Opinion ID: 624826
Heading Depth: 2
Heading Rank: 3

Heading: The End-Run Theory

Text: Finally, Wells Fargo insists that Wigod's case cannot go forward because her allegations are HAMP claims in disguise and an impermissible end-run around the lack of a private action in [the 2008 Act] and HAMP. This end-run theory was the primary basis on which the district court dismissed Wigod's complaint. That court explained that `the facts and allegations as pleaded in this case are premised chiefly on the terms and procedures set forth via HAMP and are not sufficiently independent to state a separate state law cause of action.' Wigod, 2011 WL 250501, at , quoting Vida v. OneWest Bank, F.S.B., No. 10-987-AC, 2010 WL 5148473, at -4 (D.Or. Dec. 13, 2010). Wells Fargo has developed the same theory before this court, arguing: If Congress had intended courts to be adjudicating whether a borrower qualified for a loan modification under [the 2008 Act] or HAMP, it would have provided a private right of actionbut it chose not to do so. The end-run theory is built on the novel assumption that where Congress does not create a private right of action for violation of a federal law, no right of action may exist under state law, either. Wells Fargo and the district court appear to have conflated two distinct lines of casesone involving the existence of a federal private right of action, see Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979), and the other about federal preemption of state law. Wells Fargo invokes Touche Ross for the proposition that when Congress wished to provide a private damage remedy, it knew how to do so and did so expressly. Appellee's Br. at 15, quoting Touche Ross, 442 U.S. at 572, 99 S.Ct. 2479. If this case involved whether to recognize a federal right of action under HAMP, Touche Ross and its progeny would certainly weigh in favor of judicial caution. See Karahalios v. Nat'l Federation of Federal Employees, Local 1263, 489 U.S. 527, 533, 109 S.Ct. 1282, 103 L.Ed.2d 539 (1989) (It is also an `elemental canon' of statutory construction that where a statute expressly provides a remedy, courts must be especially reluctant to provide additional remedies [under federal law].), quoting Transamerica Mortg. Advisors, Inc. v. Lewis, 444 U.S. 11, 19, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979). The issue here, however, is not whether federal law itself provides private remedies, but whether it displaces remedies otherwise available under state law. The absence of a private right of action from a federal statute provides no reason to dismiss a claim under a state law just because it refers to or incorporates some element of the federal law. See, e.g., Bates, 544 U.S. at 448, 125 S.Ct. 1788 (although [the Federal Insecticide, Fungicide, and Rodenticide Act] does not provide a federal remedy to farmers and others who are injured as a result of a manufacturer's violation of FIFRA's labeling requirements, nothing in [the statute] precludes States from providing such a remedy). To find otherwise would require adopting the novel presumption that where Congress provides no remedy under federal law, state law may not afford one in its stead. To appreciate the novelty of Wells Fargo's argument, consider the many cases in which the Supreme Court has confronted issues of subject matter jurisdiction presented by state common-law claims that incorporate federal standards of conduct, without so much as a peep about whether state law may do so without being preempted. See, e.g., Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U.S. 308, 312, 311, 315, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005) (quiet title action brought under state law turn[ed] on substantial question[] of federal law because the interpretation of the notice statute in the federal tax law was an essential element of [plaintiff's] quiet title claim); Merrell Dow Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804, 805-07, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986) (violation of federal labeling requirements in the Federal Food, Drug, and Cosmetic Act created a rebuttable presumption of negligence and proximate cause under state tort law); Moore v. Chesapeake & Ohio Ry., 291 U.S. 205, 214-15, 54 S.Ct. 402, 78 L.Ed. 755 (1934) (Kentucky worker's compensation statute provided that employer railroad's violation of Federal Safety Appliance Acts would constitute negligence per se under state law). Of course, these well-known cases grappled with an issue different from the one before this court: whether the presence of a federal issue in a state-created cause of action gives rise to federal question jurisdiction under 28 U.S.C. § 1331. In none of these cases has the Supreme Court even suggested that the absence of a private right of action under a federal statute would prevent state law from providing a cause of action based in whole or in part on violations of the federal law. When the issue is whether arising under jurisdiction is available, Congressional silence matters a great deal, for our jurisdiction under § 1331 is determined by Congress. See Merrell Dow, 478 U.S. at 812, 106 S.Ct. 3229 (stating that it would undermine... congressional intent to ... exercise federal-question jurisdiction and provide remedies for violations of [a] federal statute that contains no private right of action, solely because the violation of the federal statute is an element of state law claim). When the federal court's jurisdiction over state-law claims is based on diversity of citizenship, however, the absence of a private right of action in a federal statute actually weighs against preemption. See, e.g., Wyeth, 555 U.S. at 574, 129 S.Ct. 1187 (Congress did not provide a federal remedy for consumers harmed by unsafe or ineffective drugs in the 1938 statute or in any subsequent amendment. Evidently, it determined that widely available state rights of action provided appropriate relief for injured consumers.). We realize that Wells Fargo does not style its end-run theory as a preemption argument. But in the absence of any other doctrinal foundation for it, we see no other way to classify it. As Judge Hibbler wrote in one of the HAMP cases in which claims under Illinois law survived a motion to dismiss, [There is no] general rule that where a state common law theory provides for liability for conduct that is also violative of federal law, a suit under the state common law is prohibited so long as the federal law does not provide for a private right of action. Indeed, it seems the only justification for such a rule would be federal preemption of state law. Fletcher v. OneWest Bank, FSB, 798 F.Supp.2d 925, 930-31 (N.D.Ill.2011); see also Bosque, 762 F.Supp.2d at 351 (The fact that a TPP has a relationship to a federal statute and regulations does not require the dismissal of any state-law claims that arise under a TPP.). In short, a state-law claim's incorporation of federal law has never been regarded as disabling, whether the federal law has a private right of action or not. See Grable & Sons, 545 U.S. at 318-19, 125 S.Ct. 2363 (The violation of federal statutes and regulations is commonly given negligence per se effect in state tort proceedings.), quoting Restatement (Third) of Torts § 14, Reporters' Note, cmt. a, p. 195 (Tent. Draft No. 1, Mar. 28, 2001); Merrell Dow, 478 U.S. at 816, 106 S.Ct. 3229 (violation of the federal standard as an element of state tort recovery did not fundamentally change the state tort nature of the action); W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts § 36, p. 221, n.9 (5th ed. 1984) (the breach of a federal statute may support a negligence per se claim as a matter of state law). Wells Fargo has tried to find some support for its end-run theory in two Second Circuit cases involving very different statutes. In Grochowski v. Phoenix Construction, 318 F.3d 80 (2d Cir.2003), a construction contract between the City of New York and some general contractors required the latter to pay their laborers in accordance with the Davis-Bacon Act (DBA), a federal law that accords no private right of action, at least under Second Circuit precedent. [17] The contractors did not do so, and their laborers sued them under New York common law for breach of contract as third-party beneficiaries. The district court granted the contractors' motion to dismiss. A divided panel of the Second Circuit affirmed, reasoning that no private right of action exists under the DBA and that the plaintiffs' efforts to bring their claims as state common-law claims are clearly an impermissible `end run' around the DBA. Id. at 86 (emphasis added). The majority's only elaboration of this theory was the following: At bottom, the plaintiffs' state-law claims are indirect attempts at privately enforcing the prevailing wage schedules contained in the DBA. To allow a third-party private contract action aimed at enforcing those wage schedules would be inconsistent with the underlying purpose of the legislative scheme and would interfere with the implementation of that scheme to the same extent as would a cause of action directly under the statute. Davis v. United Air Lines, Inc., 575 F.Supp. 677, 680 (E.D.N.Y.1983). Grochowski, 318 F.3d at 86.