North Jefferson Square Associates, L.p. v.  Virginia Housing Development Authority

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 NORTH JEFFERSON SQUARE
ASSOCIATES, L.P.,
Plaintiff-Appellee,
and
SHELTER MANAGEMENT CORPORATION,
Plaintiff,
v. No. 00-1685 
VIRGINIA HOUSING DEVELOPMENT
AUTHORITY,
Defendant-Appellant,
v.
U.S. DEPARTMENT OF HOUSING &
URBAN DEVELOPMENT,
Third Party Defendant-Appellee. 
Appeal from the United States District Court
for the Eastern District of Virginia, at Newport News.
Raymond A. Jackson, District Judge.
(CA-98-77-4)
Argued: June 5, 2001
Decided: April 4, 2002
Before WILKINS, LUTTIG, and GREGORY, Circuit Judges.
Affirmed by unpublished per curiam opinion.

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COUNSEL
ARGUED: Carl Fisher Bowmer, CHRISTIAN & BARTON, L.L.P.,
Richmond, Virginia, for Appellant. Michael Bruce Ware, JONES,
BLECHMAN, WOLTZ & KELLY, P.C., Newport News, Virginia,
for Appellee North Jefferson Square; George Maralan Kelley, III,
OFFICE OF THE UNITED STATES ATTORNEY, Norfolk, Vir-
ginia, for Appellee HUD.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
North Jefferson Associates, L.P. ("North Jefferson") filed a breach
of contract action against Virginia Housing Development Authority
("VHDA"), and VHDA filed a third-party complaint seeking a declar-
atory judgment against the United States Department of Housing and
Urban Development ("HUD"). VHDA appeals the district court’s
order dismissing its third-party complaint without prejudice and
remanding the case against North Jefferson to state court. We affirm
on the reasoning of the district court.
I.
North Jefferson and VHDA were parties to both a Mortgage Deed
of Trust and a Housing Assistance Payments Contract ("HAP Con-
tract").1 The Mortgage Deed of Trust between North Jefferson and
1Pursuant to the HAP Contract, VHDA provided housing assistance
payments to North Jefferson on behalf of eligible tenants. The payments
provided are the difference between the maximum rent provided for each
apartment unit in the HAP Contract ("contract rent"), and the rent the
tenant family was required to provide based on its family income, as
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VHDA provided that the interest rate paid by North Jefferson on the
mortgage was tied to the interest rate VHDA paid on the bonds it had
issued to finance the mortgage. J.A. 159. Paragraph 2.7(g)(2) of the
HAP Contract between VHDA and North Jefferson provides that if
the "actual debt service to the Owner [North Jefferson] under the per-
manent financing is lower than the anticipated debt service on which
the Contract Rents are based, due to lower interest rates or to a longer
term on the permanent financing," the contract rents "must be reduced
commensurately and the amount of the savings credited to the project
account." J.A. 118.
North Jefferson sued VHDA in state court, alleging, inter alia, that
when VHDA reissued the bonds it had used to finance the mortgage
to North Jefferson at a lower interest rate, VHDA was required to
reduce both the contract rent and the debt service to North Jefferson.
Moreover, North Jefferson claimed that it was entitled to any savings
that had accumulated as a result of the variance in interest between
what VHDA paid on the bonds and what VHDA required North Jef-
ferson to pay on its mortgage.
In its demurrer, VHDA denied that paragraph 2.7(g)(2) of the HAP
Contract applied to reissuing the bonds at a lower interest rate, and
claimed that North Jefferson was not entitled to any surplus or sav-
ings that resulted from the bond refinancing. However, VHDA noted
that HUD "may be entitled to all or a part" of any savings or surplus
and "may be entitled to reduce rent subsidy payments based on any
reduction in the debt service payable by North Jefferson." J.A. 81.
VHDA removed the case to federal district court and moved to join
HUD as a necessary party defendant,2 arguing that HUD "claims an
established in 42 U.S.C. § 1437a(a). 42 U.S.C. § 1437f(c)(3). VHDA
entered into a separate agreement, an Annual Contributions Contract
("ACC"), with HUD. Under the ACC, HUD provides funds to VHDA,
and VHDA uses the funds obtained from HUD to make the housing
assistance payments to North Jefferson.
2North Jefferson, in turn, filed an amended complaint adding HUD as
a party defendant. The district court granted HUD’s motion to dismiss
North Jefferson’s complaint, a ruling that North Jefferson did not appeal.
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interest in any savings which may result from the bond refinancing,"
and that if VHDA were ordered to pay any savings to North Jefferson,
VHDA might otherwise be subject to double liability in case of a sub-
sequent claim to the same funds by HUD. J.A. 84. Subsequently,
VHDA filed a third-party complaint seeking declaratory judgment
against HUD with respect to VHDA’s rights and obligations under
VHDA’s Deed of Trust and HAP Contract with North Jefferson.
The district court referred HUD’s motions to dismiss to a magis-
trate judge. After a hearing, the magistrate judge recommended that
the motions be granted, and that the case be remanded to state court.
The district court accepted the magistrate judge’s report and recom-
mendation and entered an order granting HUD’s motions and remand-
ing the case to state court.
II.
The Declaratory Judgment Act provides, in relevant part, that:
In the case of actual controversy within its jurisdiction . . .
any court of the United States, upon the filing of an appro-
priate pleading, may declare the rights and other legal rela-
tions of any interested party seeking such a declaration,
whether or not further relief is or could be sought.
28 U.S.C. § 2201 (emphasis added). To determine whether an "actual
controversy" exists, a court considers "whether the facts alleged,
under all the circumstances, show that there is a substantial contro-
versy, between parties having adverse legal interests, of sufficient
immediacy and reality to warrant the issuance of a declaratory judg-
ment." Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S.
270, 273 (1941) (emphasis added).
HUD is not a party either to the HAP Contract or to the Mortgage
Deed of Trust upon which North Jefferson’s claims are based. None-
theless, VHDA contends that there is an Article III case or contro-
versy because HUD may at some future time seek to reclaim subsidies
it provided to VHDA for North Jefferson. Relatedly, VHDA also
alleges that HUD "has an unasserted claim to the ‘savings’ arising
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from its rights in the Project Account to which the savings must be
credited." Appellant’s Br. at 30.
The district court noted that HUD is not a party to, and has made
no claim under, either the Mortgage Deed of Trust or the HAP Con-
tract between VHDA and North Jefferson. The district court also rec-
ognized that "HUD has no adverse legal position to [VHDA], indeed,
HUD has no legal position at all and HUD has not made any adminis-
trative decision to take action." J.A. 243-44.
Upon review of the parties’ briefs and the applicable law, and hav-
ing had the benefit of oral argument, we agree that there was "no con-
troversy of any immediacy and, accordingly, no jurisdiction." J.A.
243-44. Consequently, we affirm, on the reasoning of the district
court, the dismissal of VHDA’s third-party complaint seeking a
declaratory judgment against HUD.
III.
VHDA also argues that the district court erred in remanding North
Jefferson’s contract claim against VHDA to state court for lack of
federal question jurisdiction. 28 U.S.C. § 1331. Under the well-
pleaded complaint rule, federal question jurisdiction exists only when
a federal question appears on the face of plaintiff’s complaint. Louis-
ville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 153 (1908).
Where state, rather than federal, law creates the cause of action, "fed-
eral question jurisdiction depends on whether the plaintiff’s demand
‘necessarily depends on resolution of a substantial question of federal
law.’" Mulcahey v. Columbia Organic Chem. Co., 29 F.3d 148, 151
(4th Cir. 1994) (citations omitted). "If federal jurisdiction is doubtful,
a remand is necessary." Id.
While VHDA argues that North Jefferson’s claims arise under fed-
eral law, or at least depend upon resolution of a substantial question
of federal law, there is no specific reference to federal law in any of
the enumerated claims in North Jefferson’s amended complaint, all of
which are made under breach of contract theories, and each of which
cites only contractual provisions. Thus, the face of the amended com-
plaint does not disclose "that some substantial, disputed question of
federal law is a necessary element of one of the well pleaded claims."
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Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S.
1, 13 (1988). Rather, as the district court held, it is apparent from the
face of the amended complaint that the dispute between North Jeffer-
son and VHDA turns upon the interpretation of the Mortgage Deed
of Trust, the HAP Contract, and related documents, a question of state
contract law.
Consequently, having considered all of the arguments presented by
VHDA, we also affirm the district court’s judgment remanding the
case to the Circuit Court of the City of Newport News, Virginia, for
lack of federal question jurisdiction.
AFFIRMED
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