Supreme Court Upholds Federal-Question Jurisdiction

In Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. ___ (2005) ("Grable"), another of the Supreme Court's June decisions, the Court unanimously ruled that a state-law quiet title claim, based on an underlying notice provision in a federal statute, presented a significant federal-law question, and affirmed the lower courts’ exercise of jurisdiction. 

Removal to federal court is generally available for any civil action that is brought in a state court when a U.S. district court would have original jurisdiction over the action. 28 U.S.C. § 1441(a). U.S. district courts have original jurisdiction over all civil actions that arise under the Constitution, laws, or treaties of the United States.  28 U.S.C. § 1331.  Federal question jurisdiction is generally claimed by plaintiffs pleading a cause of action that is created by federal law, such as § 1983 claims.  But, the Court recognized that there is an additional “longstanding, if less frequently encountered, variety of federal ‘arising under’ jurisdiction.”  In certain cases, federal courts have jurisdiction over state-law claims that “implicate significant federal issues.” In looking at the history of this issue, the Court recognized that:

even when the state action discloses a contested and substantial federal question, the exercise of federal jurisdiction is subject to a possible veto. For the federal issue will ultimately qualify for a federal forum only if federal jurisdiction is consistent with congressional judgment about the sound division of labor between state and federal courts governing the application of § 1331 …. Because arising-under jurisdiction to hear a state-law claim always raises the possibility of upsetting the state-federal line drawn (or at least assumed) by Congress, the presence of a disputed federal issue and the ostensible importance of a federal forum are never necessarily dispositive; there must always be an assessment of any disruptive portent in exercising federal jurisdiction.

The Court in Grable & Sons granted certiorari to resolve a split within the Circuit Courts of Appeals on their interpretation of Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986), as “always requir[ing] a federal cause of action as a condition for exercising federal-question jurisdiction” over a state-law claim.  Compare Seinfeld v. Austen, 39 F.3d 761, 764 (7th Cir. 1994) (required) with Ormet Corp. v. Ohio Power Co., 98 F.3d 799, 806 (4th Cir. 1996) (not required). 

At issue in Grable & Sons was "whether the state-law claim necessarily stated a federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing a congressionally approved balance of federal and state judicial responsibilities." In Grable & Sons, the Internal Revenue Service (IRS) seized the petitioner’s property to satisfy a federal tax delinquency.  As part of the seizure, the IRS gave notice by certified mail before selling the Michigan property at a federal tax sale. The federal law at issue in this case required the IRS to give notice of the seizure.  26 U.S.C. § 6335.  Respondent, Darue Engineering & Manufacturing, purchased the property at the sale and, after the statutory period for right of redemption passed, the government gave respondent a quitclaim deed.  Five years later, Grable filed a quiet title action in state court challenging Darue’s record title as invalid because the IRS did not comply exactly with the notice requirements required in the statute.  Darue removed the case to federal court asserting it presented a federal question because Grable based its claim of title on the interpretation of notice provisions in a federal IRS statute.

In granting certiorari to resolve the federal question jurisdiction requirement, the Court recognized that the meaning of a “federal tax provision is an important issue of federal law that sensibly belongs in a federal court.” In addition, the court noted that “it will be the rare state title case that raises a contested matter of federal law, federal jurisdiction to resolve genuine disagreement over federal tax title provisions will portend only a microscopic effect on the federal-state division of labor.”

In Merrell Dow, the Court declined to adopt a bright-line rule on the question whether federal question jurisdiction always requires a federal cause of action.  There, the Court stated:  “in exploring the outer reaches of § 1331, determinations about federal jurisdiction require sensitive judgments about congressional intent, judicial power, and the federal system.” Thus, the Court determined that Merrell Dow’s “analysis [ ] fits within the framework of examining the importance of having a federal forum for the issue, and the consistency of such a forum with Congress’s intended division of labor between state and federal courts.”

Applying that view to the facts in Grable & Sons, the Court held that although Congress did not provide the petitioner with a private right of action here, “it is the rare state quiet title action that involves contested issues of federal law .... Given the absence of threatening structural consequences and the clear interest the Government, its buyers, and its delinquents have in the availability of a federal forum, there is no good reason to shirk from federal jurisdiction” in this case.  The Court affirmed the lower federal court jurisdiction over the quiet title action that found in favor of Darue Engineering.

For the complete copy of the U.S. Supreme Court opinion, please click on the link below:  http://a257.g.akamaitech.net/7/257/2422/13jun20051230/www.supremecourtus.gov/opinions/04pdf/04-603.pdf.

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