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Kormendi/Gardner Partners v. Surplus Acquisition Venture

March 31, 2009

KORMENDI/GARDNER PARTNERS, PLAINTIFF,
v.
SURPLUS ACQUISITION VENTURE, LLC, ET AL. DEFENDANTS.



The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge

MEMORANDUM OPINION

Kormendi/Gardner Partners ("KGP") brings this action as a third-party beneficiary of a contract between a United States Department of Defense agency, Defense Reutilization and Marketing Service ("DRMS"), and Surplus Acquisition Venture, LLC and Government Liquidation.Com, LLC (collectively "Surplus"). The complaint, which seeks damages for breach of contract or, in the alternative, a recovery in quantum meruit, was filed in the Superior Court of the District of Columbia ("Superior Court"). Surplus removed the action to this court.

Before the court are KGP's motion to dismiss (#4) and its motion remand this action to the Superior Court [#9]. Upon consideration of the motions, the oppositions thereto, and the record of this case, the court concludes that KGP's motion to remand should be granted and its motion to dismiss likewise should be remanded to the Superior Court.

I.

The facts material to the issues presented by KGP's motion to remand are as follows. KGP provided financial advisory services to DRMS in connection with the sale by DRMS of military surplus property on the private market. KGP and DRMS agreed that KGP would be paid a percentage of the net proceeds of these sales directly by the purchaser of the property. At some point thereafter, Surplus contracted with DRMS to purchase military surplus property from DRMS and to resell this property on the open market. Pursuant to the terms of its contract with DRMS, Surplus paid a percentage of the purchase price and a percentage of the resale price to KGP. According to KGP, DRMS and Surplus subsequently modified their contract to eliminate the payments to KGP without KGP's consent.

II.

KGP argues that this case should be remanded to the Superior Court because this court does not have subject matter jurisdiction. Surplus rejoins that this court has subject matter jurisdiction over KGP's claim for two reasons. First, Surplus argues that disputes, like this one, that arise from federal government contracts or contracts involving a uniquely federal interest must be resolved under federal common law, and thus are properly brought in federal court.*fn1 Second, Surplus argues that this court has jurisdiction under the Federal Officer Removal Statute, 28 U.S.C. § 1442(a)(1) ("FORS"), because KGP's alleged damages resulted from a contract modification initiated by DRMS. Surplus' arguments are without a merit.

A. Federal Question

Although Surplus does not contest that KGP's complaint seeks relief under state law, Surplus argues that federal question jurisdiction exists because: (1) federal common law must be applied to federal government contracts, and (2) the contract at issue involves an area of unique federal interest in which federal law displaces state law. Neither argument is availing.

1. Federal Government Contracts

Surplus contends that federal common law pre-empts state law*fn2 when the claim involves a federal government contract. According to Surplus, the court must apply federal common law to KGP's claim because the contract giving rise to KGP's claim was awarded to Surplus by a federal agency. KGP rejoins that its complaint does not seek relief pursuant to federal law and that federal question jurisdiction does not exist simply because principles of federal law may govern the interpretation and enforcement of the contract. KGP is correct.

With very few exceptions, "[t]he presence or absence of federal question jurisdiction is governed by the 'well-pleaded complaint rule,' which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987) (citation omitted). Under this rule, plaintiff is "the master of the claim" and "may avoid federal jurisdiction by exclusive reliance on state law." Id. KGP's complaint sets forth a state law cause of action for breach of contract. KGP's complaint does not seek relief pursuant to federal law or set forth any claim that relies on federal law.

Surplus attempts to circumvent the "well-pleaded complaint rule" by arguing that federal common law pre-empts state law because KGP is bringing suit as a third party beneficiary of a contract between Surplus and a federal agency. Surplus' argument cannot be sustained. It is "settled law that a case may not be removed to federal court on the basis of a federal defense, including the defense of pre-emption." Id. at 393. This bar to removal applies "even if the defense is anticipated in the plaintiff's complaint." Id. Furthermore, the fact that Surplus might ultimately prove that KGP's claims are pre-empted still "does not establish that [the claim is] removable to federal court."*fn3 Id. at 398. As KGP brings a state-law ...


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