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Federico v. Lincoln Military Housing
Citations: 901 F. Supp. 2d 654; 2012 WL 5377800Docket: Civil No. 2:12cv80
Court: District Court, E.D. Virginia; October 18, 2012; Federal District Court
Plaintiffs Shelley and Joe Federico are suing Defendants Lincoln Military Housing LLC (LMH), Mid-Atlantic Military Family Communities LLC (Mid-Atlantic), LPC Property Management, Inc. (LPC), and John Doe for personal injuries and property damages. Their case, initially filed in the Circuit Court for the City of Norfolk, Virginia, was removed to federal court, where the Plaintiffs filed a Motion to Remand to state court under 28 U.S.C. § 1447, which the Court denied. The Federicos, a military family, allege that while living in military housing managed by LMH in Norfolk, Virginia, they were exposed to excessive moisture and mold, leading to property damage and health issues, particularly for Shelley Federico. Their claims include negligence for failing to keep the premises safe from toxic conditions, breach of contract, and violations of the Virginia Residential Landlord and Tenant Act. They seek $250,000 in property damages, $3,500,000 for personal injuries, and $500,000 in punitive damages. Defendant LMH, a Delaware LLC not registered in Virginia, is linked to LPC, a Texas-based property management company managing military housing. The Federicos assert LMH owns military housing in the area and is involved in a Department of Defense housing privatization program. Defendants maintain that LMH is not connected to the alleged events and intend to seek dismissal. Mid-Atlantic, a registered Delaware LLC in Virginia, is identified as the owner/landlord in the leasing agreements. Defendant Lincoln Property Company Property Management, Inc., a Virginia corporation, serves as the authorized agent for Mid-Atlantic and is responsible for managing maintenance activities for Plaintiffs’ military housing. The defendants describe Mid-Atlantic's relationship with the Navy as a public-private venture (PPV) established by the Defense Authorization Act (P.L. 104-106, 1996), which initiated the Military Housing Privatization Initiative (MHPI) aimed at enhancing the quality of housing for service members. The MHPI permits the Secretary of Defense to engage in PPVs with private developers for military housing management and operations. Under 10 U.S.C. § 2873, the Secretary can offer direct loans to eligible entities with conditions to protect U.S. interests. Section 2874 allows for contracts leasing housing units for military use with flexible lease terms and operational responsibilities assigned to property owners. Section 2875 outlines investment forms in PPVs, including limited partnership interests, stock purchases, and debt instruments, while imposing limits on the value of cash investments or properties involved. Section 2878 enables the Secretary to convey or lease property to facilitate activities under the MHPI. Two funds established in 10 U.S.C. § 2883(a) — the Department of Defense Family Housing Improvement Fund and the Military Unaccompanied Housing Improvement Fund — will receive proceeds from property transactions and related income. These funds can be utilized for contract planning and administration, alongside oversight and accountability measures detailed in sections 2884 and 2885. The Secretary is mandated to report to Congress on each contract, detailing terms, authorities used, participation methods, cost estimates, funding requirements, economic assessments of life cycle costs, and guarantees involving private parties (2884(a)). Additionally, the Secretary of Defense must provide an annual report on fiscal year expenditures and receipts for established funds, evaluate the effectiveness of statutory authorities, estimate basic housing allowances, outline housing privatization plans, and report on best practices for housing initiatives (2884(b)). The Secretary is also required to create regulations for managing military housing privatization projects, which include monthly site visits, quarterly progress reports, regular meetings for compliance with agreements, and requirements for contractor qualifications and performance oversight (2885). Plaintiffs assert that the Military Housing Privatization Initiative (MHPI), enacted in 1996 due to deteriorating military housing conditions, allows long-term leases to private developers with federal funding and guaranteed income through service members' housing allotments. They claim that initial estimates for improving military housing approached $20 billion, with government contributions potentially reaching $8 billion, placing a significant financial burden on developers. Defendants indicate that Mid-Atlantic, a Public-Private Venture (PPV) entity owned by the Navy and Lincoln Family Communities, holds a fifty-year ground lease for Norwich Manor and other housing in Virginia and Maryland, which was originally established in 2005 and later assigned to Mid-Atlantic. An omnibus assignment agreement, acknowledged by the Navy, facilitated the establishment of Mid-Atlantic, a public-private venture formed with Lincoln Family Communities, LLC (LFC) as the Managing Member and the Navy as a member. The Operating Agreement delineates Mid-Atlantic's purpose to manage various residential units and related properties in support of Navy and Marine Corps operations, including leasing, designing, and maintaining these properties. While the Navy retains ownership of the land, it conveys ownership of improvements to the lessee for the Ground Lease term. LFC is tasked with making capital contributions to Mid-Atlantic, while the Navy Member also contributes in two installments. LFC has exclusive management authority, including the ability to litigate on behalf of Mid-Atlantic. However, the Navy retains significant decision-making power, such as approving budgets, overseeing debt acquisition, and inspecting properties for compliance with environmental laws. Additionally, the Navy Member identifies preferred tenants and sets rental fees based on housing allowances. Notably, the Operating Agreement explicitly denies indemnification for Mid-Atlantic and its affiliates by the federal government and military departments. Mid-Atlantic indemnifies the Navy for claims, except for [redacted] misconduct, agreeing to cover the legal defense, judgments, and settlements for the Navy. However, the Operating Agreement specifies that the Navy is not indemnified for any losses related to its original capital contribution and limits its liability to that extent. The Navy is not liable for the company's obligations, debts, or losses, nor required to provide additional funding. Mid-Atlantic generates income through rent from military tenants' Basic Allowance for Housing. The Operating Agreement outlines the allocation of project revenues and mandates the establishment of multiple accounts: Project Recapitalization, Capital Repair and Replacement, Pledged Quality of Life, Surplus Quality of Life, and Operating Reserve Accounts. The Capital Repair and Replacement, along with the Pledged Quality of Life Account, addresses Project Debt while the Project Recapitalization Account is designated for the Project’s benefit, funded by Gross Operating Revenue. Withdrawals from this account require Navy Member approval, and upon Mid-Atlantic's termination, remaining funds will be distributed to the Navy Member. The Surplus Quality of Life Account functions similarly, allowing funds for operating expenses, debt, project costs, and amenities, with Navy Member agreement required for expenditures. The Operating Reserve Account is a separate interest-bearing account solely for the Navy Member's benefit, also for project-related uses. Monthly gross operating revenue is allocated first to operating expenses, debt service, and reserve accounts, with any remaining cash flow distributed to the Managing Member and then to the Operating Reserve Account for the Navy Member's benefit. The Ground Lease between Mid-Atlantic Military Family Communities LLC and the U.S. Department of the Navy spans fifty years, allowing Mid-Atlantic to lease land and government facilities for a Department of the Navy Public/Private Venture. Upon lease termination, all improvements and personal property revert to the Navy. Mid-Atlantic accepts the property "as is," with no warranties or obligations for repairs from the Navy. Responsibilities for pre-existing conditions, including mold, are allocated, with Mid-Atlantic assuming responsibility for mold issues. Modifications to existing improvements require prior Navy approval, though nonstructural and cosmetic changes are permitted. Mid-Atlantic indemnifies the Navy as outlined in the agreement. The Property Management Agreement establishes LPC Property Management, Inc. as the exclusive manager for the Mid-Atlantic Project, responsible for leasing and operational management. LPC must negotiate leases using a standard form approved by Mid-Atlantic and the Navy and requires consent from Mid-Atlantic for maintenance and repairs exceeding a specified amount. LPC is also tasked with implementing a preventative maintenance program, needing prior approval for significant expenditures. The Norwich Manor housing community in Norfolk, Virginia, where the plaintiffs reside, was acquired by the Navy through a condemnation action in 1942 for $122,011. Both parties acknowledge that the federal government obtained exclusive jurisdiction over this property post-condemnation. On May 8, 1984, Leon Kahn, representing the Naval Facilities Engineering Command, communicated with Virginia Governor Charles Robb to seek a change in jurisdictional status for Navy-owned lands in Norfolk, including Norwich Manor, transitioning from exclusive U.S. jurisdiction to concurrent legislative jurisdiction with Virginia. This transition was executed under 10 U.S.C. § 2683, with documentation confirming that Norwich Manor was included in the relinquished jurisdiction. Both parties currently acknowledge shared jurisdiction over Norwich Manor. Procedurally, on January 11, 2012, Plaintiffs initiated a lawsuit in the Norfolk Circuit Court for property damage and personal injury, citing multiple legal claims, including violations of the Virginia Residential Landlord and Tenant Act. Defendants removed the case to federal court on February 10, 2012, citing federal jurisdiction. Plaintiffs subsequently filed a motion to remand the case back to state court, prompting hearings and the need for further examination of relevant contracts due to the complexity of the involved entities. The Court has since taken additional steps to assess jurisdiction before proceeding with the case. The applicable law section outlines that defendants can remove civil actions with federal jurisdiction from state to federal court under 28 U.S.C. §§ 1441, 1442, with the burden of proof on the removing party to establish jurisdiction and a strict construction against removal due to federalism concerns. If the court finds a lack of subject matter jurisdiction at any point, the case must be remanded to state court. Defendants argue that the case is appropriately in federal court due to events occurring on a federal enclave, invoking federal question jurisdiction under 28 U.S.C. § 1331. Federal enclave jurisdiction is established under Article I, section 8, clause 17 of the U.S. Constitution, allowing Congress to legislate over land purchased with state consent for specific federal purposes. The Supreme Court has recognized that determining if exclusive jurisdiction exists over such enclaves falls under federal question jurisdiction per 28 U.S.C. § 1331. A federal enclave can emerge from federal acquisition of land with state approval. In this case, all parties agree that the plaintiffs' claims arise on a federal enclave shared by the United States and Virginia. The critical issue is whether federal jurisdiction applies to state law claims on such an enclave with concurrent jurisdiction. Various case precedents show differing interpretations of this issue, and this case is unique due to its involvement of a public-private venture. Some federal courts, including the Fourth Circuit, have allowed removal of state claims to federal court if incidents occurred on a federal enclave, as illustrated in cases like Durham v. Lockheed Martin Corp. and Akin v. Ashland Chemical Co. The Ninth Circuit has also affirmed that federal courts possess jurisdiction over tort claims from federal enclaves, even when state courts have concurrent jurisdiction, as demonstrated in Willis v. Craig. The Ninth Circuit indicated that concurrent state jurisdiction does not negate federal jurisdiction for tort claims arising on federal enclaves, aligning with reasoning from the Fifth Circuit in Mater v. Holley. The case of Mater revolves around a negligence claim that took place within Fort McPherson, a federal enclave in Georgia, where jurisdiction was ceded to the United States by the state. Georgia maintained limited concurrent jurisdiction for state processes and public utility regulation. The Fifth Circuit acknowledged divergent opinions regarding federal jurisdiction for personal injury claims on military reservations but ultimately determined that such jurisdiction exists. This conclusion was supported by the Supreme Court's ruling in Chicago, Rock Island, Pacific Ry. Co. v. McGlinn, which established that laws from the surrendering sovereign remain effective until altered by the new sovereign. The Fifth Circuit emphasized that federal law adopts existing state laws regarding negligence and wrongful death in areas under exclusive federal jurisdiction, as per 16 U.S.C. § 457. The court articulated that while Georgia law ceased to exist in its original state upon cession, it persisted as federal law under U.S. sovereignty. The presence of concurrent state jurisdiction does not undermine existing federal jurisdiction. This principle affirms that when land is ceded to the United States, the state laws in force at that time continue as federal law, allowing for subject matter jurisdiction under 28 U.S.C. § 1331. The Fourth Circuit subsequently endorsed Mater in Stokes v. Adair, which involved an accident on Fort Leavenworth, reinforcing the established legal framework regarding federal enclaves. The Fourth Circuit confirmed that the district court had jurisdiction over matters involving federal reservations both through general legal principles when a state cedes exclusive territory to the U.S. and under specific statutory provisions (16 U.S.C. 457). It clarified that personal injury actions occurring on federal reservations could also be pursued in state courts but noted that the concurrent jurisdiction present in previous cases was significantly less than that of the Commonwealth of Virginia in the current matter. Prior cases, such as Humble Pipe Line Co. v. Waggonner, involved exclusive federal jurisdiction over land with limited state reservations, and the Supreme Court reaffirmed the U.S.'s retained jurisdiction even after leasing parts of the land. The Ninth Circuit has applied the principles from Mater to cases with full concurrent jurisdiction, while the Akin case illustrated the need for a federal forum for tort claims arising on federal enclaves to avoid state interference with federal interests. The court emphasized that the presence of federal questions justifies federal jurisdiction, and this was supported by the Tenth Circuit's ruling that personal injury claims from incidents on federal enclaves could be removed to federal court under federal question jurisdiction. Plaintiffs challenge the rulings of the Ninth and Tenth Circuits by citing a decision from the Eastern District of Virginia, Melendez v. Glastic Corp., where Magistrate Judge Tommy Miller disagreed with the Akin analysis while favoring Fowler v. Dodson, Pratt v. Kelly, and Sylvane v. Whelan as more persuasive. In Fowler, a collision between two Pennsylvania citizens in Shenandoah National Park led to an examination of jurisdiction, as the park was under concurrent civil jurisdiction of both the U.S. and Virginia. The court determined it lacked jurisdiction due to the absence of diversity and clarified that the events did not occur on a federal enclave, nor did the U.S. have exclusive jurisdiction over the lands. The plaintiffs in Fowler relied on the Act of August 19, 1937, which established federal jurisdiction over the park but maintained concurrent jurisdiction for Virginia state courts over civil actions. The defendants argued that the statute did not confer jurisdiction to federal courts, a position the court supported after reviewing the legislative history, concluding that the statute's intent was to clarify federal jurisdiction while preserving state concurrent jurisdiction. The 1940 law ceded exclusive criminal and police jurisdiction to the U.S. but expressly reserved concurrent civil jurisdiction to Virginia. The amendment in 1942 aimed to facilitate the efficient enforcement of laws and regulations applicable to the park. Plaintiffs' reliance on the amendment indicating Virginia's reservation of concurrent jurisdiction over civil actions suggests that district courts were not granted new jurisdiction for civil actions occurring within the Park. This inference arises from the language in 403c-l(g), which closely mirrors a 1940 Virginia statute, indicating that Virginia intended to maintain its traditional jurisdiction rather than confer federal jurisdiction. The court concluded that Virginia never intended to cede concurrent jurisdiction to the federal government and that the Shenandoah National Park does not constitute a federal enclave with exclusive federal jurisdiction. In similar cases, such as Pratt and Sylvane, it was established that the Commonwealth retained jurisdiction over civil matters even after ceding land to the United States, as long as there was no exclusive federal jurisdiction. Consequently, federal question jurisdiction under 28 U.S.C. 1331(a) or 16 U.S.C. 457 is not applicable in these circumstances, as Virginia explicitly reserved its civil jurisdiction. Litigants benefit from a well-established legal system for dispute resolution. The cases mentioned involve land ceded to the United States, where the states retained concurrent jurisdiction. In the present case, the U.S. had exclusive jurisdiction over the land until it ceded concurrent jurisdiction back to the Commonwealth. The Melendez case, arising from the same federal enclave, involved an explosion at the Norfolk Naval Base where the plaintiff sought damages under state law. The court noted that the land in Melendez was acquired in 1963, with concurrent jurisdiction reserved for crime-related matters. It determined that the fact injuries occurred to a federal employee did not establish a federal question, asserting that state courts are the proper venue for cases arising under concurrent jurisdiction. The court rejected the notion that state laws would convert to federal law under 28 U.S.C. 1331, stating that the Melendez decision misinterpreted relevant case law. Additionally, the case of United States v. Schuster addressed a criminal case involving unauthorized use of a vehicle from the Norfolk Naval Base, where jurisdiction was contested. The land had been leased by the federal government for naval purposes and accepted concurrent jurisdiction under a Virginia state statute. Conditional consent from the Commonwealth of Virginia is granted for the United States to acquire land in Virginia for specific military and governmental purposes, including customs houses and military bases, through various means such as purchase or condemnation. The Commonwealth cedes concurrent legislative, executive, and judicial jurisdiction to the United States over these lands, particularly concerning the commission and prosecution of crimes. Judge Hoffman confirmed that Virginia has ceded this jurisdiction for crimes on leased naval base property and noted that such cessions are lawful to achieve public benefits. The court asserted its jurisdiction over crimes in the special maritime and territorial jurisdiction of the U.S. due to this cession. The discussion further highlights the existence of concurrent jurisdiction over Norwich Manor, with plaintiffs arguing that the Enclave Clause only applies to lands with exclusive federal jurisdiction, while defendants contend that original jurisdiction can exist without exclusivity. The court leans on the Akin case for its reasoning and disagrees with the Melendez decision, which denied federal question jurisdiction for state law claims arising on federally controlled lands with concurrent jurisdiction. The Court finds Melendez’s refusal to consider federal questions overly broad, neglecting a detailed examination of the claims and parties involved. It disagrees with Melendez's interpretation of Fowler, Pratt, and Sylvane, determining that those cases are not applicable to the current situation. In Fowler, Pratt, and Sylvane, the Commonwealth of Virginia had ceded land to the United States while retaining concurrent jurisdiction, which led to the conclusion that state law did not become federal law for claims on that land. Specifically, legislative history revealed that Virginia intended to retain jurisdiction for civil causes of action when the land was ceded. In contrast, the Norfolk Naval Base land was purchased by the United States, and Virginia only reserved concurrent jurisdiction for criminal matters and limited tax rights. Since Virginia did not reserve jurisdiction over civil actions, state law continued to operate as federal law upon the land's purchase. In 1984, the Navy shifted to concurrent legislative jurisdiction with Virginia over the base. The Melendez court misinterpreted the implications of Fowler, Pratt, and Sylvane regarding concurrent jurisdiction, asserting that Virginia's laws did not remain as federal law. Additionally, the Melendez decision was based on the existence of a state court forum for the plaintiff's action, a stance that was influenced by language from Sylvane, which referenced a case where Virginia explicitly retained exclusive civil jurisdiction—a situation that differs from the concurrent jurisdiction present in both Melendez and the current case. The Court strongly disagrees with the Melendez decision, asserting that the existence of a state court forum does not preclude federal jurisdiction for claims arising on federal enclaves. It emphasizes the appropriateness of the Akin analysis in determining federal court jurisdiction over state law claims in such contexts, noting that concurrent jurisdiction does not eliminate federal court authority. Citing precedents from the Fifth, Ninth, and Tenth Circuits, the Court reinforces that concurrent jurisdiction is irrelevant when assessing whether substantial federal interests are at stake. The Akin case specifically supports the notion that federal jurisdiction should be maintained to avoid state interference in matters with significant federal implications. The Court highlights Judge Hoffman’s ruling in United States v. Schuster, which upheld federal jurisdiction despite concurrent state authority in a similar scenario. Overall, the Court finds the reasoning in Akin to be persuasive, asserting that federal courts should adjudicate controversies on federal enclaves, even when state law claims are involved, to safeguard substantial federal interests. The Court concludes that the mere presence of concurrent jurisdiction does not bar federal courts from hearing state law claims and that a compelling argument for federal enclave jurisdiction must be established for cases presented. The Court determines that the case presents substantial federal interests justifying federal jurisdiction. Unlike prior cases (Fowler, Pratt, and Sylvane) which involved tort actions on federal land without implicating federal interests, this case significantly involves the United States Navy. Plaintiff Joe Federico, a Gunnery Sergeant in the Marine Corps, alleges issues related to mold and moisture in military housing controlled by Defendants associated with the Norfolk Naval Base. The housing is located on a federal enclave and is governed by the Military Housing Privatization Initiative, which allows the Navy to engage in a public-private venture for military housing management. This initiative has strict reporting obligations to Congress and affects the operations of private developers, who are incentivized to prioritize profit over maintenance, negatively impacting military personnel. The Navy retains ownership of the housing and land, having leased it to the public-private entity, Mid-Atlantic, to which it has conveyed 5,500 units and contributed nearly $170 million. The Navy's involvement includes oversight of financial decisions and operational budgets within the partnership. The Navy retains the authority to inspect properties for compliance with environmental laws and can engage third-party vendors for annual tenant satisfaction surveys. It establishes rental fees and lease terms for Mid-Atlantic, which primarily generates income through rent. The Navy provides service members with a Basic Allowance for Housing to pay the rent it sets. This arrangement characterizes a military housing privatization initiative where the Navy oversees a real estate venture managed by Mid-Atlantic. The plaintiffs argue that a federal question is not presented due to the separation of financial management and operations. However, the Court finds that the Navy exercises significant control over Mid-Atlantic and its housing communities, despite delegating management to LPC. The Navy encourages service members to report health and safety issues, indicating ongoing involvement. Plaintiffs reference Delaware limited liability law to argue that Mid-Atlantic operates independently, shielding the Navy from liabilities. Under Delaware law, capital contributions to Mid-Atlantic become company assets, and the Navy has no further funding obligations for the project. The Operating Agreement specifies that the Navy is not liable for additional funds and outlines requirements for cash flow distribution. Nonetheless, the Court concludes that substantial federal interests are involved, despite the Navy's indemnification and the separation of assets. The Operating Reserve Account holds funds solely for the benefit of the Navy member, indicating the Navy’s ongoing financial interest in the operation of Mid-Atlantic, which is impacted by the litigation's outcome. This case is one of nine already filed in state court, with plaintiffs' counsel delaying service on defendants in eight cases pending a jurisdiction ruling. These cases collectively seek over $20 million in compensatory damages and nearly $3 million in punitive damages, significantly affecting Mid-Atlantic's finances and the Navy’s funds from the Reserve Account. The Navy retains ownership of the homes, which cannot be sold by Mid-Atlantic, and any improvements revert to the Navy. The homes are non-taxable by the City of Norfolk since they belong to the federal government. The case involves property law, including allegations of mold and issues related to design, maintenance, and repairs, with the Navy having built and maintained the homes with oversight. Given these factors, the case demonstrates substantial federal interests, justifying federal jurisdiction over the state law claims. The Court concludes that to determine jurisdiction over civil claims on a federal enclave, it must first establish the claims occurred on such an enclave and ascertain whether the U.S. has exclusive or concurrent jurisdiction, noting the significance of the Navy’s prior exclusive jurisdiction and subsequent ceding of concurrent jurisdiction to Virginia. Concurrent jurisdiction over civil actions necessitates a determination by the district court of the importance of a federal forum to prevent state interference with significant federal interests. The state court's concurrent jurisdiction is deemed irrelevant to the presence of a federal question. If a case involves substantial federal interests, federal enclave jurisdiction may apply. In this instance, the claims arise from events at Norwich Manor, a federal enclave under U.S. exclusive jurisdiction since February 12, 1942. Although the U.S. Navy relinquished exclusive jurisdiction to concurrent legislative jurisdiction with Virginia on September 18, 1984, the Court finds that federal jurisdiction persists due to the nature of the allegations, including involvement of an active duty service member and the implications of the military housing privatization initiative. The Navy's substantial financial interests in the ongoing operation of Mid-Atlantic, coupled with the federal nature of the claims, justify federal question jurisdiction. The Court concludes that removal to federal court is appropriate, denying the Plaintiffs' Motion to Remand, and instructs the Clerk to file the Opinion and Order under seal temporarily. Defendants' removal was based on three grounds: 1) federal enclave jurisdiction under 28 U.S.C. § 1331; 2) actions taken under a federal officer pursuant to 28 U.S.C. § 1442(a)(1); and 3) Mid-Atlantic's status as a federal agency under 28 U.S.C. § 1442(a)(1). Following the United States' Notice of Removal, Defendants have agreed to withdraw their arguments under section 1442(a)(1), and the United States has not commented on Defendants' claim of federal enclave jurisdiction. Plaintiffs reference several cases, including Nicodemus v. Union Pac. Corp. and Pinney v. Nokia, to support their application of the well-pleaded complaint rule, which posits that a case arises under federal law if the complaint establishes that federal law creates the cause of action or if the plaintiff's right to relief hinges on substantial federal questions. However, the Court finds Plaintiffs' application of this rule misplaced, as none of the cited cases involved federal enclaves, making them distinguishable from the current case. The Court emphasizes that claims arising on federal enclaves provide a distinct basis for federal question jurisdiction. Additionally, the Court notes a citation omission in the Melendez case regarding Sylvane, and references McWilliams Jr. and Callison to illustrate that concurrent jurisdiction does not negate a defendant's right to removal, highlighting that the Fourth Circuit has not interpreted concurrent jurisdiction as an automatic bar to federal court jurisdiction.