Voluntary Participation in Federal Incentive Programs Does Not Confer Federal Officer Removal Jurisdiction

Introduction

This commentary examines the Third Circuit’s consolidated decision in Hillary Barnett v. Valley Health System Inc. and Donna Cheesman v. Capital Health System Inc., decided on March 19, 2025. In these companion cases, two New Jersey hospital systems removed putative privacy class actions—originally filed in state court—to federal court under the federal officer removal statute (28 U.S.C. § 1442(a)(1)) and, in Valley Health’s case, the Class Action Fairness Act (“CAFA”). The District Courts remanded both cases for lack of federal jurisdiction, and the Third Circuit affirmed. The core holding: mere participation in a federal incentive program (the HITECH Act) does not amount to “acting under” a federal officer for removal purposes, and CAFA jurisdiction fails where the plaintiff limits the class to citizens of the same state as the defendant.

Background and Key Issues

P_la_i_n_t_i_f_f_s_: Hillary Barnett and Donna Cheesman, New Jersey residents and patients of Valley Health System Inc. and Capital Health System Inc., respectively.
D_e_f_e_n_d_a_n_t_s_: Two hospital systems operating in New Jersey, offering online appointment booking, physician directories, and treatment research on their websites.
A_l_l_e_g_a_t_i_o_n_s_: The hospitals’ websites automatically routed patients’ personal health data to third parties—most notably Facebook—for targeted advertising, allegedly violating New Jersey privacy law.
R_e_m_o_v_a_l_G_r_o_u_n_d_s_:
1. Federal officer removal statute (28 U.S.C. § 1442(a)(1));
2. CAFA (28 U.S.C. §§ 1332(d), 1453, 1711–1715) in the Valley Health case.
D_i_s_t_r_i_c_t_C_o_u_r_t_R_u_l_i_n_g_s_: Both District Courts granted motions to remand for lack of subject-matter jurisdiction.
T_h_i_r_d_C_i_r_c_u_i_t_I_s_s_u_e_: Whether a hospital’s voluntary acceptance of HITECH Act incentives constitutes “acting under” the federal government for purposes of § 1442 removal, and whether CAFA jurisdiction exists when the proposed class is limited to state citizens.

Summary of the Judgment

The Third Circuit unanimously held:

The removal under 28 U.S.C. § 1442(a)(1) was improper because the hospitals did not “act under” the United States merely by participating in the HITECH Act incentive program. Reliance on Mohr v. Trustees of the University of Pennsylvania, 93 F.4th 100 (3d Cir. 2024), made clear that voluntary compliance with federal standards or incentive schemes does not confer the unique relationship required for federal officer removal.
Valley Health’s alternative invocation of CAFA failed because the proposed putative class comprised solely New Jersey citizens, depriving the case of the minimal diversity required under 28 U.S.C. § 1332(d). A plaintiff may define the class narrowly to avoid federal jurisdiction, and citizenship is determined as of the complaint’s filing date.
Accordingly, both cases must be remanded to New Jersey state court for further proceedings.

Analysis

Precedents Cited

Mohr v. Trustees of the University of Pennsylvania, 93 F.4th 100 (3d Cir. 2024): Clarified that mere participation in a federal incentive program (HITECH Act) does not equate to “acting under” a federal officer for § 1442 removal.
Watson v. Philip Morris Cos., 551 U.S. 142 (2007): Established the four-part test for federal officer removal, including the requirement that the claims “relate to” an act under color of office and that a colorable federal defense exists.
Maglioli v. All. HC Holdings LLC, 16 F.4th 393 (3d Cir. 2021): Set forth the standard for evaluating colorable federal defenses and the “acting under” requirement.
Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144 (3d Cir. 2009): Described CAFA’s jurisdictional prerequisites, including the $5 million amount-in-controversy threshold, minimal diversity, and minimum class-size requirement.
Additional authority on class citizenship timing: Johnson v. Advance Am., 549 F.3d 932 (4th Cir. 2008); In re Sprint Nextel Corp., 593 F.3d 669 (7th Cir. 2010); Doe v. SSM Health Care Corp., 126 F.4th 1329 (8th Cir. 2025).

Legal Reasoning

The court applied the four-part federal officer removal test:

Person: Hospitals are “persons” under § 1442(a)(1).
Acting under: They must show their state-law liability claims “arise from” actions taken “under color of federal office.” The HITECH Act’s incentive structure is voluntary and does not impose a federal command or supervision sufficient to satisfy “acting under.”
Act under color: Even if the acts related to HITECH participation, voluntary compliance does not equate to action under color of federal office.
Colorable federal defense: The hospitals asserted that the Privacy Act and HIPAA preempt state law claims, but absent the “acting under” nexus, the defense cannot create removal jurisdiction.

For CAFA, the court reiterated that federal jurisdiction requires minimal diversity. Because plaintiff Barnett limited her putative class to New Jersey citizens, diversity was lacking. Citizenship is fixed as of the complaint date; no post-filing changes count.

Impact

This decision reinforces two key principles:

Federal Officer Removal Is Narrow. Private entities cannot cloak routine compliance with incentive programs as federal duty. The “acting under” requirement remains a high bar, preserving state courts’ primacy over ordinary commercial and regulatory disputes.
Plaintiff Control Over Class Definition. Plaintiffs retain the strategic ability to limit their class to a single state’s citizens to defeat CAFA jurisdiction. Minimal diversity remains essential, and CAFA does not override the plaintiff’s “master of the claim” prerogative.

Future litigants will find guidance on removal strategy: hospital systems and other regulated entities cannot rely on federal incentives alone to remove state-law claims, and plaintiffs keen on state forums can narrowly tailor class composition.

Complex Concepts Simplified

“Acting Under” the United States: This phrase means a defendant must show a direct, commanding relationship akin to performing a federal officer’s duties under federal supervision—more than merely complying with incentive-linked regulations.
Federal Officer Removal Statute (28 U.S.C. § 1442): A narrow removal path allowing federal jurisdiction when a defendant is sued in state court for actions taken under federal authority, often invoked by contractors or agents performing federal tasks.
CAFA Minimal Diversity: Unlike traditional diversity requiring every plaintiff to have different citizenship from every defendant, CAFA only demands that “any member of a plaintiff class” be diverse from “any defendant.” However, if a plaintiff deliberately restricts the class to one state, minimal diversity is lost.
Citzenship Timing Rule: Court looks at each class member’s state citizenship at the time the complaint is filed. Any later changes do not affect diversity analysis.

Conclusion

The Third Circuit’s ruling in Barnett and Cheesman underscores the high threshold for federal officer removal and reaffirms plaintiffs’ control over class composition to avoid federal courts. By clarifying that voluntary participation in the HITECH Act’s incentive program does not constitute “acting under” a federal officer, the decision preserves state courts’ jurisdiction over routine privacy and regulatory disputes. It also sends a clear signal that CAFA jurisdiction can be strategically avoided through careful class definitions. These principles will shape removal strategies and class-action drafting in the years ahead.