Federal Jurisdiction — Grable — State Law Claim that “Necessarily” Raises a Federal Question versus One in which Federal Question Is Merely “Present”

The New York State Attorney General commenced an action in state court alleging fraudulent appraisal practices in People v. First Am. Corp., 2008 U.S. Dist. LEXIS 51790 (S.D.N.Y. July 8, 2008). Because one method of proving the alleged violation of state law involved proof of violation of federal regulations, the defendants removed under Grable and 28 U.S.C. § 1331. The Court’s analysis::

In Broder v. Cablevision Systems Corp., 418 F.3d 187 (2d Cir. 2005), the Second Circuit, applying Grable, distinguished between cases in which a distinct state-law claim "necessarily raise[s] a stated federal issue" and those in which a federal issue is present "as only one of multiple theories that could support a particular claim." .... The Broder Court explained that, although federal question jurisdiction could arise in the former category of cases, assuming that the other elements of the Grable test are satisfied, the existence of an implicit federal issue in the latter category of cases is insufficient to create federal jurisdiction.... The relevant inquiry is whether "at least one federal aspect of [Plaintiff's] complaint is a logically separate claim, rather than merely a separate theory that is part of the same claim as a state-law theory." ... ***

Defendants argue that, because the Complaint alleges that Defendants violated both state and federal law and regulations, this case falls within the narrow category of cases in which federal question jurisdiction arises from state law claims. However, as Grable and Broder make clear, the relevant inquiry is whether a federal issue is "necessarily" raised by the state law claims. ***

Here, the Attorney General alleges that Defendants have violated the Uniform Standard of Professional Appraisal Practice ("USPAP"), which is incorporated into New York, as well as federal, law. (Compl. P 18.) ***

None of the three causes of action plead in the Complaint necessarily raises a federal issue within the meaning of Grable. N.Y. Executive Law § 63(12) authorizes the Attorney General to bring an action for injunction or damages against any person who "engage[s] in repeated fraudulent or illegal acts or otherwise demonstrate[s] persistent fraud or illegality in the carrying on, conducting or transaction of business." (N.Y. Executive Law § 63(12) McKinney (2008).) *** The fact that the Complaint includes allegations that Defendants' conduct violates federal laws and regulations does not "necessarily" raise a federal issue, because the state law violations and allegedly fraudulent practices described in the Complaint could, if proven, support the relief sought without proof of distinct violations of the cited federal provisions. Although the Attorney General could ultimately prevail on the asserted claims by proving a violation of federal law, he need not do so in order to succeed.

Motion to remand granted.

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