You receive an urgent email from your client attaching a complaint filed in a county circuit court that demands millions of dollars in damages and a jury trial on all counts. The email opens with the following question: “Can you get us out of state court?” Having represented this client before, you know that as a large company, it would rather not deal with a David versus Goliath battle waged before a local county jury. You also know that this particular state’s procedural rules make summary judgment hard to come by. You start thumbing through the complaint to assess grounds for removal.
The plaintiff and your client both reside in the same state; absent diversity, federal question jurisdiction constitutes your sole option. Unfortunately, the complaint alleges only state law causes of action—primarily breach of contract claims with an unfair trade practices count tossed in for good measure. You recall from your civil procedure class in law school the doctrine known as the “well-pleaded complaint” rule. Under this doctrine, plaintiffs may frame their claims as they see fit—if they choose to pursue only state law causes of action, a defendant may not create federal question jurisdiction by asserting federal defenses to them. In addition, the federal question removal statute, 28 U.S.C. § 1441(a), is narrowly construed with the burden of proof resting on the removing party. Moreover, if a federal court remands the action, the removing party has no right to an interlocutory appeal because the moment the court issues the remand order, it divests itself of jurisdiction.
You start to prepare an email response to your client’s query, explaining that this particular county enjoys a reputation for having good judges and fair juries, so no need to despair (knowing this is neither the answer your client wants nor, given the procedural differences between the state and federal courts, the optimal result). Then an intriguing possibility crosses your mind. You reread the complaint. Yes, it alleges only state law causes of action . . . but it also alleges an overlay of federal government involvement in the events that gave rise to the claims. Specifically, although the government was not a party to the contract between your client and the plaintiff, a government official (according to the complaint) had directed your client to change the scope of its prime contract, which ineluctably led your client to terminate (and thereby allegedly breach) its subcontract with the plaintiff.
You delete your draft email and log onto the Internet to do some research. You discover two intriguing possibilities that you had not previously encountered: the federal officer removal statute in 28 U.S.C. § 1442(a)(1), which provides an exception to the well-pleaded complaint rule, and the U.S. Supreme Court case Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308 (2005), which found federal question jurisdiction arising from what nominally appeared to be purely state law claims. You hunker down for a long night of research.
Under the federal officer removal statute, a federal court has jurisdiction over any civil action directed at the “United States or any agency thereof or any officer (or any person acting under that officer) of the United States or any agency thereof, in an official or individual capacity, for or relating to any act under color of such office.” Courts review the federal officer removal statute with a liberal eye, not the strict statutory construction a defendant faces under federal question removal. Indeed, the Supreme Court has repeatedly made clear that the “policy favoring [federal officer] removal should not be frustrated by a narrow, grudging interpretation of § 1442.” Arizona v. Manypenny, 451 U.S. 232, 242 (1981). The broad construction given this unique removal statute helps ensure that the operations of the federal government are not left in the hands of a state court.
The Four Prongs of Removal
To succeed in removing a case under section 1442, a defendant must meet a four-part test:
- The defendant must be a person;
- the defendant must have acted at the direction of a federal officer;
- the federal officer’s direction must be the causal nexus of plaintiff’s claim; and
- the defendant must have a colorable federal defense to the claim.
You map the allegations in the complaint against the following prongs.
Prong 1: Is your client a person under section 1442?
Answer: Yes. Corporations are considered persons under this statute. This is perhaps the least contested of the four prongs and typically merits no more than a passing reference in the case law.
Prong 2: Did your client act under the direction of a federal officer?
Answer: Somewhere between possibly and probably. Under the liberal interpretation afforded the statute, “direction” can refer to regulations and specifications under certain circumstances, as well as explicit instructions. And the direction need not be immediately juxtaposed in time to the action taken. For example, companies that manufacture products in strict conformance with detailed government specifications issued years before have successfully removed product liability suits under this statute. But mere participation in a regulated industry is not enough. For that reason, a tobacco company that performed tar and nicotine testing required by the Food and Drug Administration could not establish that it did so “under the direction” of a government official absent either a contract requiring that the tests be performed in a certain manner or a delegation of authority from the government to the tobacco company to perform the testing on the government’s behalf. Watson v. Philip Morris, Cos., 551 U.S. 142 (2007). And defendants must show more than compliance with general regulatory requirements; otherwise, simply filing one’s tax returns could be construed as sufficient to meet this prong.
But if a regulatory scheme is so detailed that the defendant had no choice but to take a particular action, this prong should be satisfied. Thus, for example, the court in Campbell v. EPI Healthcare, No. 08-CV-401-ART, 2009 U.S. Dist. LEXIS 12242 (E.D. Ky. Feb. 18, 2009), seemed satisfied that the removing party met this prong by demonstrating that a federal regulation prohibiting the disclosure of certain records precluded compliance with a state court discovery order. Unfortunately for the defendant, it did not file its removal petition until after the 30-day deadline, and the court remanded the matter on timeliness grounds. And if the defendant acted under the close supervision of a government official, then it also acted “under the direction” of that official. Thus, a defendant insurer successfully removed a Louisiana lawsuit brought by a patient at a Department of Veterans Affairs (VA) hospital when the court determined that the insured surgeon acted under the immediate supervision of a federal official who evaluated his performance and determined his working conditions.
In a case analogous to the hypothetical one in this article, a federal judge found that a defendant had acted under the direction of a federal officer when it terminated a subcontract line item after the government advised it no longer required the services covered by that line item. In CRGT, Inc. v. Northrop Grumman Systems Corp., No. 12-CV-554, 2012 LEXIS 123206 (E.D. Va. Aug. 28, 2012), the plaintiff argued that this prong had not been satisfied because the government official’s direction to terminate applied only to the government’s prime contract with Northrop Grumman. The court disagreed. Given the broad interpretation to be afforded the statute, the court determined that the government’s specific instruction to terminate a particular set of services necessarily encompassed the subcontract line item through which those services were obtained.
According to the complaint on your desk, your client breached its contract with the plaintiff after the government directed a change in the scope of the prime contract. Additional information from your client would be helpful (e.g., what were the government’s actual instructions and who issued them? Did any of the prime contract terms flow down to the subcontract?), but given the liberal reading afforded this statute, your client has a reasonable chance of satisfying this prong.
Prong 3: Did the direction give rise to the plaintiff’s claim?
Answer: If your client meets the second prong, the third prong should be satisfied as well. Indeed, the strong overlap between the second and third prongs has led some courts to combine them into a single factor. Although the plaintiff would undoubtedly argue that your client unilaterally decided to terminate the subcontract and could instead have chosen to keep it in place, the allegations themselves suggest otherwise: But for the government’s decision to change the scope of the prime contract, the claim never would have arisen.
Prong 4: Does your client have a colorable federal defense?
Answer: Probably. This is often the most hotly contested prong of the four-prong test, in large part because it sidesteps the previously mentioned well-pleaded complaint rule. The Supreme Court noted in Caterpillar, Inc. v. Williams, 482 U.S. 386, 393 (1987), that a “case may not be removed to federal court on the basis of a federal defense . . . even if the defense is anticipated in the plaintiff’s complaint, and even if both parties admit that the defense at issue is the only question truly at issue in the case.”
The federal officer removal statute, however, is an exception to this rule. Assuming the other three prongs of the statute are met, the statute is satisfied if the defendant may assert a colorable federal defense to the claim. The defendant need not prove that it will prevail on the merits; indeed, the court is not supposed to evaluate the merits of the defense. The only question for the court is whether the defense is federal in nature and available to the defendant.
The Government Contractor Defense
Perhaps the defense most frequently relied on is the government contractor defense, enunciated by the Supreme Court in Boyle v. United Technologies, 487 U.S. 500 (1988). The underlying rationale in Boyle is that the contractor, in manufacturing products for the government in accordance with detailed government specifications, steps into the shoes of the sovereign and should therefore have available to it the defense of sovereign immunity. But defendants seemingly have been reluctant to invoke the federal officer removal statute in other contexts, perhaps because a small scattering of United States district courts have misinterpreted Boyle to mean that the statute should be narrowly construed when the underlying case does not implicate sovereign immunity. But the statute on its face is not so narrow, and the Supreme Court has consistently made clear that it is to be given a liberal interpretation. Indeed, in keeping with this liberal construction, the removing party may seek an interlocutory appeal from an order granting the plaintiff’s motion to remand. As noted earlier, no such appeal may be brought to contest a remand order issued regarding an action removed pursuant to section 1441.
The universe of “colorable federal defenses” contains more than invocations of sovereign immunity. Neither the Supreme Court nor any circuit court has imposed significant limitations on what qualifies as a colorable federal defense. The test is met so long as the defense is based in federal law and arises from the removing party’s compliance with the demands of a federal officer. Defenses such as official justification, reliance on regulatory prohibitions, and innocent intermediary status have been deemed sufficient to support removal.
Notwithstanding the Supreme Court’s instruction, some district courts have narrowly interpreted the statute when invoked by private parties. For example, in Taylor v. Comsat Corp., No. 05-CV-0920, 2006 LEXIS 81949 (S.D. W. Va. Nov. 8, 2006) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)), the court held that the statute “must be strictly construed for the reason that the limited jurisdiction of federal courts ‘is not to be expanded by judicial decree’ since federal courts ‘possess only that power authorized by [the] Constitution and statute.’” The Taylor court cited with approval two other district court cases holding the statute “should be construed broadly only when the immunity of federal officers is at issue.”
Taylor and the few other cases that have imposed a heightened standard on private parties based their holding on the Supreme Court case of Willingham v. Morgan, 395 U.S. 402 (1969). In Willingham, the Tenth Circuit remanded a lawsuit brought by prisoners against a prison warden. Although the warden asserted that he had acted under the color of his office and thus enjoyed sovereign immunity, the Tenth Circuit held that his defense failed to meet the “colorable federal defense” standard. The Supreme Court reversed, stating that “[i]n fact, one of the most important reasons for removal is to have the validity of the defense of official immunity tried in a federal court.” Id. at 407. This quote seems to have been taken out of context to argue that, absent an immunity defense, the federal officer removal statute should not be broadly construed. But this is not what the Willingham case says, nor has the Supreme Court ever endorsed such an interpretation.
As the Second Circuit noted, “we find no support for the proposition that only ‘official immunity defenses’ satisfy the ‘colorable federal defense’ requirement.” Isaacson v. Dow, 517 F.3d 129, 139 (2d Cir. 2008). In the CRGT case, the court assessed Northrop Grumman’s assertion of a colorable federal defense as follows: “Critically, the [c]ourt’s inquiry on this issue is not whether the defense will ultimately prevail, but only whether the defense is a ‘colorable’ one.” 2012 LEXIS 123206, at *2. The court then found that Northrop Grumman had asserted
a colorable federal defense of official justification because Northrop Grumman avers it cannot be liable to CRGT if the Army Contracting Officer properly terminated the CRGT licenses. . . . Whether Northrop Grumman’s assertions about the subcontract are eventually declared meritorious is irrelevant at this stage[;] what matters is whether Northrop Grumman has set forth plausible facts that advance a colorable defense of official justification. Because Northrop Grumman’s plausible assertions, if true, would render it an innocent intermediary and preclude CRGT’s action for breach, Northrop Grumman has advanced a colorable federal defense.
The Three-Prong Test in Grable
Your research satisfies you that the federal officer removal statute is a different creature entirely than other removal statutes and does not require that the court resolve doubts in favor of state court jurisdiction. Based on your read of the complaint, your client has a reasonable chance of prevailing if it were to remove under this statute. But there is always a chance the court will disagree, so you turn your attention to an alternative approach.
Black-letter law posits that a defendant may not assert federal question jurisdiction as a basis for removal if the complaint alleges only state law claims—unless those claims have been completely preempted by federal law. Complete preemption is quite difficult to establish, as demonstrated by the many remand orders issued as to removal petitions premised on this argument. Nor may the defendant assert “anticipated” federal defenses as an attempt to weave federal questions into the complaint.
But the Supreme Court in Grable articulated a variant of federal question jurisdiction that appears to put cracks into the well-pleaded complaint doctrine. In Grable, the plaintiff sued to quiet title over land that the Internal Revenue Service seized for failure to pay back taxes. The plaintiff asserted that the government had failed to provide proper notice for the seizure. Although the complaint alleged only state law claims, the Supreme Court held that federal question jurisdiction existed because the claims implicated significant federal issues involving the interpretation of federal tax laws.
Grable enunciated a three-prong test:
- Does the state law claim necessarily raise a stated federal issue?
- Is the issue actually disputed and substantial?
- Can it be entertained by the federal forum without disturbing the balance of federal and state judicial responsibilities?
This test provides far more opportunity for a defendant to establish federal question jurisdiction than the complete preemption standard. Courts employing the Grable test have found federal question jurisdiction over a variety of state law actions, ranging from unjust enrichment and breach of contract claims that could not be resolved absent reference to federal regulations, to misappropriation claims that depended on the interpretation of a federal banking charter.
One of the more illuminating cases involves an unsuccessful attempt to remove under both the federal officer removal statute and federal question jurisdiction. What makes the case interesting is the court’s curiosity as to why the defendant did not seek removal under the Grable test. In Crescent Care, LLC v. Total Home Health, Inc., No. 08-C-127, 2008 LEXIS 123027 (N.D. Ill. May 28, 2008), the plaintiff sought to recover a contractually agreed-upon finder’s fee in connection with a VA contract obtained by the defendant. After securing the VA contract, the defendant repudiated its contract with the plaintiff. The court rejected the defendant’s argument that its contractual obligation to comply with federal regulations required it to repudiate the plaintiff’s contract because government regulations prohibited the payment of such fees. The court explained that mere compliance with a general regulation does not satisfy the “acting under the direction” requirement of the federal officer removal statute. The court also rejected the assertion of federal question jurisdiction on complete preemption grounds. The court observed that the Supreme Court has acknowledged only three areas in which Congress intended federal law to completely displace state law: actions under the Labor Management Relations Act, the Employee Retirement Income Security Act, and the National Bank Act. Another area recognized by at least one circuit court involves the regulation of mobile telecommunications rates. The defendant could not demonstrate that the claims at issue involved any of those areas. In remanding the action, however, the court noted that the defendant “did not argue that this case involves a significant federal question under Grable. . . . We are perplexed by defendant’s choice because the Grable argument would appear to be a stronger argument than complete preemption.” Id. at *6.
The plaintiff who sued your client clearly avers that the government’s direction to change the contract’s scope led to the termination of the subcontract line item. Thus, an argument can be made that such an allegation raises questions concerning the government’s right to determine what services it needs and what steps it can take to discontinue unwanted services. You would like additional information as to the potential impact on the federal government of a state court verdict; for example, what was the nature of the prime contract—does it involve a program of vital national interest such as homeland security, or does it deal with a less weighty issue such as the disposal of surplus goods? Does the prime contract allow your client to recover from the government any damages it would have to pay, such that a state court judgment could directly effect the federal fisc? If you can meet the first and second prongs, the third prong should follow naturally. Simply put, allowing a federal court to resolve issues of federal interest would not disrupt the balance of federal and state court jurisdiction.
You push back from your desk. It has been a long but very productive night. Although you need to gather more background facts from your client before recommending that removal be attempted, the email you plan to send your client (after you grab that much-needed cup of coffee) will have a more optimistic tone than you originally had thought possible.