IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 2, 2008
No. 07-30464 Charles R. Fulbruge III
Clerk
BARRY BERNHARD; SHERYLE BERNHARD
Plaintiffs - Appellees
v.
WHITNEY NATIONAL BANK
Defendant - Appellant
Appeal from the United States District Court
for the Middle District of Louisiana
Before JOLLY, BARKSDALE, and BENAVIDES, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
This case was birthed in Louisiana state court by Barry and Sheryle
Bernhard. It was adopted by the Middle District of Louisiana when the
defendants, Capital One and Whitney National Bank, removed it on the basis
of a federal question. Whitney appeals a split-the-baby decision of the district
court, granting summary judgment in Whitney’s favor on the federal claim, yet
remanding the state claims. Because we hold that, under the unusual
circumstances of this case, the district court lacked federal question jurisdiction,
we VACATE the district court’s judgment and REMAND with instructions that
the case be remanded to the custody of the state court.
No. 07-30464
I.
Barry and Sheryle Bernhard brought this suit against Whitney National
Bank and Capital One Bank, LLC, in Louisiana state court in July 2005. They
alleged violations of Louisiana Civil Code articles 2315 and 2316.1 Their claims
arose out of alleged unauthorized transfers from their checking account at
Whitney Bank by a contractor with whom the Bernhards did business, Robert
Williams. The Bernhards alleged that Williams had used Capital One’s online
banking system to make unauthorized electronic transfers from the Whitney
account, using the routing and account numbers from the Bernhards’ personal
check. They alleged that Capital One and Whitney breached duties owed to
them by allowing Williams to make the unauthorized transfers and by failing to
maintain adequate security procedures.2
The unauthorized transfers began in November 2003 and continued
through November 2004, totaling $113,836.83. The Bernhards notified Whitney
of the unauthorized transfers in November 2004 and were credited $24,859 for
some of the unauthorized withdrawals.
1
Article 2315 provides, in part: “Every act whatever of man that causes damage to
another obliges him by whose fault it happened to repair it.” Article 2316 provides: “Every
person is responsible for the damage he occasions not merely by his act, but by his negligence,
his imprudence, or his want of skill.”
2
In particular, the Bernhards alleged that Capital One was negligent in the following
respects: “(1) Improper management of online transactions; (2) Failure to properly verify
authority of withdrawer; (3) In failing to verify with transferor institution the authorization
of online banking transactions; (4) Improper allocation of unauthorized funds; and (5) In other
respects which will more particularly be proven at the trial of this matter.”
Whitney is alleged to have been negligent in the following respects: “(1) Improper
management of entrusted funds; (2) Improper payment of unauthorized debits; (3) Failure to
monitor client accounts; and (4) In other respects which will more particularly be proven at the
trial of this matter.”
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No. 07-30464
The Bernhards alleged in their petition that the defendants are liable for
an amount to compensate them for losses sustained, legal interest, and “all costs
of these proceedings, including attorney’s fees.”
The defendants removed the case to the federal district court for the
Middle District of Louisiana. They contended that “the facts alleged and the
actions complained of by the Bernhards actually involve and include alleged
violations of federal law, namely the Electronic Funds Transfer Act, 15 U.S.C.
§ 1693 et seq. (the “EFTA”), and its implementing regulations. . . . Resolution of
the Bernhards’ claims requires the interpretation of these federal laws.” The
defendants also argued that, because the Bernhards sought attorneys’ fees,
which are available under the EFTA but not under state law, the claims
necessarily arise under federal law.
The Bernhards moved to remand the case to the state court, arguing that
they sought relief only under state law. The magistrate judge filed a report and
recommendation that the motion to remand be denied. The magistrate judge
found that “plaintiffs’ claims arise under federal law even though the plaintiffs
have characterized them as state law claims.” Citing this court’s decision in
Medina v. Ramsey Steel Co., Inc., 238 F.3d 674 (5th Cir. 2001), the magistrate
judge found that, “if the remedy that the plaintiff seeks in his or her complaint
is exclusively available under federal law, then a federal court has jurisdiction
of the case.” The magistrate judge concluded that, because the attorneys’ fees
sought by the Bernhards are exclusively available under federal law, the district
court had federal question jurisdiction over the case under 28 U.S.C. § 1331.
The magistrate judge also found:
Secondly, even though the plaintiffs only assert causes
of action under state law in their petition, [automated
clearing house] transactions like those at issue are
governed by federal law, EFTA and its implementing
regulations, Regulation E. In order to determine
whether plaintiffs are entitled to attorneys fees as
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No. 07-30464
requested, it will be necessary for the Court to engage
in an analysis of whether EFTA was violated by the
defendants. Accordingly, this case necessarily involves
an embedded issue of federal law affording the Court
original jurisdiction under Grable [&] Sons Metal Prod.
Inc., [v.] Daru[e] Eng’g & Mfg., [545 U.S. 308,] 125 S.Ct.
2362, 162 L.Ed.2d 257 (2005).
The magistrate judge cited the provision of the EFTA defining its
relationship to state laws, 15 U.S.C. § 1693q, interpreting it to provide “that
state laws which are inconsistent or afford consumers less protection than EFTA
relating to electronic fund transfers are pre-empted by EFTA.”
The district court adopted the magistrate judge’s recommendation over the
Bernhards’ objection and denied their motion to remand.
Capital One and Whitney filed motions for summary judgment. The
district court granted the motions for summary judgment as to claims arising
under the EFTA. The district court found that the plaintiffs were entitled to no
further reimbursement from Whitney under the EFTA because the plaintiffs
failed to report the unauthorized transfers to Whitney in a timely manner.
Under the EFTA, Whitney was not legally obligated to reimburse the Bernhards
for unauthorized transfers occurring more than sixty days after the receipt of the
bank statement showing the first unauthorized transfer and before notice was
given to Whitney. The district court found that the Bernhards could not set
forth a cause of action against Capital One under the EFTA because Capital One
is not a “financial institution” with respect to the Bernhards as provided by the
EFTA, 15 U.S.C. § 1693a(8).
The court found that it had supplemental jurisdiction under 28 U.S.C. §
1367(a) over all claims that are so related to the claims over which the court has
original jurisdiction that the related claims are part of the same case or
controversy. The court declined to exercise supplemental jurisdiction and
remanded “the remaining state law negligence claims” to state court.
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No. 07-30464
Whitney filed a motion under Rule 59(e) to alter or amend the judgment
for clarification. Fed. R. Civ. P. 59(e). Whitney contended that the district court
did not properly specify in its order that the only negligence claims remanded to
state court were those against Capital One. Whitney sought clarification that
the EFTA “preempts Louisiana state law, thus the Bernhards have no state law
claim against Whitney to remand.”
The district court denied Whitney’s motion, reaffirming its previous
determination not to exercise supplemental jurisdiction over any remaining state
law claims in the case. Whitney appealed to this court.
II.
Whitney contends that the district court granted its motion for summary
judgment in a manner inconsistent with its earlier conclusion that the
Bernhards’ state law negligence claims were, in fact, federal claims under the
EFTA and were preempted by the EFTA. Whitney contends that the court
therefore erred in denying Whitney’s Rule 59(e) motion to reconsider its
judgment.
III.
None of the parties raised the question of jurisdiction on appeal. Of
course, we must raise the issue of jurisdiction on our own motion if necessary.
E.g., Hill v. City of Seven Points, 230 F.3d 167, 169 (5th Cir. 2000). We must
first consider our own jurisdiction and then that of the district court. United
States v. Creamer Indus., Inc., 349 F.2d 625, 626 (5th Cir. 1965).
A.
This court has jurisdiction over an appeal of a final judgment under 28
U.S.C. § 1291. Although this court may not review a district court's order to
remand that is based upon grounds specified in 28 U.S.C. § 1447(c), we may
review a remand order that is based on the district court's exercise of its
discretion not to take supplemental jurisdiction over state law claims under 28
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No. 07-30464
U.S.C. § 1367. Smith v. Tex. Children’s Hosp., 172 F.3d 923, 926 n.5 (5th Cir.
1999).
In this case, the district court explicitly remanded the Bernhards’ state
law claims on the basis of its discretionary power to decline to exercise
supplemental jurisdiction. Therefore this court has appellate jurisdiction over
the district court’s decision to remand remaining state law claims.
B.
Jurisdiction of the district court, however, is quite another matter. We
review the remand orders in this case de novo. Campbell v. Stone Ins., Inc., 509
F.3d 665, 669 (5th Cir. 2007).
The district court has removal jurisdiction in any case where it has
original jurisdiction. 28 U.S.C. § 1441(a). The district court has original federal
question jurisdiction over “all civil actions arising under the Constitution, laws,
or treaties of the United States.” 28 U.S.C. § 1331. However, the fact that
federal law may provide a defense to a state claim is insufficient to establish
federal question jurisdiction. E.g., Hart v. Bayer Corp., 199 F.3d 239, 244 (5th
Cir. 2000).
We start with the long-established axiom that a plaintiff is master of his
complaint and may generally allege only a state law cause of action even where
a federal remedy is also available. See Waste Control Specialists, LLC v.
Envirocare of Tex., Inc., 199 F.3d 781, 784 (5th Cir.), modified in part on
rehearing, 207 F.3d 225 (5th Cir. 2000). Under this “well-pleaded complaint”
rule, a federal court has original or removal jurisdiction only if a federal question
appears on the face of the plaintiff'’s well-pleaded complaint; generally, there is
no federal jurisdiction if the plaintiff properly pleads only a state law cause of
action. E.g., Franchise Tax Bd. v. Const. Laborers Vacation Trust, 463 U.S. 1,
10-11 (1983). As we have noted above, “[a] defense that raises a federal question
is inadequate to confer federal jurisdiction.” Merrell Dow Pharmaceuticals, Inc.
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No. 07-30464
v. Thompson, 478 U.S. 804, 808 (1986). Even an inevitable federal defense does
not provide a basis for removal jurisdiction. Hoskins v. Bekins Van Lines, 343
F.3d 769, 772 (5th Cir. 2003) (quoting Carpenter v. Wichita Falls Ind. School
Dist., 44 F.3d 362, 366 (5th Cir. 1995)).
However, a case pleading only state law claims may arise under federal
law “where the vindication of a right under state law necessarily turn[s] on some
construction of federal law.” Franchise Tax Bd., 463 U.S. at 9. The federal
courts have jurisdiction over a state law claim that “necessarily raise[s] a stated
federal issue, actually disputed and substantial, which a federal forum may
entertain without disturbing any congressionally approved balance of federal
and state judicial responsibilities.” Grable, 545 U.S. at 314.
In analyzing the issue before us, we should also refer to the “artful
pleading” doctrine, which is an “independent corollary” to the well-pleaded
complaint rule. Rivet v. Regions Bank of La., 522 U.S. 470, 475 (1998). Under
this principle, even though the plaintiff has artfully avoided any suggestion of
a federal issue, removal is not defeated by the plaintiff’s pleading skills in hiding
the federal question. See id. There is no doubt but that “[t]he artful pleading
doctrine allows removal where federal law completely preempts a plaintiff's
state-law claim.” Id. In fact, we have said that the artful pleading doctrine
applies only where state law is subject to complete preemption. Terrebonne
Homecare, Inc. v. SMA Health Plan, Inc., 271 F.3d 186, 188-89 (5th Cir. 2001).
Federal question jurisdiction therefore exists where, because state law is
completely preempted, “there is, in short, no such thing as a state-law claim.”
Beneficial Nat’l Bank v. Anderson, 539 U.S. 1, 11 (2003). In contrast, under the
well-pleaded complaint rule, a “defense that relies on . . . the pre-emptive effect
of a federal statute will not provide a basis for removal.” Id. at 6 (citation
omitted) (emphasis added).
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No. 07-30464
Because the Bernhards’ petition for damages alleges only state law claims,
the district court had federal question jurisdiction over their case only if: (1) the
state law claims necessarily raise a federal issue or (2) the state law claims are
completely preempted by federal law.
1.
The district court found a necessary federal issue because the Bernhards
requested attorneys’ fees, which are available only under federal law. The court
found that attorneys’ fees are not available under Louisiana law unless
specifically authorized by statute or provided for by contract, but that attorneys’
fees are allowed under the EFTA. See 15 U.S.C. § 1693m(a)(3). The court
understandably relied on this court’s decision in Medina for the proposition that
a defendant can support removal by showing that a remedy the plaintiff seeks
in his or her complaint is exclusively available under federal law. See Medina,
238 F.3d at 680.
However, we have since distinguished this holding in Medina and have
determined that a request for attorneys’ fees, even if allowable under federal but
not state law, does not in itself present federal question jurisdiction. In the case
of In re Hot-Hed, Inc., we said that
a boiler-plate request for attorneys’ fees ‘as allowed by
law’ is insufficient to confer subject-matter jurisdiction
on the federal courts. We agree with the Ninth
Circuit’s holding in Carter v. Health Net of California,
Inc.[, 374 F.3d 830, 834 (9th Cir. 2004),] that ‘[a]
request for attorney’s fees cannot be a basis for federal
jurisdiction.’ A contrary holding would allow the
proverbial tail to wag the dog.
477 F.3d 320, 324 (5th Cir. 2007) (second alteration in original).3
3
The district court denied the Bernhards’ motion to remand on November 28, 2005.
Our decision in In re Hot-Hed was not issued until January 30, 2007. Nevertheless, we
generally apply the law as it exists at the time of review when a controlling precedent
intervenes between the date on which a lower court ruled and the date of appellate review.
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No. 07-30464
In Hot-Hed, the plaintiff asserted claims under the Texas Business and
Commerce Code and Texas common law and sought injunctive and
compensatory relief, as well as attorneys’ fees and costs, interest, and any other
relief to which it was entitled. Id. at 322. The court held that, even if attorneys’
fees were not authorized under state law, the plaintiff’s request would not confer
federal jurisdiction. Id. at 324.
The court distinguished Medina, noting that the plaintiff in Medina sought
back pay and liquidated damages under the Age Discrimination in Employment
Act, substantive relief under a specified federal statute. Id. at 325. The
question of whether the Hot-Hed plaintiff was entitled to attorneys’ fees, on the
other hand, did not “raise a ‘substantial, disputed question’ about an essential
element of a federal right, as required for an issue to present a federal question.”
Id.
In the instant case, the Bernhards’ request for “all costs of these
proceedings, including attorney’s fees” is a boiler-plate request for attorneys fees
that does not reference any federal law. Irrespective of whether such fees would
be available under state law, the request does not raise a necessary federal
question that would allow for original jurisdiction and therefore removal to the
district court.
2.
Whitney contends that the district court, in remanding the state claims,
erred by failing to rule consistently with its finding that the EFTA preempted
the Bernhards’ state law claims.4 Although the magistrate judge’s
See Cracker v. McCotter, 805 F.2d 538, 542 (5th Cir. 1986).
4
Whitney contends that Civil Code Articles 2315 and 2316 are inapplicable to the facts
of this case at state law and that Louisiana Revised Statutes § 10:4-406 applies and is
preempted because it is less protective of consumers than the EFTA. This argument may be
questionable because § 10:4-406 applies by its terms to “an item” which is defined as a written
promise or order to pay money. See La. Rev. Stat. §§ 10:4-406(d); 10:4-104(a)(9); 10:3-
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No. 07-30464
recommendation does not clearly define the scope of any finding it made
regarding preemption, federal question jurisdiction exists on the basis of
preemption only if the EFTA completely preempts the Bernhards’ state law
claims. See Terrebonne, 271 F.3d at 188-89.
Before the Supreme Court’s 2003 decision in Beneficial National Bank v.
Anderson, this court required a defendant to make three showings in order to
demonstrate complete preemption over otherwise purely state law claims:
(1) the statute contains a civil enforcement provision
that creates a cause of action that both replaces and
protects the analogous area of state law; (2) there is a
specific jurisdictional grant to the federal courts for
enforcement of the right; and (3) there is clear
Congressional intent that claims brought under the
federal law be removable.
Hoskins, 343 F.3d at 775 (quoting Johnson v. Baylor Univ., 214 F.3d 630, 632
(5th Cir. 2000)) (emphasis removed).
In Beneficial, however, the Supreme Court explained that “the proper
inquiry focuses on whether Congress intended the federal cause of action to be
exclusive rather than on whether Congress intended that the cause of action be
removable.” 539 U.S. at 9 n.5. Therefore, we must determine that Congress
intended a federal act to provide the exclusive cause of action for the claims at
issue to hold that it completely preempts state law claims. See Hoskins, 343
F.3d at 776.
In their notice of removal, the defendants argued that “any claims of the
Bernhards purportedly arising under state law conflict with federal law,
including the provisions of the EFTA and Regulation E, and are therefore
preempted.” Whitney based its opposition to the Bernhards’ motion to remand
on the Bernhards’ request for attorneys’ fees, stating that “[d]efendants here do
103(a)(6), (9); 10:3-104(a), (b). Because we lack jurisdiction over this case, we leave to the
Louisiana courts the question of which provision of Louisiana law to apply.
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No. 07-30464
not rely exclusively on the preemptive effect of the EFTA but on plaintiff’s
request for damages not authorized under state law and allowable only under
federal law.” Whitney neither alleged nor demonstrated complete preemption.5
The EFTA expressly states its relation to State laws:
This subchapter does not annul, alter, or affect the laws
of any State relating to electronic fund transfers, except
to the extent that those laws are inconsistent with the
provisions of this subchapter, and then only to the
extent of the inconsistency. A State law is not
inconsistent with this subchapter if the protection such
law affords any consumer is greater than the protection
afforded by this subchapter.
15 U.S.C. § 1693q.
The clear language of the EFTA indicates that Congress did not intend for
the Act to provide the exclusive cause of action for claims relating to
unauthorized electronic fund transfers. The Act contemplates the application
of state law that is not preempted by its provisions. It does not completely
preempt claims relating to electronic fund transfers and does not, therefore,
provide federal question jurisdiction in this case. The federal courts may not
decide in the first instance whether the EFTA provides a federal preemption
defense to the Bernhards’ state law negligence claims.6 Neither may the federal
courts decide whether the claims are viable under Louisiana law. See
Terrebonne, 271 F.3d at 189. Under the well-pleaded complaint rule, the
availability of a federal claim does not deprive the Bernhards of the opportunity
5
The district court’s order denying remand and Whitney’s argument are based on the
preemptive effect of the EFTA; we do not consider whether the Bernhards’ state law claims are
preempted--completely or otherwise--by any other federal statute.
6
The Supreme Court may review a preemption defense that has been rejected by a
state court: “[T]he absence of original jurisdiction does not mean that there is no federal forum
in which a preemption defense may be heard. If the state courts reject a claim of federal
preemption, that decision may ultimately be reviewed on appeal by this Court.” Franchise Tax
Bd., 463 U.S. at 12 n.12.
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No. 07-30464
to plead state law claims that may ultimately have no merit. The federal courts
do not have federal question jurisdiction simply because a federal right was
available but was not asserted.7
IV.
For the foregoing reasons, we hold that the district court lacked federal
question jurisdiction over the Bernhards’ claims. Accordingly, we VACATE the
judgment of the district court and REMAND the case to the district court with
instructions that it be returned to the state court from which it was removed.
VACATED and REMANDED with instructions.
7
Nothing in our opinion today precludes Whitney from arguing in state court that
Louisiana law is preempted because it conflicts with the EFTA or other federal law. Moreover,
the EFTA provides that it does not affect inconsistent state laws “relating to electronic fund
transfers.” The plaintiffs in this case have not cited any Louisiana law specifically “relating
to electronic fund transfers,” and it appears that Louisiana has not enacted such a law. We
make no suggestion whether the cited Civil Code provisions are applicable to the facts of this
case as a matter of Louisiana law or whether the Bernhards’ claims are subject to state or
federal defenses.
12