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Holman v. Laulo-Rowe Agency

filed: May 24, 1993.

HUGH H. HOLMAN AND GAYLE L. HOLMAN, PLAINTIFFS-APPELLANTS- CROSS-APPELLEES,
v.
LAULO-ROWE AGENCY; GEORGE LAULO, INDIVIDUALLY; TERRY ROWE, INDIVIDUALLY; GEORGE LAULO AND TERRY ROWE, D/B/A LAULO-ROWE AGENCY, DEFENDANTS-APPELLEES- CROSS-APPELLANTS.



Appeal from the United States District Court for the District of Montana. D.C. No. CV-90-0133-PGH. Paul G. Hatfield, District Judge, Presiding.

Before: Dorothy W. Nelson and Stephen Reinhardt, Circuit Judges, and Marion J. Callister, District Judge.*fn* Opinion by District Judge Callister.

Author: Callister

CALLISTER, District Judge:

Appellants Hugh and Gayle Holman ("The Holmans") appeal from a District Court decision dismissing their action due to a lack of subject matter jurisdiction. We affirm.

Factual and Procedural Background

The Holmans are Montana farmers. They insured their crops against natural disaster under policies of insurance written by the Federal Crop Insurance Corporation (FCIC), a wholly-owned Government corporation established within the Department of Agriculture. See 7 U.S.C. § 1503 (1988). The Holmans obtained their insurance through the Laulo-Rowe Agency.

In 1984, the Holmans acquired new farm land in Chouteau County, Montana, on which they planted wheat and barley. They contacted the Laulo-Rowe Agency to procure crop insurance, and were allegedly assured that their crops were covered. But when the Holmans sought to collect that insurance after a 1984 drought destroyed their crops, they were informed that in fact no coverage existed.

The Holmans responded by filing suit in Montana state court alleging claims of negligence, bad faith, and breach of contract against the Laulo-Rowe Agency and two individual agents named George Laulo and Terry Rowe. It is undisputed that the suit contained no federal claims, named no federal defendants, and lacked diversity. The state court, however, dismissed the suit on the ground that it was governed by the Federal Crop Insurance Act of 1978 (FCIA), 7 U.S.C. §§ 1501 to 1520 (1988), which established exclusive jurisdiction in the federal courts.

The Holmans then refiled the case in the United States District Court for the District of Montana, alleging jurisdiction based on the federal question provision, 28 U.S.C. § 1331 (1988). The Holmans concede, however, that their federal court complaint contained only state law claims, named no federal defendants, and lacked diversity.

The defendants then filed a motion to dismiss the federal district court action on the ground that the FCIA preempted all state law claims and required the Holmans to go before an administrative agency, not a court, to obtain relief. The District Court did dismiss the case - prompting the Holmans to appeal - but did so on a ground somewhat different than that urged by defendants, prompting defendants to appeal as well.

The District Court found that it could only have subject matter jurisdiction if plaintiffs' state law claims could support federal-question jurisdiction under the doctrine of complete preemption. The District Court found that doctrine inapplicable and dismissed the case.

About a month after the federal district court action was dismissed, the Holmans filed a motion before the Montana state court seeking relief from the judgment dismissing their original action. On October 4, 1991, the Montana state court granted the Holmans' motion and they filed an amended complaint on November 1, 1991. That action has been held in abeyance pending the outcome of this suit.

Discussion

We review the District Court's decision de novo. Felton v. Unisource Corp., 940 F.2d 503 (9th Cir. 1991). Our review begins with an examination of the doctrine of complete preemption.*fn1 The doctrine applies in select cases where the preemptive force of federal law is so "extraordinary" that it converts state common law claims into claims arising under federal law for purposes of jurisdiction. Caterpillar, Inc. v. Williams, 482 U.S. 386, 107 S. Ct. 2425, 96 L. Ed. 2d 318 (1987). The doctrine does not have wide applicability; it is a narrow exception to the "well-pleaded complaint rule" which makes the plaintiff the master of his or her complaint. Id. Under the well-pleaded complaint rule, federal question ...


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