Brendan Holbein v. Baxter Chrysler Jeep, Inc.

United States Court of Appeals
For the Eighth Circuit
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No. 18-2892
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Brendan Holbein

Plaintiff - Appellant

v.

Baxter Chrysler Jeep, Inc.; TAW Enterprises, Inc., doing business as Baxter
Chrysler Dodge Jeep Ram of Bellevue

Defendants - Appellees
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Appeal from United States District Court
for the District of Nebraska - Omaha
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Submitted: November 14, 2019
Filed: January 29, 2020
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Before GRUENDER, KELLY, and ERICKSON, Circuit Judges.
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GRUENDER, Circuit Judge.

Brendan Holbein appeals the district court’s dismissal of his amended
complaint against TAW Enterprises, Inc. Because we conclude that the district court
lacked subject-matter jurisdiction over this action, we vacate the dismissal and
remand with instructions to the district court to remand this case to state court.

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I.

In the fall of 2015, Holbein accepted a position as General Manager of TAW
Enterprises’ Bellevue, Nebraska automobile dealership. In June 2016, TAW
Enterprises’ Finance Director informed Holbein that customer financial information
in her possession had been stolen from her. Instead of alerting the customers that
their financial information had been lost, however, the Finance Director allegedly
“devised a clever method of re-obtaining the financial information from [the]
customers without disclosing the breach of privacy.” Over the next several months,
Holbein attempted to advise his superiors of this issue and of their alleged reporting
obligations under the federal Gramm-Leach-Bliley Act, Pub. L. No. 106-102, 113
Stat. 1338 (1999) (codified as amended in scattered sections of 12 U.S.C., 15 U.S.C.,
16 U.S.C., 18 U.S.C., and 29 U.S.C.) (the “Act”), and its implementing regulations.
In October 2016, TAW Enterprises demoted Holbein and cut his pay by sixty-five
percent. He believed that this demotion “was the result of his insistence upon
compliance with the Act.”

Holbein sued in Nebraska state court, alleging in the operative amended
complaint that TAW Enterprises retaliated against him in contravention of public
policy established by the Act and breached its employment contract with him.
1

TAW Enterprises removed the case to federal court, alleging federal question
jurisdiction. Holbein did not challenge removal. TAW Enterprises then moved to
dismiss the action. The district court dismissed the amended complaint with
prejudice, reasoning in pertinent part that Holbein’s efforts to advise his superiors
about the Finance Director’s misconduct and their reporting obligations under the
Act did not implicate a “public policy” recognized under Nebraska law to protect
him from at-will employment termination. Holbein appeals.

1
Although Holbein also named “Baxter Chrysler Jeep, Inc.” in the amended
complaint, he only served TAW Enterprises, so only TAW Enterprises is a party in
this action.

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II.

Before addressing the merits of Holbein’s appeal, we must assure ourselves
that we have subject-matter jurisdiction over this action. See Webb ex rel. K.S. v.
Smith, 936 F.3d 808, 814 (8th Cir. 2019). “We review the question of subject matter
jurisdiction de novo.” United States v. Jacobs, 638 F.3d 567, 568 (8th Cir. 2011).

In his opening brief, Holbein stated that the district court had diversity
jurisdiction over this action. TAW Enterprises responded that we may exercise
either diversity or federal question jurisdiction even though it removed the case on
federal question grounds. At oral argument, Holbein then denied that we could
exercise either federal question or diversity jurisdiction.

TAW Enterprises acknowledges that it could not have removed the case based
on diversity jurisdiction because of the forum-defendant rule. This rule prohibits
removal on the basis of diversity jurisdiction “if any of the parties in interest properly
joined and served as defendants is a citizen of the State in which such action is
brought.” 28 U.S.C. § 1441(b)(2). TAW Enterprises is a Nebraska corporation with
its principal place of business in Nebraska, so it could not have removed this
Nebraska state-court action on diversity jurisdiction grounds.

TAW Enterprises argues that we may nevertheless exercise diversity
jurisdiction under Grubbs v. General Electric Credit Corp., 405 U.S. 699 (1972). In
Grubbs, the Supreme Court explained that when a case is removed improperly but
proceeds “without objection” to a judgment on the merits in federal district court,
“t he issue in subsequent proceedings on appeal is not whether the case was properly
removed, but whether the federal district court would have had original jurisdiction
of the case had it been filed in that court.” Id. at 702. Our sister circuits have read
this to mean that violation of the forum-defendant rule is a procedural matter that
may be waived rather than a jurisdictional matter that cannot. See, e.g., Samaan v.
St. Joseph Hosp., 670 F.3d 21, 28 (1st Cir. 2012) (holding that improper removal in
violation of the forum-defendant rule is a nonjurisdictional “procedural defect that

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is subject to waiver”); In re 1994 Exxon Chem. Fire, 558 F.3d 378, 394 (5th Cir.
2009) (reading Grubbs as suggesting “that the forum-defendant rule does not impose
an independent jurisdictional requirement”); Lively v. Wild Oats Mkts., Inc., 456
F.3d 933, 939, 942 (9th Cir. 2006) (holding that the forum-defendant rule is “non-
jurisdictional”); Korea Exch. Bank, N.Y. Branch v. Trackwise Sales Corp., 66 F.3d
46, 50-51 (3d Cir. 1995) (holding that violation of the forum-defendant rule “does
not deprive a federal court of subject matter jurisdiction” according to Grubbs, “the
conclusions reached by almost every other court of appeals that has addressed the
issue,” and “several leading commentators” such as Moore’s Federal Practice).

We, however, have held that violation of the forum-defendant rule is a
“jurisdictional defect” rather than “‘a mere procedural irregularity capable of being
waived.’” Horton v. Conklin, 431 F.3d 602, 605 (8th Cir. 2005) (quoting Hurt v.
Dow Chem. Co., 963 F.2d 1142, 1146 (8th Cir. 1992)). It may be that “the
overwhelming weight of authority” is “on the nonjurisdictional side of the debate.”
See Lively, 456 F.3d at 940 (internal quotation marks omitted). But we are bound
by Horton unless or until “that case is overruled by th[is] Court sitting en banc.” See
United States v. Manning, 786 F.3d 684, 686 (8th Cir. 2015). Under Horton, we are
prohibited from exercising diversity jurisdiction over this action because removal on
diversity grounds would have violated the forum-defendant rule.

We therefore may exercise jurisdiction here only if the amended complaint
presents a sufficient federal question on its face. See Luecke v. Schnucks Mkts., Inc.,
85 F.3d 356, 358 (8th Cir. 1996) (“For federal question jurisdiction, the federal
question generally must appear on the face of the complaint.”); see also In re
Wireless Tel. Fed. Cost Recovery Fees Litig., 396 F.3d 922, 928-29 (8th Cir. 2005)
(“[W]here a plaintiff has filed an amended complaint, federal courts must resolve
questions of subject matter jurisdiction by examining the face of the amended
complaint.”). We focus on the retaliation claim, as Holbein did not plead that the
breach-of-contract claim implicated federal law in any way. And we look at the
substance rather than the form of the amended complaint to determine if it
sufficiently raises a federal question. See Stanturf v. Sipes, 335 F.2d 224, 229 (8th

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Cir. 1964) (“[A] federal question must exist not in mere form but in substance, and
not in mere assertion, but in essence and effect.” (internal quotation marks omitted)).

Holbein labeled his retaliation cause of action as arising under the Act. In
resisting dismissal, however, Holbein explained that he did “not state a cause of
action for violation” of the Act but rather brought “a wholly different cause of action
. . . under Nebraska common law,” namely, retaliation in contravention of public
policy. See, e.g., Wendeln v. The Beatrice Manor, Inc., 712 N.W.2d 226, 238 (Neb.
2006) (“[A] public policy-based retaliatory discharge claim is based in tort.”). The
way he pleaded this claim bears this out: although the Act is identified as the cause
of action, Holbein pleaded two “theor[ies] of recovery” under this count, both of
which are retaliation claims arising under state law. In other words, Holbein’s cause
of action ostensibly arising under the Act is in reality a state-law employment claim.
This cause of action, then, does not straightforwardly “aris[e] under the . . . laws of
the United States.” 28 U.S.C. § 1331.

TAW Enterprises nevertheless argues that we have jurisdiction under the
“variety of federal ‘arising under’ jurisdiction” where “federal-question jurisdiction
will lie over state-law claims that implicate significant federal issues.” Grable &
Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 312 (2005). There is
no “‘single, precise, all-embracing’ test for jurisdiction” in such cases. Id. at 314
(quoting Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 821 (1988)
(Stevens, J., concurring)). “Instead, the question is, does a state-law claim
necessarily raise 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.

We have applied this variety of federal question jurisdiction narrowly,
recognizing that it exists only in a “‘special and small category’ of cases.” Great
Lakes Gas Transmission Ltd. P’ship v. Essar Steel Minn. LLC, 843 F.3d 325, 331
(8th Cir. 2016) (quoting Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S.

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677, 699 (2006)). We conclude that this action does not fit within this “slim
category” of cases. See Empire Healthchoice Assurance, 547 U.S. at 701.

In Merrell Dow Pharmaceuticals Inc. v. Thompson, the Supreme Court
addressed “whether the incorporation of a federal standard in a state-law private
action” suffices under § 1331 to bestow federal question jurisdiction even though
Congress did not authorize a private cause of action “for violations of that federal
standard.” 478 U.S. 804, 805 (1986). The plaintiffs had brought a state-law
negligence claim based on defendant’s alleged misbranding of a drug in violation of
the Federal Food, Drug, and Cosmetic Act (“FDCA”). Id. at 805-06. Defendant
removed, alleging federal question jurisdiction. Id. at 806. The Court took note of
the fact that “there is no federal cause of action for FDCA violations,” id. at 810, the
significance of which could not “be overstated” in its analysis, id. at 812. It then
concluded that Congress’s decision not to furnish a private cause of action under the
statute was “tantamount to a congressional conclusion that the presence of a claimed
violation of the statute as an element of a state cause of action is insufficiently
‘substantial’ to confer federal-question jurisdiction.” Id. at 814.

As was true of the FDCA in Merrell Dow, so too here, there is no private right
of action for violations of the Act. See Dunmire v. Morgan Stanley DW, Inc., 475
F.3d 956, 960 (8th Cir. 2007). This is “evidence” by itself that any federal question
implicated by Holbein’s claim is insufficiently substantial to permit us to exercise
federal question jurisdiction. See Grable, 545 U.S. at 318. Furthermore, the essence
of Holbein’s claim, as both the parties argue it and the district court analyzed it, is
whether the Act creates a state-recognized “public policy” implicating a state-law
exception to Nebraska’s at-will termination rule. Thus, the Act is just a component
of “a state cause of action,” and its mere presence as a basis for this state-law claim
“is insufficiently ‘substantial’ to confer federal-question jurisdiction.” Merrell Dow
Pharms., 478 U.S. at 814. “When, as here, the rights involved are rooted in state
law, the presence of a collateral federal issue does not transform the action into a
federal case.” McNeill v. Franke, 171 F.3d 561, 564 (8th Cir. 1999).

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III.

We recognize that the parties and the district court expended “time, effort, and
expense before the issue of subject matter jurisdiction was raised,” but we cannot
avoid our duty to determine its existence “at any time, even on appeal.” Great Lakes
Gas Trans. Ltd. P’ship, 843 F.3d at 334. Neither we nor the district court could
properly exercise subject-matter jurisdiction over this action because removal
premised on diversity jurisdiction would violate the forum-defendant rule, a
jurisdictional defect in this circuit, and Holbein’s amended complaint does not
present a federal question. We thus vacate the judgment of the district court and
remand with instructions to remand this action back to state court. See id.
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