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Detroit Rehabilitation Initiatives, LLC v. Federal Home Loan Bank of Indianapolis

United States District Court, S.D. Indiana, Indianapolis Division

September 18, 2019



          James Patrick Hanlon, United States District Judge.

         Detroit Rehabilitation Initiatives, LLC (“DRI”) sued Federal Home Loan Bank of Indianapolis (“FHLBI”) in state court after FHLBI allegedly breached their agreements[1] and rescinded DRI’s membership in the Federal Home Loan Bank system. FHLBI removed the case to federal court, alleging federal-question jurisdiction under 28 U.S.C. § 1331. Dkt. 1 ¶ 19. Before addressing the merits of DRI’s motion for a temporary restraining order, dkt. 9, the Court directed the parties to brief the issue of jurisdiction, dkt. 18. In response, DRI filed a motion to remand, dkt. [24], which FHLBI opposed, dkt. 30. For the reasons stated below, that motion is GRANTED and the case is REMANDED to Marion County Superior Court.


         Because federal courts are of limited jurisdiction, “district courts may not exercise jurisdiction absent a statutory basis.” Home Depot U.S. A., Inc. v. Jackson, 139 S.Ct. 1743, 1746 (2019). Congress granted federal courts a statutory basis for jurisdiction over two types of cases: cases arising under federal law and cases where the amount in controversy exceeds $75,000 and there is diversity of citizenship among the parties. 28 U.S.C. §§ 1331, 1332(a). “These jurisdictional grants are known as ‘federal-question jurisdiction’ and ‘diversity jurisdiction,’ respectively.” Home Depot, 139 S.Ct. at 1746.

         When evaluating federal-question jurisdiction, courts use the “well-pleaded complaint rule,” which states that “federal jurisdiction exists only when a federal question is presented on the face of the plaintiff’s properly pleaded complaint.” Citadel Sec., LLC v. Chi. Bd. Options Exch., Inc., 808 F.3d 694, 701 (7th Cir. 2015) (quoting Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987)). Under this rule, the plaintiff is “the master of the claim; he or she may avoid federal jurisdiction by exclusive reliance on state law.” Caterpillar, 482 U.S. at 392.

         When a case is removed to federal court, jurisdiction is determined “by looking at the complaint as it existed at the time the petition for removal was filed.” United Farm Bureau Mut. Ins. Co. v. Metropolitan Human Relations Comm’n, 24 F.3d 1008, 1014 (7th Cir. 1994). Jurisdiction, therefore, is based on whether the court had jurisdiction “on the day the suit was removed.” Oshana v. Coca-Cola Co., 472 F.3d 506, 511 (7th Cir. 2006).


         Here, the operative complaint at the time of removal was the First Amended Complaint. Dkt. 1-3. Nevertheless, FHLBI contends that the Court may consider the Second Amended Complaint in evaluating whether there is federal-question jurisdiction. Dkt. 30 at 6-7 (citing Bernstein v. Lind-Waldock & Co., 738 F.2d 179, 181 (7th Cir. 1984)). But having identified the potential jurisdictional defect, the Court did not rule on DRI’s motion for leave to file the Second Amended Complaint. That distinguishes this case from Bernstein where the Seventh Circuit considered the amended complaint, which was the operative complaint, when determining jurisdiction. Indeed, the court in Bernstein held that if the original complaint had remained the operative complaint on appeal, the court would have remanded the case. Id. at 185. The Second Amended Complaint is not the operative complaint here, so the Court considers the First Amended Complaint when assessing whether there is federal jurisdiction.


         The First Amended Complaint sets forth the basis for jurisdiction and venue in the Marion County Superior Court under the Indiana Rules of Trial Procedure and makes no reference to federal law or federal jurisdiction. Dkt. 1-3 ¶¶ 7-8. The sole cause of action alleged is breach of contract, specifically, that FHLBI breached the Agreements when it rescinded DRI’s membership and terminated the Agreements. Id. ¶¶ 27, 31-37.

         Nevertheless, FHLBI argues that the Court has federal-question jurisdiction because its membership criteria is based on federal regulations. Dkt. 1 ¶ 19. FHLBI claims that this case therefore “presents one of the rare instances when federal-question jurisdiction exists over a complaint asserting only state-law causes of action.” Dkt. 1 ¶ 17 (quoting Evergreen Square of Cudahy v. Wis. Hous. & Econ. Dev. Auth., 776 F.3d 463, 464 (7th Cir. 2015)).

         While a court may have federal-question jurisdiction over “state-law claims that implicate significant federal issues,” Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 312 (2005), that is the exception to the rule and does not apply here. DRI alleges that FHLBI is liable for breach of contract because it terminated the Agreements and rescinded DRI’s membership. Dkt. 1-3 ¶¶ 27, 31-37. FHLBI claims that it “misinterpreted federal membership regulations” when it admitted DRI as a member. Dkt. 14 at 1. FHLBI further claims that it rescinded DRI’s membership and terminated the Agreements because DRI “failed to meet the . . . regulatory membership requirements at the time of application.” Id. at 7. But the federal regulations are raised only by FHLBI in response to DRI’s allegations, in other words, as a defense.

         “A case may not be removed on the basis of a federal defense.” Citadel, 808 F.3d at 701; Jackson Cty. Bank v. DuSablon, 915 F.3d 422, 424 (7th Cir. 2019) (“The complaint is based entirely on state law and any potential federal defense cannot form the basis for removal.”). Furthermore, this case does not fall under the Grable exception because “Grable does not alter the rule that a potential federal defense is not enough to create federal jurisdiction under § 1331.” Chi. Tribune Co. v. Bd. of Trustees of Univ. of Ill., 680 F.3d 1001, 1003 (7th Cir. 2012).

         FHLBI argues that the federal regulations are not a federal defense but form “the crux of this case.” Dkt. 30 at 12 (citing dkt. 27 at 2). But regardless of FHLBI’s characterization of the regulations, it is “settled law 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 ...

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