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Children of the Rainbow Head Start, LLC v. Neighborhood House Association

September 23, 2011


The opinion of the court was delivered by: Hon. Jeffrey T.Miller United States District Judge


Plaintiffs Children of the Rainbow Headstart, LLC ("COTRHS"), Children of the Rainbow, Inc. ("COTR") and Gail Walker (collectively "Defendants") move to remand this action to state court. Defendants Neighborhood House Association Inc. ("NHA"), Rudolph A. Johnson III, and Norma Johnson move to dismiss the complaint. All motions are opposed. Pursuant to Local Rule. 7.1(d)(1), these matters are appropriate for decision without oral argument. Having carefully considered the papers of the parties, the court record, and appropriate legal authorities, the court denies the motion to dismiss as moot and grants the motion to remand. The Clerk of Court is instructed to remand this action to state court.


On June 29, 2011, Plaintiffs commenced this action in the Superior Court of California, County of San Diego, alleging ten causes of action for breach of contract, breach of the covenant of good faith, promissory estoppel, intentional and negligent interference with prospective economic advantage, restitution, unfair business practices under §17200, express indemnity, and declaratory relief. On August 10, 2011, Defendants removed the action to this court. (Ct. Dkt. 1).

NHA, a non-profit public benefit corporation, is the San Diego County "grantee agency" for purposes of the Head Start Act, 42 U.S.C. §9831 et seq. Health and Human Services ("HHS") designated NHA as San Diego's grantee agency in the 1970s. Grantee agencies may subcontract with other child-serving agencies to provide services to Head Start children. Between January 2007 and June 2011 COTRHS and COTR, both for-profit entities, were subcontractors to NHA.

In broad brush, Defendants allege that NHA breached the payment provisions of the Service Agreement between the parties and wronged them by requiring them to purchase all food supplies from NHA at higher than market prices, by requiring Ms. Walker of COTR to pay NHA $240,000, by improperly administering the payroll systems of COTR, by overcharging for leased office space, by overcharging for payroll services, by unlawfully requiring COTR to enter into transportation agreements with NHA, by operating and then transferring an unlicensed facility to COTR, and by attempting to force COTR out of business. (Compl. ¶¶32-72).

In a related case, Neighborhood House Association v. Children of the Rainbow Head Start, LLC, et al., No. 11cv1965 JM(POR), on August 25, 2011 NHA commenced an action against Plaintiffs herein seeking declaratory judgment, injunctive relief, and recovery and accounting. On September 15, 2011, this court granted NHAs's motion for a temporary restraining order and required Plaintiffs herein to return all files and all other property purchased by, or procured through, federal Head Start funds. (No. 11cv1965; Ct. Dkt. 16).


The Motion to Dismiss

The court denies the motion to dismiss as moot for two reasons. First, for the below stated reasons, the court concludes that it lacks federal question jurisdiction of this action. Second, the motion to dismiss targets the original complaint that has been superseded by the operative First Amended Complaint filed on September 6, 2011. (Ct. Dkt. 11). The motion to dismiss is denied as moot.

The Motion to Remand

Defendants timely removed this action asserting federal question jurisdiction pursuant to 28 U.S.C. §1331. A state court civil action may be removed to federal court if the district court had "original jurisdiction" over the matter. 28 U.S.C. §1441(a). Federal question removal jurisdiction is determined from the face of the complaint as it existed at the time of removal.*fn1 Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1065 (9th Cir. 1979); Rivet v. Regions Bank of Louisiana, 522 U.S. 470, 475 (1998) (whether a claim arises under federal law is determined by the "well-pleaded complaint rule"). Defendants, as the parties who invoke federal removal jurisdiction, have the burden of demonstrating the existence of federal jurisdiction. See Gaus v. Miles, Inc. 980 F.2d 564, 566 (9th Cir. 1992); B., Inc. v. Miller Brewing Co., 663 F.2d 545 (5th Cir. 1981). Any doubts regarding removal jurisdiction are construed against Defendants and in favor of remanding the case to state court. See Gaus, 980 F.2d at 566.

Plaintiffs argue that all claims arise under state law and therefore there is no basis for federal question jurisdiction. This argument is not persuasive - - even though couched as a state law claim, the district court has original federal question jurisdiction where the claim is an "inherently federal claim" articulated in state law terms and "the right to relief depends on the resolution of a substantial, disputed federal question." Lippitt v. Raymond James Financial Services, Inc., 340 F.3d 1033, 1044 (9th Cir. 2003). To determine the existence of a substantial disputed federal question, the court asks whether "the federal question [is] 'basic' and 'necessary' as opposed to 'collateral' and 'merely possible.'" Id. (citations omitted).

Defendants contend, citing Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U.S. 308 (2005), that the underlying claims implicate "significant federal issues arising under the Head Start Act" such that the claims are inherently federal claims. (Oppo. at p.4:10-11). This argument is not persuasive. Grable concerned the sale of property by the Internal Revenue Service seized to satisfy a federal tax delinquency. The taxpayer then brought a quiet title ...

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