force of ERISA” it was “reluctant” to find the

“extraordinary pre-emptive power” required for federal

jurisdiction. Taylor, 481 U.S. at 65. The Court was convinced

only after observing that ERISA’s jurisdictional grant closely

mirrors that of § 301 of the LMRA and noting specific references to

§ 301 in the legislative history of ERISA. Id. at 65-67; see also

Caterpillar Inc. v. Williams, 482 U.S. 386 (1987) (reiterating the

powerful preemptive force necessary to convert a state law claim).

We consider Taylor to be a narrow extension of Avco and the

result in Avco itself to be a narrow exception to the rule that

preemption is normally only a defensive issue and does not

authorize removal. Willy, 855 F.2d at 1166. To find otherwise

would eviscerate what remains of the well-pleaded complaint rule,

and our holdings, through their rejection of a wide-ranging

complete preemption doctrine, indicate an unwillingness to do so.

See, e.g., Anderson v. Am. Airlines, Inc., 2 F.3d 590, 597 (5th

Cir. 1993)(refusing to apply complete preemption to a retaliatory

discharge claim through either the Railway Labor Act or the Federal

Aviation Act); Aaron v. Nat’l Union Fire Ins. Co., 876 F.2d 1157,

1165-66 (5th Cir. 1989)(refusing to apply complete preemption to a

wrongful death claim through § 5 of the Longshore and Harbor

Workers’ Compensation Act), cert. denied, 493 U.S. 1074 (1990);

Willy, 855 F.2d at 1166 (refusing to apply complete preemption to

wrongful discharge claim through a number of federal environmental

11
laws); Beers, 836 F.2d at 913 n.3 (refusing to apply complete

preemption to a number of state law claims through the Carmack

Amendment to the Interstate Commerce Act); cf. Trans World Airlines

v. Mattox, 897 F.2d 773, 787-88 (5th Cir.)(applying complete

preemption to the Texas Attorney General’s Texas Deceptive Trade

Practices Act claim through § 1305(a)(1) of the Airline

Deregulation Act), cert. denied, 498 U.S. 926 (1990).

The driving force behind federal question preemption is that

the plaintiff has “no state claim at all” and an examination of the

appropriate federal statute “reveals the suit’s necessary federal

character.” Carpenter, 44 F.3d at 367 (emphasis in original).

This requires that a federal statute not only preclude a state

claim, but that it also evince an intent that such claims should

proceed in a federal forum. Thus, before endorsing a finding of

complete preemption outside of the LMRA, we demand a clearly

manifested congressional intent to make state claims removable to

federal court. See Beers, 836 F.2d at 913 n.3.

The FLSA was enacted in 1938 in order to “establish and

gradually raise minimum wages.” Fleming v. A.H. Belo Corp., 121

F.2d 207, 212 (5th Cir. 1941), aff’d, 316 U.S. 624 (1942). The

liability provisions of the act are contained in section § 216 and

are confined to providing reparation for “unpaid overtime

compensation” and “unpaid minimum wages.” 29 U.S.C. § 216(b). The

statute contains no indication of express preemption, let alone one

12
that equals the “unique preemptive force” of ERISA. Moreover,

neither the act itself nor its legislative history reveals a

“manifest congressional intent” to allow removal of state law

claims. Under the circumstances, we decline to find that complete

preemption should apply to the case before us. Cf. Morales v.

Showell Farms, Inc., 910 F.Supp. 244 (M.D.N.C. 1995)(declining to

find that the FLSA completely preempted a plaintiff’s state wage

and hour claims); Fitzwater v. Namco Am., Inc., 1994 WL 809642

(N.D. Cal. Aug. 15, 1994)(declining to find that the FLSA

completely preempted a plaintiff’s claim for wrongful termination).

We emphasize that we are ruling only that complete preemption does

not exist, and we do not decide the issue of whether the

plaintiffs’ claim is preempted in the ordinary sense.

Conclusion

We hold that the district court lacked subject matter

jurisdiction and denial of the motion to remand was improper. We

therefore VACATE the judgment of the court and REMAND the case to

the district court with the instruction that it remand to state

court.5

5
Plaintiffs make a claim for fees incurred due to the remand.
It is within the discretion of the district court to award fees
concomitant with an order remanding a case to state court. See 28
U.S.C. 1447(c). Because the district court has yet to confront the
issue, we prefer to reserve any consideration of the matter. See
Miranti v. Lee, 3 F.3d 925 (5th Cir. 1993) (discussing the
applicable standards under § 1447(c)).

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