Bhagwandin v. Xyphos Biosciences, Inc.

Background

Xyphos Biosciences removed the case from state court to federal court and moved to dismiss the complaint. While reviewing the complaint, the court questioned whether it had subject-matter jurisdiction, meaning legal authority to hear the case. The court ordered Xyphos to explain why the case should not be sent back to state court and held oral argument on July 28, 2022.

Bhagwandin brought two state-law claims: a claim under California Labor Code section 1102.5 and a claim for wrongful discharge in violation of public policy. He alleged that Xyphos retaliated against him after he reported conduct that he reasonably believed violated regulations implementing the federal Food, Drug, and Cosmetic Act (FDCA). Xyphos argued that the federal court had federal-question jurisdiction because resolving the claims would necessarily and substantially depend on the FDCA.

Federal-Question Jurisdiction

Federal-question jurisdiction can exist when federal law creates the claim or when a state-law claim necessarily raises an important federal issue. The court explained that the federal issue must be necessarily raised, actually disputed, substantial to the federal system as a whole, and capable of resolution in federal court without disrupting the balance between federal and state authority.

California Labor Code Section 1102.5 Claim

The court held that section 1102.5 protects an employee who reports reasonably based suspicions of illegal activity. The employee must have some legal foundation for the suspicion, such as a statute, rule, or regulation that may have been violated, but the employee does not have to prove that the reported conduct was actually illegal.

Because Bhagwandin could prevail by showing that his belief was objectively reasonable even if the reported conduct was lawful, the court concluded that deciding whether the conduct violated the FDCA was not necessary to resolve the claim. The FDCA was therefore only tangentially relevant, and the reasonableness of Bhagwandin’s belief presented a question of state law. The court also stated that, even if the claim necessarily raised a federal issue, that issue would not be substantial to the federal system as a whole.

Wrongful-Discharge Claim

The court reached a similar conclusion about the wrongful-discharge claim. Under California law, an employee may bring a claim when the employer’s discharge violates fundamental public policy, including when the employee reports a statutory violation for the public’s benefit. The employee need not prove that an actual violation occurred; it is enough that the employer discharged the employee for reporting reasonably based suspicions of illegal activity.

As a result, resolving the claim did not require deciding whether the FDCA had actually been violated. The court further stated that any federal issue involved would not be substantial.

Disposition

The court concluded that resolution of Bhagwandin’s state-law claims did not depend on a substantial question under the FDCA. It held that the federal court lacked subject-matter jurisdiction and remanded the case to San Mateo County Superior Court. The opinion does not state that the court ruled on Xyphos’s motion to dismiss or on the merits of Bhagwandin’s claims.