Grable Does Not Overturn “Well-Pleaded Complaint” Doctrine for Determining Federal Jurisdiction, Which Must Arise Out of Claims Stated — Declaratory Judgment Claim Anticipating Defense Insufficient

From California Shock Trauma Air Rescue v. State Compensation Insurance Fund, 2011 U.S. App. LEXIS 6756 (9th Cir. Mar. 31, 2011):

[I]s the expectation of a federal defense, without more, sufficient to establish federal jurisdiction over a state-law claim? ***

CALSTAR provides air-ambulance rescue services to employees injured in the course of their employment, and whose employers are either self-insured or have purchased workers' compensation insurance. CALSTAR alleges that these employers and various insurance companies (collectively, Employers) have underpaid CALSTAR for its services. Rather than pay the amount billed by CALSTAR, Employers have paid a lesser amount as specified under the California's workers' compensation statute. ***

In 2009, CALSTAR filed its actions in the Eastern District of California, alleging state-law claims of quantum meruit, unjust enrichment, and open book account. CALSTAR also sought a declaratory judgment that the state statute regulating air-ambulance rates is pre-empted by federal law. In the 1970s, the federal government adopted legislation — the Federal Aviation Act of 1958 (FAA), as amended by the Airline Deregulation Act of 1978, codified at 49 U.S.C. § 41713(b)(1) — to increase airline competition and lower airfare prices. According to CALSTAR, the FAA preempts the workers' compensation statute at issue.

The FAA preemption question is the sole basis on which CALSTAR attempts to have its actions adjudicated in federal court. ***

Under 28 U.S.C. § 1331, federal courts have jurisdiction over those actions "arising under the Constitution, laws, or treaties of the United States." While plaintiffs usually invoke section 1331 jurisdiction for violations of federal law, they also may invoke it over certain state-law claims. Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 312 (2005).

In determining whether a federal district court has "arising under" jurisdiction over a claim, we must keep in mind "the basic principle marking the boundaries of the federal question jurisdiction of the federal district courts": the well-pleaded complaint rule. Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987). Under the well-pleaded complaint rule, we must determine whether "a right or immunity created by the Constitution or laws of the United States must be an element, and an essential one, of the plaintiff's cause of action." See Gully v. First Nat'l Bank, 299 U.S. 109, 112 (1936).

We thus are required to consider whether CALSTAR's complaints satisfy the well-pleaded complaint rule. CAL-STAR is suing Employers under various state-law theories. CALSTAR anticipates that Employers will respond by asserting, as a defense, that they correctly paid CALSTAR pursuant to California's air-ambulance rate regulation. In response to that defense, CALSTAR anticipates arguing that the state's air-ambulance rate regulation is inapplicable because the FAA preempts the state regulation. It is evident that CALSTAR's federal preemption argument is not necessary to its state-law claims--it is merely a potential response to a defense. Because CALSTAR's preemption issue cannot satisfy the well-pleaded complaint rule, there is no basis for federal question jurisdiction. ***

*** CALSTAR invokes the Supreme Court's decision in Grable and argues that a federal court may entertain any action if it involves "significant federal issues." 545 U.S. at 312. Grable, however, does not support CALSTAR's position. There, a plaintiff filed a state common law quiet title action alleging superior title to a parcel of land previously seized by the Internal Revenue Service (IRS). Id. at 311. The basis of Grable's argument for superior title, as alleged in his complaint, was the IRS's failure to serve notice pursuant to 26 U.S.C. § 6335(a). Id. The defendant "removed the case to Federal District Court as presenting a federal question, because the claim of title depended on the interpretation of . . . federal tax law." Id. The Court observed that jurisdiction was proper because, "federal-question jurisdiction will lie over state-law claims that implicate significant federal issues." Id. at 312.

Read in isolation, this statement arguably suggests that federal courts may exercise jurisdiction over any state-law claim that "implicate[s] significant federal issues." In fact, this is the very interpretation that CALSTAR asks us to adopt. Nevertheless, contrary to CALSTAR's suggestion, Grable did not implicitly overturn the well-pleaded complaint rule — which has long been a "basic principle marking the boundaries of the federal question jurisdiction of the federal district courts," Metropolitan Life, 481 U.S. at 63 — in favor of a new "implicate[s] significant federal issues" test, see Grable, 545 U.S. at 312. For CALSTAR's argument to have any merit, the complaint in Grable would have had to violate the well-pleaded complaint rule. But this is where CALSTAR falters. The Grable complaint did present a federal issue on its face. As the Court explained, the complaint in Grable "premised its [state-law] superior title claim on a failure by the IRS to give it adequate notice, as defined by federal law." Id. at 314-15. Thus, contrary to CALSTAR's suggestion, Grable stands for the proposition that a state-law claim will present a justiciable federal question only if it satisfies both the well-pleaded complaint rule and passes the "implicate[s] significant federal issues" test. This test requires that the federal issue within a state-law claim be "necessar[y], . . . actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities." Id. at 314.

Turning to the facts of this case, CALSTAR's argument fails at the outset. Notwithstanding its declaratory judgment claim, *** its actions are based entirely on California causes of action (quantum meruit, unjust enrichment and open book account), each of which does not, on its face, turn on a federal issue. Instead, any federal issue here would be a response to a defense to these state-law claims. ***[T]here is no arising under jurisdiction in this context. 425 U.S. at 128.***

"[T]he operation of the Declaratory Judgment Act is procedural only" and does not confer arising under jurisdiction. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950) (internal quotation marks omitted). That holding should be the end of the discussion. Nevertheless, CALSTAR argues that the logical extension of Shaw v. Delta Airlines, Inc. opens the doors of the federal courts to CALSTAR's claim. 463 U.S. 85 (1983). The relevant portion of Shaw, upon which CALSTAR relies, states:

It is beyond dispute that federal courts have jurisdiction over suits to enjoin state officials interfering with federal rights. Ex parte Young, 209 U.S. 123, 160-62 (1908). A plaintiff who seeks injunctive relief from state regulation, on the ground that such regulation is pre-empted by a federal statute which, by virtue of the Supremacy Clause of the Constitution, must prevail, thus presents a federal question which the federal courts have jurisdiction under 28 U.S.C. § 1331 to resolve.

Id. at 96 n.14.

CALSTAR's argument is a matter of first impression within our circuit and therefore we must address it. In Shaw, the Supreme Court predicated its jurisdictional holding on the fact that a state official was the defendant. Id. Relying on Ex parte Young, the Court held that there was arising under jurisdiction over an action against a state attorney general, acting in his official capacity, who allegedly violated federal law. 209 U.S. at 160-62. A Supremacy Clause-related claim against a state official was the logical extension of the jurisdictional rule set forth in Ex parte Young. The structure of the Shaw syllogism confirms its conclusion. In footnote 14, Shaw reiterates its major premise: Jurisdiction exists over federal actions to enjoin state officials. 463 U.S. at 96 n.14. When confronted with the Shaw plaintiff's Supremacy Clause claim against a state official, the Court explained that such a claim "thus presents a federal question." Id. (emphasis added). Because the presence of a state official is crucial to the reasoning in Shaw, its holding is irrelevant to CALSTAR's action against Employers, none of whom are state officials. As CALSTAR is unable to cite any case in which there exists federal subject matter jurisdiction over a declaratory judgment claim brought by a private party against another private party, CALSTAR's argument necessarily fails.

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