Fidelitad, Inc. v. Insitu, Inc. ( 2018 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
FIDELITAD, INC., a Washington No. 17-35162
corporation,
Plaintiff-Counter-Defendant- D.C. No.
Appellant, 2:13-cv-03128-
TOR
v.
INSITU, INC., a Washington OPINION
corporation,
Defendant-Counter-Claimant-
Appellee.
Appeal from the United States District Court
for the Eastern District of Washington
Thomas O. Rice, Chief Judge, Presiding
Argued and Submitted May 15, 2018
Seattle, Washington
Filed September 25, 2018
Before: Marsha S. Berzon, Stephanie Dawn Thacker, *
and Andrew D. Hurwitz, Circuit Judges.
Opinion by Judge Hurwitz
*
The Honorable Stephanie Dawn Thacker, United States Circuit
Judge for the U.S. Court of Appeals for the Fourth Circuit, sitting by
designation.
2 FIDELITAD V. INSITU
SUMMARY **
Jurisdiction
Reversing the district court’s judgment in favor of the
defendant on state law claims, the panel held that the district
court erred in denying the plaintiff’s motion to remand the
case to the state court from which it had been removed.
The defendant designed and manufactured drones that it
sold to military and civilian customers. The plaintiff, a
value-added reseller of defendant’s drones in Latin America,
alleged that the defendant improperly delayed shipment of
its orders, wrongfully terminated a purported distributorship
agreement, and then moved into the Latin American market,
appropriating the plaintiff’s prior groundwork.
The defendant removed the action based on 28 U.S.C.
§ 1442(a)(1), which allows removal of a civil action against
a federal officer or any person acting under that officer. The
panel held that the plaintiff’s remand motion should have
been granted because the defendant was not acting “pursuant
to a federal officer’s directions” in undertaking the actions
that were the subject of the plaintiff’s complaint. No federal
officer directed the defendant to delay the plaintiff’s orders
or cease doing business with the plaintiff. The panel held
that complying with the International Traffic in Arms
Regulations, governing the sale of military goods to foreign
governments, did not bring the defendant within the scope of
the federal officer removal statute. The defendant also was
not entitled to removal as a federal contractor.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
FIDELITAD V. INSITU 3
The panel reversed the district court’s judgment and
remanded with instructions to remand the action to state
court.
COUNSEL
Shelby R. Frost Lemmel (argued) and Kenneth W. Masters,
Masters Law Group P.L.L.C., Bainbridge Island,
Washington; Mark G. Jackson, Jackson Rosenfield LLP,
Seattle, Washington; for Plaintiff-Counter-Defendant-
Appellant.
Eric B. Wolff (argued) and Steve Y. Koh, Perkins Coie LLP,
Seattle, Washington, for Defendant-Counter-Claimant-
Appellee.
OPINION
HURWITZ, Circuit Judge:
Insitu, Inc. designs and manufactures unmanned aerial
systems—commonly known as “drones”—that it sells to
military and civilian customers. Fidelitad, Inc. is a value-
added reseller of Insitu’s drones in Latin America. In this
action, Fidelitad claims that Insitu improperly delayed
shipment of its orders, wrongfully terminated a purported
distributorship agreement, and then moved into the Latin
American market, appropriating Fidelitad’s prior
groundwork.
Fidelitad filed its original complaint in Washington state
court. Insitu removed the action to the United States District
Court for the Eastern District of Washington, invoking
4 FIDELITAD V. INSITU
28 U.S.C. § 1442(a)(1), which allows removal of civil
actions against “any officer (or any person acting under that
officer) of the United States.” The district court denied
Fidelitad’s motion to remand and later granted summary
judgment to Insitu. We hold that the motion to remand
should have been granted. We therefore reverse, with
instructions to remand the action to state court.
I. Background
A. Facts
In late 2009, two Insitu employees, Eric Edsall and
Alejandro Pita, assisted the Colombian Air Force after its
purchase of two Insitu drones. While in Colombia, Edsall
and Pita identified a number of potential non-military
applications for the drones (for example, pipeline
surveillance and counter-narcotics operations). With
Insitu’s blessing, Edsall and Pita formed Fidelitad in 2010,
to act as a value-added reseller of Insitu’s products in Latin
America. Although Insitu was supportive of Fidelitad, the
two companies never entered into a written contract.
By October 2010, Fidelitad had made several sales of
Insitu drones to the Colombian Air Force and the United
States military in Colombia (for end use by the Colombian
military). Fidelitad placed orders for the drones with Insitu
and obtained export licenses from the federal government.
But, Insitu delayed filling the orders, asking Fidelitad first to
obtain clarification on various provisions in the export
licenses from federal officials. For example, Insitu asked
Fidelitad to inquire whether separate licenses were required
FIDELITAD V. INSITU 5
to export sensors on the drones. 1 Alternatively, Insitu
suggested to Fidelitad that the United States take title to the
drones in this country and export them to Colombia itself,
making the export licenses unnecessary.
Fidelitad accepted delivery of one of the drones, but
without the disputed sensors. Fidelitad then arranged to
transfer the remaining drones it had ordered to the federal
government, and the government in turn agreed to transfer
title to the Colombian Air Force. After filling these orders,
Insitu refused to accept any further orders from Fidelitad.
Insitu subsequently made several sales directly to
Colombian customers previously solicited by Fidelitad.
B. Procedural History
After removal, the district court denied Fidelitad’s
motion to remand, and later granted summary judgment to
Insitu. Fidelitad timely appealed, and now challenges both
the denial of the motion to remand and the summary
judgment.
We have jurisdiction over Fidelitad’s appeal under
28 U.S.C. § 1291, and review the district court’s denial of
remand de novo, see Corona-Contreras v. Gruel, 857 F.3d
1025, 1028 (9th Cir. 2017), accepting the facts alleged in the
notice of removal as true, and drawing all reasonable
inferences in Insitu’s favor, see Leite v. Crane Co., 749 F.3d
1117, 1121–22 (9th Cir. 2014).
1
Specifically, Insitu requested clarification of provisions in the
export licenses, stating that the drones must be “the same version, with
the same performance capabilities” as those already in use by the
Colombian military, and that Fidelitad must obtain separate licenses to
export “cameras, . . . sensors, GPS, datalinks, [and] radios.”
6 FIDELITAD V. INSITU
II. Discussion
A. Licensing Framework
The Arms Export Control Act, 22 U.S.C. §§ 2751–
2799aa-2, and the International Traffic in Arms Regulations
(“ITAR”), 22 C.F.R. §§ 120–30, govern the sale of military
goods to foreign governments. These provisions establish
two primary methods through which a foreign government
may purchase military equipment manufactured by United
States companies: a Direct Commercial Sale (“DCS”) or a
Foreign Military Sale (“FMS”). Sec’y of State for Def. v.
Trimble Navigation Ltd., 484 F.3d 700, 703 (4th Cir. 2007);
Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d
1030, 1040 (9th Cir. 1983). In FMS transactions, the foreign
government contracts directly with the United States, and the
United States either provides equipment from its own
inventory or purchases it from a contractor. Trimble
Navigation, 484 F.3d at 703; 22 C.F.R. § 126.6(c). In DCS
transactions, the foreign government contracts directly with
a United States company, which must obtain an export
license from the State Department before supplying the
goods. Trimble Navigation, 484 F.3d at 703; 22 C.F.R.
§§ 123–25.
B. Federal Officer Removal
The federal officer removal statute permits removal of a
state-court action against an “officer (or any person acting
under that officer) of the United States or of any agency
thereof, in an official or individual capacity, for or relating
to any act under color of such office.” 28 U.S.C.
§ 1442(a)(1). The statute protects federal officers from
interference with their official duties through state-court
litigation. See Arizona v. Manypenny, 451 U.S. 232, 241–42
and n.16 (1981); Willingham v. Morgan, 395 U.S. 402, 405–
FIDELITAD V. INSITU 7
06 (1969); see, e.g., Tennessee v. Davis, 100 U.S. 257, 261,
271 (1879) (permitting removal of a criminal case against a
federal revenue officer for homicide occurring during a
distillery raid). The federal officer removal statute responds
to three general concerns: (1) “State-court proceedings may
reflect ‘local prejudice’ against unpopular federal laws or
federal officials”; (2) “States hostile to the Federal
Government may impede” federal law; and (3) “States may
deprive federal officials of a federal forum in which to assert
federal immunity defenses.” Watson v. Philip Morris Cos.,
551 U.S. 142, 150 (2007) (citations omitted). Although the
statute is “liberally construed” to respond to these concerns,
see Colorado v. Symes, 286 U.S. 510, 517 (1932); Durham
v. Lockheed Martin Corp., 445 F.3d 1247, 1252–53 (9th Cir.
2006), the Supreme Court has cautioned that its “broad
language is not limitless,” Watson, 551 U.S. at 147.
To invoke § 1442(a)(1) removal, a defendant in a state
court action “must demonstrate that (a) it is a ‘person’ within
the meaning of the statute; (b) there is a causal nexus
between its actions, taken pursuant to a federal officer’s
directions, and plaintiff’s claims; and (c) it can assert a
‘colorable federal defense.’” Durham, 445 F.3d at 1251; see
Jefferson Cty. v. Acker, 527 U.S. 423, 431 (1999). The first
requirement is not today in dispute; Insitu is plainly a
“person” within the meaning of § 1442(a)(1). See Goncalves
ex rel. Goncalves v. Rady Children’s Hosp. San Diego,
865 F.3d 1237, 1244 (9th Cir. 2017) (“[C]orporations are
‘person[s]’ under § 1442(a)(1).” (second alteration in
original)). The central issue in this case, however, is whether
Insitu was acting “pursuant to a federal officer’s directions”
in undertaking the actions that are the subject of Fidelitad’s
complaint.
8 FIDELITAD V. INSITU
“For a private entity to be ‘acting under’ a federal officer,
the private entity must be involved in ‘an effort to assist, or
to help carry out, the duties or tasks of the federal superior.’”
Id. at 1245 (emphases omitted) (quoting Watson, 551 U.S. at
152). The “relationship typically involves ‘subjection,
guidance, or control.’” Watson, 551 U.S. at 151 (quoting
Webster’s New International Dictionary 2765 (2d ed.
1953)). The paradigm is a private person acting under the
direction of a federal law enforcement officer. See id. at 149;
see, e.g., Maryland v. Soper, 270 U.S. 9, 30 (1926) (noting
that a private party acting as a federal officers’ driver in a
distillery raid had “the same right to the benefit of” the
removal provision as did the federal agents); Davis v. South
Carolina, 107 U.S. 597, 600 (1883) (holding that a soldier
who killed a distiller during a raid could remove his criminal
case because he “lawfully assist[ed]” a revenue officer “in
the performance of his official duty”).
No federal officer directed Insitu to delay Fidelitad’s
orders or cease doing business with Fidelitad. Cf. CRGT,
Inc. v. Northrop Grumman Sys. Corp., No. 1:12-cv-554,
2012 WL 3776369, at *1–2 (E.D. Va. Aug. 28, 2012)
(holding that a private contractor was acting under a federal
officer when it terminated a subcontractor, because the
government directed the contractor to “halt the provision of
services that were the object of its subcontract”). Indeed,
there is no evidence in the record of any communication
between Insitu and a federal officer about the Fidelitad
orders. 2
Insitu nonetheless insists it was “acting under” a federal
officer because (1) the ITAR provides that a person may not
“knowingly or willfully attempt, solicit, cause, or aid, abet,
2
Insitu’s counsel candidly admitted at oral argument that there was
no such communication. See Oral Argument at 17:25–:36, 28:08–:24.
FIDELITAD V. INSITU 9
counsel, demand, induce, procure, or permit the commission
of any act prohibited by” an export license and (2) it delayed
the orders to ensure Fidelitad complied with the federal
export licenses. See 22 C.F.R. § 127.1(b)(1), (e). But,
“simply complying with the law” does not bring a private
actor within the scope of the federal officer removal statute.
Watson, 551 U.S. at 152 (emphasis omitted); see also Lu
Junhong v. Boeing Co., 792 F.3d 805, 808 (7th Cir. 2015)
(“[A]ll businesses must ensure that they comply with statutes
and regulations.”). In Watson, for example, the plaintiffs’
state court complaint alleged that Philip Morris cigarettes
delivered more tar and nicotine than advertised. 551 U.S. at
146. The company removed the case under § 1442(a)(1),
arguing that it was acting under the direction of a federal
officer because it used a testing method required and closely
monitored by the federal government. Id. at 146–47. The
Supreme Court rejected that argument, holding that
§ 1442(a)(1) did not allow removal simply because a federal
agency “directs, supervises, and monitors a company’s
activities in considerable detail.” Id. at 145, 153. “The
upshot is that a highly regulated firm cannot find a statutory
basis for removal in the fact of federal regulation alone.” Id.
at 153.
Insitu argues that it was not merely complying with
federal regulations but also attempting to enforce specific
provisions in Fidelitad’s export licenses. But, Watson
rejected the proposition that “a company subject to a
regulatory order (even a highly complex order)” is acting
under a federal officer. Id. at 152–53; see also id. at 157
(noting that “differences in the degree of regulatory detail or
supervision cannot by themselves transform . . . regulatory
compliance into” actions taken under a federal officer
(emphasis omitted)). And, Insitu does not claim that the
federal government delegated its authority to Insitu to ensure
10 FIDELITAD V. INSITU
Fidelitad’s compliance with the export license provisions.
See id. at 156 (finding the absence of a “formal delegation”
of authority dispositive, including “any contract, any
payment, any employer/employee relationship, or any
principal/agent arrangement”); see also Lu Junhong,
792 F.3d at 808–10 (finding that an airplane manufacturer
was not “acting under” a federal officer for purposes of a
failure-to-warn suit, although federal law gave the
manufacturer authority to self-certify compliance with the
relevant regulations).
Nor is Insitu entitled to removal as a government
contractor. Watson left open whether contractors “helping
the Government to produce an item that it needs” or to
“fulfill other basic governmental tasks” might remove cases
under § 1442(a)(1). 551 U.S. at 153–54. We have therefore
held that government contractors, in some circumstances,
can “act under” federal officers when producing goods for
the United States military. See Leite, 749 F.3d at 1123–24
(holding that a manufacturer of equipment for the Navy
could remove a failure-to-warn suit alleging asbestos
exposure). But, the government did not contract with Insitu
for the equipment at issue. Rather, Fidelitad ordered the
drones directly from Insitu. Indeed, Insitu does not claim to
have acted pursuant to a directive in any federal contract,
relying instead on the ITAR and Fidelitad’s export licenses.
But the ITAR and export licenses do not “establish the type
of formal delegation that might authorize [Insitu] to remove
the case.” Watson, 551 U.S. at 156. 3
3
Insitu also argues that it is entitled to removal because it was
helping the government achieve foreign policy objectives. We decline
that gambit. Watson, upon which Insitu relies, simply suggests that a
private actor might fall within the terms of the statute if “helping the
FIDELITAD V. INSITU 11
III. Conclusion
Even construed in the light most favorable to Insitu, the
notice of removal does not establish that Insitu was acting
under the direction of a federal officer in its relevant dealings
with Fidelitad. Nor was this defect cured prior to entry of
judgment. See Caterpillar Inc. v. Lewis, 519 U.S. 61, 75–77
(1996); Estate of Bishop ex rel. Bishop v. Bechtel Power
Corp., 905 F.2d 1272, 1275 (9th Cir. 1990). And, no party
has suggested a basis for federal subject matter jurisdiction
other than § 1442(a)(1). We therefore reverse the judgment
of the district court and remand with instructions to remand
this action to state court. 4
REVERSED and REMANDED with instructions.
Government to produce an item that it needs” pursuant to a federal
contract. 551 U.S. at 153. Insitu did not act pursuant to a contract with
the federal government.
4
Because we conclude that Insitu was not acting under the direction
of a federal officer, we need not consider whether Insitu satisfied the
third requirement for § 1442(a)(1) removal—a colorable federal defense.
See Durham, 445 F.3d at 1251. We also, of course, express no view as
to the merits of the causes of action asserted in the amended complaint,
or whether they are properly subject to summary adjudication.