Templeton Board of Sewer Commissioners v. American Tissue Mills of Massachusetts, Inc.

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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