The Virginia Business Litigation Blog
A federal court has jurisdiction over causes of action created by federal law and over cases in which the plaintiff’s right to relief depends on the resolution of a substantial question of federal law. If a federal court lacks subject matter jurisdiction, the case must be remanded to state court, even if the parties both argue in favor of keeping the case in federal court. The United States District Court for the Eastern District of Virginia addressed this issue two days ago in PORTCO v. NISH.
The AbilityOne Program requires government agencies to procure certain goods and services from nonprofit companies that employ severely disabled people. A committee administers the program and determines what products and services are appropriate and which nonprofit agencies meet the criteria necessary to participate in the program. NISH is a nonprofit agency that facilitates the committee’s distribution of government contracts among other nonprofits. NISH evaluates the qualifications and capabilities of nonprofits, provides information to the committee, recommends products and services for procurement to the committee, and allocates government orders among nonprofit agencies after the committee approves them. NISH follows the committee’s policy guidelines and also has its own Best Practices which include notifying the nonprofit agencies of available opportunities by a posting on its website. According to NISH’s Best Practices, if an agency brings a new project opportunity to NISH’s attention or takes steps to identify such opportunities, that agency will receive the opportunity on a first come first considered basis.
PORTCO alleges that it worked with the Naval Medical Center-Portsmouth Contracting Authority for several years to bring a contracting opportunity to NISH. PORTCO understood NISH’s Best Practices to mean that PORTCO would receive the opportunity. NISH did not recommend PORTCO for the opportunity, and PORTCO contends that this constituted a violation of NISH’s best practices. PORTCO sued NISH in The United States District Court for the Eastern District of Virginia alleging
federal question jurisdiction.
A federal court has jurisdiction when federal law creates the cause of action or when the plaintiff’s right to relief depends on the resolution of a substantial question of federal law. To establish jurisdiction under the substantial federal question doctrine, the complaint must state a federal issue that is actually disputed and substantial. Additionally, the exercise of jurisdiction must not disturb the congressionally approved balance of federal and state judicial responsibilities.
Applying these factors, the court determined that it lacked jurisdiction over NISH’s complaint. The parties were unable to point to any federal law or regulation at issue that was disputed and substantial. Rather, PORTCO argued that NISH violated federal law by not adhering to its own Best Practices. The court noted that NISH’s Best Practices are policy guidelines created by a private entity. The court also found that federal jurisdiction in this case would disturb the approved balance of federal and state responsibilities as PORTCO asserted nine state law claims which the state has a substantial interest in deciding.
NISH also argued that the Court of Federal Claims has exclusive jurisdiction over the matter, but the court disagreed. The Tucker Act and the Administrative Dispute Resolution Act gives the Court of Federal Claims jurisdiction over matters in which a party challenges a government action. NISH argued that the heart of PORTCO’s claim is a challenge to a government procurement process, but PORTCO contended that its complaint challenges a private organization’s failure to follow its own policy guidelines. The court agreed with PORTCO. Additionally, the court noted that The Court of Federal Claims’ jurisdiction is limited to suits against the United States, and it cannot hear disputes between private parties such as these. Accordingly, the court remanded the case to state court.