A “Must Cite” Authority with Kaleidoscopic Application
Supreme Court Expands
Federal Removal
Jurisdiction
by David L. Hanselman, Jr.
It is a situation well-known to plaintiffs and defendants alike. The plaintiff wants to litigate in state court. The defendant prefers the safer and
more predictable confines of federal court. The plaintiff, seeking to preclude removal of the complaint, names a non-diverse defendant, thereby
destroying diversity jurisdiction. In an attempt to prevent the defendant
from removing the complaint on federal question grounds, the plaintiff is
careful to plead only state-law causes of action.
© 2005 DRI. All rights reserved.
This is not the end of the story, however.
Even though the plaintiff intentionally
pleads only state-law causes of action, that
does not necessarily foreclose removal on
federal question grounds. If adjudication
of one of the plaintiff ’s state-law claims
depends upon the resolution of a substantial question of federal law, then the
defendant can remove the complaint, notwithstanding the fact that the complaint
contains causes of action grounded solely
on state law.
On June 13, 2005, near the end of its
most recent term, a unanimous Supreme
Court issued an opinion that enhances
the ability of defendants in the above situation to remove complaints that contain
only state-law claims. This decision, Grable & Sons Metal Products, Inc. v. Darue
Engineering & Manufacturing, 125 S.Ct.
2363 (2005), clarifies and expands the
scope of federal removal jurisdiction.
Defendants have long had the ability to remove complaints that advance
only state-law claims. Since at least 1921,
the Supreme Court has held that federal question jurisdiction exists under
28 U.S.C. §1331 if the plaintiff ’s “right to
relief depends upon the construction or
application of the Constitution or laws
of the United States.” Smith v. Kansas City
Title & Trust Co., 255 U.S. 180, 199 (1921).
More recently, the Court held that federal question jurisdiction exists if the
plaintiff ’s “right to relief under state law
requires resolution of a substantial question of federal law in dispute between the
parties.” Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 13 (1983).
After Franchise Tax Board, this has been
generally referred to as the “substantial
federal question” doctrine.
As discussed below, the recent Grable decision reaffirms the validity of the substantial federal question doctrine and expands
the outer boundaries of federal question
jurisdiction based on the doctrine.
The Grable Decision
The facts of Grable are straightforward.
See Grable, 125 S.Ct. at 2366. In 1994, the
IRS seized Grable’s property to satisfy
Grable’s federal tax delinquency. The IRS
gave Grable notice by certified mail before
selling the property to Darue. Five years
later, Grable brought a quiet title action
in state court alleging that Darue’s title
was invalid because 26 U.S.C. §6335(a)
required personal service. Darue removed
the case to federal court on the ground
that Grable’s claim of title depended on
the interpretation of the federal notice
statute. The district court and Sixth Circuit upheld federal jurisdiction.
The Supreme Court granted certiorari
to resolve a circuit split on whether Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986), always requires
a federal cause of action as a condition
for exercising federal question jurisdiction. Grable, 125 S.Ct. at 2366. The Court
answered this question in the negative
and upheld removal of Grable’s complaint
because the meaning of the federal statute was an essential element of Grable’s
quiet title claim, was actually in dispute,
and was “an important issue of federal
law” that belonged in federal court. Id.
at 2368.
The Court’s holding and analysis should
be useful to defendants seeking to remove
cases where the adjudication of state-law
David L. Hanselman, Jr. is a partner in the Trial Department at McDermott Will
& Emery LLP in Chicago. He litigates complex commercial disputes and has
defended clients in a number of class actions and multidistrict proceedings in
the health care, consumer products, pharmaceutical, insurance and telecommunications industries. He is a member of DRI.
September 2005
claims depends on the resolution of an
“embedded” issue of federal law.
The Court began its analysis by noting
that “for nearly 100 years” it has recognized the “commonsense notion” that federal courts should be able to hear state-law
claims that turn on substantial questions
of federal law. Id. at 2367. After reviewing
its prior federal question cases, the Court
stated that it would not restrict federal
question jurisdiction to cases in which
federal law creates the cause of action, see
Smith, 255 U.S. at 214 (Holmes, J., dissenting), nor would it open the door to federal
court to any defendant that utters “‘federal
issue’ as a password.” Grable, 125 S.Ct. at
2368. The correct balance, according to
the Court, lies somewhere in between. The
test articulated by the Court in Grable is:
“does a state-law claim necessarily raise a
stated federal issue, actually disputed and
substantial, which a federal forum may
entertain without disturbing any congressionally approved balance of federal and
state judicial responsibilities.” Id.
Grable thus establishes a three-part test
for determining whether federal question
jurisdiction exists where an issue of federal law is embedded in a state-law claim.
First, the federal issue must “actually be
in dispute.” Id. at 2369 n.3. Second, the
federal issue must be “a substantial one.”
Id. at 2367. Third, the exercise of federal jurisdiction must be “consistent with
congressional judgment about the sound
division of labor between state and federal courts.” Id.
What does this mean?
For a federal issue to be “substantial,”
there must be “a serious federal interest in claiming the advantages thought
to be inherent in a federal forum.” Id.
These advantages include “experience,
solicitude, and hope of uniformity” that
a federal forum theoretically provides on
issues of federal law. Id. In this regard, and
perhaps providing further evidence of the
Court’s current view of Merrell Dow, the
Court in Grable relied on a 1968 American Law Institute study that was cited
by the dissent in Merrell Dow to support the proposition that federal courts
may be institutionally better-suited than
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state courts to decide issues of federal
law. Compare Merrell Dow, 478 U.S. at
826 (Brennan, J., dissenting) (noting that
ALI study concluded that the availability of a federal forum in federal question
cases has advanced the goal of uniformity) with Grable, 125 S.Ct. at 2367 (citing same study).
The “sound division of labor” prong
does not appear in any of the Court’s previous federal question cases. This new test
essentially means that, for federal question jurisdiction to exist, the exercise of
federal jurisdiction in the particular case
will not cause a significant shifting of similar cases from state to federal court. The
exercise of federal jurisdiction must not
upset “the state-federal line drawn (or at
least assumed) by Congress.” Id. at 2368.
Thus, in determining the propriety of federal jurisdiction,“there must always be an
assessment of any disruptive portent in
exercising federal jurisdiction.” Id.
The Court refers to three factors that
may be relevant to the new “sound division of labor” standard:
• First, did Congress provide a federal
cause of action? Id. at 2370. As discussed in more detail below, the presence of a federal cause of action is not
dispositive of whether federal jurisdiction exists. However, it is relevant
to federal jurisdiction in two respects.
The fact that Congress provides an
express private right of action is “worth
some consideration in the assessment
of substantiality.” Id. Second, the presence of a federal cause of action provides “an important clue to Congress’s
conception of the scope of jurisdiction
to be exercised under §1331.” Id.
• Second, is there a preemption clause
in the federal statute? Id. In its opinion, the Court does not emphasize the
importance of a preemption clause. In
fact, it only mentions preemption in
passing. However, the Court noted that
the combination of no federal cause
of action and no preemption clause
is evidence of Congress’s intent that
claims for violations of the federal statute in question were not intended to be
decided in federal court. Id.
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• Third, will recognizing federal jurisdiction open the floodgates to substantially similar federal court actions? Id.
at 2367–68, 2370–71.
In the case before the Court, the most
important factor was whether recognizing a federal cause of action would have
a “disruptive” effect on federal courts. Id.
at 2368. In contrast to Merrell Dow, which
would have involved a “potentially enormous shift of traditionally state cases into
The reasoning of Grable is
broad enough to apply to
any state-law claim that
implicates federal law.
federal courts” if state claims resting on
violations of federal labeling law were subject to federal jurisdiction, id. at 2370–71,
the Court noted that “it is the rare state
quiet title action” that involves issues of federal law, so federal jurisdiction would not
“materially affect, or threaten to affect, the
normal currents of litigation.” Id. at 2371.
Grable will become an important decision in future federal question jurisdiction cases, if for no other reason than it
establishes three guideposts that are relevant to whether federal question jurisdiction exists.
It is likely, however, that Grable will
have a much larger impact. This is because
of the Court’s treatment of Merrell Dow.
Retreat from Merrell Dow
In Merrell Dow, two sets of plaintiffs
brought state product liability claims
against the manufacturer of the drug
Bendectin, which allegedly caused birth
defects when ingested during pregnancy.
Merrell Dow, 478 U.S. at 805. In one of
their counts, the plaintiffs alleged that the
drug was “misbranded” in violation of
the Federal Food, Drug and Cosmetic Act
because its labeling did not adequately
warn that use of the drug was potentially
dangerous, and they further alleged that
the defendant’s violation of the FDCA
constituted a rebuttable presumption of
negligence under state tort law. Id. at 805–
06. The defendants removed the complaints on the ground that they arose
under federal law. Id. at 806. The Supreme
Court held that federal jurisdiction did
not exist. Id. at 807, 817.
The jurisdictional touchstone in Merrell Dow was congressional intent. See id.
at 810 (noting that,“in exploring the outer
reaches of §1331, determinations about
federal jurisdiction require sensitive judgments about congressional intent, judicial power, and the federal system”). In
Merrell Dow, that intent was measured by
whether Congress provided a private right
of action in the statute that the defendant
allegedly violated. See id. at 814 (“[T]he
congressional determination that there
should be no federal remedy for the violation of [a] federal statute is tantamount to
a congressional conclusion that the presence of a claimed violation of the statute
as an element of a state cause of action is
insufficiently ‘substantial’ to confer federal-question jurisdiction.”); see also id.
at 812 (“The significance of the necessary
assumption that there is no federal private
cause of action… cannot be overstated.”).
Indeed, the existence of a federal cause
of action was the key element of Merrell
Dow’s holding. See id. at 817 (holding that
“a complaint alleging a violation of a federal statute as an element of a state cause
of action, when Congress has determined
that there should be no private, federal
cause of action for the violation, does not
state a claim” under 28 U.S.C. §1331).
As stated above, the Court in Grable granted certiorari on the question of
whether Merrell Dow requires a federal
cause of action as a necessary condition
to federal question jurisdiction. Grable,
125 S.Ct. at 2366. The Court answered this
question in the negative. Id. at 2369–71. In
Grable, the Court held that federal question jurisdiction exists notwithstanding
the fact that Congress did not provide a
private right of action in the federal statute forming the basis of the “substantial
federal question.” The presence of a federal cause of action is “relevant to, but not
dispositive of,” congressional intent. Id. at
Federal Removal, continued on page 64
For The Defense
Federal Removal, from page 26
2370. Grable does not purport to overrule
Merrell Dow; however, Grable certainly limits it. The absence of a federal cause of action
was critical to the Court’s decision in Merrell
Dow, and Grable’s holding that the lack of a
federal cause of action is not dispositive is
a significant departure from the major analytical underpinning of Merrell Dow. After
Grable, the importance of having a federal
forum for the federal issue and the effect on
the federal caseload—not a federal right of
action—are paramount. Id. at 2371.
What Will Happen to Jurisdictional
Boundaries Post-Grable?
While Grable does not overrule Merrell Dow,
it does remove Merrell Dow’s federal cause
of action requirement, which in some jurisdictions automatically precluded removal
prior to Grable. See, e.g., Seinfeld v. Austen, 39 F.3d 761, 764 & n.2 (7th Cir. 1994)
(interpreting “substantial” to mean only
those cases where Congress included a private right of action in favor of plaintiffs). In
light of Grable’s retreat from Merrell Dow—
a decision often relied on by plaintiffs seeking to remand cases removed to federal
court on the basis of the substantial federal
question doctrine—there is no question
that Grable expands the “outer reaches” of
federal question jurisdiction. Merrell Dow,
478 U.S. at 810.
After Grable, plaintiffs seeking to defeat
removal under the substantial federal question doctrine are likely to downplay the
significance of Grable and argue that it
arose in the limited and unique context of
a quiet title action. See Grable, 125 S.Ct. at
2371 (noting that “it is the rare quiet title
action that involves contested issues of federal law”). It is, however, doubtful that the
Supreme Court issued a broadly worded
opinion on federal jurisdiction that would
only apply to quiet title actions. The reasoning of Grable is broad enough to apply to any
state-law claim that implicates federal law.
While Grable establishes three jurisdictional guideposts, it does not establish a
bright-line rule to determine which cases
fall on the federal side of the jurisdictional
boundary. In a concurring opinion, Justice
Thomas argued that jurisdictional rules
should be clear, and he indicated that he
would be willing to reconsider the Holmes test—under which federal jurisdiction exists only where federal law creates
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the cause of action—in appropriate circumstances. Id. at 2371–72. Justice Thomas did
not elaborate on what circumstances those
might be. It remains to be seen whether Justice Thomas’ view will gain a foothold. In
this case, however, the Court definitively
rejected the Holmes test, noting that even
after Merrell Dow, “Justice Holmes was still
dissenting.” Id. at 2370.
In the absence of a bright-line rule, the
breadth of the Court’s expansion of federal question jurisdiction ultimately will
be determined by how lower federal courts
apply Grable to the “kaleidoscopic situations” in which state-law causes of action
and federal law intersect. Gully v. First Nat’l
Bank in Meridian, 299 U.S. 109, 117 (1936).
What types of cases are likely to qualify
for federal question removal after Grable?
On the one hand, in a garden-variety
tort case where the plaintiff alleges that
the defendant violated a federal safety or
labeling standard, the fact that the alleged
federal violation constitutes evidence of
negligence, creates a rebuttable presumption of negligence, or is given negligence
per se effect under state tort law probably
will not be enough to create federal question jurisdiction in the absence of a federal
right of action. Grable, 125 S.Ct. at 2370–71
& n.6. In this regard, the Court noted that
a “general rule” of exercising federal jurisdiction based on violations of mislabeling
or other statutory violations would cause a
“potentially enormous shift of traditionally
state cases into federal courts,” thereby precluding federal jurisdiction. Id. at 2370–71.
One district court recently held that, under
Grable, “a state-law negligence claim that
cites a federal statute to establish the defendant’s duty to the plaintiff ” is not removable.
Thomas v. Friends Rehabilitation Program,
Inc., 2005 WL 1625054, at *3 (E.D. Pa. July
11, 2005).
On the other hand, state-law claims that
involve the expenditure of federal funds,
concern the operation of a federal program, or affect an important federal interest are probably removable under Grable.
Two recent examples in the pharmaceutical
industry illustrate the point. In In re Zyprexa
Products Liability Litigation, 375 F. Supp.
2d 170 (E.D.N.Y. 2005), the state of Louisiana sought to recover payments made out
of its own funds and out of federal funds
in its Medicaid program for the alleged offlabel use of the defendant’s drug. Id. at 171.
In denying the state’s motion to remand,
the court acknowledged that Grable did
not explicitly overrule Merrell Dow; noted
that there are “subtle distinctions in pleadings among pharmaceutical cases;” and
held that federal jurisdiction existed under
Grable because of the “substantial federal
funding provisions involved and the allegations about the violation of federal law.”
Id. at 172.
In a similar case, shortly after Grable was
decided, the defendants in In re Pharmaceutical Industry Average Wholesale Pricing
Litigation removed 11 different state-court
cases on the ground that the plaintiffs’
claims depended on the meaning of “average wholesale price” under the federal Medicare statute and regulations and, thus, were
removable under Grable. Motions to remand
these actions were pending at the time of
this writing.
For defendants in industries that are
heavily regulated by federal law, including the health care, food and drug, utilities,
transportation, and telecommunications
industries, Grable also endorses the concept that uniformity in the application of
a detailed federal regulatory scheme is, in
itself, a substantial federal interest that merits federal jurisdiction. In Ormet Corp. v.
Ohio Power Co., 98 F.3d 799 (4th Cir. 1996),
the Fourth Circuit held that “[w]here the
resolution of a federal issue in a state-law
cause of action could, because of different approaches and inconsistency, undermine the stability and efficiency of a federal
statutory regime, the need for uniformity
becomes a substantial federal interest, justifying the exercise of jurisdiction by federal
courts.” Id. at 807. In resolving the circuit
split over Merrell Dow, the Court sided with,
and thus implicitly endorsed, Ormet. See
Grable, 125 S.Ct. at 2366 n.2. It is worth noting for practitioners in the Seventh Circuit
that the Court disagreed with that Circuit’s
decision in Seinfeld. Id.; see also McCready v.
White, 2005 WL 1804789, at *2 (7th Cir. Aug.
2, 2005) (“Although some language in Merrell Dow… might have been read to imply
that the existence of a private right of action
under federal law is essential to jurisdiction,
the opinion in Grable… puts the kibosh on
that possibility.”).
In cases where several actions “involving one or more common questions of fact”
are filed in different state courts, the federal
multidistrict litigation statute may faciliFor The Defense
tate removal under Grable. 28 U.S.C. §1407.
While 28 U.S.C. §1407 does not itself confer federal jurisdiction, it does reduce the
likelihood of any “disruptive portent” when
multiple state-court actions are removed to
federal court, because numerous removed
cases can be consolidated into a single federal court for consolidated pretrial proceedings. Grable, 125 S.Ct. at 2368.
Conclusion
Overall, Grable will unquestionably become
an important decision for defendants seeking to remove state-law claims that present
federal questions. This is so for at least three
reasons. First, the Court unequivocally reaffirmed the concept, first recognized nearly
100 years ago, that federal question jurisdiction exists over state-law claims that
“implicate significant federal issues.” Id. at
2367. Second, the Court squarely held that a
federal cause of action is not a prerequisite
to federal question jurisdiction, and in so
September 2005
doing, drew the rationale underlying Merrell
Dow into question. Third, there was nothing
all that remarkable about the federal issue at
stake in Grable, which involved a straightforward statutory interpretation question.
The Court presumed that the government,
delinquents, and buyers had an interest in
a federal forum, id. at 2368, 2371, but one
could imagine any number of situations,
particularly in regulated industries, where
the federal interests at stake are more significant than those at issue in Grable.
Where diversity is not an issue, defendants who want to remove a complaint that
does not expressly include a federal cause of
action should ask themselves the following
questions to determine whether the complaint is removable. First, does the complaint
specifically reference any federal statute or
regulation? Second, does the complaint
implicate any federal statutory or regulatory
regime? Third, would the remedy sought by
the plaintiff interfere with a federal statutory
or regulatory scheme or otherwise adversely
affect an important federal interest? Fourth,
does the case concern the expenditure of
federal funds? While an affirmative answer
to any of these questions does not automatically confer removal jurisdiction, it would
make the case a likely candidate for removal
under Grable. The most important consideration is whether removal would federalize a garden-variety tort, contract, or fraud
claim, or whether there is some uniquely federal aspect of the case that, if removed, could
be adjudicated in federal court without subjecting the federal courts to a flood of original filings or removals.
In the end, Grable is likely to improve
defendants’ chances of winning future
removal-remand battles, particularly for
defendants in industries that are heavily
regulated by federal law. For any defendant
seeking to remove a complaint that pleads
only state-law claims, Grable is “must cite”
authority.
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