          United States Court of Appeals
                     For the First Circuit

No. 11-2241

                    MUNICIPALITY OF MAYAGÜEZ,

                      Plaintiff, Appellant,

                               v.

         CORPORACIÓN PARA EL DESARROLLO DEL OESTE, INC.,

                      Defendant, Appellee.


          APPEAL FROM THE UNITED STATES DISTRICT COURT

                 FOR THE DISTRICT OF PUERTO RICO

        [Hon. Jay A. Garcia-Gregory, U.S. District Judge]


                             Before

                       Lynch, Chief Judge,
                Selya and Lipez, Circuit Judges.



     Nicolás Nogueras-Cartagena, with whom Jely Cedeño Richiez and
Nogueras Law & Associates were on brief, for appellant.
     Bámily López Ortiz for appellee.



                         August 7, 2013
            Lipez, Circuit Judge.    This lengthy and heated dispute

involves a contract executed nearly thirty years ago by the

Municipality of Mayagüez and a local development corporation,

Corporación Para el Desarrollo del Oeste ("CPDO").          After many

years of deteriorating relations between the two parties, Mayagüez

filed the instant suit, alleging that CPDO's failure to comply with

several regulations issued by the Department of Housing and Urban

Development ("HUD") amounted to a breach of their contract under

the laws of Puerto Rico.

     After review, we conclude that Mayagüez's commonwealth law

claim does not "arise under" federal law within the meaning of 28

U.S.C. § 1331.     Therefore, we decline to reach the merits of

plaintiff's appeal, vacate the judgment below, and remand to the

district court with instructions that the plaintiff's claim be

dismissed    without   prejudice     for   want   of   subject   matter

jurisdiction.

                                    I.

A. Facts

     To determine whether subject matter jurisdiction exists, we

take the following well-pleaded facts from the complaint.           See

Pejepscot Indus. Park, Inc. v. Me. Cent. R.R. Co., 215 F.3d 195,

197 (1st Cir. 2000); see also Franchise Tax Bd. v. Constr. Laborers

Vacation Trust, 463 U.S. 1, 10-11 (1983) (discussing the well-

pleaded complaint rule and noting that "a defendant may not remove


                                   -2-
a   case   to   federal   court   unless   the    plaintiff's   complaint

establishes that the case 'arises under' federal law"); Bernhard v.

Whitney Nat'l Bank, 523 F.3d 546, 551 (5th Cir. 2008) (noting that

it is a "long-established axiom" that "a federal court has original

or removal jurisdiction only if a federal question appears on the

face of the plaintiff's well-pleaded complaint").

     In the early 1980s, Mayagüez purchased several parcels of land

with money it had received as part of a Community Development Block

Grant ("CDBG") administered by HUD.1             Mayagüez and CPDO then

executed an instrument known as "Deed 91," under which Mayaguez

ceded the parcels to CPDO with the understanding that the land

would be used for a project called "Villa Sultanita," to be

developed in accordance with HUD's CDBG program guidelines and

regulations.

     Deed 91 states in relevant part2:

          SEVENTH: The Transferee Corporation . . . meets the
     requirements of section Five Hundred Seventy point two,
     zero, four (24 C.F.R. 570.204) of the Act known as the
     Housing and Community Development Act of nineteen
     seventy-four,

     . . . .

           NINTH: It is an indispensable condition for the


     1
       The CDBG program was a grant program created and authorized
by Congress as part of the Housing and Community Development Act of
1974, 42 U.S.C. § 5301.
     2
       Deed 91 was written in Spanish. All references in this
opinion to Deed 91 are references to the certified English
translation provided by the parties.

                                   -3-
     transfer herein that the Transferee use the transferred
     property solely and exclusively for the construction and
     sale of housing, commercial areas, and any other
     infrastructure needed. Said project shall be known as
     "VILLA SULTANITA," shall have a public purpose, and shall
     comply at all times with applicable state and federal
     laws, rules, and regulations. Said activity shall be
     carried out by the non-profit transferee. The parties
     also agree that THE TRANSFEROR . . . may unilaterally,
     and at its sole discretion require the following from the
     transferee:

     . . . .

          B) The return of the transferred property if the
     transferor determines that it will not be used, or has
     not been used, for the specific purposes for which the
     transfer has been made;

     . . . .

          TENTH:   The   Transferee    will   diligently   and
     scrupulously make sure that the "Villa Sultanita Project"
     is carried out as per applicable state and federal laws,
     . . . .

     Development of Villa Sultanita proceeded amicably enough for

several years, until a new mayor of Mayagüez was elected in 1993.

The new administration and CPDO were immediately at odds, and the

relationship between the parties rapidly deteriorated, with each

accusing the other of obstructing progress on the Villa Sultanita

project.   CPDO eventually sued Mayagüez in the commonwealth courts

in October 1995.   Mayagüez counter-sued.   That litigation lasted

for nearly a decade, until both parties agreed to dismiss their

claims in 2004.

     At the same time as the relationship between the parties

imploded, HUD's Office of the Inspector General became concerned


                                -4-
that federal money was being mismanaged in Mayagüez. In 1997, HUD

conducted an independent audit of Mayagüez's CDBG block grant

administration, revealing that millions of dollars in CDBG block

grant funds had been misused in Mayagüez.

      The CDBG program's authorizing statute and regulations allow

HUD to demand reimbursement from the grant recipient regardless of

whether a sub-recipient, such as CPDO, was actually responsible for

the mismanagement. See 42 U.S.C. § 5311; 24 C.F.R. § 570.910.

Exercising    this   authority,       HUD       demanded    that    Mayagüez    repay

approximately $4 million in misused CDBG funds and barred the city

from receiving further HUD development grants. Mayagüez repaid HUD

and then filed the instant complaint in 2006, seeking compensation

and damages from CPDO.3

      In the complaint, Mayagüez alleged that CPDO was actually

responsible    for       the   mismanagement         of    the     Villa     Sultanita

development uncovered in the Inspector General's audit.                      According

to   Mayagüez's    theory      of   the   case,     in     violating    several     HUD

regulations,      CPDO   breached     its       promise    in    Deed   91   that   the



      3
        Though not explained in the complaint, evidence at trial
revealed that in late 2004, Mayagüez's "repayment" agreement with
HUD allowed Mayagüez to resolve the audit findings by "developing
other projects paid for with local municipal funds that met CDBG
criteria," rather than repaying HUD directly with municipal funds.
Mun. of Mayagüez v. Corporación Para el Desarrollo del Oeste, 824
F. Supp. 2d 289, 293 (D.P.R. 2011). By the time HUD eventually
closed its audit in November 2009, Mayagüez had expended "roughly
$4,000,000" on municipal projects as "repayment" to HUD. Id. at
294.

                                          -5-
development of Villa Sultanita would "comply at all times with

applicable state and federal laws." Specifically, Mayagüez alleged

that CPDO's management of Villa Sultanita violated several HUD

regulations by: 1) failing to keep adequate accounting and auditing

systems in place as required by 24 C.F.R. §§ 84.21, .52; 2) using

funds for purposes other than those authorized under 24 C.F.R. §

570.309; 3) failing to comply with bid and competition requirements

under 24 C.F.R. § 84.44; and 4) failing to comply with procurement

requirements under 24 C.F.R. § 84.44.4

B. District Court Proceedings

     From the outset of this case, there were serious concerns

about    the   existence   of   federal   jurisdiction.   Early   in   the

proceedings, CPDO filed a motion under Federal Rule of Civil

Procedure 12(b)(1) alleging that Mayagüez had failed to state a

claim arising under the laws of the United States to establish

federal jurisdiction under 28 U.S.C. § 1331.         The district court

referred the matter to a magistrate judge, who concluded that

federal-question jurisdiction in this case was proper under our

decision in Municipality of San Juan v. Corporación Para El Fomento

Económico de la Ciudad Capital, 415 F.3d 145 (1st Cir. 2005)

("COFECC"), a factually similar case concerning a dispute between



     4
         Mayagüez also brought claims against CPDO under the
Autonomous Municipalities Act of Puerto Rico, 21 L.P.R.A. § 4001.
These Commonwealth law claims are not relevant to the question of
federal jurisdiction. We do not address them.

                                    -6-
a municipality and a local development corporation over the misuse

of HUD grants.

       The     district       court   accepted        the    magistrate       judge's

recommendation, and acrimonious pre-trial proceedings continued for

several years, culminating in a week-long bench trial in 2010.

CPDO argued at trial that it had not violated the terms of Deed 91

because it had always managed the Villa Sultanita project in line

with HUD guidelines, and any adverse findings in the HUD audit were

actually the result of Mayagüez's refusal to communicate in any

form    with    CPDO.        According   to    CPDO,   HUD     gave   Mayagüez    the

opportunity to "sanitize" the audit findings if the city could

provide information indicating that the grant money had been spent

in compliance with the CDBG program purposes and guidelines.                     CPDO

claimed that it could have provided this information to HUD, but

was prevented from doing so by the mayor of Mayagüez. Indeed, CPDO

argued that the mayor's antipathy for CPDO was so great that he

chose   to     repay    nearly   $4,000,000      in    funds    rather   than    work

cooperatively with CPDO.

       In addition to its arguments on the merits, CPDO again moved

to dismiss at trial for lack of subject matter jurisdiction.                     CPDO

offered evidence that in the years since Mayagüez filed its

complaint,      HUD    had   administratively      closed      its    audit   against

Mayagüez.      According to CPDO, once the HUD investigation against

Mayagüez was closed and could no longer be challenged, no federal


                                         -7-
issue remained.         The district court disagreed, concluding that

Mayagüez's agreement to repay HUD did not resolve the question of

whether CPDO had breached its responsibilities as a sub-grantee,

which were memorialized in Deed 91.              In the district court's

opinion, resolving the dispute between CPDO and Mayagüez continued

to "turn[] heavily upon determining whether federal regulations, as

incorporated into the contract between the parties, were complied

with."    Mun. of Mayagüez v. Corporación Para el Desarrollo del

Oeste, 824 F. Supp. 2d 289, 294 n.1 (D.P.R. 2011) (emphasis

supplied).

        At the same time that the district court denied CPDO's motion

to dismiss for want of jurisdiction, however, the court also

concluded     that    Mayagüez   had   failed   to   demonstrate   that   CPDO

breached any provisions of Deed 91.          As such, the court dismissed

Mayagüez's claims with prejudice. Mayagüez filed this appeal,

challenging the district court's decision on the merits.

     After reviewing the parties' initial merits briefs in this

case,    we   identified     a   significant    question    concerning    our

jurisdiction.        In particular, we believed that our jurisdictional

holding in COFECC, on which the magistrate judge relied, might no

longer be good law in light of the Supreme Court's intervening

opinions in Empire Health Assurance, Inc. v. McVeigh, 547 U.S. 677

(2006), and Gunn v. Minton, 133 S.Ct. 1059 (2013).                    To our

surprise, neither party raised this thorny jurisdictional issue in


                                       -8-
its merits briefs before us.               Therefore, given our unflagging

obligation to determine our own jurisdiction sua sponte, see Am.

Airlines, Inc. v. Cardoza-Rodriguez, 133 F.3d 111, 115 n.1 (1st

Cir. 1998), we requested supplemental briefing from both parties on

the issue of whether this dispute arises under federal law within

the meaning of 28 U.S.C. § 1331.

                                         II.

       "Congress     has    authorized    the    federal   district    courts    to

exercise original jurisdiction in 'all civil actions arising under

the Constitution, laws, or treaties of the United States.'"                  Gunn,

133 S.Ct. at 1064 (quoting 28 U.S.C. § 1331).                     Often called

"federal-question jurisdiction," this type of jurisdiction "is

invoked by and large by plaintiffs pleading a cause of action

created by federal law," such as an action brought under 42 U.S.C.

§ 1983.     Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg.,

545 U.S. 308, 312 (2005). There exists, however, a "special and

small category" of cases in which a state law cause of action can

give   rise     to   federal-question      jurisdiction    because     the   claim

involves important federal issues.               Empire Health Assurance, 547

U.S. at 699.

       Though    the   Supreme    Court    has     repeatedly   reaffirmed      the

viability     of     this   "special     and    small   category,"    a   precise

definition      of   its    contours     remains    elusive.         Indeed,    the

complexity of the inquiry has "kept [the Supreme Court] from


                                         -9-
stating a single, precise, all-embracing test for jurisdiction over

federal issues embedded in state-law claims between non diverse

parties."     Grable, 545 U.S. at 314 (internal citation omitted)

(quotation marks omitted)); see also Gunn, 133 S.Ct. at 1065 ("In

outlining the contours of this slim category, we do not paint on a

blank canvas.      Unfortunately, the canvas looks like one that

Jackson Pollock got to first.").

     We     consider   first    the    Supreme   Court's     most   recent

pronouncements    on   what    makes   a   federal   issue   sufficiently

"substantial" to warrant federal jurisdiction. We turn then to the

case at bar, considering whether the issue in this case is so

substantial as to "justify resort to the experience, solicitude,

and hope of uniformity that a federal forum offers on federal

issues."    Grable, 545 U.S. at 312.

A. A Substantial Federal Issue

     Federal jurisdiction will lie over a state law cause of action

if the face of the complaint reveals a "federal issue [that] is:

(1) necessarily raised, (2) actually disputed, (3) substantial, and

(4) capable of resolution in a federal court without disrupting the

federal-state balance of power."           Gunn, 133 S.Ct. at 1065.

According to Mayagüez, the federal issue in this case is whether

CPDO's alleged failure to comply with HUD guidelines in managing

the federal grant money and in developing Villa Sultanita amounted

to a breach of its contract with Mayagüez.           Assuming, arguendo,


                                   -10-
that Mayagüez is correct in characterizing the federal issue in

this       case   as    necessarily     raised,   actually    disputed,   and   not

disruptive to the federal-state balance of power, we focus our

analysis on the question at the heart of this jurisdictional

dispute:      is    this      federal   issue   sufficiently   "substantial"     to

warrant federal jurisdiction?5

       In     its      most   recent    pronouncements   on    the   question    of

substantiality in this context, the Supreme Court has emphasized

that the "substantiality" inquiry is wholly separate from the

"necessary" inquiry, and demands that a federal question must be

not only important to the parties, but important to the federal

system.       In Gunn, for example, the Court explained that for a case

to be "substantial in the relevant sense,"

       it is not enough that the federal issue be significant to
       the particular parties in the immediate suit; that will
       always be true when the state claim 'necessarily raises'
       a disputed federal issue . . . . The substantiality
       inquiry . . . looks instead to the importance of the
       issue to the federal system as a whole.


Gunn, 133 S.Ct. at 1066 (second emphasis supplied).



       5
        Both before the district court and in its supplemental
briefings before us, CPDO argued that even if a substantial federal
issue existed at the time Mayagüez filed its complaint in 2007,
that issue, and thus federal jurisdiction, was extinguished when
the HUD audit was closed in 2009.      We make no judgment on the
viability of the argument that an issue that meets the
substantiality requirement on the face of the complaint can become
insubstantial, and hence incompatible with federal jurisdiction,
during the course of litigation. We decide the "substantiality"
issue on the basis of the complaint.

                                        -11-
     But what makes an issue important to the federal system as a

whole?   Recent Supreme Court case law has suggested at least two

answers to this question. First, an issue may be substantial where

the outcome of the claim could turn on a new interpretation of a

federal statute or regulation which will govern a large number of

cases.   In other words, a case is more likely to be important to

the federal system as a whole if it presents "a nearly 'pure issue

of law . . . that could be settled once and for all'" rather than

an issue that is "fact-bound and situation-specific" and whose

holding will more likely be limited to the facts of the case.

Empire Health Assurance, 547 U.S. at 700-701 (quoting R. Fallon, et

al., Hart and Wechsler's The Federal Courts and the Federal System

65 (2005 Supp.)); see also Gunn, 133 S.Ct. at 1067 (noting that the

federal issue in dispute was not important because its resolution

was unlikely to have any impact on other patent cases).

     Second, a federal issue may also be substantial where the

resolution of the issue has "broader significance . . . for the

Federal Government."   Gunn, 133 S.Ct. at 1066.   That is, because

"[t]he Government has a direct interest in the availability of a

federal forum to vindicate its own administrative action," Grable,

545 U.S. at 315, the Court has repeatedly suggested that a federal

issue is more likely to be substantial where a claim between two

private parties, though based in state law, directly challenges the

propriety of an action taken by "a federal department, agency, or


                               -12-
service."       Empire Health Assurance, 547 U.S. at 700 (discussing

Grable); see also Smith v. Kan. City Title & Trust Co., 255 U.S.

180 (1921) (holding that a shareholder suit seeking to enjoin a

private company from investing in certain federal bonds on the

grounds that the statute authorizing the issuance of those bonds

was unconstitutional presented substantial federal issue).

B. The Federal Issue in this Case

     Mayagüez claims that its federal question is substantial

because it turns on an interpretation of federal regulations, and

because it relates to federal funds and a large federal development

program.    We think that this characterization seriously overstates

the import of the federal issues in this case.

     Though the ultimate question in Mayagüez's contract claim is

whether CPDO failed to comply with federal regulations, and thereby

breached its contract, this dispute is the sort of "fact-bound and

situation-specific" claim whose resolution is unlikely to have any

impact on the development of federal law. Empire Health Assurance,

547 U.S. at 701. Rather than disputes over the meaning of HUD

regulations incorporated in the contract between the parties, the

complaint reveals that the disputes between the parties were

overwhelmingly factual. For example, Mayagüez alleged that certain

parcels of land conveyed to CPDO had never been developed, and that

CPDO had failed to obtain appraisals before it sold certain small

parcels    of    land.   It   also   claimed   irregularities   in   CPDO's


                                     -13-
accounting systems.

       In addition, though the actions of a federal agency hover in

the background of this dispute, HUD's actions are much farther

removed from Mayagüez's breach-of-contract claim than the Internal

Revenue Service's were from the plaintiff's claim in Grable.

Though the plaintiff in Grable sued the individual who ultimately

purchased the land at the tax sale, the allegedly unlawful actions

were taken by the IRS, not the purchaser.                 Here, the audit

indicated that HUD funds had been mismanaged, but there were never

allegations that HUD itself acted inappropriately in any way.            In

other words, HUD's performance was never at issue, and hence,

unlike in Grable, the outcome in this case could not call into

question thousands of other actions undertaken by a federal agency.

       Moreover, unlike Grable, the resolution of this case will have

no impact on the ability of HUD or any other federal agency to

carry out its business.      Here, there was never any risk that HUD

would not be compensated for the misspent funds, nor was there any

risk that the outcome of the dispute would impact HUD's ability to

demand repayment of federal funds in any future case.            Our recent

decision in One & Ken Valley Housing Group v. Maine State Housing

Authority, 716 F.3d 218 (1st Cir. 2013), regarding a state law

contract claim relating to the Section 8 program, is instructive on

this   point.    We   held   there   that   the   issue   was   sufficiently

substantial to warrant federal jurisdiction because, inter alia,


                                     -14-
the dispute turned "on the interpretation of a contract provision

approved by a federal agency pursuant to a federal statutory

scheme," "the alleged breach occurred only because the contractor

was following the federal agency's explicit instructions," and "the

case presents a pure issue of law that will govern numerous cases

nationwide."    We explained that the outcome of the case could have

such profound financial consequences for HUD that it "could require

the agenc[y] to scale back the scope of the Section 8 program."

Id. at 225.    In this case, HUD did not draft the contract between

the parties or issue instructions that led to the alleged breach,

and there is no legal question that will apply in a host of other

cases.     There is simply no comparable risk here to any federal

program.

        One final issue remains: the plaintiffs ask us to conclude

that our jurisdictional holding in Municipality of San Juan v.

Corporación Para El Fomento Económico de la Ciudad Capital, 415

F.3d 145 (1st Cir. 2005) ("COFECC"), controls the outcome of this

case.     Like the instant case, COFECC was a state law breach-of-

contract    claim   brought   by   a   municipality    against   a   local

development    corporation,   alleging    that   the   local   development

corporation breached the contract when it misused federal funds

entrusted to it by the municipality.      Though neither party briefed

subject matter jurisdiction, we addressed the issue sua sponte,

concluding in a footnote that "[b]ecause the propriety of COFECC's


                                   -15-
conduct turns entirely on its adherence to the intricate and

detailed set of federal regulatory requirements, and the funds at

issue are federal grant monies . . . jurisdiction is proper."         Id.

at 148 n.6.

     Plaintiff's argument, however, fails to consider the Supreme

Court's intervening opinions in Gunn and Empire Health Assurance,

both of which cast serious doubts on the continued viability of our

jurisdictional   holding   in   COFECC.   The   Court's   rejection    of

jurisdiction in Empire Health Assurance is particularly telling.

     As here, Empire Health Assurance was a contract dispute

between two private parties -- a private health insurer and a

federal employee.6   The insurer had entered into a contract with

the Office of Personnel Management ("OPM") to provide a fee-for-

service health plan for federal employees, pursuant to the Federal

Employees Health Benefits Act of 1959 ("FEHBA"), 5 U.S.C. § 8901.7

The insured had enrolled in the health insurance plan.      As part of

his enrollment, he had agreed to abide by the terms and conditions



     6
        The employee died before the state court judgment was
entered in his favor, and the suit was filed against his wife as
administrator of his estate. See Empire Health Assurance, 547 U.S.
at 687.
     7
         FEHBA "establishes a comprehensive program of health
insurance for federal employees. The Act authorizes the Office of
Personnel Management (OPM) to contract with private carriers to
offer federal employees an array of health-care plans." Empire
Health Assurance, 547 U.S. at 682. Approximately 8 million federal
employees, retirees, and dependents are covered by plans created
under the FEHBA program. Id. at 702 (Breyer, J., dissenting).

                                  -16-
in the statement of benefits, which included a reimbursement and

subrogation clause.

     The dispute between the parties arose after the employee, who

had been injured in an accident, won a state court tort suit

against the party responsible for his injuries.        547 U.S. at 687.

The insurer claimed that under the terms and conditions established

in the plan that it had negotiated with OPM, the insurer was

entitled to be reimbursed for the money it had spent to cover the

employee's   medical   bills   following   the   accident.8    Id.   The

employee disagreed and refused to repay the insurer.          Id.

     Despite the involvement of a federal agency in the creation of

the contract terms in dispute and the federal funds involved,9 the


     8
        Though FEHBA itself does not address reimbursement and
subrogation, the contract between OPM and the insurer provided that
all employees enrolled in the plan "are obligated to all terms,
conditions, and provisions of this contract," and a brochure
appended to the contract explained the insurer's subrogation and
recovery rights. Empire Health Assurance, 547 U.S. at 684-85. The
statement of benefits read in part: "[I]f we pay benefits for [an]
injury or illness, you must agree to the following: All recoveries
you obtain . . . must be used to reimburse us in full for benefits
we paid." Id. at 684.
     9
          Though private insurers administer the FEHBA plans, the
program is funded through premiums paid jointly by the government
and the employees into a special trust fund in the Treasury.
Claims and benefits for covered services are paid with money from
the fund and "the fund's money belongs, not to the carrier, but to
the federal agency that administers the program." Empire Health
Assurance, 547 U.S. at 703 (Breyer, J., dissenting). "After
benefits are paid, any surplus in the fund can be used at the
agency's discretion to reduce premiums, to increase plan benefits,
or to make a refund to the Government and enrollees." Id. (citing
5 U.S.C. § 8909(b), 5 C.F.R. § 890.5039(c)(2)). All financial risk
is thus borne by the government, not the carrier. See id.

                                  -17-
Supreme Court concluded that the federal issues in the case were

not sufficiently substantial to warrant federal jurisdiction over

the state law reimbursement claim. Id. at 700. Though the Court

admitted      that   the    federal       government    undoubtedly     had     an

"overwhelming" interest in attracting and retaining healthy federal

employees, the Court concluded that such an interest did "not

warrant turning into a discrete and costly 'federal case' an

insurer's contract-derived claim to be reimbursed from the proceeds

of a federal worker's state-court-initiated tort litigation."                  Id.

at 701.

     If      there   is    no   substantial    federal    issue   in    a     case

interpreting contract terms negotiated by a federal agency and

applying to policies held by eight million federal employees, it is

difficult to see how the instant dispute between Mayagüez and CPDO

could fit into the "special and small" category of state law cases

that "arise under" federal law.               Indeed, the dispute between

Mayagüez and CPDO is notably similar to that in Empire Health

Assurance (a demand for the reimbursement of funds expended by one

of the parties to the contract), differing only insofar as the

federal interest in the instant dispute is less significant.

Unlike the circumstances in Empire Health Assurance, the contract

here –- so far as it appears from the complaint –- was executed

without much oversight from a federal agency.              Mayagüez and CPDO

chose   to    incorporate       federal   regulations    into   their   private


                                      -18-
agreement, and the level of federal government involvement in the

contracting process was minimal when compared to that in Empire

Health Assurance.   Moreover, the statute at issue in Empire Health

Assurance was designed to benefit the federal government by making

the federal government an attractive, competitive employer.     The

purpose of the CDBG block grant program, on the other hand, was to

provide assistance to municipalities seeking to improve their

infrastructure.

     In short, we think that the Court's holding in Empire Health

Assurance undermines our conclusion in COFECC that compliance with

an "intricate and detailed set of federal regulatory requirements"

and a connection to "federal monies" were sufficient in themselves

to warrant federal-question jurisdiction over a state law breach of

contract claim.     Under the Court's opinion in Empire Health

Assurance, to be substantial, the dispute must involve a true risk

to the interests of a federal agency, program, or statutory scheme.

The instant case presents no such risk.      Thus, we abrogate the

jurisdictional holding in COFECC and decline to treat that holding

as controlling precedent in this case.

C. Conclusion

     Having determined that this case presents primarily factual

disputes and would have little impact on the development of federal

law or the activities of a federal agency, we conclude that the

federal issue in this case is not substantial in the relevant sense


                               -19-
to warrant federal jurisdiction.      As such, plaintiff's claims

should have been dismissed at the outset of this litigation.     We

thus vacate the judgment of the district court and remand with

instructions that plaintiff's claim be dismissed without prejudice.

Costs are awarded to the appellee.

     So ordered.




                               -20-
