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Kinetic Development LLC v. Sky Unlimited LLC

United States District Court, D. Colorado

November 22, 2017

KINETIC DEVELOPMENT LLC, a Colorado limited liability company, Plaintiff,
SKY UNLIMITED LLC, a Colorado limited liability company, Defendant.


          William J. Martinez United States District Judge

         Now before the Court in this contract dispute is Plaintiff Kinetic Development LLC's Motion for Remand. (ECF No. 16.) Plaintiff Kinetic Development LLC (“Kinetic Development”) argues this matter must be returned to state court, given Defendant Sky Unlimited LLC's (“Sky Unlimited”) failure to set forth a compelling, or even suggested, theory for removal to federal court. Defendant Sky Unlimited argues that remand should be denied and that the case should remain in this Court based on federal question jurisdiction. (See ECF No. 21.) For the reasons explained below, Kinetic Development's motion is granted.

         I. BACKGROUND

         The facts giving rise to this case are easy to summarize. On November 22, 2016, Kinetic Development and Sky Unlimited entered into a contract to purchase property (“real estate contract”), made contingent upon Sky Unlimited receiving “a good and compliant Recreational Retail Marijuana Store License.” (ECF No. 3 ¶ 6.) On November 28, 2016, Sky Unlimited notified Kinetic Development that it was terminating the contract and requesting the return of its earnest money deposit, citing the apparent illegality of the agreement under the Federal Controlled Substances Act. (Id. ¶ 12.) Kinetic Development filed its Complaint in the District Court for the City and County of Pueblo, Colorado, on January 27, 2017, alleging claims under Colorado law for breach of contract and breach of the covenant of good faith and fair dealing. (ECF No. 3.)

         On March 2, 2017, Defendant filed in this Court a Notice of Removal suggesting that federal subject matter jurisdiction exists because this action “arises under” federal law. (ECF No. 1.) Thereafter, Kinetic Development filed the present motion to remand. (ECF No. 16.) Sky Unlimited argues that federal jurisdiction is appropriate here because Kinetic Development's claims are completely preempted by the Controlled Substances Act. Sky Unlimited also argues, in the alternative, that there is a substantial disputed federal-law issue that is necessary to Kinetic Development's state-law claims.

         II. ANALYSIS

         A. Preemption

         In moving to remand this case back to state court, Kinetic Development argues that its Complaint does not raise a federal question on its face and that the “complete preemption doctrine” does not create federal jurisdiction under the facts presented here. Kinetic Development's pleading alleges only state law claims for breach of contract and breach of the covenant of good faith and fair dealing. Kinetic Development suggests that Sky Unlimited's efforts to remove this case to federal court would, if successful, preclude a plaintiff from effectively seeking relief under state law merely by invoking the Controlled Substances Act.

         The party seeking to transfer a state cause of action has the burden of showing that removal is proper. Lindstrom v. United States, 510 F.3d 1191, 1193 (10th Cir. 2007) (citing McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178, 189 (1936)). A case that has been removed to federal court pursuant to 28 U.S.C. § 1441, must be remanded back to state court if, at any time prior to final judgment, the federal district court finds that it lacks subject matter jurisdiction. 28 U.S.C. § 1447(c); see also Fed. R. Civ. P. 12(h)(3). Courts must strictly construe the requirements of removal jurisdiction and, as Kinetic Development recognizes, “all doubts are to be resolved against removal.” Fajen v. Found. Reserve Ins. Co., 683 F.2d 331, 333 (10th Cir. 1982).

         In the absence of diversity of citizenship, a case may be tried in federal court when the civil action arises “under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331; see also Pan Am. Petroleum Corp. v. Superior Court of Del. in and For New Castle Cnty., 366 U.S. 656, 663 (1961) (a case is not cognizable, in the absence of diversity jurisdiction, “unless it appears from the face of the complaint that determination of the suit depends upon a question of federal law”). “[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 . . . and the controversy must be disclosed upon the face of the complaint, unaided by the answer or by the petition for removal.” Id. The well-pleaded complaint rule provides that “the plaintiff is the master of the complaint, that a federal question must appear on the face of the complaint, and that the plaintiff may, by eschewing claims based on federal law, choose to have the cause heard in state court.Caterpillar Inc. v. Williams, 482 U.S. 386, 398-99 (1987).

         “The fact that a court must apply federal law to a plaintiff's claims or construe federal law to determine whether the plaintiff is entitled to relief will not confer subject matter jurisdiction-the implicated federal issue must be substantial.Dunlap v. G&L Holding Group Inc., 381 F.3d 1285, 1291-92 (11th Cir. 2004) (emphasis in original). Nor would it be enough that a defense “relies on the preclusive effect of a prior federal judgment, or the pre-emptive effect of a federal statute.” Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 6 (2003) (citing Rivet v. Regions Bank of La., 522 U.S. 470 (1998) and Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for S. Cal., 463 U.S. 1 (1983)). Indeed, the Tenth Circuit held nearly forty years ago that contract claims arise under state law and “the fact that federal regulations may create a defense to recover on such a claim is immaterial to a finding of federal question jurisdiction.” Madsen v. Prudential Fed. Sav. & Loan Ass'n, 635 F.2d 797, 799 (10th Cir. 1980).

         Nevertheless, in its Response, Sky Unlimited contends that preemption mandates the removal of this case.[1] In doing so, Sky Unlimited appears to comingle the doctrines of ordinary and complete preemption. (See ECF No. 21 at 3-13 (utilizing the terms “expressly preempted, ” “positive conflict, ” and “obstacle preemption, ” which are concepts related to ordinary preemption).) A claim of ordinary preemption occurs when there is the defense of “express preemption, ” “conflict preemption, ” or “field preemption.” Express preemption is limited to those situations where a federal statute expressly preempts state law. Arizona v. United States, 567 U.S. 387 (2012). Conflict preemption contemplates those situations where it is impossible to comply with both federal and state law, and state law creates an obstacle to the congressional intention in enacting a federal statute. Id. Field preemption occurs where a pervasive framework leaves no room for the state to act, or where the federal interest is so dominant that it precludes enforcement of state law on the same subject. Id. These concepts are distinct from complete preemption, although they sometimes use similar language. Felix v. Lucent Tech., Inc., 387 F.3d 1146, 1156 (10th Cir. 2004).

         Ordinary preemption has been categorized as a federal “defense to the allegations.” Caterpiller Inc., 482 U.S. at 392. And as a mere defense, the “preemptive effect of a federal statute . . . will not provide a basis for removal.” Beneficial, 539 U.S. at 6; cf. MSPA Claim I, LLC v. Scottsdale Ins. Co., 2017 WL 3835879, at *5-6 (S.D. Fla. June 30, 2017) (“Conflict preemption, unlike complete preemption, actually is a true preemption doctrine and is an issue left to the state court in this case, since conflict preemption does not provide an independent basis for federal jurisdiction/removal.”).

         “By contrast, when complete preemption exists, there is ‘no such thing' as the state action, since the federal claim is treated as if it appears on the face of the complaint because it effectively displaces the state cause of action.” Lontz v. Tharp, 413 F.3d 435, 441 (4th Cir. 2005) (quoting Beneficial, 539 U.S. at 11). Because this doctrine undermines a plaintiff's ability to plead claims under the law of his or her choosing, the Supreme Court has been “reluctant” to find complete preemption. Id. (citing Metro. Life Ins. Co. v. Taylor,481 U.S. 58, 65 (1987)). Indeed, the Court has applied the doctrine in only three areas, specifically, cases involving § 301 of the Labor Management Relations Act of 1947, § 502 of the Employee Retirement Income Security Act of 1974, and actions for usury against national banks under the National Bank Act. See ...

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