INTERSTATE PETROLEUM CORPORATION, Plaintiff-Appellee, v. Robert C. MORGAN, d/b/a Green Acres Gas and Grocery; Vickie L. Morgan, d/b/a Green Acres Gas and Grocery, Defendants-Appellants.
Chevron U.S.A. Incorporated, Amicus Curiae. Interstate Petroleum Corporation, Plaintiff-Appellant, v. Robert C. Morgan, d/b/a Green Acres Gas and Grocery; Vickie L. Morgan, d/b/a Green Acres Gas and Grocery, Defendants-Appellees. Chevron U.S.A. Incorporated, Amicus Curiae.
This appeal arises from judgment on a jury verdict in favor of Interstate Petroleum Corporation (Interstate). Robert C. Morgan and Vickie L. Morgan appeal, asserting that the district court lacked subject matter jurisdiction over the case. In addition, the Morgans contend that Interstate's claim for money damages should not have been presented to the jury. Interstate cross-appeals the district court's denial of its motion for attorney's fees. On September 8, 2000, because it found that the district court lacked subject matter jurisdiction to decide this case, a divided panel of this court decided to vacate the judgment and remand the case for dismissal. Interstate Petroleum v. Morgan, 228 F.3d 331 (4th Cir.2000). The panel decision was vacated and rehearing en banc granted on November 9, 2000. Because the district court did not have subject matter jurisdiction to decide the case, we vacate the judgment of the district court and remand for dismissal. We have jurisdiction pursuant to 28 U.S.C. § 1291 and do not address the Morgans' damages argument or Interstate's cross-appeal for attorney's fees.
On April 29, 1993, Interstate and the Morgans, d/b/a Green Acres Gas and Grocery, entered a franchise agreement whereby Interstate, as franchisor, agreed to sell British Petroleum (BP) brand gasoline and petroleum products to the Morgans, as franchisees. The terms of the agreement also allowed the Morgans to operate their service station under the BP logo and required the Morgans to obtain a $31,500 irrevocable letter of credit from which Interstate could draw amounts due and unpaid under the contract. Despite nine requests over the next 18 months, the Morgans failed to obtain the required letter of credit, and on December 5, 1994, Interstate notified the Morgans of its intent to terminate the franchise agreement based on their nonperformance. Instead, Interstate apparently gave the Morgans another chance to keep the franchise. This last chance was embodied in a letter contract, dated December 12, 1994,1 in which the Morgans agreed to consent to the termination of the franchise should they fail either to begin making monthly payments to Interstate in satisfaction of an earlier note or fail to deliver a $20,000 letter of credit to Interstate by January 4th, 1995.
After the Morgans failed to comply with the terms of the letter agreement of December 12th, Interstate brought suit in federal court, claiming breach of contract.2 Interstate's complaint, filed on January 11, 1995, alleged federal question subject matter jurisdiction under 28 U.S.C. § 1331, and the Petroleum Marketing Practices Act (PMPA or the Act), 15 U.S.C. §§ 2801-2841. The Morgans, on January 11, 1995, filed a separate suit in the district court based on state contract law, a suit which they later voluntarily dismissed on May 21, 1996. The district court granted Interstate's motion for injunctive relief, requiring the Morgans not to display the BP logo. The Morgans, on November 21, 1995, filed a motion to dismiss under Federal Rule of Civil Procedure 12(h)(3),3 asserting that the district court lacked subject matter jurisdiction because the PMPA did not authorize actions brought by a franchisor against a franchisee.4 The district court denied the Morgans' motion to dismiss and their subsequent motion for partial dismissal, and the case proceeded to trial. Following trial, the jury awarded Interstate $42,901.50 in damages. The Morgans then made several post-trial motions, including another motion to dismiss for want of jurisdiction under Rule 12(h)(3). The district court denied the motion to dismiss, and the Morgans appealed.
Interstate's complaint alleged that the Act gave the court subject matter jurisdiction pursuant to 28 U.S.C. § 1331.5 The Morgans' pre-trial motion to dismiss argued that the district court had no federal question jurisdiction over Interstate's suit because the PMPA does not authorize franchisors to maintain a cause of action against franchisees. The Morgans repeated this argument in their post-trial motion to dismiss and repeat it again on appeal.
The Supreme Court has stated that it is the “special obligation” of appellate courts to evaluate not only their own subject matter jurisdiction “but also [the jurisdiction] of the lower courts in a cause under review, even though the parties are prepared to concede it.” Bender v. Williamsport Area School Dist., 475 U.S. 534, 541, 106 S.Ct. 1326, 89 L.Ed.2d 501 (1986) (internal quote omitted). In fact, we must consider questions regarding jurisdiction whenever they are raised, and even sua sponte. Plyler v. Moore, 129 F.3d 728, 731 n. 6 (4th Cir.1997), cert. denied, 524 U.S. 945, 118 S.Ct. 2359, 141 L.Ed.2d 727 (1998). Accordingly, this case must be dismissed if we conclude that the district court lacked subject matter jurisdiction.
Absent diversity, a district court has subject matter jurisdiction in a case such as this only if the action arose under the Constitution, laws, or treaties of the United States. 28 U.S.C. § 1331. The Court's recent articulation of “arising under” jurisdiction found in Franchise Tax Bd. v. Const. Laborers Vacation Trust, 463 U.S. 1, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983), controls our inquiry into whether the district court had jurisdiction over Interstate's claims. Congress has given the lower federal courts jurisdiction to hear “only those cases in which 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., 463 U.S. at 27, 103 S.Ct. 2841. Interstate has argued throughout the litigation, and the district court agreed, that Interstate's breach of contract claim and request for injunctive relief state federal questions under the Act.
Interstate contends that “federal subject matter jurisdiction is proper ․ pursuant to 28 U.S.C. § 1331 and ․ 15 U.S.C. § 2801.” Brief, p. 15. The argument goes that since § 2805(a) provides for a suit by a “franchisee ․ against [a] franchisor” who fails to comply with the statute that a “majority of courts presiding over the issue have held that the Act implicitly authorizes the franchisor to maintain the same cause of action and, ․ pursue the same remedies against a franchisee in a federal court as a franchisee can maintain against a franchisor.” Br. p. 16. That proposition was accepted by the Morgans, Interstate argues, to sustain jurisdiction. Such position, however, is not well taken for three reasons. First, Coyne & Delany Co. v. Blue Cross & Blue Shield, Inc., 102 F.3d 712, 714 (4th Cir.1996), is controlling in its holding that the grant of jurisdiction by a statute to one party to a transaction does not imply jurisdiction to other parties. So conferring jurisdiction in terms on a franchisee under § 2805(a) does not implicitly confer jurisdiction on a franchisor. Second, Hagans v. Lavine, 415 U.S. 528, 533-535, n. 5, 94 S.Ct. 1372, 39 L.Ed.2d 577 (1974), is controlling as to decisions of other courts which, as here, have “presid[ed] over” cases involving similar parties without deciding whether or not they have jurisdiction. These are not holdings by the presiding courts that they have jurisdiction. Third, American Fire & Cas. Co. v. Finn, 341 U.S. 6, 18, 71 S.Ct. 534, 95 L.Ed. 702 (1951), is controlling so that even if a party agrees that a court has subject matter jurisdiction, such agreement is not binding on a court or on the party. In connection with these questions, none of the federal courts of appeals have held, under the same or similar facts which exist here, that federal question jurisdiction exists under the Petroleum Marketing Practice Act, 15 U.S.C. § 2801, et seq. The district courts are divided on the subject, with, in our opinion, the better reasoned decisions of those courts denying jurisdiction.
Having concluded that the Petroleum Marketing Practices Act, neither directly nor by implication, confers jurisdiction upon Interstate, the franchisor, the claim of federal question jurisdiction in this case by Interstate then calls for an examination of whether Interstate's “right to relief necessarily depends on resolution of a substantial question of federal law,” as shown by “a well pleaded complaint.” Franchise Tax Board, 463 U.S. at 13, 103 S.Ct. 2841. The way to ascertain the proper answer to this question is by an examination of the complaint, a copy of which is appended to this opinion as Exhibit A.
The first mention of the Petroleum Marketing Practices Act in the complaint is on the first page thereof under a section called “JURISDICTION AND VENUE,” the pertinent parts of which are quoted as follows: “The court has subject matter jurisdiction under this Act based upon federal question jurisdiction pursuant to 28 U.S.C. § 1331 and the Petroleum Marketing Practices Act, 15 U.S.C. § 2801, et seq.”
The only other mention of the Act in the complaint is on page 3 thereof, paragraph 12, which is, in pertinent part: “Plaintiff advised the defendants of its intent to terminate its contract as a result of defendants' continued non-performance and breach of the contract pursuant to the Petroleum Marketing Practices Act, 15 U.S.C. § 2801, et seq.”
No other mention by the PMPA is made in the complaint. Neither is there any paraphrase of the statute or of any part of the statute, and the only substantive reference to the statute is in paragraph 12, just mentioned, which paragraph 12 is under COUNT I.-BREACH OF CONTRACT. No claim is made that either the Morgans or Interstate has violated any provision of the statute or is holding the other accountable for such a violation.
A fair reading of the complaint shows only a prayer for damages and injunctive relief because of a claim that the Morgans did not comply with the terms of a contract of April 29, 1993 which had been amended by an agreement to terminate the same, dated December 12, 1994. No terms or provisions of the statute are mentioned in the complaint, except as recited above, and the judgment in this case, filed June 6, 1996, attached to this opinion as Exhibit B, is only for a money judgment in the amount of $42,901.50 plus a stipulated amount of $1,562.05, for certain charges on account of credit cards.
We are of opinion that the complaint states nothing more than a complaint for breach of contract under state law, and, indeed, we are so bold as to suggest that Interstate's claim of federal question jurisdiction may well be nothing more than an attempt to bring this breach of contract case in a federal, rather than a state, forum when neither the jurisdictional amount ($50,000) nor the citizenship requirements could be met.
Even the prayer of the complaint, as best considered, is only for injunctive relief and for a money judgment for breach of contract, neither having anything to do with the provisions of the statute.6
In its brief, Interstate argues that its complaint requests a declaration from the district court that its termination of the franchise was proper. Br. p. 21. Since an examination of the complaint, which was never amended, shows that such is not the fact, any such implicit request would have had to have come under Fed.R.Civ.P. 15(b).7
Rule 15(b) provides, “When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.” Fed.R.Civ.P. 15(b) (emphasis added). It is true that a question of declaratory relief was discussed on occasion during the course of this case; however, it is clear from the record, including the complaint, answer, all the other various motions and orders, the jury instructions, the very form of the special verdict, and the absence of an order by the district court granting or denying declaratory relief, that the question of whether Interstate had complied with the PMPA in terminating the franchise was never tried.
An examination of the entire record reveals only that the case is nothing more or less than a dispute under state law over a claimed breach of contract. That only was claimed by Interstate, and that only was defended by the Morgans. Neither side sought the construction of any federal statute, the plaintiff claimed only that the contract was breached, and the defendants denied that it was. Neither side stated a federal question.
Even though West Virginia contract law created Interstate's cause of action, the case might still be one “arising under” the laws of the United States if Interstate's well-pleaded complaint established that its right to relief under state law necessarily required “resolution of a substantial question of federal law in dispute between the parties.” Franchise Tax Bd., 463 U.S. at 13, 103 S.Ct. 2841. In this regard, Interstate asserted at oral argument that the PMPA was construed at trial because the jury's finding of liability against the Morgans also necessarily embodied a finding that Interstate had not violated the PMPA in terminating the franchise. We disagree.
It is clear from the record that Interstate established its right to relief to the satisfaction of the jury by proving its breach of contract claim under state law and without reference to any provision of the PMPA. At trial, neither the pleadings, nor the orders, nor the jury instructions nor the special verdict form made any mention of any provisions of the PMPA. Instead, the jury was merely instructed to find whether the Morgans had breached either the original franchise agreement or the Termination Agreement and, if so, to determine damages. Neither did the district court construe any provision of the PMPA when it granted injunctive relief, nor did the judgment of the district court mention or depend upon any provision of the PMPA, or any other provision of federal law. The Morgans never denied Interstate's right to terminate the franchise if the contract was breached; they did deny that the contract was breached.
Thus, the PMPA did not create Interstate's cause of action, nor was there a disputed question of federal law that was a necessary element of Interstate's claim. Even if Interstate intended to rely on the PMPA as a defense to a counterclaim by the Morgans, or if Interstate anticipated that the Morgans would somehow use the PMPA to defend against Interstate's contract claims, the well-pleaded complaint rule, of course, precludes finding “arising under” jurisdiction on such grounds. See Gully v. First Nat'l Bank, 299 U.S. 109, 112-14, 57 S.Ct. 96, 81 L.Ed. 70 (1936) (discussing well-pleaded complaint rule and explaining that jurisdiction will not be found in an anticipated defense).
In sum, “[a] suit arises under the law that creates the cause of action.” American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260, 36 S.Ct. 585, 60 L.Ed. 987 (1916). The cause of action in this case was created under the law of West Virginia, so the suit arises under that law, not federal law.8
We are thus of opinion that the district court was without subject matter jurisdiction in Interstate's action against the Morgans. Accordingly, the judgment of the district court must be vacated, and the case remanded to the district court with directions to dismiss the case without prejudice for lack of subject matter jurisdiction.
VACATED AND REMANDED WITH INSTRUCTIONS.
Despite the lawyers' obfuscating advocacy, the question in this case is straightforward: Does Interstate Petroleum's complaint, or any amendment of it, constructive or otherwise, seek to vindicate or resolve a federal right for which Congress provided subject matter jurisdiction in the district court? The record indicates that no such right was ever at issue and therefore that the district court did not have subject matter jurisdiction over this case.
This jurisdictional issue does not concern whether a declaratory judgment action can be brought under the Petroleum Marketing Practices Act (“PMPA”) or whether Interstate Petroleum constructively amended its complaint. The question, rather, is whether Interstate Petroleum's oral suggestion that it was seeking a declaratory judgment under the PMPA, without identifying any PMPA issue sought to be resolved, could justify the federal jurisdiction conferred by the PMPA even if we can assume that any such issue was pled, tried, or decided in this case. To me, the answer is clearly no.
While Morgan, d/b/a Green Acres Gas & Grocery (“Morgan”), was a franchisee, as that term is defined by the PMPA, see 15 U.S.C. § 2801(4), and Interstate Petroleum was similarly a franchisor, see id. § 2801(3), the dispute between them that was presented to the district court and decided by it was not one arising under the PMPA. Rather, as I demonstrate, the dispute was a garden variety breach-of-contract claim under state law over which the district court did not have subject matter jurisdiction.
At the outset, it is important to understand the scope of the PMPA and the scope of the federal interest protected by that Act. The PMPA was enacted “to protect petroleum franchisees from arbitrary or discriminatory terminations and nonrenewals.” Mobil Oil Corp. v. Va. Gasoline Marketers & Auto. Repair Ass'n, 34 F.3d 220, 223 (4th Cir.1994). It fulfilled its purpose by establishing “minimum Federal standards governing the termination and nonrenewal of franchise relationships for the sale of motor fuel by the franchisor or supplier of such fuel ․ [by prohibiting] a franchisor from terminating or failing to renew a franchise without satisfying certain notice provisions and without stating a reason for termination sanctioned by the act.” Checkrite Petroleum, Inc. v. Amoco Oil Co., 678 F.2d 5, 7 (2d Cir.1982) (internal quotation marks and citations omitted). In Checkrite Petroleum, the plaintiff, who was a petroleum broker acting in the marketing chain between Amoco and Amoco's dealers, sought to assert rights under the PMPA when it was terminated by Amoco. In concluding that the broker was not a “distributor” or “retailer” as used in the PMPA's definition of “franchisee,” the court denied the broker a remedy, noting that the Act should be construed strictly because “the statute in question is in derogation of common law rights.” Id. at 8. The court observed that the legislative history of the Act expresses “no congressional intent to go beyond[its] plain terms.” Id. at 10.
It is only for vindication of the limited rights protected in 15 U.S.C. §§ 2802 and 2803 that the PMPA confers subject matter jurisdiction on district courts. Section 2805 authorizes a franchisee to “maintain a civil action against [a] franchisor [who violates 15 U.S.C. § 2802 or § 2803] ․ in the district court[s] of the United States.” 15 U.S.C. § 2805(a).
The facts in this case do not present a case or controversy arising under the PMPA. Interstate Petroleum, by a contract with Morgan, dated April 29, 1993, agreed to sell Morgan gasoline on credit, provided that Morgan obtain a $31,500 irrevocable letter of credit. When Morgan failed to deliver the letter of credit and to satisfy its ongoing indebtedness to Interstate Petroleum, the parties entered into a “Mutual Consent to Termination Agreement,” dated December 12, 1994. In this second agreement, Morgan again agreed to make monthly payments against its indebtedness to Interstate Petroleum and to obtain a letter of credit, this time by January 1995. Again, Morgan breached its contractual undertakings, and Interstate commenced this action for breach of both contracts.
Even though Interstate Petroleum sought to rely on the PMPA for federal jurisdiction, no provision under the PMPA supported Interstate Petroleum's claims for breach of contract. The PMPA provides limited rights to a franchisee who is terminated discriminatorily or without statutorily required notice. Moreover, in its complaint, Interstate Petroleum did not seek to resolve any claim that Morgan, as franchisee, had asserted under the PMPA. On the contrary, the pleadings indicate that the parties mutually agreed to terminate the relationship, rendering moot any PMPA issue, if one had ever been alive. Thus, the entire dispute between the parties in this case centered on Interstate Petroleum's efforts to enforce its contractual rights in the two contracts with Morgan and to require Morgan to honor its financial commitments. It is therefore understandable that this case was commenced as a breach of contract claim, tried as a breach of contract claim, and decided as a breach of contract claim-facts that are conclusively established by the record.
First, in its complaint, Interstate Petroleum asserted solely a breach of contract claim, asking for damages and injunctive relief “as a direct and proximate result of Defendants' breach of the Contract of Sale and continuous failure to specifically perform thereunder.” The complaint makes no reference to any PMPA right that had been asserted by Morgan and that Interstate Petroleum was trying to resolve. Moreover, Interstate Petroleum never filed a motion to amend its complaint to make such a reference. This is not surprising because there was no issue ever raised between the parties that the PMPA had been violated.
Second, when Interstate Petroleum presented the case to the jury, counsel for Interstate Petroleum described the nature of the action to the jury, describing it as a simple contract case:
When you go up to begin your deliberations, you will have with you a special verdict slip, which ultimately will be the papers that will reflect what you have decided to be your verdict in this case. There will be a series of a few questions for you to decide. The first question to you will be whether you find that the defendants, Robert and Vickie Morgan, breached their contract of sale with Interstate Petroleum, dated [April] 29, 1993. That was Exhibit 2 and you will have that to look at; and, also, whether they breached the subsequent termination agreement that the parties entered into. And you will recall the Morgans having executed that on December 12, 1994, and that is Exhibit Number 16.
(Emphasis added). In explaining to the jury its burden of proof, Interstate said that it must prove three things in order to recover, “That there was a contract, that the Morgans in this case breached a term or requirement of that contract, and we also have to prove Interstate's losses and expenses, what in law is known as the damages in this case.” After completing his closing argument, counsel for Interstate Petroleum concluded with the same theme:
[O]n behalf of my clients, I would request that you enter your verdict in this case in favor of Interstate Petroleum, the plaintiff in this case, in an amount-after you find the breach of contract has occurred, in an amount that you find to be fair and reasonable to compensate my clients for the breach of promise and for their losses that they have sustained. Thank you very much, Ladies and Gentlemen.
Third, in requesting jury instructions, Interstate Petroleum submitted requests to the court only on a breach-of-contract theory under West Virginia law. Its first request is typical:
You are instructed to assume that the defendants' failure to provide an irrevocable letter of credit in this case constituted a material breach of their contract with the plaintiff, Interstate Petroleum Corporation. Accordingly, your sole task will be to determine the amount of damages which you find to be fair and reasonable in order to compensate Plaintiff, Interstate, for its losses, expenses and lost profits.
Fourth, when the district court actually instructed the jury, it did so only on the common law of contracts. And, consistently, when it submitted the case to the jury, it gave the jury only one question to answer on liability, that for breach of contract:
Do you find that Robert C. Morgan and Vickie L. Morgan, d/b/a Green Acres Gas & Grocery, breached the Contract of Sale dated April 29, 1993, or the Termination Agreement dated December 12, 1994?
Finally, the jury returned a verdict deciding only that Morgan had breached its contracts and awarding damages, and that verdict became the judgment in the case.
In short, any PMPA claim that Morgan may have had or that Interstate Petroleum may have said it wanted to resolve through a declaratory judgment was never pled in any complaint or amended complaint, never tried to the jury, never decided by the jury, and never reflected in any judgment. From beginning to end, the case was a state common-law breach-of-contract case.
The dissenting opinion suggests that the parties reached an agreement to amend the pleadings and try the case as a declaratory judgment action under the PMPA. While there can be no doubt that the parties discussed a declaratory judgment under the PMPA and even agreed that Interstate Petroleum could have a PMPA issue resolved in the case, presumably in an attempt to agree on subject matter jurisdiction, no such issue under the PMPA was ever articulated; indeed none existed for articulation. There simply was no PMPA case or controversy. And even if there were such a controversy, the discussions between counsel and the court never matured into anything more than just talk. And their talk is all that the dissenting opinion parades. Critically absent from the dissent's discussion about whether this was a federal case is the articulation of a viable issue under the PMPA. Even then, none was ever pleaded, tried, argued, or decided. Any federal claim suggested by the dissent is therefore a phantom claim based on an unknown issue.
This case does not involve a case or controversy under federal law, nor does it have the clear invocation of federal subject matter jurisdiction that we require. There is no statement of a claim or dispute over a claim relating to any violation by Interstate Petroleum of 15 U.S.C. § 2802 or § 2803, the only claims over which the PMPA gives federal courts jurisdiction. See 15 U.S.C. § 2805(a). Because there was no claim arising under the PMPA, the district court never had federal jurisdiction, and it could not have entered the judgment in this case. Accordingly, I concur in the majority opinion and judgment.
The majority devotes most of its opinion to four propositions with which no member of this court disagrees: first, that subject matter jurisdiction cannot be created by agreement of the parties; second, that a franchisor cannot sue a franchisee under the Petroleum Marketing Practices Act (PMPA), see 15 U.S.C.A. §§ 2801-2841 (West 1998); third, that Interstate's complaint as originally filed did not seek a declaration that Interstate did not violate the PMPA in terminating the franchise agreement with the Morgans; and fourth, that this case involved no “substantial question of federal law.”
None of this, however, addresses the central issue before us: whether the parties, pursuant to Federal Rule of Civil Procedure 15(b), agreed that Interstate was in fact seeking a declaratory judgment that it did not violate the PMPA in terminating the franchise agreement. A review of the record compels the conclusion that such an agreement was clearly made, repeatedly acknowledged by the Morgans, and unequivocally recognized by the district court. These repeated acknowledgments that Interstate sought declaratory relief effected a constructive amendment of the pleadings and thereby relieved Interstate of any responsibility to formally amend its complaint. And, Interstate's request for a declaration of the Morgans' federal rights created a federal question that was the basis for the subject matter jurisdiction of the district court.
Having presented their defense to a jury in federal court and lost, the Morgans now are attempting to eliminate the basis for federal court jurisdiction by repudiating their numerous previous acknowledgments. Of course, the law does not allow a party to escape a judgment against it with such a self-serving, post hoc change of position. Because the majority's decision enables the Morgans to do just that, I respectfully dissent.
Before considering the question of whether Interstate's complaint was constructively amended to include a request for a declaratory judgment that it terminated the franchise agreement in accordance with the PMPA, the jurisdictional significance of that issue should be addressed.
Under the Declaratory Judgment Act, a federal court “may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C.A. § 2201(a) (West 1994). Although the Declaratory Judgment Act “does not broaden federal jurisdiction, see, e.g., Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 70 S.Ct. 876, 94 L.Ed. 1194 (1950), it does allow parties to precipitate suits that otherwise might need to wait for the declaratory relief defendant to bring a coercive action.” Gulf States Paper Corp. v. Ingram, 811 F.2d 1464, 1467 (11th Cir.1987) (parallel citations omitted); see Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 19 & n. 19, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983); Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir.1937). That the federal right actually litigated when declaratory relief is sought may belong to the declaratory judgment defendant rather than to the declaratory judgment plaintiff does not change the fact that the action arises under federal law. See Columbia Gas Transmission Corp. v. Drain, 237 F.3d 366, 370 (4th Cir.2001); Lowe v. Ingalls Shipbuilding, 723 F.2d 1173, 1179 (5th Cir.1984); see also Gulf States Paper, 811 F.2d at 1467 (explaining that the declaratory judgment remedy “allows a party to bootstrap its way into federal court by bringing a federal suit that corresponds to one the opposing party might have brought” (internal quotation marks omitted)). Accordingly, “[a] person may seek declaratory relief in federal court if the one against whom he brings his action could have asserted his own rights there.” Standard Ins. Co. v. Saklad, 127 F.3d 1179, 1181 (9th Cir.1997); see Columbia Gas Transmission, 237 F.3d at 370 (explaining that under certain circumstances “the proper jurisdictional question is whether the complaint alleges a claim arising under federal law that the declaratory judgment defendant could affirmatively bring against the declaratory judgment plaintiff”); Hunter Douglas Inc. v. Sheet Metal Workers Int'l Ass'n, Local 159, 714 F.2d 342, 345 (4th Cir.1983) (explaining, in context of removal from state court, that whether a district court has subject matter jurisdiction over a declaratory judgment action is determined “by reference to the character of the threatened action”).
Here, unquestionably an action initiated by the Morgans alleging that Interstate's termination of the franchise agreement violated the PMPA would arise under federal law because the PMPA creates such a cause of action. See American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260, 36 S.Ct. 585, 60 L.Ed. 987 (1916) (explaining that “[a] suit arises under the law that creates the cause of action”). It follows that the district court would also have had jurisdiction to hear an action seeking a declaration that Interstate did not violate the Morgans' rights under the PMPA.1
I now turn to the central issue of whether Interstate's complaint was constructively amended. “It is well-settled that the parties may constructively amend the complaint by agreeing, even implicitly, to litigate fully an issue not raised in the original pleadings.” Stemler v. City of Florence, 126 F.3d 856, 872 (6th Cir.1997); see Fed.R.Civ.P. 15(b). A constructive amendment occurs when “the parties recognize[ ] that an issue not presented by the pleadings entered the case at trial.” 6A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1493, at 19 (2d ed.1990); see Estate of Dietrich v. Burrows, 167 F.3d 1007, 1013 (6th Cir.1999) (holding that complaint was constructively amended when defendants treated complaint as having been amended even though plaintiffs never actually filed an amended complaint after having been granted leave to do so); Whitaker v. T.J. Snow Co., 151 F.3d 661, 663 (7th Cir.1998) (explaining that “[b]ecause both parties squarely addressed the strict liability theory in their summary judgment briefs, the complaint was constructively amended to include that claim”); Suiter v. Mitchell Motor Coach Sales, Inc., 151 F.3d 1275, 1279-80 (10th Cir.1998) (holding that defendant's answer was constructively amended to add an unpled affirmative defense when the defense was asserted in a motion for judgment as a matter of law and plaintiff treated the defense as if it had been properly pled); Rodriguez v. Doral Mortgage Corp., 57 F.3d 1168, 1172 (1st Cir.1995) (stating that a complaint may be constructively amended when a claim is introduced outside of a complaint “and then treated by the opposing party as having been pleaded”); Walton v. Jennings Cmty. Hosp., Inc., 875 F.2d 1317, 1320 & n. 3 (7th Cir.1989) (holding that the pleadings were constructively amended when the district court sua sponte injected an unpled cause of action into the case in denying defendant's motion for summary judgment and both parties proceeded to prepare for trial on the new issue).
Interstate did not request a declaratory judgment in its complaint. Nevertheless, subsequent to Interstate's filing of its complaint, the parties explicitly agreed on numerous occasions that Interstate's entitlement to declaratory relief was part of this lawsuit. Interstate's complaint alleges that Interstate advised the Morgans of its intent to terminate the franchise agreement in accordance with the PMPA. See J.A. 12. The Morgans denied that allegation in their answer and on the same day filed their own suit in federal district court through their company, B & V Enterprises, Inc., seeking to enjoin Interstate from debranding their business and requesting specific performance of the franchise agreement.2 Considering that the parties were not diverse and that the PMPA specifically forbids termination of petroleum franchise agreements except under specified circumstances, see 15 U.S.C.A. § 2802, it would appear that the Morgans intended to assert that Interstate violated the PMPA by terminating the franchise agreement, thus providing a basis for federal question jurisdiction.
The Morgans then moved to dismiss Interstate's action, contending that federal question jurisdiction did not exist because Interstate could not bring a cause of action under the PMPA. See Mem. in Supp. of Def.'s Mot. to Dismiss Civil Action No. 5:95:CV2, at 3-4. In its opposition to the Morgans' motion, Interstate asserted that federal question jurisdiction exists when “the franchisor seeks an adjudication of federal claims that the franchisee may threaten to assert against him.” Br. in Opp'n to Def.'s Mot. to Dismiss Pursuant to Rule 12(b) of the Fed.R.C.P., at 5. Applying this rule, Interstate stated that it “anticipate[d] that [the Morgans would] attempt to use the PMPA as a defense to the action asserted against [them] as well as a basis for [their] claim that [their] right[s] as a franchisee were not properly terminated.” Id.
Before the district court ruled on the motion to dismiss, the Morgans filed a motion for “partial dismissal” in which they sought dismissal only of Interstate's action to the extent that it sought damages. See Defs. [sic] Mot. for Partial Dismissal. In a memorandum supporting this motion, they stated, “[Interstate] filed a complaint in this action asking for Declaratory Judgment as to its termination of the franchise agreement between it and the [Morgans].” Defs.' Mem. in Supp. of Mot. for Partial Dismissal, at 1. The Morgans also asserted that “the Court can determine the rights of the parties under [the PMPA].” Id. at 3. The Morgans argued nevertheless that Interstate's damage claim should be dismissed because Interstate was not entitled to damages under the Declaratory Judgment Act. See id. The district court denied the Morgans' motions for dismissal, erroneously reasoning that Interstate could bring an action under the PMPA; it also ruled that Interstate could bring a damages claim in conjunction with the declaratory judgment action that the Morgans had acknowledged existed. See Order Denying Robert C. Morgan's & Vickie L. Morgan's Mots. to Dismiss, at 2-4. Subsequently, in a memorandum supporting a motion in limine, the Morgans again stated that the case was “a suit to construe a federal statute,” that Interstate sought a “declar[ation] that its termination of the franchise agreement was valid,” and that “[t]he only jurisdiction this Court has is to interpret the [PMPA].” Mem. in Supp. of Defs. [sic] Mot. in Limine, at 1-2.
Interstate's suit then proceeded to trial. Throughout the course of the trial, the district judge referred to the fact that Interstate was seeking a declaratory judgment although it had not requested such relief in the complaint:
• “I have ruled on the fact that [Interstate] may recover damages under the Act or under a declaratory judgment.” Tr. 123.
• “[The Morgans] have raised the fact that damages are being sought under [the] Declaratory Judgment Act.” Id. at 126.
• “I think that there is federal question jurisdiction under the Declaratory Judgment Act․” J.A. 22.
• “The question ․ is whether or not in a declaratory judgment, which you did not plead in your complaint, which I have determined exists in the complaint ․ damages may be recovered․” Id. at 23-24.
• “This is a case in which I think [Interstate] clearly has a right under the Declaratory Judgment Act to obtain a declaratory judgment as to its right to terminate under the [PMPA].” Tr. 287.
Also, in its post-trial order, the district court recognized that the presence of the declaratory judgment claim was the basis for federal question jurisdiction:
• “This Court's earlier determinations that subject matter jurisdiction under the PMPA existed were premised upon the Morgans' concession that the complaint sought a declaration of rights under the federal law.” J.A. 62.
Interstate also offered the declaratory judgment claim as a basis for its request for an award of attorneys' fees. See id. at 29. For their part, the Morgans, prior to the jury finding against them, never retreated from their position that Interstate's entitlement to declaratory relief was an issue in the case. Indeed, the Morgans' counsel stated, “[T]here is no question in my mind that the Declaratory Judgment Act ․ allows the construction of a federal statute, which the [PMPA] is; so as far as termination is concerned, [Interstate] was properly before this Court.” Id. at 30-31.
In light of all of this, there can be little doubt that the parties explicitly recognized that the issue of Interstate's entitlement to declaratory relief had entered the case and therefore that the complaint had been constructively amended. The amended complaint clearly presented a federal question, and the district court therefore had federal question jurisdiction.3
The concurrence concludes that no case or controversy existed regarding Interstate's request for a declaration that it did not violate the PMPA in terminating the franchise agreement.4
In order to establish an Article III case or controversy regarding a declaratory judgment claim, a plaintiff must demonstrate that “there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941).
For the reasons I have already discussed, the district court and the parties clearly understood that Interstate had violated the PMPA in terminating the franchise agreement unless the Morgans breached that agreement. See 15 U.S.C.A. § 2802. Moreover, whether the Morgans breached the agreement (and thus whether a violation of the PMPA occurred) has been hotly disputed by the parties throughout this case.
The concurrence incorrectly concludes that “the pleadings indicate that the parties mutually agreed to terminate the relationship, rendering moot any PMPA issue.” Ante, at 224 (emphasis added). The termination agreement to which the concurrence refers was dated December 12, 1994. Yet, one month later, on January 11, 1995, the Morgans, through their company B & V Enterprises, brought suit against Interstate in federal court contending that Interstate had no right to terminate the franchise agreement and seeking specific performance of the agreement. See Supp. J.A. 68-71. Moreover, the Morgans answered Interstate's complaint on March 14, 1995, asserting that the termination agreement was void because Interstate had engaged in an anticipatory breach of that agreement. It is also worth repeating that the Morgans' suit alleging wrongful termination remained viable for more than 16 months, with the Morgans moving to dismiss the suit without prejudice only two weeks prior to trial. The dispute concerning whether Interstate was justified in terminating the franchise agreement continued throughout the trial. Accordingly, when the parties and the district court agreed that Interstate sought a declaration that it did not violate the Morgans' federal rights under the PMPA in terminating the franchise agreement, the pleadings were constructively amended to include a federal question about which there was a real case or controversy.5
The concurrence refers to events subsequent to this constructive amendment as if those events could somehow erase the existence of the federal question jurisdiction that had already been established. It states that although Interstate proved that the Morgans breached the franchise agreement, Interstate failed to take the steps necessary at the end of the trial to obtain a declaration that the breach justified its termination of the franchise agreement under the PMPA. However, the special verdict by the jury that the Morgans breached the franchise agreement essentially decided the PMPA issue against the Morgans. Indeed, on this basis, Interstate's counsel explained at oral argument that he believed the special verdict actually constituted a declaration that Interstate had not violated the PMPA. Whether Interstate is correct that it actually obtained the declaratory judgment that it had sought or whether Interstate failed at the end of the trial to take the steps necessary to obtain such relief presents at most an academic issue, not one of jurisdictional significance.
In sum, the parties here recognized that the issue of whether the Morgans breached the franchise agreement affected both Interstate's state law contract rights and the Morgans' federal rights under the PMPA. The parties orally agreed, unequivocally, to litigate the Morgans' federal PMPA rights, thereby eliminating the need for any formal amendment of the pleadings. They then proceeded to litigate the question of whether the franchise agreement had been breached, reconfirming many times during the trial that the Morgans' PMPA rights were at issue. In the end, the jury rejected, in a special verdict, the premise of the Morgans' anticipated PMPA claims, thereby resolving once and for all the controversy of whether Interstate was liable under the PMPA for terminating the franchise agreement.
Absent the Morgans' repeated and unequivocal position before and during the trial that Interstate was seeking declaratory relief, Interstate might have sought to amend its complaint, or at least could have pursued its breach of contract claim in state court. Allowing the Morgans, now that the jury has ruled against them, to disavow the very acknowledgments they made that kept this lawsuit in federal court in the first place enables them to avoid liability for their breach by “playing fast and loose” with the district court. Lowery v. Stovall, 92 F.3d 219, 223 (4th Cir.1996) (internal quotation marks omitted). I do not favor this result, nor does the law allow it.
For all of these reasons, I respectfully dissent.6
APPENDIX TO OPINION
1. The letter agreement is referred to in the Special Verdict as a Termination Agreement.
2. Interstate sought injunctive relief to enjoin the Morgans from displaying the BP logo and also sought damages, attorney's fees, and costs.
3. Federal Rule of Civil Procedure 12(h)(3) provides that: “[w]henever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action.” Fed. R. Civ. Proc. 12(h)(3).
4. In relevant part, section 2805(a) of the PMPA provides: “[i]f a franchisor fails to comply with the requirements of section 2802 or 2803 of this title, the franchisee may maintain a civil action against such franchisor.” 15 U.S.C. § 2805(a) (emphasis added).
5. Neither party contends that the facts of this case support an exercise of the court's diversity jurisdiction.
6. An item-by-item analysis of the complaint reveals nothing to the contrary.On the first page the paragraph called COMPLAINT states only that the parties are Interstate and the Morgans.The item called JURISDICTION AND VENUE on the first and second pages states only the claim of federal question jurisdiction recited before in the body of this opinion and the claim of venue in the Northern District of West Virginia, with the addition that some of the defendants' conduct was accomplished by instrumentalities of interstate commerce, including mail, facsimile, telephone, and motor vehicle use or transportation.The next item called PARTIES, on page 2, is a slightly more detailed description of Interstate and the Morgans.The next item, called GENERAL AVERMENTS, on pages 2 and 3, is a recitation of the facts on which Interstate relies with respect to its contract of sale, which it claims was breached. The statute, the PMPA, is nowhere mentioned under GENERAL AVERMENTS.The next item, COUNT I-BREACH OF CONTRACT, on pages 3, 4, 5 and 6 of the complaint, repeats the averments described above under PARTIES and GENERAL AVERMENTS and continues with a statement of the facts upon which Interstate relies for its sought-for money judgment and injunctive relief. That item contains only additional facts relied on by Interstate as its claim for judgment and injunctive relief and mentions the PMPA only as follows: “Plaintiff advised the Defendants of its intent to terminate its contract as a result of Defendants' continued nonperformance and breach of the Contract pursuant to the Petroleum Marketing Practices Act, 15 U.S.C. § 2801, et sec [sic].”The next item appearing on pages 6 and 7 of the complaint is called COUNT II-PRAYER FOR INJUNCTIVE RELIEF. This item repeats the matters stated under items PARTIES, GENERAL AVERMENTS, and COUNT I-BREACH OF CONTRACT and states facts claimed upon which injunctive relief is justified and the conclusion that irreparable harm would result unless the Morgans are forbidden from using the BP brand.Nothing else appears in the complaint.
7. Of course, a claim under the Declaratory Judgment Act, even if made, does not confer jurisdiction. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 70 S.Ct. 876, 94 L.Ed. 1194 (1950). And the case was not tried as a request for declaratory relief or on account of the construction of a statute. The answer, jury instructions, and special verdict are attached as Exhibits C, D, and E.
8. The dissent does not take issue with the rule of decision in Franchise Tax Board, 463 U.S. at 27, 103 S.Ct. 2841, that “the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law.” In that respect, the dissent does not call attention to any “substantial question of federal law” that was involved in this case. The undisputed fact remains that the Morgans never denied Interstate's right to terminate the franchise if the contract was breached, but they did deny that the contract was breached. And that question of state law was the only question in the case, as Exhibits A through E demonstrate.
1. Of course the majority is correct to state in its footnote 8 that I do not maintain that this suit involved a “substantial question of federal law.” However, because federal law created the PMPA cause of action at issue in the declaratory judgment claim, no such “substantial question of federal law” was required to establish federal question jurisdiction. See Franchise Tax Bd., 463 U.S. at 27-28, 103 S.Ct. 2841 (explaining that district courts have federal question jurisdiction over cases either when “the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law” or when “federal law creates the cause of action”).
2. This suit was consolidated with Interstate's and remained viable for more than 16 months. The Morgans moved successfully to voluntarily dismiss the suit without prejudice only two weeks prior to trial.
3. In addition to contending that there was no federal question here, the Morgans maintain that because the PMPA provides a remedy of money damages only for franchisees and because the PMPA is the sole basis for federal jurisdiction, the district court erred in allowing the jury to consider Interstate's damages claim. However, once the court had jurisdiction over the question of whether Interstate violated the PMPA in terminating the contract, it gained supplemental jurisdiction over Interstate's state-law claim for breach of contract. See 28 U.S.C.A. § 1367 (West 1993).
4. While of course not dispositive, at no point previous to, during, or after the trial or on appeal to the panel or the en banc court have the Morgans ever contended that a case or controversy did not exist.
5. The concurrence refers to the repeated representations by the Morgans that they agreed that Interstate was seeking a declaration that it had not violated the PMPA as “just talk.” Ante, at 225. But a close reading demonstrates that these representations were far more. The “talk” was counsel for the Morgans representing to the court on the record that he understood that the complaint had been constructively amended to include a claim by which Interstate was seeking a declaration that it had not violated the PMPA.
6. Because I would not vacate the judgment on jurisdictional grounds, I will briefly address Interstate's contention on cross-appeal. Interstate argues that the district court erred in ruling that Interstate was not entitled to recover reasonable attorneys' fees. I would find no error. A successful party in a declaratory judgment action may recover attorneys' fees only when the fees “are recoverable under non-declaratory judgment circumstances,” such as when the substantive law permits an award of attorneys' fees. Mercantile Nat'l Bank v. Bradford Trust Co., 850 F.2d 215, 216 (5th Cir.1988). Under the PMPA, a franchisor is entitled to attorneys' fees only when a frivolous action is brought against it. See 15 U.S.C.A. § 2805(d)(3). Because Interstate filed this action, it is not entitled to recover attorneys' fees.
Vacated and remanded with instructions. Judge WIDENER delivered the opinion of the court, in which Chief Judge WILKINSON and Judges NIEMEYER, MICHAEL, KING and GREGORY joined. Judge NIEMEYER wrote a concurring opinion. Judge WILKINS wrote a dissenting opinion, in which Judges WILLIAMS, MOTZ, and TRAXLER joined.