# State of Oregon v. City of Rajneeshpuram/1984 03 23

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State of Oregon v. City of Rajneeshpuram. United States District Court for the District of Oregon. Civil No. 83-1892 FR. Decided: March 23, 1984.

## Case summary

STATE OF OREGON v. CITY OF RAJNEESHPURAM, a putative Oregon municipal corporation; RAJNEESH FOUNDATION INTERNATIONAL, a New Jersey corporation; RAJNEESH INVESTMENT CORPORATION, an Oregon corporation, RAJNEESH NEO-SANNYAS INTERNATIONAL COMMUNE, an Oregon corporation; MA ANAND SHEELA, individually; SWAMI PREM JAYANANDA, MA YOGA VIDYA, SWAMI KRISHNA DEVA, MA PREM ARCHAN, SWAMI DEVA SANDESH, MA PREM PATIPADA, MA DEVA JAYAMALA, MA SAT PRABODHI, individually and as representatives of the class of all current residents of the City of Rajneeshpuram; Defendants
Civil No. 83-1892 FR
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON
March 23, 1984, Decided
CASE SUMMARY
PROCEDURAL POSTURE: Plaintiff state moved for remand to state court of its action against defendants city, residents, and corporations, seeking a declaratory judgment that the exercise of sovereign governmental power by the city and distribution of public funds to the city by the state would violate the state constitution and the Establishment Clause, U.S. Const. amend. I.
OVERVIEW: The state sued the city, residents, and corporations in state court, essentially arguing that the city's existence was an establishment of religion and state payments to the city would constitute state action establishing religion. The case was removed to federal court under 28 U.S.C.S. § 1441(a), but the state moved to remand back to state court under 28 U.S.C.S. § 1447(c), asserting that the action did not arise under the federal Constitution within the meaning of 28 U.S.C.S. § 1331 and that the Eleventh Amendment precluded the federal court's exercise of jurisdiction. In denying the motion, the court ruled that it had federal question jurisdiction because interpretation of the First Amendment and its application to the facts was central and unavoidable. The Eleventh Amendment did not apply because the state was a plaintiff, not a defendant, and no affirmative relief was sought against it.
OUTCOME: The motion for remand to the state court was denied.
COUNSEL: [*1] Dave Frohnmayer, Attorney General, William F. Gary, Deputy Attorney General, John A. Reuling, Jr., Special Counsel, Robert W. Muir, Asst. Attorney General, Margaret Rabin, Asst. Attorney General, for Plaintiff.
Ma Prem Sangeet, Rajneesh Legal Services Corporation, Swami Prem Niren, Swami Prartho Subhan, Roy S. Haber, Robert D. Durham, for Defendants.

## Opinion and order

OPINION BY: FRYE
OPINION
OPINION AND ORDER
FRYE, Judge
The matter before the court is plaintiff State of Oregon's motion for remand. This motion presents an apparently novel and complex question of federal subject matter jurisdiction.
In October, 1983, the Attorney General of the State of Oregon issued an opinion to an Oregon state legislator stating that the distribution of state funds to the City of Rajneeshpuram would violate article 1, section 5 of the Oregon Constitution and the first amendment to the United States Constitution. On November 9, 1983, the State of Oregon (State) filed a declaratory judgment action under ORS 28.010 et seq. in the Circuit Court of the State of Oregon for Wasco County. This suit named as defendants the City of Rajneeshpuram (City), City council members, the organizations owning land within the City, and [*2] certain officers of these organizations. The State sought as relief a declaration
1. Declaring that the exercise of governmental power by the City of Rajneeshpuram is prohibited by the Oregon and United States Constitutions;
2. Declaring that payment of public monies to the City of Rajneeshpuram by the State of Oregon pursuant to ORS 221.770, 471.810, 323.455, and 366.790, and 401.710 to 401.790 is prohibited by the Oregon and United States Constitutions;
Complaint at 15-16. The State contends (1) that the exercise of sovereign governmental power by the City violates the United States and Oregon Constitutions, and (2) that if the State recognizes the City of Rajneeshpuram as a legitimate municipality and pays public monies to the City, it will constitute state action establishing religion, which is also a violation of the Oregon and United States Constitutions.
On December 9, 1983, defendants petitioned for removal of this action from state court to this court under 28 U.S.C. § 1441(a). In the present motion, the State seeks to remand this action back to the state court pursuant to 28 U.S.C. § 1447(c). The issue presented in this motion is whether this court has subject matter [*3] jurisdiction over the present action -- that is, whether this action is one "arising under the Constitution, laws, or treaties of the United States" within the meaning of 28 U.S.C. § 1331 -- and, if so, whether the eleventh amendment nevertheless precludes this court from exercising jurisdiction.

## Analysis and ruling

ANALYSIS AND RULING
The most difficult single problem in determining whether
federal question jurisdiction exists is deciding when the relation of federal law to a case is such that the the action may be said to be one "arising under" that law.
The meaning of this phrase has attracted the interest of . . . giants of the bench . . . and has been the subject of voluminous scholarly writing. Even so it cannot be said that any clear test has yet been developed to determine which cases "arise under" federal law. There is no single rationalizing principle that will explain all of the decisions on this point.
13 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3562 at 397-98 (1975). The fact that this action is one for a declaratory judgment seeking only declaratory relief further complicates the issue. The procedural and legal posture of this case appears [*4] to be unique. In such circumstances, it is particularly important to heed the Supreme Court's suggestion that "arising under" questions be analyzed
with an eye to practicality and necessity. "What is needed is something of that common-sense accommodation of judgment to kaleidoscopic situations which characterizes the law in its treatment of causation . . . a selective process which picks the substantial causes out of the web and lays the other ones aside."
Franchise Tax Board of the State of California v. Construction Laborers Vacation Trust for Southern California, U.S. , 103 S.Ct. 2841, 77 L.Ed.2d 420 at 137-38 (1983), quoting Gully v. First National Bank in Meridian, 299 U.S. 109 at 117 (1936).
From the State's complaint it is clear that a federal constitutional provision is an essential part of the legal logic used by the State in support of the declaration requested. In essence, the State is saying, "The first amendment to the United States Constitution prohibits Rajneeshpuram from existing as a legally recognized and operating city." At first glance, it seems difficult to imagine how the State's action could be said not to arise under [*5] federal law. Nevertheless, the State makes several colorable arguments in support of its position. Its arguments are based on two notions: (1) that because this action is one for a declaratory judgment, the proper action at issue in the "arising under" analysis is not the present action, but rather the coercive action that would have been brought were no declaratory judgment action available; and (2) that because the first amendment confers no rights or immunities on the State itself, but rather only acts to limit state action, the State of Oregon by definition cannot bring an action arising under the first amendment.
As to the State's first argument, some background is necessary. Early on it became the rule that whether a case arises under federal law must be determined solely from the nature of the plaintiff's cause of action; that if a defendant interposes a federal matter as a defense to a non-federal claim, this defense does not make the action arise under federal law, and that a plaintiff cannot circumvent this rule by anticipating the federal defense in its complaint, even if all parties agree that the federal defensive matter is determinative. See Louisville & Nashville [*6] Railroad v. Mottley, 211 U.S. 149 (1908). Soon after the enactment of the federal Declaratory Judgment Act, courts recognized that this "well-pleaded complaint rule" might be subverted by declaratory judgment complaints. For example, a declaratory judgment plaintiff might bring an action for a declaration that some federal law immunized him from a threatened state law action, in which case the federal matter would appear on the face of the well-pleaded declaratory judgment complaint and satisfy the well-pleaded complaint rule. This result would allow a procedural device to expand the scope of federal subject matter jurisdiction. Hence, courts developed the rule that
Where the complaint in an action for declaratory judgment seeks, in essence to assert a defense to an impending or threatened state court action, it is the character of the threatened action, and not of the defense, which will determine whether there is federal-question jurisdiction in the District Court. If the cause of action, which the declaratory defendant threatens to assert, does not itself involve a claim under federal law, it is doubtful if a federal court may entertain an action for a declaratory judgment [*7] establishing a defense to that claim. This is dubious even though the declaratory complaint sets forth a claim of federal right, if that right is in reality in the nature of a defense to a threatened cause of action.
Despite the Court's use of such words as "doubtful" and "dubious," it seems clear that this is the law today, that the narrow view is the correct one, and that a historical test must be used to measure federal jurisdiction in declaratory actions. Therefore, if, but for the availability of the declaratory judgment procedure, the federal claim would arise only as a defense to a state created action, jurisdiction is lacking. On the other hand, if the federal issue would inhere in the claim on the face of the complaint that would have been presented in a traditional damage or coercive action, then federal jurisdiction exists over the declaratory judgment action.
10A C. Wright, A. Miller & M. Kane, Federal Practice & Procedure § 2767 at 743-45 (1983) (footnotes omitted), quoting Public Service Commission of Utah v. Wycoff Co., 344 U.S. 237 at 248-49 (1952).
The State relies on this rule to argue that no federal jurisdiction exists over the present action. [*8] The alternative to bringing the present action, the State argues, would have been for the State simply to refuse to recognize Rajneeshpuram as a legally-valid city and to cut off all state monies to Rajneeshpuram. The City would then have brought suit against the State for recognition, and this suit would be based solely on state statutes relating to municipal incorporation, power, funding, etc., with the State's first amendment ground interposed as a defense. Hence, the State argues that the first amendment issue really only arises as a matter of defense, and that as such it cannot be a basis for federal jurisdiction.
There are several flaws to this argument. First, the defendants contend that, had the scenario hypothesized by the State occurred, the suit the defendants would have brought against the State would not only have been based on state statutory grounds, but would also have been based on the first amendment rights of defendants to practice religion freely and to associate freely. Hence, defendants argue that, contrary to the State's assertion, the coercive action the City would have brought would have arisen under federal law. Second, and more importantly, the State's argument [*9] assumes that in all declaratory judgment actions the hypothetical coercive action that must be examined for jurisdictional determinations is that which would have been brought by the declaratory judgment defendant. However, it appears that this is not the rule. The rule is that "if, but for the availability of the declaratory judgment procedure, the federal claim would arise only as a defense to a state created action, jurisdiction is lacking." Franchise Tax Board, supra, 77 L.Ed.2d at 435, quoting 10A Wright & Miller, supra, § 2767 at 744-45 (emphasis added). The State itself apparently could have brought this action in coercive rather than declaratory form, seeking affirmative relief -- for example, injunctive relief prohibiting Rajneeshpuram from operating as a city, or an action for damages seeking the return of public monies already paid over to Rajneeshpuram. In such a coercive action, federal law would be an essential element of the State's complaint, would appear on the face of the complaint well-pleaded, and would not anticipate a defense. The court assumes that the State is bringing this action out of a concern that its recognition and funding of Rajneeshpuram [*10] would constitute state action establishing religion and hence would entangle the State in a first amendment violation. However, it may be that the coercive action anticipated by the State in bringing this suit is a law suit filed by a citizen-taxpayer of Oregon against state officials seeking to end the State's assistance to Rajneeshpuram on first amendment grounds. Putting aside issues of standing, it seems clear that this hypothetical action would also arise under federal law for jurisdictional purposes. See Valley Forge Christian College v. Americans United for Separation of Church and State, 454 U.S. 464 (1982), Flast v. Cohen, 392 U.S. 83 (1968).
What is implicit in the above-cited taxpayer standing cases also undercuts the State's argument that its action against Rajneeshpuram cannot arise under the first amendment because the first amendment gives the State no substantive rights or immunities. If an action by a citizen-taxpayer against an alleged establishment of religion by a government arises under the first amendment for jurisdictional purposes, then certainly the present suit does as well. By its express terms, the first amendment gives no positive right, immunity [*11] or cause of action to a citizen-taxpayer who is not a member of an affected religious group, yet the cases cited above necessarily imply that suits brought by such citizen-taxpayers challenging state actions "arise under" the first amendment.
If anything, a much stronger argument can be made for the State being a more appropriate plaintiff in a case challenging a municipal establishment of religion. The State has a much stronger claim to standing, and more importantly, the State, unlike a citizen-taxpayer, is under a constitutional duty arising from the first amendment and applicable to states under the fourteenth amendment to see that it does not take action constituting an establishment of religion.
Hence, although there is no explicit federal statute providing for a cause of action in this case (as, for example, the antitrust statutes do), the present case does, for jurisdictional purposes, arise under the federal law. Interpretation of the first amendment and application of the first amendment in the context of the facts of this case is a central, unavoidable, and possibly determinative issue in the State's action.
The cases finding that no federal jurisdiction exists appear [*12] to be concerned with (1) the requirement that the federal element be a necessary element in the plaintiff's cause of action and not come into the case as a matter of defense (Mottley, supra), and (2) that the federal element in the plaintiff's cause of action not be too remote or too indirectly related to the cause of action (Gully, supra). Neither concern arises here. 1

## Footnotes

1 The State relies heavily on Franchise Tax Board, supra, in support of its position that no federal jurisdiction exists in the present action. Although the extent to which the Franchise Tax Board decision alters the jurisdictional rules in declaratory judgment actions is uncertain, the court believes that Franchise Tax Board is sufficiently different from the present case so as not to be controlling.
In Franchise Tax Board, a California state agency brought an action in state court against the trustees of an ERISA trust. Pursuant to state law, the Tax Board sought to levy on funds held by the Trust in order to satisfy delinquent personal income taxes owed by union members whom the Trust served. The Trustees took the position that the ERISA statute, 29 U.S.C. §§ 1001 et seq., prohibited such a levy and preempted state law. The action brought by the Franchise Tax Board against the trust stated two causes of action: One for damages against the Trust under state law for failure to turn over the delinquent amounts to the Board pursuant to the levy, a second for a declaratory judgment under the state declaratory judgment act that ERISA did not preempt the State's power to reach the funds in question.
The case was removed to federal district court, but on appeal the Supreme Court held that no federal jurisdiction existed over the action. As to the first cause of action, the Court found that the well-pleaded complaint rule clearly barred federal jurisdiction; the State relied solely on state law, with the federal matter interposed as a defense. As to the declaratory judgment cause of action, the Court first noted that the federal preemption issue was "a necessary element" of the Tax Board's claim. 77 L.Ed.2d at 433. The Court then cited the rule discussed earlier that if the federal claim would arise only as a defense to a state-created coercive action but for the availability of the declaratory judgment procedure, then jurisdiction is lacking. Id. at 435. The Court then assumed that the Trustees could have brought an action under ERISA to enjoin the Tax Board from levying on trust funds, and noted that this action would certainly arise under federal law. Id. at 437. Nevertheless, citing the need for a "common sense accommodation of judgment to kaleidoscopic situations." Id. at 438, quoting Gully, supra, 299 U.S. at 117, the Court held that the action by the Tax Board did not on that account arise under federal law.
There are good reasons why the federal courts should not entertain suits by the States to declare the validity of their regulations despite possibly conflicting federal law. States are not significantly prejudiced by an inability to come to federal court for a declaratory judgment in advance of a possible injunctive suit by a person subject to federal regulation. They have a variety of means by which they can enforce their own laws in their own court, and they do not suffer if the preemption questions such enforcement may raise are tested there. n 22 The express grant of federal jurisdiction in ERISA is limited to suits brought by certain parties, see infra, at , 77 L Ed 2d , as to whom Congress presumably determined that a right to enter federal court was necessary to further the statute's purposes. It did not go so far as to provide that any suit against such parties must also be brought in federal court when they themselves did not choose to sue. The situation presented by a State's suit for a declaration of the validity of state law is sufficiently removed from the spirit of necessity and careful limitation of district court jurisdiction that informed our statutory interpretation in Skelly Oil and Gully to convince us that, until Congress informs us otherwise, such a suit is not within the original jurisdiction of the United States district courts. Accordingly, the same suit brought originally in state court is not removable either.
Id. at 438. It is upon this language, and particularly that of footnote 22, that the State relies.
It is doubtful that the Court intended in the Franchise Tax Board, decision to announce a rule that henceforth in all declaratory judgment actions brought by state agencies federal jurisdiction is lacking. On the same day the Court announced the Franchise Tax Board opinion, it also decided the case of Shaw v. Delta Air Lines, U.S. , 103 S. Ct. 2890, 77 L.Ed.2d 490 (1983). In Shaw, companies subject to ERISA regulation brought a declaratory judgment action seeking a declaration that state laws were subject to preemption by ERISA. The court noted that such an action is within federal subject matter jurisdiction:
The Court's decision today in Franchise Tax Board v. Construction Laborers Vacation Trust [citations omitted] does not call into question the lower courts' jurisdiction to decide these cases. Franchise Tax Board was an action seeking a declaration that state laws were not preempted by ERISA. Here, in contrast, companies subject to ERISA regulation seek injunctions against enforcement of state laws they claim are preempted by ERISA, as well as declarations that those laws are preempted.
77 L.Ed.2d at 500 n. 14 (emphasis in original). The present case is more similar to Shaw then to Franchise Tax Board. The State of Oregon, like the companies in Shaw, is seeking a declaration that a result required by state law (recognition and funding of Rajneeshpuram) is prohibited by the effect of supreme federal law over the state statutes. The State of Oregon is not in the position of the Franchise Tax Board, requesting a declaration that the usual operation of state statutes is not prohibited by federal law. The only difference between the State of ORegon and the plaintiffs in Shaw is that the State is not seeking injunctive relief, but only declaratory relief. In Franchise Tax Board, the Board, although pleading a declaratory judgment cause of action in its complaint, had available to it a coercive action with which to enforce its rights, and indeed held this as its first cause of action. The harmonizing principle of these cases appears to be fundamental rule stated earlier: the declaratory judgment procedure should have no effect on federal subject matter jurisdiction in most cases, and to see whether jurisdiction exists courts must look to the coercive action that would have been necessary if the declaratory judgment procedure did not exist. In Franchise Tax Board, that coercive action was one under state law for enforcement of the state tax levies, and the federal matter came into that action only as a matter of defense. Franchise Tax Board stands on the most fundamental level simply for the well-established proposition that a party cannot create federal court jurisdiction by anticipating a federal defense to a state law coercive action it could bring itself, with the added twist that this rule stands notwithstanding the fact that the declaratory judgment defendant also might be able to bring a coercive action that does arise under federal law. In the present case, it appears that all possible coercive actions would arise under the United States Constitution, including any coercive action the State would have brought.
n. 22 Indeed, as appellant's strategy in this case show, they may often be willing to go to great lengths to avoid federal-court resolution of a preemption question. Realistically, there is little prospect that States will flood the federal courts with declaratory judgment actions; most question will arise, as in this case, because a State has sought a declaration in state court and the defendant has removed the case to federal court. Accordingly, it is perhaps appropriate to note that considerations of comity make us reluctant to snatch cases which a State has brought from the courts of that State, unless some clear rule demands it.

## End Footnotes

[*13] The court finds that the present action by the State seeking a declaration that Rajneeshpuram cannot legally exist as a city because of the first amendment to the United States Constitution arises under federal law, and that this court has subject matter jurisdiction over the suit.
The State's second argument is that this case cannot be removed to this court because of the eleventh amendment. The eleventh amendment generally prohibits a state from being sued as a defendant in federal courts. In the present case, of course, the State is a plaintiff. Nevertheless, the State argues that its presence in federal court after removal in this case is no more voluntary than if it were sued as a defendant, and hence, the eleventh amendment precludes removal. However, the rule appears to be that an action brought in state court by a state may be removed to federal court if the action arises under federal law. See Ames v. Kansas, 111 U.S. 449 (1887), 1A J. Moore, B. Ringle & J. Wicker, Moore's Federal Practice A0.157[2] at 54 n. 18 (2d. ed. 1983); see also Arkansas v. Kansas & Texas Coal Co., 183 U.S. 185 (1901). The rule also, appears to be that when a state brings an action in [*14] federal court, the state is deemed to have waived its eleventh amendment immunity with respect to counterclaims against it, at least insofar as the counterclaims are compulsory and do not exceed the amounts sought by the state's claim. See Georgia Department of Human Resources v. Bell, 528 F. Supp. 17 (N.D. Ga. 1981). Although it is arguably more difficult to contend that a state has waived its eleventh amendment immunity with respect to offsetting counterclaims asserted against the state in federal court after removal from state court, at least one older case has reached this result. See Port Royal & Augusta Railroad v. South Carolina, 60 F. 552 (C.C.D.S.C. 1894).
In the present case, the only thing this court is asked to do is to declare rights. This court is aware of the limitations the eleventh amendment places on the types of relief a federal court may award against a state, and it may be that certain forms of ancillary relief the defendants might request if they prevail would not be within this court's power to award. However, as the case stands now, the State is a plaintiff, not a defendant, and no affirmative relief is sought against it. Hence, the court finds that [*15] the eleventh amendment does not bar removal.
This court is mindful of the admonition that the removal statutes should be strictly construed, and that in cases where jurisdiction is doubtful the case should be remanded to state court. See Moore's, supra, A0.157[1.-3]. This rule is designed to prevent a situation where the parties litigate in federal court, later discover on appeal that federal jurisdiction is lacking, and are forced to begin again in state court. However, the rule is also stated that "a right of removal should not be denied to a defendant because of a superabundance of caution on the part of the district judge." Id. at 43. Moreover, because a remand order is not appealable, Id., A0.169[2], an erroneous decision to remand deprives a defendant of its right to a federal forum and leaves it without a remedy.
IT IS ORDERED that the State's motion to remand is DENIED.
DATED this 23 day of March, 1984.
This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).
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