Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_12-cv-00412/USCOURTS-azd-2_12-cv-00412-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1331 Fed. Question: Breach of Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

HICA Education Loan Corporation, 

Plaintiff, 

vs.

Angela R. Merzenich, 

Defendant. 

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No. CV-12-0412-PHX-FJM

ORDER

Plaintiff HICA Education Loan Corporation, a corporation organized under the laws

of South Dakota, is the holder of promissory notes (“Notes”) representing student loans

issued to defendant in the unpaid principal amount of $12,599.72. Defendant allegedly has

defaulted on the repayment of the loan under the terms of the Notes, prompting HICA to file

this action for breach of contract. Plaintiff asserts federal question jurisdiction pursuant to

28 U.S.C. § 1331, over what on its face is presented as a state law breach of contract claim.

Because we have a sua sponte obligation to determine subject matter jurisdiction, we asked

plaintiff to file a supplemental brief addressing the jurisdictional issue. Based on our review

of the supplemental brief, as well as the relevant law, we conclude that we do not have

subject matter jurisdiction and accordingly dismiss the case.

28 U.S.C. § 1331 vests original jurisdiction in federal courts over “all civil actions

arising under the Constitution, laws, or treaties of the United States.” A case “arise[s] under”

Case 2:12-cv-00412-FJM Document 13 Filed 06/27/12 Page 1 of 3
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federal law if “a well-pleaded complaint establishes either that federal law creates the cause

of action or that the plaintiff’s right to relief necessarily depends on resolution of a

substantial question of federal law.” Franchise Tax Bd. of Cal. v. Construction Laborers

Vacation Trust, 463 U.S. 1, 27-28, 103 S. Ct. 2841, 2586 (1983). Generally, federal question

jurisdiction arises when a complaint asserts a cause of action created by federal law. Less

frequently, federal “arising under” jurisdiction is invoked over state law claims that

“implicate significant federal issues.” Grable & Sons Metal Prods., Inc. v. Darue Eng’g &

Mfg., 545 U.S. 308, 312, 125 S. Ct. 2363, 2366-67 (2005). Therefore, even when there is

no federal cause of action, federal question jurisdiction may nevertheless exist where “a

state-law claim necessarily raise[s] a stated federal issue, actually disputed and substantial,

which a federal forum may entertain without disturbing any congressionally approved

balance of federal and state judicial responsibilities.” Id. at 314, 125 S. Ct. at 2368. 

Plaintiff alleges in its complaint that federal jurisdiction exists because the claims

“arise under the laws of the United States.” Compl. ¶ 3. It asserts that the Notes at issue

relate to a federal student loan insurance program called the Health Education Assistance

Loan (“HEAL”) program, see 42 U.S.C. §§ 292, et seq; 42 C.F.R. Part 60, and that therefore,

it has pled “a cause of action created by federal law.” Suppl. Brief at 3. We disagree. 

The complaint asserts one claim only–a state law breach of contract claim. The claim

does not present a federally-created cause of action. Therefore, we have jurisdiction over this

state law claim only if the claim also presents (1) a stated federal issue, that is (2) actually

disputed, and (3) substantial. None of these factors is satisfied here. There is no “actually

disputed” federal issue presented, substantial or otherwise. To raise an “actually disputed”

federal issue, a state cause of action must “really and substantially involv[e] a dispute or

controversy respecting the validity, construction or effect of [federal] law.” Grable, 545 U.S.

at 313, 125 S. Ct. at 2363 (alterations in original) (quoting Shulthis v. McDougal, 225 U.S.

561, 569, 32 S. Ct. 704, 706 (1912)). 

In Grable, for example, the state law claim turned on the interpretation of “service”

under the federal tax statute. Here, in contrast, there is no real or apparent dispute over the

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interpretation or application of the HEAL loan statute or its regulations. Instead, plaintiff

alleges that defendant has “failed to make the payments due and owing under the terms of

the Notes, which constitutes breaches of contract.” Compl. ¶ 16. The only issue is whether

the defendant defaulted on her loan obligation, the resolution of which will be governed by

the facts of the case, the loan document itself, and state contract law principles. Again, no

federal issue is presented.

It is not enough, as plaintiff contends, that the Notes “relate to” a federally insured

student loan program, Suppl. Brief at 2, or that federal regulations define the parameters of

the loans, including, for example, the maximum rate of interest, repayment terms, and

establishment of a loan default reduction program. Nor is it enough that the federal

government has a “strong interest” in the outcome of the case. Plaintiff contends that its

contract claim implicates federal interests because collection under the student loans directly

affects the federal government’s insurance obligation under the HEAL program. But plaintiff

has not shown a “significant conflict . . . between an identifiable federal policy or interest and

the operation of state law,” Empire Healthcare Assur., Inc. v. McVeigh, 547 U.S. 677, 693,

126 S. Ct. 2121, 2132 (2006) (quoting Boyle v. United Tech. Corp., 487 U.S. 500, 507, 108

S. Ct. 2510, 2516 (1988)), that would warrant the displacement of state law or the exercise

of federal jurisdiction. 

Because no federal cause of action or significant or contested federal issue is

presented in this case, we are without subject matter jurisdiction. 

IT IS ORDERED DISMISSING this case for lack of subject matter jurisdiction. 

DATED this 27th day of June, 2012.

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