Commercial Litigation and Arbitration

Grable-Based Federal Jurisdiction Not Conferred by Potentially Unconstitutional Punitive Damages Claim Authorized by State Statute

From Sullivan v. Novartis Pharm. Corp., 602 F. Supp. 2d 527 (D.N.J. 2009):

Just one year after Grable [& Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 125 S. Ct. 2363, 162 L. Ed. 2d 257 (2005)] was decided, the Supreme Court had occasion to explore the considerations underlying that decision. See Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 699-701, 126 S. Ct. 2121, 165 L. Ed. 2d 131 (2006). Empire Healthchoice involved an action initiated by a health insurance plan administrator to recover a share of the proceeds from a state court tort suit settlement.... The insurer had contracted with the federal government to offer health insurance to federal employees.... The contractual arrangement between the federal government and the insurance provider was authorized by the Federal Employees Health Benefits Act of 1959 ("FEHBA"), 5 U.S.C. § 8901, et seq....

In the case, an insured was injured in an accident, and the insurer expended $157,309 for his care.... After the insured's death, his estate received a financial settlement in excess of three million dollars from the parties alleged to have caused his injuries.... The insurance plan administrator filed suit in federal court seeking reimbursement of the $157,309 spent for the insured's care.... The estate moved to dismiss on grounds including lack of subject matter jurisdiction.... Among other arguments, the insurer contended that federal jurisdiction was proper, under § 1331 and Grable, because federal law was an element of its action against the estate....

The Court found federal jurisdiction was lacking; the case did not fit within "the slim category Grable exemplifies." ... Factors supporting federal jurisdiction in Grable included that the case: "centered on the action of a federal agency (IRS) and its compatibility with a federal statute, the question qualified as 'substantial,' and its resolution was both dispositive of the case and would be controlling in numerous other cases." .... Empire Healthchoice was "poles apart from Grable" because (1) the reimbursement claim was not triggered "by the action of any federal department, agency, or service[;]" (2) the "bottom-line practical issue" was the share of the tort suit settlement properly payable to the insurer; and (3) whereas "Grable presented a nearly 'pure issue of law,'" which would bind future courts, the insurer's action was "fact-bound and situation-specific.”


In this case, Defendant relies on 28 U.S.C. § 1331, as interpreted in Grable, as the basis for federal jurisdiction. Specifically, Defendant maintains that Plaintiff's NJPLA [New Jersey Products Liability Act] punitive damages claim "interject[s] a disputed, necessary, and substantially federal issue into this case[]" and hence the matter is properly before this Court. 6 In addition, Defendant contends that exercising jurisdiction over claims such as this will not disturb the balance of responsibilities between federal and state courts.


Defendant's argument in support of federal jurisdiction is not a novel one. To the contrary, it is one that has been repeatedly and uniformly rejected. [Citations omitted.]


The Court is not persuaded that this case fits within the "slim category Grable exemplifies." See Empire Healthchoice, 547 U.S. at 701. Unlike Grable, the federal issues embedded in Plaintiff's NJPLA punitive damages claim are not dispositive of this case or others. Assuming that Defendant's underlying liability is established, it can defend from the assessment of punitive damages by establishing that the relevant language from N.J.S.A. § 2A:58C-5(c) "is preempted and can only be satisfied by an FDA finding of fraud." ... If that preemption defense is successful, the state court will never have occasion to measure Defendant's conduct against the FDA's requirements.

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