Milan Express Co. v. Western Surety Co.

KEITH, Circuit Judge.

Plaintiff motor carriers appeal from a district court order denying their motion for class certification and dismissing their freight-bonding action for lack of subject matter jurisdiction. Plaintiffs contend that their ease arose under an act of Congress regulating commerce. 28 U.S.C. § 1337(a). As payment for transportation services provided to allegedly delinquent property brokers, plaintiff motor carriers seek the proceeds of surety bonds prescribed by the Interstate Commerce Commission (ICC), pursuant to federal statutes and regulations. 49 U.S.C. § 10927(b); 49 C.F.R. § 1043.4(b). Defendant surety companies argue that because the disputed bonds must be interpreted and enforced in accordance with state law, the district court properly concluded that there is no federal question. For the reasons that follow, we REVERSE.

I.

A.

In the interstate surface transportation industry, the ICC licenses property brokers: middlemen who arrange transportation services between motor carriers and shippers of various products. Surety companies post bonds on behalf of the brokers, who bill the shippers and pay the motor carriers they retain. Each bond carries a penalty limited to $10,000.00. In the case at bar, the brokers received payments from the shippers for freight, but allegedly failed to disperse payments to the plaintiff motor carriers. Plaintiffs then sought to recover against the bonds posted on behalf of the brokers. Defendants denied plaintiffs’ claims because the surety agreement’s language discussed only the “protection of travelers and shippers,” and did not name “motor carriers.” See Broker’s Surety Bond Under Section 211(c) of the Interstate Commerce Act, Form BMC-84 (Rev.1977).

To protect motor carriers and the shipping public, the ICC will issue a broker’s license only if the applicant files a bond or other type of security approved by the ICC. 49 U.S.C. § 10927(b). If a bond is filed, the broker must use the ICC’s prescribed Form BMC-84. See 49 C.F.R. § 1043.4(b). The original language of Form BMC-84 identified travelers and shippers, but not motor carriers, as the intended beneficiaries of the bonds. However, on April 9, 1987, the ICC defined the parameters of its insurance regulations, stating that it “has always interpreted the security offered by brokers to cover both shippers and motor carriers.” Clarification of Insurance Regulations, 3 I.C.C.2d 689, 692 (1987). “As a matter of clarity,” the ICC concluded, “we are modifying the language of the prescribed Broker Surety Bond, Form BMC-84 (Rev. 77), to specifically identify motor carriers as well as shippers as entities included within the intended statutory coverage.” Id. See also Broker’s Surety Bond Under 49 U.S.C. § 10927, Form BMC-84 (Rev. 1987) [hereinafter Form BMC-84],

B.

On September 16, 1987, plaintiffs brought this civil action pursuant to 28 U.S.C. § 2201, seeking a declaratory judgment that they are the obligees under the bonds upon which defendants stand as surety. The original complaint asserted jurisdiction on the basis of diversity of citizenship. After defendants filed a motion to dismiss plaintiffs’ complaint on October *78528, 1987, plaintiffs moved for leave to amend their complaint. The district court granted plaintiffs’ motion on December 29, 1987. In the amended complaint, the plaintiffs asserted both diversity jurisdiction, pursuant to 28 U.S.C. § 1332, and subject matter jurisdiction, pursuant to 28 U.S.C. § 1337(a).

On January 6, 1988, the district court referred this action to a magistrate for a report and recommendation on the various motions. On January 19, 1988, defendants subsequently filed a motion to dismiss the amended complaint for lack of subject matter jurisdiction. Plaintiffs moved, on March 11, 1988, to have this action certified as a class action.

The magistrate’s report and recommendation was filed on May 2, 1988, urging that defendants’ motion to dismiss be granted, and that plaintiffs’ motion for class certification be denied. On June 3, 1988, plaintiffs filed objections to the magistrate’s report. After making a de novo determination on the record, the district court on August 1, 1988, issued an order that adopted the magistrate’s report and recommendation; denied plaintiffs’ motion for class certification; and dismissed plaintiffs’ case.

Plaintiffs filed a timely notice of appeal on August 23, 1988. Although plaintiffs present several arguments on appeal, only one issue is properly before this court: whether the district court erred in dismissing plaintiffs’ freight-bonding action for lack of subject matter jurisdiction, pursuant to 28 U.S.C. § 1337(a).1

II.

A.

The ICC, established by Congress in 1887, is “conventionally cited as the first of the modern administrative agencies.” Fallon, Of Legislative Courts, Administrative Agencies, and Article III, 101 Harv.L.Rev. 915, 923 & n. 50 (1988). Decisions of the ICC and disputes involving the federal regulation of interstate commerce have historically been reviewed by the federal court. See Peyton v. Railway Express Agency, 316 U.S. 350, 62 S.Ct. 1171, 86 L.Ed. 1525 (1942); Louisville & Nashville R.R. Co. v. Rice, 247 U.S. 201, 38 S.Ct. 429, 62 L.Ed. 1071 (1918); Fallon, supra, at 923 & n. 50. By statute, Congress has established federal jurisdiction over such disputes:

The district courts shall have original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating commerce or protecting trade and commerce against restraints and monopolies.

28 U.S.C. § 1337(a).

To determine which civil actions fall within, and which civil actions fall outside, the subject matter jurisdiction of the district courts, this court has adopted a familiar definition of the statutory phrase “arising under.” Ford Motor Co. v. Transport *786Indemnity Co., 795 F.2d 538 (6th Cir.1986), we explained that:

“Arising under” for purposes of Section 1337(a) is interpreted similarly to the analogous “arising under” language in Section 1331, 28 U.S.C. § 1331. See Peyton v. Railway Express Agency, Inc., 316 U.S. 350 [62 S.Ct. 1171, 86 L.Ed. 1525] (1942) (per curiam); Michigan Savings & Loan League v. Francis, 683 F.2d 957, 960 n. 6 (6th Cir.1982). An action will arise under a statute regulating commerce, therefore, if a federal right created by the statute is essential to the cause of action. See, e.g., Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 9 [, 103 S.Ct. 2841, 2846, 77 L.Ed.2d 420] (1983); Gully v. First National Bank in Meridian, 299 U.S. 109, 112 [, 57 S.Ct. 96, 97, 81 L.Ed. 70] (1936).

Ford Motor Co., 795 F.2d at 543-44 (emphasis added).

An examination of the relevant federal statute is often sufficient to establish the existence or lack of subject matter jurisdiction. However, in some cases, an evaluation of additional sources and the circumstances surrounding the dispute may also be required. One leading commentator has suggested that the “federal law that will support federal question jurisdiction may be the Constitution, a statute of the United States, an administrative regulation, or a treaty.” C. Wright, The Law of the Federal Courts 97 (4th ed.1983). Moreover, in Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986), the Supreme Court explained that jurisdictional legislation must be interpreted “ ‘in light of the history that produced it, the demands of reason and coherence, and the dictates of sound judicial policy.’ ” Id. at 810, 106 S.Ct. at 3233 (quoting Romero v. International Terminal Operating Co., 358 U.S. 354, 379, 79 S.Ct. 468, 484, 3 L.Ed.2d 368 (1959)).

B.

In urging us to find federal jurisdiction in the case at bar, plaintiffs have directed our attention to the forms, rules, regulations, and administrative decisions of the ICC, as well as the Interstate Commerce Act (“the Act”). See 49 U.S.C. § 10101 et seq. Historically, the Act initiated the federal regulation of interstate commerce, offering access and protection to public users and commercial providers of interstate transportation. See, e.g., Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 256, 85 S.Ct. 348, 357, 13 L.Ed.2d 258 (1964). To insure that property brokers meet their financial responsibilities to commercial providers in the surface transportation industry, Congress has conferred upon the ICC the power to grant, deny or revoke brokers’ licenses. See 49 U.S.C. § 10927(b). Recently, the ICC emphasized that:

The legislative history of [Section 10927(b)] of the [A]ct clearly reveals that the primary purpose of Congress in regulating motor transportation brokers is to protect [motor] carriers and the traveling and shipping public against dishonest and financially unstable middlemen in the transportation industry.

Clarification of Insurance Regulations, 3 I.C.C.2d 689, 691 (1987) (emphasis added) (quoting Carla Ticket Service, Inc., Broker Application, 94 M.C.C. 579, 580 (1964)).

On appeal, plaintiff motor carriers contend that a substantial body of federal law—the forms, rules, regulations, and decisions of the ICC, in addition to the Act— establishes that they are entitled to collect past-due freight charges from the defendant surety companies who posted bonds on behalf of the delinquent brokers. See Clarification of Insurance Regulations, 3 I.C.C.2d 689, 691 (1987); 49 U.S.C. § 10927(b); 49 C.F.R. § 1043.4(b); Form BMC-84. See also United States v. Brav-erman, 373 U.S. 405, 408, 83 S.Ct. 1370, 1372, 10 L.Ed.2d 444 (1963) (dicta) (suggesting that pursuant to the Act, motor carriers have a federally mandated right and duty to collect their freight charges at established rates). Plaintiffs continue that because their right to collect on the bonds was created by federal law and is essential to their case, their cause of action “aris[es] *787under an[ ] [a]ct of Congress regulating commerce” and thus, should be heard in a federal forum. See 28 U.S.C. § 1337(a). In response, defendants argue: first, that plaintiffs’ claims should be heard in a state forum; second, that the bonds should be interpreted in accordance with state law; and third, that state law should govern the question of whether the plaintiffs are entitled to recover. However, because the bonds are created on federal forms, administered under federal regulations, and required by a federal statute, we find little merit in defendants’ arguments. See 49 U.S.C. § 10927(b); 49 C.F.R. § 1043.4(b); Form BMC-84. The historical federal interest in the regulation of interstate commerce persuades us that plaintiffs’ claims for recovery under the bonds, which are clearly creatures of federal law, should not be subjected to the peculiarities of interpretation in fifty different state forums. Rather, plaintiffs’ claims should be heard in a federal forum that possesses substantial expertise in matters of interstate commerce. See, e.g., P. Bator, P. Mishkin, D. Shapiro & H. Wechsler, Hart and Wech-sler’s The Federal Courts and The Federal System 868 (2d ed.1973) (suggesting that the protection of Congressionally created or recognized interests is an essential purpose of extending the federal judicial power). Because the bonds are required, promulgated, and regulated by the ICC; because the bonds are intended to protect motor carriers who fall victim to broker abuse; and because the bonds allegedly guarantee payment of past-due freight charges sought by the plaintiffs, we are persuaded that federal jurisdiction should be exercised in this case.

Our finding of subject matter jurisdiction over plaintiffs’ suit is firmly grounded in the Act, as well as the rules, regulations, and decisions of the ICC. In addition, our finding of federal jurisdiction over this case stands upon the firm foundation of Ford Motor Co. v. Transport Indemnity Co., 795 F.2d 538 (6th Cir.1986).

In Ford, a motor carrier transported automobiles in interstate commerce for plaintiff Ford Motor Company. When automobiles were damaged in transport, plaintiff shipper sought recovery from the motor carrier’s insurer, defendant Transport Indemnity Company. See Ford Motor Co., 795 F.2d at 540-41. Plaintiff sued under ICC prescribed Form BMC-32, an endorsement filed by the defendant insurer to guarantee the motor carrier’s payment of cargo losses. See id. at 544; 49 U.S.C. § 10927(a)(3); 49 C.F.R. § 1043.1(b). Finding subject matter jurisdiction over plaintiffs’ case in Ford, we held that:

Since Section 10927(a)(3) as part of the Interstate Commerce Act is clearly an “[a]ct of Congress regulating commerce” and since [plaintiff shipper] is suing [defendant insurer] based on the [BMC-32] endorsement, this case “arises under” an act of Congress regulating commerce.

Ford Motor Co., 795 F.2d at 544 (quoting 49 U.S.C. § 1337(a)).

Because the Ford plaintiffs and the present plaintiffs both sued on parallel provisions of federal law, our holding in Ford governs our finding of federal jurisdiction in the present case. First, both cases involved the posting of an insurance policy or a surety bond required by the Act to effectuate the federal regulation of interstate commerce. Second, 49 U.S.C. § 10927(a)(3), which mandates insurance or surety arrangements for motor carriers in Ford, is a parallel provision to 49 U.S.C. § 10927(b), which mandates insurance or surety arrangements for property brokers in the present case. Compare 49 U.S.C. § 10927(a)(3) with 49 U.S.C. § 10927(b). Third, the ICC prescribed insurance endorsement form at issue in Ford, BMC-32, cannot easily be distinguished from the ICC prescribed surety bond form at issue in the present case, BMC-84. In both cases, the plaintiffs sued, in part, upon forms required, promulgated, and regulated by the ICC. Compare Form BMC-32 (quoted in Ford Motor Co., 795 F.2d at 540) with Form BMC-84 (quoted in Clarification of Insurance Regulations, 3 I.C.C.2d at 694). Fourth, the ICC regulations define the rights and responsibilities of both the defendant insurer in Ford and the defendant surety companies in the present case. See 49 C.F.R. § 1043. Thus, applying Ford *788as controlling precedent to the case at bar, we note that the relevant forms, rules, regulations, and decisions of the ICC, in addition to the Act, constitute a substantial body of law regulating interstate commerce. See Clarification of Insurance Regulations, 3 I.C.C.2d 689, 691 (1987); 49 U.S.C. § 10927(b); 49 C.F.R. § 1043.4(b); Form BMC-84. Because these federal laws determine the content of the transactions in the surface transportation industry and because plaintiff motor carriers are suing defendant surety companies upon these federal laws, this case “aris[es] under an[ ] [a]ct of Congress regulating commerce.” 28 U.S.C. § 1337(a). See also Ford Motor Co., 795 F.2d at 544; C. Wright, supra, at 97. Cf. Thurston Motor Lines, Inc. v. Jordan K. Rand, LTD., 460 U.S. 533, 534-35, 103 S.Ct. 1343, 1343-44, 75 L.Ed.2d 260 (1983) (finding federal jurisdiction, where Congress, acting through the ICC, prescribed the language of a disputed bill of lading to which shippers and motor carriers were bound).

Defendants argue that our finding of subject matter jurisdiction in this case will circumvent the Supreme Court’s recent decision in Merrell Dow Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986).2 We disagree. In Merrell Dow, plaintiffs filed a complaint against the defendant manufacturer and distributor of the drug Bendectin, alleging that the drug caused birth defects in the children of mothers administered the drug during pregnancy. Plaintiffs sued on common law theories of negligence and attempted to use defendant’s alleged violation of the Federal Food, Drug and Cosmetic Act (“FDCA”), not as a basis of recovery, but as evidence of negligence or culpability. See Merrell Dow, 478 U.S. at 805-06, 106 S.Ct. at 3231; 21 U.S.C. § 301 et seq. Declining to find federal jurisdiction, the Court held that plaintiffs failed to state a claim arising under the laws of the United States. See id. at 817, 106 S.Ct. at 3236 (quoting 28 U.S.C. § 1331).

Merrell Dow can be distinguished from the present case on several grounds. First, this court declined to find federal jurisdiction in Merrell Dow because plaintiffs failed to prove that their relief depended necessarily on a substantial question of federal law. Thus, the jury could have easily found the defendant to be negligent, but not in violation of the FDCA. See Thompson v. Merrell Dow, 766 F.2d 1005, 1006 (6th Cir.1985), aff'd, 478 U.S. 804, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986). By contrast, the present plaintiffs have relied exclusively on federal law in their suit to recover on bonds required, promulgated, and regulated by the ICC. Second, the Merrell Dow plaintiffs did “not allege that federal law create[d] any of the causes of action that they ... asserted.” Merrell Dow, 478 U.S. at 809, 106 S.Ct. at 3233. *789The Merrell Dow plaintiffs merely asserted that the defendant’s violation of the FDCA constituted proof of negligence. See id. at 809-11, 106 S.Ct. at 3232-34. The present plaintiffs, however, argue that their rights to the proceeds of the surety bonds were created by federal law and should be enforced in a federal forum. Third, in Mer-rell Dow, no specific and compelling federal interest was demonstrated. In contrast, our finding of subject matter jurisdiction in the present case is entirely consistent with the specific federal interest in the protection of motor carriers and the historical federal interest in the regulation of interstate commerce.3

Accordingly, the judgment of the district court is REVERSED and REMANDED for further proceedings consistent with this opinion.

. On appeal, plaintiffs also argue that because their suit is brought "on a bond executed under [the] law[s] of the United States," the federal district court maintains original jurisdiction over their case. See 28 U.S.C. Section 1352. However, since plaintiffs failed to raise the Section 1352 issue in the district court, this court will not address the issue, for the first time, on appeal. See, e.g., Sigmon Fuel Co. v. TVA, 754 F.2d 162, 164-65 (6th Cir.1985) (explaining that courts of appeals generally refuse to consider issues not passed upon by district courts).

Plaintiffs next argue that this court should reverse the district court’s denial of plaintiffs’ motion for class certification. See Fed.R.Civ.P. 23(b)(3). We disagree. Because we reverse the judgment of the district court dismissing plaintiffs' case for lack of subject matter jurisdiction, there is no longer a final judgment to support our "review of interlocutory orders, even though such a judgment existed at the outset of the appeal.” Weil v. Investment/Indicators, Research & Management, Inc., 647 F.2d 18, 26 (9th Cir.1981) Thus, at this juncture, our reversal of the judgment below prevents us from reviewing the district courts’ denial of class certification. See 28 U.S.C. Section 1291 (“The court of appeals ... shall have jurisdiction of appeals from all final decisions of the district courts of the United States.”); Cotten v. Treasure Lake, Inc., 518 F.2d 770, 772 (6th Cir.1975) (stating that an order denying class certification is not a final decision within the meaning of 28 U.S.C. Section 1291), cert. denied, 423 U.S. 930, 96 S.Ct. 281, 46 L.Ed.2d 259 (1975). See also Coopers & Lybrand v. Livesay, 437 U.S. 463, 476-77, 98 S.Ct. 2454, 2462, 57 L.Ed.2d 351 (1978) (holding that because a district court's order denying class certification is not a final decision, such an order is not appealable as a matter of right).

. Defendants also urge us to follow Merrell Dow’s progeny, Millers National Insurance Co. v. Axel's Express, Inc., 851 F.2d 267 (9th Cir.1988). In Millers National, plaintiff insurer of an equipment company brought an action against defendant insurer of a motor carrier to recover under an indemnity clause in the lease of a damaged truck. Plaintiff insurer settled and compromised the claim of a third party victim, and then attempted to sue defendant insurer for contribution. Because the defendant's insured was a motor carrier required to purchase insurance by 49 U.S.C. Section 10927(a)(1), plaintiff sued the defendant in federal court. Millers National, 851 F.2d at 268-69. The Ninth Circuit held, however, that the plaintiff’s “claim for indemnity is a state law claim. Though its resolution may involve a determination of federal law, that alone is not sufficient to involve federal question jurisdiction.” Id. at 269. We decline to follow Millers National for several reasons. First, unlike the alleged federal question in Millers National, the federal question in the present case is not ancillary. Second, the Millers National plaintiff requested that the court determine whether or not the defendant was liable for the damaged truck. The present plaintiffs, however, request that the court determine whether or not they are entitled to recover on bonds created by federal law. Third, in contrast to Millers National, the underlying substantive issue in the present case is not a state law question, but a federal law question: whether or not the ICC prescribed bonds cover travelers, shippers and motor carriers? Finally, we question the wisdom of the Ninth Circuit's unreserved application of Merrell Dow, an opinion exclusively interpreting a negligence claim brought under the Federal Food, Drug, and Cosmetic Act, to Millers National, a case requiring the interpretation of both liability issues and insurance coverage issues pursuant to the Interstate Commerce Act.

. The dissent suggests that we have taken an unjustifiably broad view of the underlying purpose of 42 U.S.C. § 10927(b), and that we have relied upon the historical federal interest in the regulation of interstate commerce to find subject matter jurisdiction in this case. See Dissenting Opinion at 792. We are mindful of the dangers of building upon an overbroad, vague or unsettled foundation. Our finding of subject matter jurisdiction in the present case, however, stands upon the specific and firm foundation of the Act, as well as the forms, rules, regulations, and decisions of the ICC. See Clarification of Insurance Regulations, 3 I.C.C.2d 689, 691 (1987); 49 U.S.C. § 10927(b); 49 C.F.R. § 1043.4(b); Form BMC-84.

Our disagreement results primarily from the dissent’s conclusion that the Act, as well as the forms, rules, regulations and decisions of the ICC, does not provide the plaintiffs with any rights beyond the express terms of the bonds. In contrast, we have taken notice of plaintiff motor carriers’ contention that a substantial body of federal law establishes that they are entitled to collect past-due freight charges from the defendant surety companies who posted the bonds. We have not, however, addressed the substance of plaintiffs’ claim to such a federally created right. Instead, we have remanded this case so that the district court may enter a judgment upon the merits.

The dissent also questions whether our decision in the present case can be reconciled with the result reached in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975). In Cort, the Supreme Court did not suggest that the federal courts are without jurisdiction to determine whether there is an implied cause of action under a federal statute. Indeed, the Court decided that issue. See Cort, 422 U.S. at 84-85, 95 S.Ct. at 2091 (holding that a private cause of action for damages against corporate directors may not be implied under 18 U.S.C. § 610, a statute prohibiting corporate contributions to certain federal elections).

When the present case is heard on remand, the plaintiff motor carriers may not succeed. The Act, as well as the forms, rules, regulations and decisions of the ICC, may not provide the plaintiffs with the federally created right they assert. We have concluded, however, that the federal courts should make that decision because it is a question of federal law.