United States District Court, E.D. Virginia, Richmond Division
HANNAH LAUCK United States District Judge.
matter is before the Court on its sua sponte
reconsideration of subject-matter jurisdiction. For the
reasons that follow, the Court finds that it does not have
subject-matter jurisdiction over this action. The Court will
dismiss the action without prejudice.
The Contract Dispute
dispute in this case arises from Defendant Tetra Tech Tesoro,
Inc.'s ("Tesoro") alleged breach of five
subcontracts regarding five construction projects at three
military bases (the "Military Base
Projects")' At each Military Base Project, Plaintiff J
AAAT Technical Services, LLC ("JAAAT") acted as the
general contractor and Tesoro acted as a subcontractor. Both
parties are Virginia companies. JAAAT alleges that Tesoro
breached its duties under five subcontracts by
"fail[ing] to adequately perform the work required"
and incurring "substantial delays in the performance of
its work on each project." (Am. Compl. ¶ 28, ECF
No. 16.) JAAAT alleges that it has suffered damages as a
result of Tesoro's breaches and seeks damages, costs and
expenses, and pre- and post-judgment interest.
filed an answer, which included ten counterclaims. Tesoro
alleged its own breach of contract claims against JAAAT as to
the same five subcontracts. Tesoro also included an unjust
enrichment or quantum meruit claim (Count 6), a
constructive trust or breach of fiduciary duty claim (Count
7), an accounting claim (Count 8), a conversion claim (Count
9), and a fraud claim (Count 10). In its counterclaims,
Tesoro seeks damages, costs and expenses, and pre- and
facts are crucial to the question of subject-matter
jurisdiction here. First, each of the Military Bases is a
federal enclave and is therefore governed not by simple state
or federal law but, as discussed more fully later, by
"federalized" state law. Second, each subcontract
contains a choice-of-law clause stating that "all
disputes under [the subcontracts] shall be determined and
interpreted pursuant to the laws of the Commonwealth of
Virginia." (Am. Compl. ¶ 54.) Thus, if no
enforceable choice-of-law provision governs the parties'
subcontracts, federalized state law would likely govern these
The Court Revisits Subject-Matter Jurisdiction Because
Federal Question Jurisdiction Exists Only When Federal Law
Creates the Cause of Action or When Plaintiffs
Relief Necessarily Depends on the Resolution of
a Substantial Federal Question
Court revisits subject-matter jurisdiction because federal
question subject-matter jurisdiction exists when federal law
creates the cause of action or when plaintiffs
relief necessarily depends on the resolution of a
substantial federal question. See Aegis Def Servs., LLC
v. Chenega-Patriot Grp., LLC, 141 F.Supp.3d 479, 483-84
(E.D. Va. 2015) (citing Interstate Petroleum Corp. v.
Morgan, 249 F.3d 215, 219 (4th Cir. 2001)). Neither
circumstance exists here.
court of limited subject-matter jurisdiction, United
States ex rel. Vuyvuru v. Jadhav, 555 F.3d 337, 347 (4th
Cir. 2009) (citing Exxon Mobile Corp. v. Allapattah
Servs., Inc., 545 U.S. 546, 552 (2005)), this federal
court must determine whether it has jurisdiction over the
claims at issue, see Steel Co. v. Citizens for a Better
Env't, 523 U.S. 83, 94-95 (1998) ("The
requirement that jurisdiction be established as a threshold
matter 'spring[s] from the nature and limits of the
judicial power of the United States' and is
'inflexible and without exception.'" (quoting
Mansfield, C. & L.M.R. Co. v. Swan, 111 U.S.
379, 382 (1884))). "The objection that a federal court
lacks subject-matter jurisdiction ... may be raised by a
party, or by a court on its own initiative, at any stage in
the litigation" Arbaugh v. Y&HCorp., 546
U.S. 500, 514 (2006) (citing Fed.R.Civ.P. 12(b)(1)).
"Subject-matter jurisdiction cannot be conferred by the
parties, nor can a defect in subject-matter jurisdiction be
waived by the parties. Accordingly, questions of
subject-matter jurisdiction may be raised at any point in the
proceedings and may (or, more precisely, must) be raised
sua sponte by the court." Brickwood
Contractors, Inc. v. Datanet Engineering, Inc., 369 F.3d
385, 390 (4th Cir. 2004) (internal citations omitted);
see also Fed. R. Civ. P. 12(h)(3) ("If the
court determines at any time that it lacks subject-matter
jurisdiction, the court must dismiss the action.").
district courts commonly exercise jurisdiction over civil
actions in two circumstances. First, federal district courts
exercise jurisdiction in "federal question" cases-
"civil actions arising under the Constitution, laws, or
treaties of the United States." 28 U.S.C. § 1331.
"[I]n order for federal question jurisdiction to
exist[:] (i) federal law must create the cause of
action[;] or[, ] (ii) the plaintiffs right to relief must
necessarily depend on the resolution of a
substantial federal question." Aegis Def. Servs.,
LLC, 141 F.Supp.3d at 483-84 (emphasis added) (citing
Interstate Petroleum Corp., 249 F.3d at 219).
Second, federal district courts exercise jurisdiction in
"diversity" cases-when the parties are, inter
alia, citizens of different states and the amount in
controversy exceeds $75, 000. 28 U.S.C. § 1332(a)(1).
in order to exercise jurisdiction over this case, the Court
must find that one of three circumstances exists-either: (1)
federal law creates JAAAT's cause of action; (2)
JAAAT's right to relief necessarily depends on the
resolution of a substantial federal question; or, (3) JAAAT and
Tesoro are citizens of different states and the amount in
controversy exceeds $75, 000. Because, given the parties'
citizenship and the enforceability of their choice-of-law
provision, none of these circumstances are present, the Court
lacks subject-matter jurisdiction over this action and must
When, as Here, Congress Fails to Enact New Civil Contract
Law, the Federal Enclave Doctrine Provides that State
Contract Law at Time of Cession Governs the
apparently straightforward breach-of-contract case involves
an unusual and knotty legal issue because the Military Bases
qualify as federal enclaves and, therefore, would typically
be governed by "federalized" state law. Under this
doctrine, contract law in place in early 1900s North Carolina
and Georgia-the time these Military Bases were ceded-would
govern this dispute.
Court noted in its March 2016 Opinion, "[a] federal
enclave is created when a state cedes jurisdiction over land
within its border to the federal government and Congress
accepts that cession." Allison v. Boeing Laser Tech.
Servs., 689 F.3d 1234, 1235 (10th Cir. 2012). The
federal enclave doctrine, which grants Congress the exclusive
right to regulate properties acquired from state governments,
arises from Article I, section 8, clause 17 of the United
States Constitution (the "Federal Enclave Clause"):
Congress shall have the Power ... 7b exercise exclusive
Legislation in all Cases whatsoever, over such District
(not exceeding ten Miles square) as may, by Cession of
particular States, and the Acceptance of Congress, become the
Seat of the Government of the United States, and to exercise
like Authority over all Places purchased by the Consent of
the Legislature of the State in which the Same shall be, for
the Erection of Forts, Magazines, Arsenals, dock-Yards, and
other needful Buildings....
U.S. Const, art. I, § 8, cl. 17 (emphasis added). Under
the federal enclave doctrine, when "the United States
acquires with the 'consent' of the state legislature
land within the borders of that State ... the jurisdiction of
the Federal Government becomes 'exclusive.'"
Paul v. United States, 371 U.S. 245, 264 (1963).
This legislative "power of Congress over federal
enclaves ... is obviously the same as the power of Congress
over the District of Columbia" and "by its own
weight, bars state regulation without specific congressional
action." Id. at 263.
absence of subsequent federal legislation displacing state
law, "the [state] law in effect at the time of the
transfer of jurisdiction [from the state to United States]
continues in force" on the federal enclave. James
Stewart & Co. v. Sadrakula, 309 U.S. 94, 100
(1940).Importantly, "future statutes of the
state are not a part of the body of laws in the ceded area,
" and "Congressional action is necessary to keep
[the laws of the federal enclave] current." Id.
at 100; see also Paul, 371 U.S. at 268 ("Since
a State may not legislate with respect to a federal enclave
unless it reserved the right to do so when it gave its
consent to the purchase by the United States, only state law
existing at the time of the acquisition remains enforceable,
not subsequent laws."). Subsequent state common law also
does not apply. Allison, 689 F.3d at 1240
(explaining that "[w]hen a state speaks through its
courts, it creates new law no less than when it speaks
through the legislature").
the law in force on federal enclaves, although derived from
state law, becomes exclusively federal law once the enclave
is ceded to the federal government. See Pac. Coast Dairy v.
Dep't of Ag. of Cal, 318 U.S. 285, 294 (1943);
see also Allison, 689 F.3d at 1237 ("The
central principle of [the] federal enclave doctrine is that
Congress has exclusive legislative authority over these
enclaves."). And as the Court discussed in its March
2016 Opinion, this so-called "federalized" state
law can confer on federal courts subject-matter jurisdiction
over claims that would otherwise be matters of state law,
such as the contract disputes at issue here. See
March 2016 Opinion, at *3 (citing Allison, 689 F.3d
This Court Erred in its March 2016 Opinion When Finding that
Federal Question Jurisdiction Existed Because It Applied
Tenth Circuit Dicta Without Considering Choice-of-Law
March 2016, the Court held, as a matter of first impression,
that it had federal question subject-matter jurisdiction over
the breach of contract claims at bar because federalized
state law governed causes of action that arose on these
federal enclaves and the parties could not "contract
around" the Constitution. However, on review, the Court
sees that it jumped the gun in relying on nonbinding dicta
about federalized law operating as a choice-of-law doctrine
from the United States Court of Appeals for the Tenth
Circuit, see Allison, 689 F.3d at 1235, before fully
analyzing, as a threshold matter, the effect of the
parties' choice-of-law clause. See Fransmart, LLC v.
Freshii Dev., LLC, 768 F.Supp.2d 851, 858 (E.D. Va.
2011) (explaining that "the choice-of-law question is a
threshold issue"). Unlike this Court, the
Allison court had no choice-of-law clause to
evaluate in the first instance.
March 2016, the Court mistakenly began with the
"longstanding position" that the federal enclave
doctrine requires courts to apply federalized state law to
causes of action that arise on federal enclaves. See,
e.g., Stokes v. Adair, 265 F.2d 662, 665-66 (4th Cir.
1959) (finding federal district court possessed jurisdiction
over non-diverse parties for personal injuries on a federal
enclave); accord Durham v. Lockheed Martin Corp.,
445 F.3d 1247, 1250 (9th Cir. 2006) (finding removal proper
where tort claims allegedly occurred on a federal enclave);
Akin v. Ashland Chem. Co., 156 F.3d 1030, 1034 (10th
Cir. 1998) (finding that "[p]ersonal injury actions
which arise from incidents occurring in federal enclaves may
be removed to federal district court as part of federal
question jurisdiction"); Mater, 200 F.2d at
124-25 (finding that federal courts have jurisdiction over
torts committed on federal enclaves). Relying on the wide
body of law supporting that position, the Court concluded
that "it is undisputed that 'claims arising on a
federal enclave provide a separate and independent basis for
federal question jurisdiction.'" Id.
(footnote omitted) (quoting Federico v. Lincoln Military
Hous., 901 F.Supp.2d 654, 663 n.2 (E.D. Va. 2012).
dicta from a United States Court of Appeals for the Tenth
Circuit opinion, the Court stated that the
"'[f]ederal enclave doctrine operates as a choice of
law doctrine that dictates which law applies to causes of
action arising on these lands."' March 2016 Opinion,
at *6 (quoting Allison, 689 F.3d at 1235).
Proceeding on this principle-that the federal enclave
doctrine operates as a choice-of-law doctrine-the Court
explained that "[i]n light of the Supremacy Clause [of
the United States Constitution, only federal law may apply to
JAAAT's claims." March 2016 Opinion, at *7. In
essence, the Court concluded that the parties'
choice-of-law provision was invalid because the Supremacy
Clause prevented the parties from contracting around the
application of federal law to their breach of contract
claims. See Id. ("The parties' election [to
apply Virginia, not federal law] does not override the
Constitution."). Because federalized state law governed
the breach of contract claims at issue, the Court ruled that
"only federal law may apply to JAAAT's claims ....,
the claims arise under federal law, and subject matter
jurisdiction is appropriate here." March 2016 Opinion,
upshot of the Court's ruling that the parties'
choice-of-law provision was invalid and it had subject-matter
jurisdiction over JAAAT's breach of contract claims was
the following: (1) federalized Georgia contract law
(i.e., Georgia contract law as of 1917 or 1922)
governed the cause of action that occurred on federal
enclaves in Georgia; and, (2) federalized North Carolina
contract law (i.e., North Carolina contract law as
of 1919) governed the causes of action that occurred on
federal enclaves in North Carolina. (See Sept. 26
Mem. O. 5, ECF No. 73.) But the parties did not see it that
The Parties' Submissions Relying Only on Current Virginia
Law Required this Court to Revisit the Issue of Federal
the Court found subject-matter jurisdiction through the
federal enclave doctrine, Tesoro filed its answer and
counterclaims. JAAAT then moved to dismiss Counts 7 through
10 of Tesoro's counterclaims, asserting, under
current Virginia law, that the causes of action failed
to state a claim for which relief can be granted. Tesoro
responded, likewise relying on current Virginia law.
Of course, as discussed, the basis for the Court's
finding that it had subject-matter jurisdiction was the
Court's conclusion that the parties' choice-of-law
provision electing Virginia law was unenforceable, meaning
that North Carolina and Georgia federalized state law
governed the causes of action in this case. See
March 2016 Opinion, at *5-7.
confusion from the parties regarding this novel and complex
legal issue, the Court expressed a willingness to
"reconsider its earlier holding upon briefing by the
parties." (Sept. 26 Mem. O. 5-6, ECF No. 73.) Reminding
the parties that "a finding that Virginia law governs
the substantive causes of action in this case would
necessarily affect this Court's earlier holding that it
has subject matter jurisdiction, " the Court ordered
additional briefing on the basis for this Court to exercise
subject-matter jurisdiction over these contract
disputes. (Id. at 5-6.) The parties
submitted additional briefing. (ECF Nos. 76, 79, 85, 86.) The
Court, with this additional input from the parties, now
reconsiders whether subject-matter jurisdiction exists in
this case. It does not.