United States Court of Appeals
For the First Circuit
No. 03-1134
TEMPLETON BOARD OF SEWER COMMISSIONERS,
Plaintiff, Appellant,
v.
AMERICAN TISSUE MILLS OF MASSACHUSETTS, INC.,
NORTHEAST WASTE TREATMENT SERVICES, INC.,
ERVING INDUSTRIES, INC., BALDWINVILLE PRODUCTS, INC.,
AMERICAN TISSUE CORPORATION,
NOUROLLAH ELGHANAYAN and MEHDI GABAYZADEH,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Torruella and Lipez, Circuit Judges,
and Schwarzer,* Senior District Judge.
Stephen M. Leonard, with whom Brown Rudnick Berlack Israels
LLP, was on brief, for appellant.
T. Christopher Donnelly, with whom Michael S. D'Orsi and
Donnelly, Conroy & Gelhaar, LLP, were on brief, for appellees.
December 9, 2003
*
Of the Northern District of California, sitting by designation.
TORRUELLA, Circuit Judge. Plaintiff-Appellant Templeton
Board of Sewer Commissioners ("Templeton") appeals the district
court's dismissal of its third amended complaint ("complaint")
pursuant to Fed. R. Civ. P. 12(b)(1), 12(c) and 12(h)(3). The
district court concluded it did not have subject matter
jurisdiction over Count I of the complaint under 28 U.S.C. § 1331,1
and therefore lacked supplemental jurisdiction over the remaining
state law claims pursuant to 28 U.S.C. § 1367. After careful
review, we affirm.
I. BACKGROUND
A. Facts
The facts related to this appeal are largely undisputed
and are taken from the district court's memorandum and order.
Templeton Bd. of Sewer Comm'rs v. Am. Tissue Mills, No. 96-40140
(NMG) (D. Mass. Dec. 19, 2002). In March 1974, the town of
Templeton entered into a Waste Management Contract with
Baldwinville Products, Inc. ("Baldwinville") and its owner, Erving
Industries, Inc. ("Erving"),2 by which Templeton agreed to build a
wastewater treatment plant ("the plant") and make the plant
1
"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 (2000).
2
The Motion to Dismiss was filed by defendant-appellee Nourollah
Elghanayan. Other defendants contested whether they were parties
to the agreement that gives rise to the dispute, but for the
purpose of clarity, we do not differentiate between defendants and
address only the jurisdictional claim.
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available to Erving and Baldwinville for treatment of their
wastewater. The contract provided, inter alia, that: (1) Templeton
"shall retain legal title to all wastewater facilities," (Waste
Management Contract, Section XV); (2) Templeton shall pay . . . One
Dollar ($1.00) per year consideration for [defendants] to operate
the [plant]" (id., Section XVI B.2); (3) Templeton would "apply for
Federal and/or State construction grants for its wastewater
treatment facility." (Id., Section VI). Finally, it provided that
(4) Erving and Baldwinville would pay the net operating costs of
the plant as well as 95.5% of the net capital costs of the plant.
(Id., Section XVI B.1(a) and (c)).
Templeton applied to the Environmental Protection Agency
("EPA") for a construction grant. The agency approved the grant,
and the plant was built and became operational.
In 1991, defendant American Tissue Mills of
Massachusetts, Inc. ("ATM"), purchased Baldwinville's operating
assets. An Assignment and Assumption Agreement was executed,
assigning Baldwinville's rights and liabilities under the Waste
Management Contract to Northeast Waste Treatment Services, Inc.
("Northeast"), an ATM subsidiary. From 1991 until April 3, 2002,
ATM and Northeast operated the plant.
In March 1995, the EPA informed Templeton that the Clean
Water Act ("CWA"), 33 U.S.C. § 1284(b)(1), required Templeton to
implement a user charge system whereby each user of the plant must
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pay a proportionate share of the cost of operating and maintaining
the entire wastewater treatment system based upon that user's
contribution to the total waste flow. The EPA also advised
Templeton that the user charge system specified by the Waste
Management Contract was inconsistent with the user charge system
required by the CWA. A subsequent EPA memorandum received by
Templeton in September 1995 concluded that the contract user charge
system must be revised in order to comply with the EPA's regulatory
scheme.
B. Procedural History
Templeton filed its initial complaint in the district
court in June 1996. Count I sought a declaration of the parties'
rights, specifically whether ATM was required to pay a user charge
which included payment for other treatment works pursuant to § 204
of the CWA, 33 U.S.C. § 1284, and the EPA regulations thereunder.
Jurisdiction was premised upon 28 U.S.C. § 1331, as the plaintiff
was allegedly seeking relief under the CWA, and the remaining state
law claims were entertained pursuant to 28 U.S.C. § 1367. Although
the complaint was amended three times, Count I did not materially
change. It stated, in relevant part:
12. Under the Agreement, the Town is obligated,
among other things, to:
a. construct a wastewater treatment plant
(the "Plant") with an average daily
flow capacity of approximately three
million gallons and agree to make the
Plant available to The Company for
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treatment of its wastewater. (Sections
II and III);
b. maintain and operate the Plant and
retain a third party to operate the
Plant with prior approval of The
Company. (Section IV); and
c. apply for federal and/or state
construction grants for the Plant.
(Section V).
. . . .
18. 33 U.S.C. § 1284 states as a condition of
any grant for any project for any treatment
works that the applicant for the grant must
adopt a system of charges such that each
recipient of waste treatment services within
the applicant's jurisdiction pays its
proportionate share of the cost of operation
and maintenance (including replacement) of
any waste treatment services provided by the
applicant.
. . . .
23. The EPA has informed the Commissioners, and
the Commissioners agree, that the Town is
required under the Clean Water Act and the
regulations promulgated thereunder to
implement a user charge system based on
actual use of wastewater treatment services
such that each user, including America [sic]
Tissue, pays its proportionate share of
operation and maintenance . . . based on
each user's proportionate contribution to
the total waste contributed by all users.
See 40 CFR 35.929-1. . . .
24. . . . It is the Commissioners' and the EPA's
position that the requirements of the Clean
Water Act and regulation promulgated
thereunder supersede the Agreement.
[Relying on 40 CFR 35.929-2(g)].
Third Amended Compl. at 3-6.
In 1997, Templeton moved for partial summary judgment on
Count I seeking, inter alia, a declaration that ATM was subject,
under the contract and federal law, to a user charge system for the
use of the treatment works in compliance with the CWA and EPA
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regulations. The district court concluded that Templeton's
interpretation of the federal requirements was correct, but denied
the summary judgment motion because material facts were still in
dispute. Templeton Bd. of Sewer Comm'rs v. American Tissue Mills,
No. 96-40140 (NMG) (D. Mass. Dec. 9, 1997). The district court
denied the motion for summary judgment because the record failed to
establish a conflict between the contract and the EPA regulations.3
On October 17, 2002, defendant-appellee Elghanayan, an
alleged officer, director and shareholder of ATM and Northeast,
filed a motion to dismiss the complaint for lack of subject-matter
jurisdiction under Fed. R. Civ. P. 12(b)(1), 12(c) and 12(h)(3),
arguing primarily that the district court did not have subject-
matter jurisdiction over Count I because it did not arise under
federal law. The district court granted the motion.
II. ANALYSIS
Appellee Elghanayan argues that the district court had no
subject-matter jurisdiction under § 1331 because the CWA, the
statute upon which appellant purported to base jurisdiction, does
not provide a private right of action. Appellant argues that,
notwithstanding this lack of a private right of action, Count I
involves a substantial question of federal law, and thus
jurisdiction under § 1331 is proper.
3
The district court also denied the defendants' cross-motions for
summary judgment on other grounds in the December 1997 Memorandum
and Order.
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We review the district court's dismissal of the complaint
for lack of subject matter jurisdiction de novo. Sallen v.
Corinthians Licenciamentos LTDA, 273 F.3d 14, 23 (1st Cir. 2001).
We draw all reasonable inferences in favor of Templeton. Aversa v.
United States, 99 F.3d 1200, 1210 (1st Cir. 1996).
Determining whether "arising under" jurisdiction exists
is a particularly difficult task. We must first determine whether
Count I of the Third Amended Complaint alleges a federal cause of
action. If not, then we must inquire into whether some element of
the claim depends on the resolution of a substantial, disputed
question of federal law. If a question of this nature exists,
federal jurisdiction will lie. See West 14th Street Commercial
Corp. v. 5 West 14th Owners Corp., 815 F.2d 188, 193 (2d Cir. 1987)
("To determine whether the court has federal question jurisdiction
to decide the case, the complaint must contain either a federal
cause of action or a state cause of action embodying a substantial
federal question.").
A. Private Rights of Action
The Supreme Court of the United States has established
that a district court properly exercises jurisdiction under Section
1331 when a plaintiff's complaint is based on a right conferred
under federal law. Oneida Indian Nation v. County of Oneida, 414
U.S. 661, 666 (1974). Whether a claim arises under federal law is
determined under the well-pleaded complaint rule. Franchise Tax
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Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 10 (1983); see
also Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149
(1908). Under that rule, "[the jurisdictional question] must be
determined from what necessarily appears in the plaintiff's
statement of his own claim in the bill or declaration," without
reference to any other pleadings. Franchise Tax Bd., 463 U.S. at
10 (internal quotations omitted). In other words, "a right or
immunity created by the Constitution or laws of the United States
must be an element, and an essential one, of the plaintiff's cause
of action." Id. at 10-11 (quoting Gully v. First Nat'l Bank, 299
U.S. 109, 112 (1936)).4
There is no private right of action under the CWA.
Middlesex County Sewerage Auth. v. Nat'l Sea Clammers Assoc., 453
U.S. 1 (1981). In National Sea Clammers, the Supreme Court stated
that "[i]n view of the[] elaborate enforcement provisions [of the
CWA] it cannot be assumed that Congress intended to authorize by
implication additional judicial remedies for private citizens suing
4
The present action is a declaratory judgment action. The
Supreme Court has stated that a litigant may not defeat the well-
pleaded complaint rule by bringing a declaratory judgment action.
See Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 673-74
(1950). The underlying coercive action in this complaint is a
state breach of contract claim. Neither party disputes this
conclusion. Templeton states that this case involves a substantial
interpretation of federal law. Therefore, notwithstanding the form
of the complaint, this court is under an obligation to determine
whether the resolution of the breach of contract action involves a
substantial question of federal law which gives rise to subject
matter jurisdiction.
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under [the CWA]." Id. at 14. Templeton does not dispute this
conclusion.
B. Merrell Dow Pharmaceuticals
If a cause of action is not created under a federal law,
§ 1331 jurisdiction may lie "'where the vindication of a right
under state law necessarily turn[s] on some construction of federal
law.'" Merrell Dow Pharmaceuticals, Inc. v. Thompson, 478 U.S.
804, 808-09 (1986) (quoting Franchise Tax Bd., 463 U.S. at 9).
This legal quandary is generally referred to as the litigation-
provoking problem, or the presence of a federal issue in a state-
created cause of action. Merrell Dow, 478 U.S. at 809-10. In
Merrell Dow, the Supreme Court held that the district court did not
have jurisdiction under § 1331, where the plaintiff alleged a state
tort claim but pointed to federal law as evidence of the standard
of care. Given that there was no private right of action under the
federal law in question, the Court proceeded to examine whether a
substantial question of law was implicated. It held that "the
presence of the federal issue as an element of the state tort is
not the kind of adjudication for which jurisdiction would serve
congressional purposes and the federal system." Id. at 814. The
Court then analyzed the plaintiff's arguments regarding the federal
interest in uniformity and the special circumstances implicated in
the case. The Court found both arguments unavailing, and found no
subject matter jurisdiction.
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C. Substantial Question of Federal Law
The Courts of Appeals, including this Circuit, have
elaborated on the holding announced in Merrell Dow. We begin with
a review of our post-Merrell Dow cases.5 Three of our recent
decisions are relevant to the present controversy. PCS 2000 LP v.
Romulus Telecommunications, Inc., 148 F.3d 32 (1st Cir. 1998) dealt
with the issue of whether the Federal Arbitration Act ("FAA") alone
could be a source of subject matter jurisdiction. The Supreme
Court held in Moses H. Cone Memorial Hospital v. Mercury
Construction Corp., 460 U.S. 1, 25 n.32 (1983), that the FAA
created a federal body of law, but not an independent source of
federal jurisdiction. Elaborating on that point, we held that the
complaint at issue in PCS 2000 LP must be dismissed for lack of
subject matter jurisdiction. PCS 2000 LP, 148 F.3d at 34.
Specifically, we noted the fact that "th[e] case peripherally
5
Two cases cited by appellant as relevant to the issue are
clearly distinguishable. In Arroyo-Torres v. Ponce Federal Bank,
F.B.S., 918 F.2d 276, 278-79 (1st Cir. 1990), we held that the
plaintiff had no private right of action under the Currency and
Foreign Transaction Reporting Act. Arroyo-Torres did not analyze
whether there was a substantial federal question and affirmed the
district court's dismissal without reference to Merrell Dow. We
concluded that the district court should have dismissed the
complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a
claim upon which relief can be granted. Arroyo-Torres, 918 F.2d at
280. The case is therefore not relevant to the question at hand.
In Nashoba Communications Ltd. Partnership No. 7 v. Danvers, 893
F.2d 435 (1st Cir. 1990), we engaged in the § 1331 analysis.
However, that case turned on the issue of whether federal
jurisdiction was based on an anticipatory federal defense. Our
analysis centered on that issue, and we held that the plaintiff ran
afoul of the well-pleaded complaint rule.
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involve[d] [federal] bidding practices, and that cases sometimes
arise under federal law when an interpretation of federal law is
outcome-determinative." Id. at 35 (citing Smith v. Kansas City
Title & Trust Co., 255 U.S. 180, 199 (1921)). However, we further
stated that "section 503(b) of the Communications Act confers no
private right of action, and the plaintiffs' complaint only
advances non-federal claims." Id. We deemed the connection too
tenuous to confer federal jurisdiction. Finally, we observed that,
"[n]o less an authority than the Supreme Court has made this clear.
Unless a federal statute bestows a private right of action, courts
ought to presume that Congress did not intend the statute to confer
federal jurisdiction." Id. Therefore, PCS 2000 LP endorses the
view espoused by appellee, but recognizes that when the
interpretation of federal law is outcome-determinative, subject
matter jurisdiction may be properly exercised.
We explored the same issue in Almond v. Capital
Properties, Inc., 212 F.3d 20 (1st Cir. 2000). There, the
plaintiff's action was removed from state court on the ground that
it came within the federal court's subject matter jurisdiction. We
assumed for the purposes of the holding that the cause of action
was not created under federal law. Id. at 23. We went on to
explore an alternative basis for obtaining federal jurisdiction --
that a substantial question of federal law was involved. Id. We
characterized the claim as follows: "[t]he central issue properly
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presented . . . is whether [defendant's] promise to the [Federal
Railroad Administration] includes an obligation to obtain the FRA's
approval before implementing the increase in parking charges at
issue in this case." Id. Because the Supreme Court has
consistently held that the rights and obligations of the United
States and its agencies are governed exclusively by federal law, we
held subject matter jurisdiction existed. Id. at 24. Appellee
argues that this case is inapposite. To the extent that the rights
and obligations of the United States and its agencies will always
be a matter of federal law, appellee is correct. However, we
believe that this case also stands for the proposition that there
is a discrete type of case where federal subject matter
jurisdiction will lie notwithstanding the absence of a federal
cause of action.
The reasoning in Almond relied on Judge Posner's opinion
in Price v. Pierce, 823 F.2d 1114 (7th Cir. 1987).6 Price involved
a contract dispute filed by prospective tenants (designated by the
court as third-party beneficiaries) against multiple defendants,
6
The parties cite the First Circuit case of Penobscot Nation v.
Georgia-Pacific Corp., 254 F.3d 317 (1st Cir. 2001), cert. denied,
534 U.S. 1127 (2002). While that case engaged in some analysis of
the issue of federal jurisdiction, we held that regardless of the
jurisdictional issue, the district court was bound by the ruling of
the Supreme Judicial Court of Maine. Therefore, the case was
decided on issue preclusion grounds, not under § 1331, and is
irrelevant to the present issue. In any event, the opinion's
discussion of § 1331 merely reiterates the points made in Almond
and Price and does not rely on Smith.
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including the Secretary of Housing and Urban Development ("HUD"),
challenging the allocation of lower-income family housing. The
contract in question was between private parties. However, in
order to resolve the dispute the court would have to interpret a
contract provision approved by a federal agency pursuant to a
federal statutory scheme. The Seventh Circuit held that
[t]he issue is potentially so important to the
success of the program--since on its
resolution may turn the amount of lower-income
housing actually provided--that we believe
that Congress, had it thought about the
matter, would have wanted the question to be
decided by federal courts applying a uniform
principle.
Price, 823 F.2d at 1119-20.
The Seventh Circuit's observation is especially relevant:
"Section 1437f(b)(2) contemplates that HUD will enter directly or
(as here) indirectly. . .into contractual relations with developers
all over the country. . . ." Id. at 1119. In Templeton's case,
the EPA has not contracted on its behalf, and therefore Templeton
(or anyone else for that matter), would not have standing to sue
the agency or its contractors. However, the contract entered into
in the instant appeal explicitly contemplated the application of
federal grants, which in turn obligated the parties to abide by the
EPA regulations. Our opinion in Almond embraces Price "pending
further enlightenment from the Supreme Court." Almond, 212 F.3d at
24. A subsequent Seventh Circuit case held that "a federal rule of
decision is necessary but not sufficient for federal jurisdiction.
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There must also be a right of action to enforce that rule."
Seinfeld v. Austen, 39 F.3d 761, 764 (7th Cir. 1994) (quoting
Dillon v. Combs, 895 F.2d 1175, 1177 (7th Cir. 1990)). Seinfeld
failed to address the discrete class of cases where a substantial
federal question may confer jurisdiction under § 1331.7
Other Circuits reviewing the discrete issue of whether
there is a substantial question of federal law have produced
confusing (if not conflicting) opinions on the matter. In a case
with facts similar to the instant appeal, the Fourth Circuit found
that the Clean Air Act conferred jurisdiction under § 1331,
notwithstanding the absence of a private right of action under the
federal act. Ormet Corp. v. Ohio Power Co., 98 F.3d 799, 807 (4th
Cir. 1996). Plaintiff sued several defendants claiming that it was
entitled to emission allowances issued to Ohio Power by the EPA,
and seeking money damages. The court determined that Section
408(i) of the Clean Air Act did not create a private remedy.
However, that did "not fully resolve the question of whether
Ormet's claim, alleging ownership of emission allowances . . .
arises under federal law . . . ." Id. at 806. Whether there was
a "question sufficiently substantial to arise under federal law,"
was another avenue for obtaining jurisdiction. Id. After
reviewing Merrell Dow, the Fourth Circuit held that federal
7
In addition, it is pertinent that Seinfeld relies entirely on
Merrell Dow, whereas Price engages in the jurisdictional analysis
without mentioning Merrell Dow.
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jurisdiction did exist, because, "to resolve that dispute, a court
must interpret both the Act and the contract to decide whether
Ormet is party to a 'life-of-the-unit, firm power contractual
arrangement,' as that phrase is defined in the Act." Id. at 807.
In addition, the Fourth Circuit considered Congress's explicit
intent that the EPA not be burdened with "resolving private
disputes over a unit's allowances," Ormet, 98 F.3d at 805, and the
fact that the system of freely transferable allowances was
"critical to the Acid Rain Program." Id. at 807 (citing the
legislative history of the particular section of the Act).
Finally, uniformity was considered imperative to the program's
success. Id. Therefore, the Fourth Circuit held that there was a
substantial federal interest and subject matter jurisdiction was
proper under § 1331. In doing so, the court endorsed the
continuing validity of Smith and Franchise Tax Board. Cf. Mulcahey
v. Columbia Organic Chem. Co., 29 F.3d 148 (4th Cir. 1994).
The district court in this case relied on the Sixth
Circuit case of Board of Trustees of Painesville Township v. City
of Painesville, 200 F.3d 396 (6th Cir. 1999). In City of
Painesville, the City, in an effort to expand its wastewater
treatment facilities, applied to the EPA for a grant. Although the
grant suggested that the plaintiffs would have access to the new
facilities, the City refused to provide it. Plaintiffs brought
suit alleging violations of Section 204 of the CWA. The Sixth
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Circuit held that because the CWA provided no private right of
action, the district court could not exercise jurisdiction over the
claims. Id. at 400. The court made no mention of Smith or
Franchise Tax Board in its opinion. The district court reasoned,
on the basis of Painesville, that "Templeton's claim under the CWA
is, therefore, frivolous and insufficiently substantial to warrant
the exercise of federal subject-matter jurisdiction." The opinion
goes further still, assuming arguendo that even if Templeton's
claim required the interpretation of the CWA, it
would still lack subject-matter jurisdiction
over the claim because the congressional
determination that there should be no federal
remedy for violation of this federal statute
[i.e. that there is no private right of
action] is tantamount to a congressional
conclusion that the presence of a claimed
violation of the statute as an element of a
state cause of action is insufficiently
substantial to confer federal-question
jurisdiction.
(quoting Merrell Dow, 478 U.S. at 814 (internal quotations
omitted)).
We arrive at the crux of our decision. We agree with the
district court that under Merrell Dow, the plaintiff's cause of
action cannot give rise to a federal cause of action as this is
clearly foreclosed by the Supreme Court's decision in National Sea
Clammers. Nor do we think that plaintiff's argument can succeed
under the Smith/Franchise Tax Board rationale.
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We do not believe that merely because a court will have
to interpret the federal regulations, it necessarily follows that
federal jurisdiction exists. We agree with the Fourth Circuit that
"the determination of whether a federal issue is sufficiently
substantial should be informed by a sensitive judgment about
whether the existence of federal judicial power is both appropriate
and pragmatic" and that "at bottom, we must determine whether the
dispute is one that Congress intended federal courts to resolve."
Ormet, 98 F.3d at 807. We see no indication, and appellant has
pointed to none, that Congress intended the CWA and its regulations
to confer federal question jurisdiction. See J.A. Jones Constr.
Comp. v. City of New York, 753 F. Supp. 497 (S.D.N.Y. 1990)(holding
that the incorporation of EPA regulations under the CWA into a
contract did not give rise to federal question jurisdiction when
suing for breach of contract). The complaint before the district
court did not present a substantial question of federal law. We
agree with the district court's conclusion that this action is, at
its core, a breach of contract claim.
Further, while it may be argued that resolution of Count
I of appellant's third amended complaint may require some
application and interpretation of the Clean Water Act and the EPA
Guidelines, this cannot rise to a substantial question of federal
law. The federal issue, assuming one exists, is tangential to the
parties' contractual rights. In addition, the EPA's interest in
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effective enforcement will not be prejudiced by the absence of a
federal court's review. In fact, the EPA delegates these matters
to state agencies as a matter of course. The language of the
complaint in this case reflects the collateral nature of
appellant's claim. The statute cited, 33 U.S.C. § 1284, requires
certain parameters to be met when the EPA issues grants. The grant
was contemplated by the Waste Management contract entered into by
the parties. If either party should break with the requirements of
§ 1284 and its accompanying regulations, the EPA may choose to take
action. However, the parties cannot create jurisdiction by
reference to this section when the dispute arises from their
contractual obligations. The federal question here is
insubstantial because it does not define the rights of the parties
or provide them with a remedy. See Franchise Tax Bd., 463 U.S. at
20-21 (stating that "what is needed is . . . a selective process
which picks the substantial causes out of the web and lays the
other ones aside."). We can discern nothing more in this cause of
action than a state law breach of contract claim over which the
district court did not have subject matter jurisdiction.
III. CONCLUSION
For the reasons stated above, we affirm the district
court's dismissal of appellant's third amended complaint.
Affirmed.
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