In the
United States Court of Appeals
For the Seventh Circuit

No. 00-1987

TRANSIT EXPRESS, INCORPORATED,

Plaintiff-Appellant,

v.

JOEL P. ETTINGER, Regional Administrator
of the Federal Transit Administration for
Region V, U.S. Department of Transportation,

Defendant-Appellee.



Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 3415--Charles P. Kocoras, Judge.


Argued September 26, 2000--Decided April 12, 2001



  Before COFFEY, RIPPLE, and ROVNER, Circuit Judges.

  COFFEY, Circuit Judge. On May 21, 1999, Transit
Express, Incorporated, filed a one-count
complaint in the United States District Court for
the Northern District of Illinois seeking
declaratory relief and review of an
administrative decision issued by the Federal
Transit Administration. The complaint asserted
that Transit Express had been improperly excluded
from receiving monies from a federal program
designed to provide transportation services to
the elderly and persons with disabilities. The
district court dismissed the complaint after
ruling that the court lacked subject matter
jurisdiction because there was no federal
question involved in the case. We affirm.

I.   BACKGROUND
A.   Statutory and Regulatory Background

  The Federal Transit Authority is a grant-making
agency within the United States Department of
Transportation authorized under Chapter 53 of
Title 49 of the United States Code to award
monetary grants to states in order that they may
finance the planning, development, construction,
and improvement of mass transportation
facilities. 49 U.S.C. sec. 5310(f). The Wisconsin
Department of Transportation ("WisDOT"), and
therefore Wisconsin, is one of the participants
in this program.

  Under 49 U.S.C. sec. 5310, the "Elderly Persons
and Persons with Disabilities Program," state
agencies may apply directly to the Federal
Transit Authority for funding so the agencies can
meet the special transportation needs of the
elderly and the disabled in their state.
According to the FTA, the goal of the program is

to improve mobility for the elderly and persons
with disabilities throughout the country. Toward
this goal, FTA provides financial assistance for
transportation services planned, designed, and
carried out to meet the special needs of the
elderly and persons with disabilities in all
areas--urbanized, small urban, and rural.

FTA Circular 9070.1E.

  Furthermore, Section 5310 funds are disbursed to
the states through a formula that is based upon
the number of elderly persons and persons with
disabilities residing in each state as determined
in the last U.S. census. Id. at Chapter II,
paragraph 3. Once in receipt of federal funds, a
state agency, in this case WisDOT, has the option
of using the funds to either: (1) purchase
equipment, such as vans and buses; or (2)
subsidize services that transport elderly persons
and persons with disabilities. 49 U.S.C. sec.
5323(a).


  1.   FTA Circulars 4220.1D and 9070.1E

  The United States Secretary of Transportation is
entrusted with the responsibility of promulgating
rules and regulations establishing the standards
for participation in the Section 5310 program. 49
U.S.C. sec. 5310(f). There are two FTA Circulars
that are relevant to the disposition of the
claims in this case: (1) Circular 9070.1E (the
"Section 5310 Program Circular"); and (2)
Circular 4220.1D (the "Third Party Procurement
Circular"). Circular 9070.1E sets forth
requirements that FTA recipients (state agencies)
must adhere to when providing sub-grants to
qualifying entities, such as non-profit
organizations, under the Section 5310 program.
Chapter I of the Section 5310 Program Circular
states that a state agency that receives funds,
in this case WisDOT, has the principal authority
and responsibility for administering the Section
5310 program. WisDOT is responsible for notifying
eligible local entities of funding availability,
developing project selection criteria,
determining applicant eligibility, and selecting
projects for funding. FTA Circular 9070.1E,
Chapter I./1

  WisDOT implements the Section 5310 program by
extending sub-grants to eligible, non-profit
organizations serving the elderly and persons
with disabilities needing transportation
assistance that have made direct application to
WisDOT for state assistance. The eligible non-
profit organizations selected and approved by
WisDOT, in turn, usually contract with private
companies to provide the transportation services.
However, it is undisputed that in 1997, WisDOT
used all of its Section 5310 grant monies to
purchase vans, rather than fund operating
expenses for the non-profit organizations.

B.   Transit Express’s Complaints

  1. Transit Express’s State Administrative
Complaint

  Transit Express is a Wisconsin based,
transportation service company that is not
eligible to apply for or receive sub-grants from
WisDOT under the Section 5310 program because it
is a for-profit enterprise. On February 9, 1997,
Transit Express filed an administrative complaint
with WisDOT complaining that it had been
unlawfully excluded from participating as a
service provider for non-profit organizations
that had received Section 5310 program funds from
WisDOT funds during the fiscal 1997 grant cycle
for a host of reasons./2 In its administrative
complaint to WisDOT, Transit Express specifically
claimed that: (1) Goodwill had contracted with
Elder Care Lines, Inc. ("Elder Care Lines") for
transportation services under the Federal Section
5310 program despite the existence of several
improper conflicts of interest;/3 (2) Goodwill,
the Center for Independence, Curative Services,
and the Jewish Center all required what Transit
Express felt were excessive amounts of insurance
coverage, which, in turn, barred Transit Express
from participating in the 5310 Program; (3) the
Section 5310 fund-recipients neglected to provide
Transit Express with the selection criteria used
to evaluate bids; and (4) the Center for
Independence improperly selected Elder Care Lines
to provide transportation services. On July 23,
1997, WisDOT denied the administrative complaint
filed by Transit Express.


  2.   The Federal Administrative Complaint

  On September 10, 1997, Transit Express filed a
petition for administrative review with the FTA
challenging WisDOT’s disposition of its state
complaint. On November 13, 1998, Joel Ettinger,
the Regional Administrator of Region V of the
FTA,/4 issued a decision denying the petition
for administrative review, stating:

Before FTA gets to the merits of the allegations
raised by Transit, a decision must be made as to
whether FTA has jurisdiction over this dispute
and, if so, on what legal authority should FTA
make a decision. Transit has argued that FTA
should review this issue because it is a matter
of federal concern. Further, Transit believes
that FTA Circular 4220.1D is applicable and that
WisDOT has ". . . failed to either establish its
own protest procedures or to follow them."

* * * *

WisDOT does not fund any contractual or purchase
of service agreements as part of its Program even
though these agreements would be eligible for
federal assistance. The only funds that the
recipients receive under the program are for the
purchase of capital assets. FTA’s procurement
requirements would only apply to the contracts
solicited to purchase vehicles. Transit is not
complaining about the purchase of vehicles by the
five not for profit entities but is instead
complaining about the notification process
associated with the private transportation
provider coordination requirements under the
Program. Therefore 4220.1D is not applicable to
this matter.

Having made this original determination about the
applicability of the 4220.1D to WisDOT’s Program,
FTA must turn to what are the implications of
that decision. A review of the basis of the
complaint tends to indicate that there are a
number of substantive issues being raised by
Transit such as the conflict of interest
violations as well as the overly restrictive
insurance requirements. WisDOT has pointed out in
their brief that they should be the ones to
interpret their own regulations. FTA agrees with
WisDOT’s position. FTA Circular 9070.1E clearly
states that the principal authority and
responsibility for administering the program
resides with the designated state agency. To the
extent that the arguments of Transit are directed
at WisDot’s interpretation of their own
regulations, FTA will not intervene. . . . FTA
believes that the reasonableness or
unreasonableness of WisDOT’s decision is not for
FTA to decide. FTA is responsible for determining
if WisDOT is following FTA’s requirements . . .
.

Therefore, based on the above, FTA refers this
matter back to WisDOT to take whatever additional
action it deems necessary in accordance with
their administrative process. To the extent that
the administrative process has been exhausted,
Transit should pursue the matter further in the
appropriate manner as specified under state law.

No further action was taken by WisDOT.


  3.   Transit Express Files Suit in Federal Court

  On May 21, 1999, Transit Express filed a
complaint in federal court seeking to compel the
FTA to review the administrative complaint
previously filed with WisDOT. Transit Express
specifically asked the trial judge to find that
the FTA had a duty to assume jurisdiction over
its petition for review of WisDOT’s service
contract practices under 49 U.S.C. sec. 5301 et
seq. Transit Express’s complaint did not allege
that WisDOT or any of the non-profit
organizations that received grants from WisDOT
had improperly used the vehicles purchased with
federal funds; instead, the lawsuit focused
exclusively on the allegation that Transit
Express was unlawfully excluded from receiving a
service provider contract based on the alleged
fact that sub-grantees of the Section 5310
program had conflicts of interest with Elder Care
Lines.

  Transit Express asserted that the trial court
could properly exercise federal question
jurisdiction over the complaint pursuant to 28
U.S.C. sec. 1331 because the action arose under
the federal transit laws 49 U.S.C. sec. 5301 et
seq., and the Administrative Procedure Act
("APA"), 5 U.S.C. sec. 701, et seq. The defendant
disputed that federal jurisdiction was proper and
thus moved to dismiss the Complaint for lack of
subject matter jurisdiction and for failure to
state a claim. The district judge granted
defendant’s motion and dismissed the lawsuit with
prejudice on March 16, 2000, due to the fact that
federal subject matter jurisdiction was lacking
because there was no federal question involved in
the case.

II. DISCUSSION
A. Standard of Review

  We review the district court’s decision to
dismiss an action under Rule 12(b)(1) of the
Federal Rules of Civil Procedure de novo. Long v.
Shorebank Development Corp., 182 F.3d 548, 554
(7th Cir. 1999). In considering a motion to
dismiss for lack of subject matter jurisdiction,
the district court must accept the complaint’s
well-pleaded factual allegations as true and draw
reasonable inferences from those allegations in
the plaintiff’s favor. Rueth v. EPA, 13 F.3d 227,
229 (7th Cir. 1993).
B.   Subject Matter Jurisdiction

  Fundamental to our law is the understanding
that "[f]ederal courts are not courts of general
jurisdiction; they have only the power that is
authorized by Article III of the Constitution and
the statutes enacted by Congress pursuant
thereto." Bender v. Williamsport Area School
District, 475 U.S. 534, 541 (1986); see also
Allen v. Wright, 468 U.S. 737, 750 (1984).
Furthermore, 28 U.S.C. sec. 1331 provides that
"[t]he district courts shall have original
jurisdiction of all civil actions arising under
the Constitution, laws, or treaties of the United
States." Also, plaintiff-appellant Transit
Express bears the burden of proving that
jurisdiction is proper in this case. Kontos v.
United States Dept. of Labor, 826 F.2d 573, 576
(7th Cir. 1987). Finally, we are cognizant of the
Supreme Court’s admonition that "federal question
jurisdiction arises only when the complaint
standing alone ’establishes either that federal
law creates the cause of action or that the
plaintiff’s right to relief necessarily depends
on resolution of a substantial question of
federal law.’" Minor v. Prudential Securities,
Inc., 94 F.3d 1103, 1105 (7th Cir. 1996) (quoting
Franchise Tax Bd. v. Construction Laborers
Vacation Trust, 463 U.S. 1, 27-28 (1983)).

  With these standards in mind, federal
jurisdiction is appropriate in the present case
if Transit Express can establish either: (1) that
a federal statute has granted the court the power
to create substantive law governing this dispute;
or (2) that federal common law jurisdiction has
been implicated due to a "uniquely federal
interest" as to which "the application of state
law would frustrate specific objectives of
federal legislation." Northrop Corp. v. AIL
Systems, Inc., 959 F.2d 1424, 1426-27 (7th Cir.
1992).


  1. Lack of federal statute authorizing
jurisdiction

  Initially, Transit Express argues that it has
properly invoked federal question jurisdiction
because the Federal Transit Authority has a duty
under federal law to assure that grantees, such
as WisDOT, are in compliance with the mandates of
the Section 5310 program. Transit Express
contends that 49 U.S.C. sec. 5310, as embodied in
FTA Circular 4220.1D ("the Third Party
Procurement Circular"), requires WisDOT to
oversee how organizations that receive sub-grants
from state agencies distribute the grant monies
they received from WisDOT. Transit Express
specifically claims a federal court is authorized
to compel the FTA to review what Transit Express
views were violations of the "Competition"
requirements contained in paragraph 8 of the
Third Party Procurement Circular. Paragraph 8 of
that Circular states:

a. Full and Open Competition. All procurement
transactions will be conducted in a manner
providing full and open competition. Some of the
situations considered to be restrictive of
competition include, but are not limited to:

(1) Unreasonable requirements placed on firms in
order for them to qualify to do business;

(2) Unnecessary experience and excessive bonding
requirements;
* * * *

(5) Organizational conflicts of interest. An
organizational conflict of interest means that
because of other activities, relationships, or
contracts, a contractor is unable, or potentially
unable, to render impartial assistance or advice
to the grantee; a contractor’s objectivity in
performing the contract work is or might be
otherwise impaired; or a contractor has an unfair
competitive advantage.

  Initially, Transit Express is correct in stating
that Circular 4220.1D mandates WisDOT to comply
with federal regulations whenever WisDOT
distributes federal funds to subgrantees.
However, contrary to Transit Express’s arguments,
the competition requirements embodied in FTA
Circular 4220.1D do not apply when state agencies
such as WisDOT choose to purchase capital assets
with the funds. The Third Party Procurement
Circular plainly states:

This circular applies to all FTA grantees and
subgrantees that contract with outside sources
under FTA assistance programs. If a grantee
accepts operating assistance, the requirements of
this circular apply to all transit-related third
party purchase orders and contracts. These
requirements do not apply to procurements
undertaken in support of capital projects
completely accomplished without FTA funds or to
those operating and planning contracts awarded by
grantees that do not receive FTA operating and
planning assistance.

  Under the plain language of the Third Party
Procurement Circular, the competition
requirements contained in Paragraph 8 of the
Circular do not apply to operating service
contracts that are not assisted with federal
funds. As WisDOT used all of its federal funds
for capital expenditures, the competition
requirements do not apply to the service
contracts "awarded by grantees that [did] not
receive FTA operating and planning assistance."

  Furthermore, we have previously held that the
mere existence of a federal regulatory framework
does not convey federal jurisdiction over
contractual disputes between private parties that
are ancillary to the governmental interest.
Northrop, 959 F.2d at 1424. In Northrop, the Air
Force contracted with AIL Systems, Inc. ("AIL")
to develop a bomber. Id. at 1425. AIL had
previously contracted with another defense
contractor, Northrop, and had agreed to
subcontract part of the work it received under
the Air Force contract to Northrop. AIL
subsequently decided to retain all of the defense
contract work for itself. Northrop, in turn,
brought suit in federal court against AIL for
breach of contract alleging that federal question
jurisdiction existed as a result of the federal
government’s interest in the production of the
airplanes. The district court dismissed the case
for want of subject matter jurisdiction, and we
affirmed. Id. at 1426. We specifically rejected
Northrop’s argument which claimed that because
the federal government had a strong interest in
the production of bombers, it had a similar
interest in the contract between AIL and
Northrop. Id. We also rejected Northrop’s
argument that the federal government’s extensive
statutory and administrative regulation of
defense contractors resulted in a federal common
law concern for the adjudication of contract
disputes between military contractors and
subcontractors. Id.

  Transit Express’s arguments mirror those
rejected in Northrop. Initially, Transit Express
argues that the Federal Transit Authority has a
strong interest in monitoring the Section 5310
program requirements. However, just as in
Northrop, the FTA’s general interest in efficient
transportation does not extend a concurrent
interest in the contracts entered into between
private companies that provide transportation
services and those non-profit organizations that
make use of such services. At base, Transit
Express complains about the failure of a state
agency to review complaints that sub-grantees
failed to follow state issued regulations.
Consequently, whatever legal remedy Transit
Express might be entitled to would be in state
court not federal court.


  2. Use of federal funds is not a "unique federal
interest"
  Transit Express alternatively argues that
subject matter jurisdiction exists because the
federal government retains a continuing interest
in the use of those vehicles that WisDOT
purchased with federal funds. In support of this
argument, Transit Express relies primarily on In
re Joliet-Will County Community Action Agency,
847 F.2d 430 (7th Cir. 1988), a case where state
and federal agencies disputed the ownership of a
bankrupt entity’s assets purchased with state and
federal grant money. Transit Express cites
Joliet-Will for the proposition that subgrant-
funded assets (such as the vehicles purchased by
WisDOT) are "assets of the federal government and
of the state agencies to which the federal
government made some of the grant initially, for
redistribution (along with the state’s own money)
to operating organizations." Id. at 432. Transit
Express reasons that if the vehicles acquired
with Section 5310 subgrant assistance are "assets
of the federal government" then the federal
government has a continuing interest over the use
of such vehicles and this interest provides for
federal jurisdiction over disputes concerning
such property.

  The argument that federal jurisdiction exists
over this case because federal funds were
expended in the purchase of the vehicles fails
because the subject matter of Transit Express’s
complaint is unrelated to the vehicles, but
rather centers on the distribution of service
operating contracts. For example, the complaint
filed by Transit Express alleges that Transit
Express was unlawfully excluded from receiving
service provider contracts with non-profit
organizations who received the benefit of Section
5310 assistance, such as Goodwill. In its
complaint, Transit Express frames the core of its
grievance in this manner:

Plaintiff [Transit Express] has been unlawfully
excluded from operating contracts funded by
Section 5310 Program subgrants made by Wis DOT to
[subgrantees] by and because of the unlawful
conduct described in this Complaint.

The fact that federal funds were used to purchase
the vehicles in compliance with the Section 5310
program is completely irrelevant to the present
action and may not be used as a basis for
bringing this action in federal court. The
nonprofit organizations that were the recipients
of the vehicles from the state could either elect
to operate the vehicles themselves or contract
independently with a service provider, such as
Transit Express or Elder Care Lines. As the trial
court so aptly stated, "the federal funds lurking
in the background of this case cannot serve as an
independent basis for establishing jurisdiction."
We also agree with the judge’s conclusion that:

If the government retained some legal interest in
the vehicles, not only would federal courts have
jurisdiction over every accident involving the
vehicles, the government could also be held
liable for any injuries caused by the negligent
operation of the vehicle. This would result in an
avalanche of unforeseen liability for the United
States and Wisconsin; plainly an untenable
result. We hold that the government does not
retain any continued legal interest in the
vehicles. Accordingly, Transit’s complaint does
not present a federal question, and we have no
jurisdiction over the suit.

  The district court’s decision is

AFFIRMED./5


/1 State agencies also accept complaints about
disputes concerning their decisions because the
Federal Transit Authority will not accept such
feedback. Fed. Reg. 21890-901 (April 26, 1994).

/2 In 1997, WisDOT awarded Section 5310 funds (in
the form of vehicles) to the following non-profit
agencies: Curative Rehabilitation Services, Inc.
("Curative Services"); Goodwill Industries of
Southeastern Wisconsin ("Goodwill"); Jewish
Community Center of Milwaukee, Inc. ("Jewish
Center"); and the Milwaukee Center for
Independence ("the Center for Independence").

/3 Transit Express asserted that Elder Care Lines’
relationship with Goodwill was inappropriate for
the following reasons: (1) a director of
transportation was on the payroll of both
Goodwill and Elder Care Lines; (2) that Elder
Care Lines’ president was married to a Goodwill
vice-president; and (3) substantial direct
financial links existed between Goodwill and
Elder Care Lines.

/4 Region V includes Illinois, Indiana, Michigan,
Minnesota, Ohio, and Wisconsin.

/5 Because we hold that district court properly
found that it did not have subject matter
jurisdiction over this lawsuit, we need not
address the standing issue.
