* The Honorab le Ann Aldrich, United States District Judge for the

Northern District of Ohio, si tting by designation.
1 RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Six

th Circuit Rul e 206

ELECTRO NIC CIT

ATION: 2004 FED App . 0244P (6th C ir.) File Name: 04a02 44p.06



### UNITED STATES COURT OF APPEALS

FOR THE SIXT H CIR CUIT

_________________
G RABLE & S ONS M ETAL P RODUC TS , I

NC ., Plaintiff- Appellant

,

v.

D ARUE E NGINE ERING & M ANUFACTUR ING , Defendant-Appellee. X

- - - -
> , - - - - - N No. 02-1678

Appeal from the United States District Court for the We stern Dis trict of M ichiga n at Gran d Rapids. No. 01-00037—David W. McKeague, District Judge.

Argued: March 9, 2004 Decided and Filed: July 27, 2004

Befor e: BOGG S, Chief Judg e; DAUGH TREY, Circ uit Judge; and ALDRI CH, District Judge. * 2 Grable & Sons Meta l Products v. Darue Engineering No. 02-1678

_________________ COUNSEL

ARGUED: Charles E. M cFa rl and, C ampbe llsb urg, Ke nt uc ky, for Appellant. Michae l C. Walton, RH OADES, McKEE, BOER, GOODRICH & TITTA , Gr and Rapid s, Michigan, for Appellee. ON BRI EF: Charles E. McFarland, Campb ellsb urg, Ke ntuck y, f or Appel lant. Michael C. Walt on, RHOADES, McKEE, BOER, GOODRI CH & TITTA, Grand Rapids, Michig an, for Appellee.

_________________ OPINION

_________________ BOGGS, Chief

Judge. Grable & Sons Metal Products Inc., (“Grable”) argues that

the district court committed two errors ingranting judgment

to Darue Engineering &

Manufacturing (“Darue”) in Grable’s action to quiet title agains t Darue. First, Grable argues that its claim, although ba sed on federal tax law, does not present a federal q uestion, and, therefore, that the district court did not have subject matter jurisdiction to adjudicate the case after Dar ue removed

it from Michigan state court. Secondly, Gr abl e appeals the district court’s judgmen t deny ing its quiet-tit

le claim in property Da

rue had purchased at a tax

sale after the I

RS seized it from Gr

able in 1994.

Grable’s quiet-title a ction is based on provisions of the Internal Revenue Code concerning pro p er procedures for notifying delinqu e nt taxpayers that their proper ty has been seized. Its c laim implic ates a su bstantial

federa l interes t, th ereby present ing a fe deral qu

estion. Furthermore, th e districtco ur t c or re ct ly den ied Grable’s action because the I nter nal Revenue Code allows for substantial, rather than literal, complia

nc e with regulations regarding tax-seizureNo. 02-1678 Grable & Sons M etal Products v. Darue

Engineering 3

notification. Neither federal law nor p rinciple s of equit

y supportsGrable’s claim, asserted six years after the sale of its pr op er ty, th at no ti ce by c ertifie d mail, rather than in person, rendered th e IR S sale to Darue invalid. Accordingly , we affirm the judgment of the district court in its entirety

. I

The facts in t

his case are not d isp uted. In 19 94, the I

RS seized property a

t 601-701 W. Plains Road, in Eaton Rapids, Michigan, to satisfy

Grable’ s tax debt re sult ing from not paying its corpor

ate i ncom e taxe s for six ye ars. The IRS served notice of the seizure by c ertified mail, a lth ough 26 U.S.C. § 6335(a), the relevant statute, provides that notice must be “given” personally

to the owner of the property . The parties agree that the I

RS fai led to adhere to the exact provisions of

the statut e but that Grable nevertheless received actual notice of

the se izure. T he I RS sold the property to Darue on December 13, 1994, for $44,500. The record before

us contains no clear

evidence that Grable challeng ed the sale at the time or

attempte d to rede em the pr operty at issue in

this
case. Followin

g i ts standard procedure, the I RS executed a quitclaim deed to Darue on November 13, 1995. On December 14, 2000, about six ye ars after Darue bought the propert

y, G rable challeng ed the sa

le in Eaton County Circuit Court by filing a quiet-tit le action. Darue removed the
caseto the United States Court for the Western District of Michigan under 28 U.S.C. § 1441(b). Grable filed a motion to remand b ased on la

ck of subj ect matte

r jurisdictio n

. 28 U.S.C. § 1447(c). The district court held that it had jurisdict io n to h ear the case because the a pplication of § 6335(a)implicate s a substa ntial f ed eral interest, meaning that Grable’s claim was based on a fede ral qu estion. On March 29, 2002, the district

court denied

Grable’ s motion to quiet title and awarded judgment to Darue. Grable appealed to this court in a timely manner. 4 Grable & Sons Meta l Products v. Darue Engineering No. 02-1678

1 In ord er to b e a pa rty to a q uiet title actio n , the United States m ust have an i nter est

in t he prope rty , whi ch i t no longer h as i n th is case. 28 U.S .C. § 2 410 (a). II Federal Question Jurisdiction

A defendant may

remove to federal district court “a ny c ivil actionbrought

in a state court

of which the district courts of the United Sta

tes have origina l jurisdic tion.” 28 U .S.C. § 1441(a). District

courts have original jurisdiction over any civilaction“arising under any Act of Congress providing for internal revenue . . . .” 28 U.S. C. § 1340. This court reviews districtcourt de cisions re gardin g subjec t matte r jurisdiction de novo

. Caudill

v. N. Am. M

edia Corp ., 200 F.3d 914, 916 (6th Cir. 2000). Becau se we may not rule on the merits of a
caseover whi ch a distr

ict cour t did not ha

ve su bject mat ter jurisdiction, we must decide that issue first. See Thomas v. United States , 166 F.3d

825, 828 (6th Cir. 1999). The parties do nothave diversity of

citizenship, 28 U.S.C. § 1332(a), nor is the United States a party to this action. 1

Federalcourts also have or igina l jurisdic tion over claims “arisingunder the Constitution, laws, or treaties of the United States.” 28 U. S.C. § 1331. Whether a c laim pres ents a federa l question “must be d

etermine d from wha

t necess arily appears in the plaintiff’s statement of his own claim.” Taylor

v. Anderson, 234 U.S. 74, 75-76 (1914). In its original complaint to quiet title, Grable alleged that Dar ue’s quit claim deed was invalid be cause

it “was given with improper notice pursuant to 26 U.S.C. § 6331 et seq . . . . [and] since the tax deed was given

pursuant to improper notice as required by 26 U.S.C. § 6335(a), said

transfer and claim through the tax deed is null and void and void ab initio

. ” The key question i s whether Grable’ s quiet-ti

tle action, based as it is on the f aultyNo. 02-1678 Grable & Sons M etal Products v. Darue

Engineering 5

process in a tax seizure, “arises under” federal law a n d thu s invokes f ederal court jur isdiction. We hold tha

t it does.

The statute up on which G rable ba ses his co mplaint re ads:

As soon as practic able after se izure of property , notice i n writing shall be given by the S ecre tary to the owner of the property . . . or

s hall b e left at his usual place of abode or busines

s if he has

s uch wit

hin the internal
revenue district w

he re the seizure is made. If the owner cannot be readily loc ated, or has no dwelling or place of businesswithin such district, the notice may be mailed to his last kno

wn addre ss.
26 U.S.C. § 633 5(a) (e

mphasis added). The parties agree that the IRS failed to “give” or“leave” notification and that therefore the service of notice did not comply with the statute. See Go odwin v. United States , 935 F.2d 1061, 1064 (19 91 ) (noting government

concession

that the literal meaning of the statute requires personal service ); How ard v. Adl e , 538 F. Sup p. 504, 5 07 (E. D. Mic h. 198 2) (dem onst ratin g tha t certi f ied mailing is insufficient for compliance with the statute by quoting 26 C.F.R. § 301.6335-1( b)(1)(1 981) a nd IRS Manual § 5356.1(2)(1980) ; the latter specifies that the “original notice of sa le will be delivered to the taxpaye r personally”)

. Although Grable’s complaint hingeson a violation of the I

nternal Revenue Code, Gra

ble insists that its cause of action does not arise under fede ral law.

The l ong his tory of Supreme Court g uidance concerning the meaning of “arising under” the laws of the United States has been synthesized into a t hree -part test. Alth ough fo rmu lations differ slightly among the circuits, a federal question may

arise ou t of a stat e law case or controversy

if the p laintiff asserts a federal right that 1) involves a sub stantia l question of federal law; 2) is framed in terms of state law ; and 3) req uires in terpretation of federal law to resolve the
case. Long v. Bando Mfg. of America , 201 F.3d 7 54, 759 6 Grable & Sons Meta l Products v. Darue Engineering No. 02-1678

(6th Cir. 2000); s ee e.g., Howery v. Allstate Insurance Co.
, 243 F.3d 912, 918 (5th Cir.), cer t. denied , 534 U.S. 993 (2001); Seinfeld v. Austen, 39 F.3d 761, 763 (7th Cir. 1994), cert. denied sub nom. Abbott Labs v. Seinfe ld
, 514 U.S. 1126 (1 995). The asserted federal rig ht in this case, pe rsona l notifica tio n of seizure

of prope

rty as provid

ed by IRS regula tions, fulf ills these three r equirements.
Substantia l Federal

Interes t

To identify

a federal question, wemust make “ a prag matic
ass ess ment

of the nature of the federal intere st at stake,” Howery , 243 F.3d at 917 (citing commentators), a simple ta sk inthis context. The fed eral g overnme

nt cannot functio n withouteffective tax collection. See United States v. Kimbell Foods, 440 U. S. 71 5, 734 (1979 ) (cit ing McCull o ch v. Maryland, 17 U. S. (4 Wheat.) 316, 425, 428, 431 (1819)). Socie ty has a strong interest in clear rules for handling delinquent

taxpay ers. The

IRS mus t h ave transparent procedures for seizing and selling propert y so that peop le will be willing to purchase property at tax sales, allowing the IRS to provide a pre dictable stream of tax revenue. Determining the scope of the I

RS’s authority

to se iz e p ro pe rt y to sa ti sf y a tax debt undoubta bly implicate s a

substantia

l feder al intere st.

Presenta tion as a sta te law clai m
Grable sued t o quiet title, which is generally a state law
cause of action. However, the scope of a taxpay er’s rig ht to due process in the form of notice of the tax seizure and sale

is the essential eleme nt of this claim. Grable would not have any cause of action, and Darue would have undispute d title to the property, we

re it not for

the technical notice r

equirements of § 6335(a). Therefore the I nternal Revenue Code, not s tate propert y law, lies at the center of this dispute. The state and federal claims are sufficient ly entwi ned to allow us to find that Grable has presented a feder al question.No. 02-1678 Grable & Sons M etal Products v. Darue

Engineering 7

Interpretation of the federal law required Disposition of all the

aspects of this ca se, inclu

ding thos e related to the traditional state law prope rty iss ues, turn on constructionof federal tax law. Both parties agr ee t h at the only way to resolve the under

lyin g contr oversy is to evalu

ate whether § 6335(a), which mandates noticefor IRS seizure of propert y for non-pa

yment of taxes in p erson, r

equires strict,
or merely substantia

l, complia nce with i ts provisions to allow the IRS dee d t o co nve y tit le. If st ri ct co mp li an ce is ne ce ss ar y, thenGrable is entitled to get his property back becaus e th e IRS di d not com pl y wit h t he l ett er o f th e st atu te. If substantial compliance is suf ficient, then fur

ther ana lys is and weighing of the eq

uities of t

he situati on is r equi red. Therefore the final requirement is met: interpretation o f the federal tax code is necessary to resolve the state law issue.

Insum, Grable’ s quiet title action presents a federal questi on be cause it is rooted in the Internal Reve nue Code, the correct interpr

etation o f which r

eprese nts a subst

an tial federa l interes t.

III

Action to Quiet Title

The district c ourt alsocorrectly granted summary

judgment to the appellee, Darue. At issue is whether serving notice throu gh a certified letter, which Grable in fac t re ceiv ed, constitutes sufficient compliance with the statute to make the resulting quitclaim

deed va

li d. Evaluating whether substantial compliance is app licable is a question of law that i s reviewed

de novo. In re Eagle-Picher Indus., Inc . 28 5 F.3d 522, 527 (6th Cir. 20 02 ) (applying substantial compliance analysis to notice requir ements in a bankruptcy case). However, the rule itself is an equitable doctrine, so that
a district court’s decision to apply it is reviewed f or abuse of discretion. Id. at 529. See Clev eland News

paper Gui ld 8 Grable & Sons Meta l Products v. Darue Engineering No. 02-1678

L ocal 1 v. Plain Dealer Pub. Co. , 839 F.2d 1147, 1155 (6t h Cir. 1988).

The I nternal Revenue Code state s that: b) Deed of real property. --In the case of the sale of real pr op er ty pursuant to section 6335 --

. . . (2) Deed as conveyance of title. --If the proce edi ngs of the Secreta

ry as s et forth have been substantia lly in accordance

with the provisions of

law , such deed shall be consi dered

and oper ate as a convey ance of all the ri ght, title, a nd intere st the party delinquent had in a nd to the real propert

y thus sold a

t the time the lien of the United States attached thereto.

26 U.S.C. § 6339(b)(2) (empha sis added). Therefore, if the IRS substantially complied with theprovisions of § 6335(a), then the tax sale is valid.

Grable counsels against reading

the substantial compliance provision of §6339(b)(2) as apply ing to § 63 35(a) se izures, in spite of th e s ta tu to ry l an gu ag e t o t he co nt ra ry, since doi ng so would render the notic e provis ion s “totally ineffec tive.” Appellant Br. at 3 1. This argument

is not per suasive. Grable is correct that a basic rule of

statutory construction mandate s that a court should read statutes as a whole and not interpret
one provision

ina way tha

twould re nder another mea

ningles s or superfluous. Beck v. Prupis , 529 U.S. 494, 506 (2000) (callingt he rule a “longstanding ca non of statutory construction”); Lake Cumberland Trust v. EPA
, 954 F.2d 1218, 1222 (6th Cir. 1992).

All owing substantial compliance does not undermine th e purpose of § 6335( a), nor make its pr ovisions su

perfluo us. Should the IRS failto adhere to the strict statutory noticeNo. 02-1678 Grable & Sons M etal Products v. Darue

Engineering 9

provision s, it then has the burden o f showing it substant

ially complied wit h them . Proving that a recalcitrant taxpay er actually received notice of a seizure orsale cou ld be quite difficul t. No court would uphold a seizure wi thout no tice. Mull ane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 313 (1950) ( stati ng t hat “the re can b e no doubt

that at a minimum [the due process clause] require[s] that deprivation of life, liberty or prope

rty by adjudication be preceded by notice and oppor

tunity for hearing appropriate to the nature of the case”). Ignoring the provi sions of § 6 335(a) p uts the IRS at

risk th at a court will find its alternative notification proce dure s inadequa te and i nvalidat e the tax sale. Gauging how much variation wil l be toler

ated puts the IRS in very

uncerta in te rr it or y. For

instance, a simple public announcement of a tax sale, as prov ided for in 26 U .S.C. § 6335 (b), is “constitu tionally inadequate.” Verba v. O hio Cas. Ins. Co. , 851 F.2d 811, 816 (6th Cir. 1988). Attempting twice to notify the taxpayer in person

of th e p ub li c s al e o f h is pr op er ty, and thensending a certified letter, which was retu rned, and a regular letter, which

was not, is

insuffic ient notic e to validate the tax sale. Reece v. Scroggins , 506 F.2d 967, 969 (5th Cir. 1975). Nor will a court be swayed by the facts that taxpayer received proper notice of the initial prope rty seizure and found out ab out the auction before the bidding bega n. Ibid. Adjudic a tion of substa

ntial comp liance c ases is ve ryfactspecific, and the outc ome is unce rtai n for the li tiga nts. We do notbelieve

that th e lat itude allowed by § 6339(b) (2) undermines the stron g moti vation for the IRS to follow the letter of § 6335(a). Only

by doing so ca

n i t ensure the validity of its tax sa

les, eff ectively collect b ack ta

x es, and avoid litigation.

The Third Circuit approved the application of t he substantial c ompliance doctrine to §6335(a) in Kabakjian v. U nited States , 267 F.3d

208, 213 ( 2001), a

case tha t is directly on point, and upon which the district court relied. 10 Grable & Sons Meta l Products v. Darue Engineering No. 02-1678

Like Grable, Kabakjia

n owed the

IRS taxes, and

his prope rty
was seized and sold at auction. H e sued the gover nment, clai ming that the notices he received pursuant to § 6335(a)
were defect

ive beca use he re ceived t

hem by certifi ed mail, rather than personal delivery . The Third Circuit held that the notices “were not so defective as to void the seizure of propert y and its tra nsfer to third parties” because § 6339(b)(2) allowed for substantial compliance. Ibid. Because Kabakjian could not demonstrate any pr ejudice bey

ond a theoretical deprivation

of his right to notice, the c our t ruled tha t all his propert y rights h ad trans ferre d to a third party , and his c laim failed on the merits. Ibid

. P rotectingthe inter

ests of bona fide p

urchase rs is a n importantaspect

of quiet title analysis. I

n the one opportuni

ty the Sixth Circuit has had to address the question of substantial compliance in the context of a tax seizure and sa le, we too held that procedural irregularities could not voi d a tax sale. PM Group Inv. Corp. v. PYK Enter. , No. 9 7-13 35, 19 98 WL 242337, at

**3 (6th Cir. May 8, 1998) (unpublished opinion) (holding that issuance of

a certif icate of sale was conclusive evidence of the re gulari ty o f the sa

le). We noted that § 6339(b)(2) was e

nacted t o protect bona fid

e purcha sers, suchas Darue in this case. Ibid. (citing Un ited S tates v. Whiti ng Pools , 462 U.S. 198, 211 (1983)).

Grabl e argues that “provisions of law” in § 6339(b)(2)
means prov isio ns of s tate l aw, ci ting Fuentes v. United States , 1 4 Cl. C t. 157, 167 (1987), and, therefore, that strict adherence to the statute is required. Fuentes dealt with a homeowner’s suit aga

inst the I RS f or d eliverin

g a quitc laim deed that was invalid under Puerto Rican law. The Court of Claims noted “tha t a sharp focus must be placed on the distinction between the law applicable to theefficacy of a tax sal e and the law applicable to the execution of a deed stemming therefrom. As to the former, we find that federal law is applicable; and as to the latter, local law gover ns.” Id. at 166. This c ase dea

ls with the efficacy

of the tax sale, ratherNo. 02-1678 Grable & Sons M etal Products v. Darue

Engineering 11

2 See Robert Kra tovil, Real Est ate Law 49 (6th ed. 1974) (explaining that a “quitc la im d eed pu rports to co nvey only the grantor's prese nt interest in the la nd , if

any, ra ther than t

he land itsel f . . . . If

he has no interest, no ne will be conv eyed .”) (E mph asis in or iginal.) thanthe validity of the

deed, 2 and

is thus a question of federal law. See als o Re ece , 506 F.2d at 970 (ho lding tha

t faulty notice provisions made the sale voidable ab initio ) (empha sis added). We also ad

opt the dis trict cou

rt’s ana lys is r ejecti ng Gr able’s reading of Fuentes. The distr ict cour t corre ctly pointed out that the substantial compliance language of § 6339(b)(2) does no t refer to the execution of the deed, but rather to the proceedings by w hich th e Secretary

sells real propert y pursuant

to § 6335, a

nd there fore the

statute di rectly
con tra dicts Grable’s theory that the substantial compliance provisions only apply

to state law. Grable & Sons M etal Products, Inc. v. Darue Engineering & Mfg. , 207 F. Supp. 2d 694, 697 (W.D. Mich. 2002) (emphasis in the original).

Some courts have determined that substantial compliance is not acceptable in the context of a tax seizure. This view follows that of Chi ef Just ice Marshall that “the person invested with sucha power

[to convey

land] must pu

rsue with precisio n the course prescrib ed by the law, or his act i s invalid . . . .” Thatcher v

. Powell , 19 U.S. (6 Wheat.) 119, 125 (1821). In R eec e v. Scroggins , the lea ding ca se advocatingstrict constr

uct ion, the c ourt voide d a tax sale because the IRS “ha

ndled t his sale of land in a somewhat casual f ashi on,” including failure to comply with notice require ments and irregularities in the subsequent pub li c auction. Reece , 506 F.2d at 970. The main rationale behind the court’s holding was a recog nition of the “ Damo clean natur e” of the IRS’s ability to seize property to satisfy legitima te tax deficien c ies and of the importance of strict adherence to the stat

ute to pro tect t

he ta xpayer. Id. at 971; Aqua Bar & Lounge, Inc . v. United States Dept. of Treasury, 539 F.2d 935, 939 (2d Cir. 1976) (same). 12 Grable & Sons Meta l Products v. Darue Engineering No. 02-1678

Inthis case, however, Grable was amply protec ted. It received actual notice of the taxsale, which was one of several resulting from a six-ye ar hiatus from pay ing taxes. It has not alleged any

actual prejudice as a result of rec eiving notice through certified

m ail, nor did it take any ac tion agains tDarue f

or six y ears. The protections in the statute are designed to preve nt the governmen

t from sei zing prop erty withoutwarning. The district court did not err

in refus ing to extendthese protections to a delinquent taxpaye r who knew that its property wa s being seized but waited y ears to a ssert its rights.

Alth ough the statute allows for substantial compliance, the districtcourt al so analy zed the ca se under

equitabl e principle s, coming to the same favorable concl usion for Darue. Because we may affirm the d ist rict court on any ground supported

by the rec ord, we do not have to review the districtcourt’s application of equity
, Shaw v. De aconess Ho sp. , 355 F.3d 496, 498 (6th Cir. 2004), but we make two short points. In a case with similar defe cts in notice, the United States District Court for the E astern District of Michigan applied equity in holding that substantial compliance was sufficient to validate the sale. Howard , 538 F. Supp. at 508 (applying Mic higan law to res olve the quiet title act ion). Secondly

, the distr ict cour t’s decis ion to appl

y equity to dismiss Grable’s quiet title motion does not
c ontradict an earlier Michigan Court of Appea ls quiet -titl e actiont hat w as decided in Grable’s favor. Village of Dimondale

v. Grable , 61 8 N. W. 2d 2 3 (M ich . Ap p. 2 000 ). In defending an action to quiet

title to another piece of

propert y that Mr. Grable owned personally , he argue d that the tax sale
was not valid because of defective I RS not ice. T he state appeals co urt held that , as a def endant, he did not ha

ve to worry about sle eping o n his rights bu t was entitled to assert any valid defense. Di m ondale , 618 N.W.2d at 31-32. The court also noted

that “eq uity is a shield , not a

sword.” Id. at 32. The distr

ict cour t proper ly r elied on t hat maxim wh en itNo. 02-1678 Grable & Sons M etal Products v. Darue

Engineering 13

he ld t hat a d elay of app roxi matel y six years i n pres sing a claim provided sufficie nt basis in equity to deny Gra

ble relief.

IV

For the reasons set out above, we AFFIRM the decision of the district court to deny Gra ble summar

y ju dgme nt and to award judgment to Darue.