                              In the

United States Court of Appeals
               For the Seventh Circuit

No. 07-1272

H ANSEL D EB ARTOLO and the H.M. D EB ARTOLO , JR., M.D.,
S.C. P ENSION P LAN and T RUST,
                                    Plaintiffs-Appellants,
                             v.

H EALTHS OUTH C ORPORATION, SURGICARE OF JOLIET,
INC., and JOLIET S URGICAL C ENTER, L IMITED P ARTNERSHIP,

                                               Defendants-Appellees.


             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
                No. 06 C 2542—James B. Zagel, Judge.



     A RGUED JANUARY 10, 2008—D ECIDED JUNE 26, 2009




  Before E ASTERBROOK, Chief Judge, and R IPPLE and
R OVNER, Circuit Judges.
  R OVNER, Circuit Judge. Hansel DeBartolo, a surgeon, is
a limited partner in an ambulatory surgical center man-
aged by the general partner, Surgicare of Joliet, Inc. When
DeBartolo failed to certify that his practice at the
facility met the threshold mandated by the partnership
2                                                No. 07-1272

agreement, Surgicare notified him that it was exercising
a clause in the agreement allowing it to buy out his inter-
est. DeBartolo balked and brought this federal action
against Surgicare, its parent company, and the partner-
ship, claiming that the term of the partnership agreement
requiring him to conduct one-third of his surgical
practice at the center violates federal criminal law and
cannot be enforced. The district court dismissed the suit
for failure to state a claim, but because this litigation
is simply a state-law contract dispute between non-
diverse parties, we vacate the judgment and remand
with instructions to dismiss for lack of subject-matter
jurisdiction.


                              I.
  The Medicare and Medicaid Patient Program Protection
Act of 1987, see Pub. L. No. 100-93, 101 Stat. 680, recodified
and strengthened existing criminal prohibitions against
paying physicians to refer patients for medical services
that might be covered by Medicare or Medicaid. When
Congress debated this legislation, however, some
healthcare providers expressed concern that it swept too
broadly and would criminalize even innocuous fee ar-
rangements. See Medicare and State Health Care
Programs: Fraud and Abuse; Clarification of the Initial
OIG Safe Harbor Provisions and Establishment of Addi-
tional Safe Harbor Provisions Under the Anti-Kickback
Statute, 64 Fed. Reg. 63,518, 63,518 (Nov. 19, 1999);
S. R EP. No. 100-109, at 27 (1987), as reprinted in 1987
U.S.C.C.A.N. 682, 707-08. Consequently, the updated
No. 07-1272                                                 3

statute, see 42 U.S.C. § 1320a-7b(b), commonly known as
the Anti-Kickback Act, see McNutt ex rel. United States v.
Haleyville Med. Supplies, Inc., 423 F.3d 1256, 1259 (11th Cir.
2005), includes a “safe harbor” exception for any
payment practice authorized by the Secretary of Health
and Human Services, see Pub. L. No. 100-93, § 14(a), (b)(3),
101 Stat. 680 (1987) (codified at 42 U.S.C. § 1320a-
7b(b)(3)(E)).
  In 1999 the Secretary of HHS used that safe-harbor
authority to permit some payments from ambulatory
surgical centers to qualified physician-investors. See
Medicare and State Health Care Programs, 64 Fed. Reg.
at 63,534 (now codified at 42 C.F.R. § 1001.952(r)). Am-
bulatory surgical centers are non-hospital facilities
equipped with operating and recovery rooms where
physicians perform outpatient surgeries and other pro-
cedures. See Ambulatory Surgery Center Association,
Frequently Asked Questions About Ambulatory Surgery
Centers, http://ascassociation.org/faqs/faqaboutascs/ (last
visited May 28, 2009). HHS was concerned that physician
ownership of ambulatory surgical centers could lead to
violations of the Anti-Kickback Act because the promise
of higher dividends (which would presumably be
roughly proportional to the number of patients using the
center) could provide a financial incentive for physician-
owners to refer patients to the center. See Medicare and
State Health Care Programs, 64 Fed. Reg. at 63,536-37.
Indeed, a facility might even offer shares to physicians
precisely so that it could buy referrals through the guise
of dividends. Id. at 63,536. At the same time, however,
HHS also acknowledged that ambulatory surgical centers
4                                                   No. 07-1272

could legitimately serve as an extension of the office
practice of physicians who would invest for practical
reasons, including physical proximity and a desire to
maintain quality control, and for those investor-physicians,
the risk that dividends would induce improper referrals
was low. Id. at 63,534-37. The Secretary of HHS therefore
crafted safe-harbor conditions designed to authorize
ambulatory surgical centers to make payments to
physician-investors who use the center as an extension
of their office practice. Id.
  Four categories of ambulatory surgical centers received
safe-harbor status, each with slightly different require-
ments. See 42 C.F.R. § 1001.952(r)(1)-(4). The parties
agree that the facility in Joliet, Illinois, owned by the
partnership and managed by Surgicare is a multi-specialty
center and, hence, that 42 C.F.R. § 1001.952(r)(3) provides
the relevant safe harbor. That section reserves safe-
harbor status for payments to physician-owners who
earn at least one-third of their medical income from
performing Medicare-approved procedures and who
perform at least one-third of those procedures at the
center. Id. § 1001.952(r)(3)(ii), (iii), (r)(5). These two thresh-
olds, collectively known as the “one-third/one-third” test,
are designed to ensure that the physician-investor uses
the center as an extension of his or her office practice,
and not as an engine for illegal referral-based compensa-
tion. See Medicare and State Health Care Programs, 64
Fed. Reg. at 63,534-35.
  In 2004 the owners of the Joliet facility sought shelter
in this safe harbor and amended their partnership agree-
No. 07-1272                                              5

ment to require that physician-investors certify annually
that they are meeting the “one-third/one-third” test.
Another amendment compelled noncompliant physician-
investors to sell out to Surgicare or other partners.
DeBartolo had bought into the partnership (through a
trust he controls) in 1981 for $250,000, and had practiced
at the center for many years. Then in 2001 he lost his
surgical privileges at the center and never again
performed a procedure there. He still received dividends,
although, including $91,000 in 2004, but after the partner-
ship agreement was amended, he was unable to certify
that his practice met the “one-third/one-third” test. And
when DeBartolo did not vouch for his safe-harbor eligibil-
ity, Surgicare exercised its right to buy out his interest
and sent him a check representing the cost of his shares
and his portion of undistributed dividends.
  DeBartolo refused the money and initiated this action
in federal court for declaratory and injunctive relief. He
argued that the 2004 amendment requiring physician-
investors to conduct one-third of their surgical practice
at the center, although written to track the safe-harbor
regulation, see 42 C.F.R. § 1001.952(r)(3)(iii), cannot be
reconciled with a different safe-harbor limitation, which
mandates that the “terms on which an investment
interest is offered to an investor must not be related to
the previous or expected volume of referrals, services
furnished, or the amount of business otherwise
generated from that investor to the entity,” id.
§ 1001.952(r)(3)(i). Observing that contract law makes
unenforceable any agreement for the performance of
an illegal act, DeBartolo asked the district court to
6                                              No. 07-1272

declare the amendments void in view of this perceived
conflict, see 28 U.S.C. § 2201, and enjoin Surgicare from
purchasing his shares. As for the district court’s juris-
diction, DeBartolo cited 28 U.S.C. § 1331 and asserted
that his lawsuit poses “a substantial federal question
because the court is required to rule on the legality of
an agreement that, as applied by the Defendants,
violates the federal Anti-Kickback Statute.”
  Surgicare and the other partners did not challenge
DeBartolo’s invocation of federal jurisdiction and argued
instead that the complaint should be dismissed for
failure to state a claim. The defendants reasoned that
DeBartolo, a private litigant, was seeking to enforce the
Anti-Kickback Act, a criminal statute, and they insisted
that Congress had not authorized a private right of
action. Moreover, the defendants contended, the 2004
amendments to the partnership agreement are con-
sistent with the safe harbor. DeBartolo replied that, al-
though he indeed seeks a ruling that the partnership
agreement’s practice threshold is illegal, he is not
pursuing a private right of action under the Anti-
Kickback Act: he simply wants the district court to invali-
date the 2004 amendments to the partnership agreement
on the ground that giving effect to the practice threshold
would violate the statute.
  The district court heeded the defendants and construed
DeBartolo’s suit as an attempt at private enforcement of
the Anti-Kickback Act. Relying on West Allis Memorial
Hospital, Inc. v. Bowen, 852 F.2d 251, 255 (7th Cir. 1988),
which holds that Congress did not authorize private
No. 07-1272                                                7

enforcement when it enacted the statute, the district court
concluded that DeBartolo’s suit fails to state a claim. The
court added, however, that it was skeptical whether it
even possessed subject-matter jurisdiction because, in
the court’s view, the lawsuit essentially is a state-law
contract dispute between parties who are mostly
citizens of Illinois.


                             II.
  In briefing this appeal, both parties included jurisdic-
tional statements asserting that the district court
possessed subject-matter jurisdiction because, they said,
DeBartolo’s lawsuit “arises under” the Anti-Kickback
Act, a federal law. On the merits, however, DeBartolo
argued that the district court had misconstrued his suit
as an attempt at private enforcement of that statute
when instead he wanted the court to apply principles
of state contract law to invalidate the 2004 amendments
to the partnership agreement. For their part, the defen-
dants acknowledged the court’s uncertainty about its
subject-matter jurisdiction but nevertheless contended
that the judgment should be affirmed because the
court’s merits analysis is correct.
  The parties may be content to assume that the
district court had jurisdiction to resolve this dispute, but
we are not. Subject-matter jurisdiction is not an issue
that can be brushed aside or satisfied by agreement
between the litigants, see Arbaugh v. Y & H Corp., 546 U.S.
500, 514 (2006); United States v. Tittjung, 235 F.3d 330, 335
(7th Cir. 2000), and so at oral argument we pressed the
8                                                 No. 07-1272

parties to explain why this lawsuit belongs in federal
court. Neither side has ever asserted that jurisdiction is
supplied by the diversity statute or by some other
source apart from 28 U.S.C. § 1331. That jurisdictional
provision empowers district courts to adjudicate civil
matters arising under federal law, but the parties could
not even agree about the nature of the claim presented
by DeBartolo’s lawsuit. At argument DeBartolo,
perhaps hoping to salvage a second chance in state
court by skirting an affirmance on the merits, quickly
conceded that federal jurisdiction over his lawsuit is
dubious because, he says, it is a contract dispute
between non-diverse parties. In a post-argument sub-
mission DeBartolo has gone further and now concedes
that neither does this state-law contract action neces-
sarily raise a substantial and disputed question of law
concerning the Anti-Kickback Act which would demand
resolution in a federal forum. See Empire Healthchoice
Assurance, Inc. v. McVeigh, 547 U.S. 677, 700-01 (2006);
Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545
U.S. 308, 315-16 (2005); Bennett v. Southwest Airlines Co., 484
F.3d 907, 910-11 (7th Cir. 2007). The defendants, on the
other hand, insist that their dispute with DeBartolo
is not a contract action at all. Rather, they still maintain
that DeBartolo is trying to privately enforce the Anti-
Kickback Act and that, although misguided, this effort
raises a claim under federal law. DeBartolo, they say,
has simply seized the opportunity to change his legal
theory to one under state contract law so as to
frustrate federal jurisdiction.
  In fact, DeBartolo’s position has not shifted. Again and
again—in response to the defendants’ motion to dismiss,
No. 07-1272                                                 9

in his appellate briefs, and at argument—DeBartolo has
insisted that the Anti-Kickback Act renders the 2004
amendments to the partnership agreement unenforceable
and thus provides him with a defense to Surgicare’s
invocation of the amended agreement’s practice
threshold to force him to liquidate his partnership inter-
est. He has consistently maintained that his suit is not an
attempt at private enforcement of the Anti-Kickback Act,
and we agree with DeBartolo that this litigation is simply
a state-law contract dispute. Simply put, the defendants
want to enforce the 2004 amendments to the partnership
agreement against DeBartolo, and he wants to prevent
them from doing so. It is the import of these competing
goals that the defendants fail to appreciate; Surgicare, not
DeBartolo, precipitated this dispute when it tried to force
DeBartolo to exit the partnership, and it is the defendants
who are unwilling to countenance DeBartolo’s refusal to
accept Surgicare’s money and relinquish his stake in the
Joliet facility. And rather than wait for the defendants to
sue to enforce their asserted contractual right to buy him
out, DeBartolo took preemptive action.
  The Declaratory Judgment Act, 28 U.S.C. § 2201, allows
a party like DeBartolo who expects to eventually be
sued, to determine his rights and liabilities without
waiting for his adversary, the presumptive plaintiff, to
bring suit. Pub. Serv. Comm’n v. Wycoff Co., 344 U.S. 237,
248 (1952); Ceres Terminals, Inc. v. Indus. Comm’n of Ill., 53
F.3d 183, 185 (7th Cir. 1995). That act, however, is not an
independent grant of federal subject-matter jurisdiction,
so jurisdiction depends upon the nature of the
anticipated claims. Samuel C. Johnson 1988 Trust v. Bayfield
10                                               No. 07-1272

County, 520 F.3d 822, 827-28 (7th Cir. 2008). Thus, although
the presence or absence of a federal question normally
turns on an examination of the face of the plaintiff’s
complaint, Nelson v. Stewart, 422 F.3d 463, 466 (7th Cir.
2005), in an action for declaratory judgment the posi-
tions of the parties are reversed: the declaratory-
judgment plaintiff would have been the defendant in
the anticipated suit whose character determines the
district court’s jurisdiction, e.g., County Materials Corp. v.
Allan Block Corp., 502 F.3d 730, 734 (7th Cir. 2007),
cert. denied, 128 S. Ct. 1709 (2008); Ne. Ill. Reg’l Commuter
R.R. Corp. v. Hoey Farina & Downes, 212 F.3d 1010, 1014
(7th Cir. 2000); Cardtoons, L.C. v. Major League Baseball
Players Ass’n, 95 F.3d 959, 964 (10th Cir. 1996). Conse-
quently, DeBartolo’s complaint, which invokes the Anti-
Kickback Act as a defense to his partners’ anticipated state-
law contract action to enforce their rights under the
partnership agreement, cannot be a source of federal
jurisdiction unless DeBartolo’s statutory defense raises
a pure question of federal law of the caliber at stake in
Grable & Sons Metal Products, Inc., 545 U.S. 308 (2005),
which, even the defendants concede, it does not. See
Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S.
1, 16 (1983); Wycoff Co., 344 U.S. at 248; Samuel C. Johnson
1988 Trust, 520 F.3d at 827-28; Ne. Ill. Reg’l Commuter R.R.
Corp., 212 F.3d at 1014. After all, a federal defense
does not establish federal-question jurisdiction. Merrell
Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 808 (1986); Blue
Cross Blue Shield of Ill. v. Cruz, 495 F.3d 510, 512 (7th
Cir. 2007). In the context of this action for a declaratory
judgment, therefore, the allegations in DeBartolo’s com-
No. 07-1272                                               11

plaint must demonstrate that the defendants could file
a federal claim. See Stuart Weitzman, LLC v. Microcomputer
Res., Inc., 542 F.3d 859, 862 (11th Cir. 2008); County
Materials Corp., 502 F.3d at 734; Rodriguez v. Tenn. Laborers
Health & Welfare Fund, 463 F.3d 473, 476-77 (6th Cir. 2006);
Ne. Ill. Reg’l Commuter R.R. Corp., 212 F.3d at 1014. The
defendants, however, have not attempted to identify any
federal claim they might have brought, and we can
think of none. DeBartolo’s lawsuit has belonged in state
court all along, and it must be pursued in that forum if
at all.


                            III.
  Accordingly, we V ACATE the district court’s order and
R EMAND with instructions to dismiss for lack of subject-
matter jurisdiction.




                           6-26-09
