The Honor able My ron H. Br ight, United States Circuit Judge for the Eig hth Circ uit, sit ting * by desig nation. The Honor able Thoma s W. P hillips , United States District Court for the Eastern District of 1 Tenne ssee. NO T R EC OM M EN DE D F OR F UL L- TEX T P UB LIC AT ION File Na me: 09a0128n.06 Filed: F ebrua

ry 12, 2009 No. 07-6419 U N IT E D S T A T E S C O U R T O F A P P E A LS F O R T H E S IX T H C IR C U IT L ARRY C. L AY; ROGER DAL E PHI L POTT, ) et al., ) ) Pla int if fs -A pp e lla nts , ) ) v. ) ) BU RL EY STAB I L I Z ATI ON CORPORATI ON, ) ) Def endant- Appellee

. ) ON APPEALFROM THE U NI TED STATES DI STRI CT COURT FOR THE EASTERND I STRI CT OF TEN NESSEE.

Be for e : M OORE, G RI F F IN , a nd BR IG HT, Ci r c uitJudg e s. * P ER CURIAM . Plaintiffs and appe llants L arr y C. L ay , et al., fifty -five me mbers of a ppellee Bur ley Stabiliz ation Corpo ra t i o n (“BSC”) (“ members” ), ar e tobac co produc ers who sold burle y tobacc o throug h the fe d er al p ri ce support prog ram in one or more of the 1982 throug h 2004 crop y ear s. They

appea l the district court’s dismiss al of the i r ca s e wi t hout prejudice , seekingfunds 1 alleg edly wrong fully

being withheld from them by BSC. The members contest t he district cour t’s subject matter jur isdiction, contend that collater al estoppel doe s not bar th e action, and a rg ue that their cla ims do not i mplicate state statutory require ments for de rivative a ctions. We determine thatNo. 07-6419

Lay v. Burley

Stabiliz ation Corp.

-2- the nece s s ar

y f e d e r a l j u r is d ic ti o ne xis ts an d a f f ir m, r u li n g th a t c o ll a te r a l e s to p p e l a p p li e s an d

th at Tenne ssee law

classifies the me mbers’ c laims as derivative.

I . BA CKGROUND Appellee BSC, a non-pr ofit ag ricultural c ooperative association org anized in 1953 under Te nn e sse e law, de liv e re d f eder al pri ce s up po rt

pa y me nts to g ro we rs of

burl e y tob a c c o w ith in portions of Tenne ssee, Nor th Carolina, and Vir g inia. App el l an t s , fifty -five me mbers of B SC and tobacc o produce rs, re ceive d fede ral pric e support on burley tobacc o sold through the fede ral pric e
su pp or t pr og ra m in on e or mor e of

the 19 82 thr ou g h 2 00 4 c ro p y e ars . M e mbe rs a sse rt c la ss c la ims

on behalf of approximately 140,000 additional tobacc o g rowe rs and BSC members, se eking disgor g ement of f

unds that BSC alleg edly

owes them. BSC worke d throug h the C o m m o d i ty Credit Corporation (“ CCC ”) a nd the United States De pa rtme nt o f A g ri c ult

ur e (“ USD A” ) t o a dmi nis te r t he fe d e r a l t o b a c c o p r i c e s u pp or t pr og ra m w ith in the c o n gre s sional framework f irst cre ated by

the Ag ricultural Adjustment Ac t of 1938, which established a pr og ram of f eder al tobacc o quotas and pric e supports aimed at stabiliz ing a nd incre asing the price s paid to America ’s tobacc o g rowe rs. 7 U.S.C. §§ 1281 et seq . I n brief, the USDA annua lly set a support pric e level for va rious ty pes of e ligible tobac co. CCC the n ma de loa

ns to g ro we r a sso c ia tio ns su c h as B SC, wh o use d the loa ns to p ur c ha se e lig ibl e tobacc o throug h various tobac co auc tions at the support price w hen a g rowe r could not obtain a highe r price on the open mar ket. CCC would t ake a s ec u ri ty interest in the tobac co. B SC t hen proce ssed and store d the tobacc o, later attempting to re sell it at a pric e suff icient to repa

y CCC and

rec over the proce ssing a

nd storag e costs. I f B SC realized mor e from the sale of a par ticular tobac coNo. 07-6419

Lay v. Burley

Stabiliz ation Corp.

-3- crop tha n nece ssary

to repa y CCC and re cover

its c o s t s , t h e t o bacc o g rowe rs who produc ed that particula r cr op rec eived the sur

plus, called “ Net Ga in.” I f the proc eeds from the sale of a par ticular crop w ere insufficient to r epay the loans, howeve r, CCC absorbe d the loss at taxpay ers’ expense and without recourse ag ainst either B SC or its individual gr ower -member s. Se e Le af T ob ac c o E x ps . Ass’n, Inc. v . Block, 749 F.2d 1106, 1108-09 (4th Cir. 1984) (desc ribing the price support prog ram); Strickland v. Flue- Cured Tobacco Coop. Stabilization Corp. , 643 F. Supp. 310, 313 (D.S.C. 1986) (same)

. The No Ne t C ost Tobacc o Prog ram Ac t (“1982 Toba cco A ct”) signific antly amende d the price support prog ram. 7 U.S.C. §§ 1445-1, 1445-2, repeale d byAmeric an Jobs C re at i o n Ac t of 2004, Pub. L . 108-357, 11 8 S tat. 1523, codified at 6 U.S.C. § 612(a). The 1982 T obacc o Act intended to re lieve taxpay ers of the cost of the pr ice support pr og ram by limit ing f

eder al tobacc o expenditures to administrative costs. See Strick land , 643 F. Supp. at 313. The 1982 Ac t theref ore
re qu ir e d c oo pe rativ e g ro we r a sso c ia tio ns su c h a s B SC to e sta bli sh a “ No Ne t Co st A c c ount” wi th the CCC. CCC m a int a ine d a nd c on tr oll e d th e se a c c ounts , w hic h p ro vid e d r e c ours e fo r C CC to

ensure repa

y ment of its loans. There fore , if a cooperative g rowe r association such as BSC rea liz ed

more re venue f

rom the sale of

price support tobacc o than nec essar y to satisfy the CCC l oans re lated to the crop, the n the CCC would retain the Net Gai n s t o o ffse t losses incurre d on the 1982 and subsequent tobac co cr ops, thereby reduc ing the balanc e on other outstanding loa

ns so that tax pay ers would not ne ed to f

und the prog ram. See 7 U.S.C. §§ 1445-1, 1445-2, repeale d byAmeric an Jobs Creation Ac t of 2004, Pub. L . 108-357, 118 Stat. 1523, codified at 6 U.S.C. § 612(a).No. 07-6419

Lay v. Burley

Stabiliz ation Corp.

-4- With the F a ir and Eq

uit a ble To ba c c o Ref

or m Ac t of 200 4 (“ F ET RA ” ), Con g re ss e ff e c tiv e ly terminated the tobacc o price support prog ram. Unde r F ETRA, CCC can dispose of ce rtain collate ral tobacc o in a manner

deter mined by the Secr etar

y of Ag riculture. See 7 U .S. C. § 51 9 (b )- (c ). F ET RA direc ts CC C to a

pply rec eipts from any such tobacc o sales, toge ther with the funds in a cooper ative association’s No N et Cost Account, towar d any outstandi n g C C C l o ans. See id . Purs ua nt t o FETRA, a

ny funds remaining in the No Ne t Cost Account afte r CCC rece ived full repa y ment wer e to be transfe rre d to the cooper ative for distribution to the “pr oducer s of quota tobac co in ac corda nce with a plan appr oved by

the Secr etar

y .” See id. § 519(d). Me mbe rs fi le d th is a c tio n o n May 25 , 20 07 in the Kn ox County , T e nn e sse e Cha nc e ry Court , laying c laim to three specific pools of m oney : the proceeds BSC rec eived when i t sold the 1982 Pool Cr op of tob a c c o, the pr oc e e ds B SC re c e ive d wh e n it so ld tob a c c o fr om t he 19 83 -2 00 4 Po ol C ro ps , and t h e p ro ce ed s BSC rec eived or will rece ive when it sells the tobac co CCC release d to it under FETRA. B SC removed the ac tion to the dist rict cour t. On M ar c h 1 4 , 2 0 0 7 , th e d is tr ic t c o u rt e n te r e d ano r d e r d is mi s s in g me mb e r s ’ c o mpla int

a g a ins t B SC w ith ou t pr e

jud ic e , c la ssi fy

ingthe ir c la ims a s d e ri vativ e and no t in c on fo rm ity

wi th Tenne ssee statutory

require ments for de ri v at ive ac tions. The district court also g rante d BSC’s motion to dismiss based on collater al estoppel, determining that the same c lass of people as member s fi le d a sim ila r s uit a g a ins t BSC an d its dir e c tor s and of fi c e rs in t he Kn ox County , T e nn e sse e Cir c uit Court in Febr

uary of 2005. Member s timely appea led the prese nt c ase, arguing that the district court lacke d fede ral jurisdiction, improperly d et er m i ned that collate ral e stoppel barr ed the a ction, and

err ed in dismissi ng the claims without prejudice

.No. 07-6419

Lay v. Burley

Stabiliz ation Corp.

-5- II. A N A LY S IS This court re views de novo subjec t matter juris diction, the district court’s dismissal of a complaint under Rule 12( b)(6) , and collate ral e stoppel claims. Smith v. Nationwi de Property and Ca s . I n s . Co. , 50 5 F.3 d 40 1, 40 4 ( 6th Cir . 2 00 7) ; So uth e as t Te x as In ns , I

nc . v . P rim e Ho sp ita lit

y Corp. , 462 F.3d 666, 671 ( 6th Cir. 2006) ; W olf e v . P e rry , 412 F.3d 707, 716 ( 6th Cir. 2005). Members a

rg ue that the f

eder al cour

ts lack jurisdiction on the basis that their cla ims do not rest on fe dera l law. Howe ver, one of their c laims ex pressly raises a fede ral que stion: m ember s
asser ted in the plea d i n gs t h at they wer e entitled to the proc eeds f rom the sale of

the loan pool tobacc o “pursua

nt to FETRA.” Eve n if members ha d cast their c laims as state law causes of action, howeve r, fe dera l jurisdiction ex ists wher e the cause prese nts a subst antial questi on of fe dera l law. See City of Chicago v. Int’l Coll. of Surgeons , 522 U.S. 156, 164 (1997). As the district c ourt noted, the 1982 Tobacco Ac t and FE TRA cre ated membe rs’ c laims, which requir e re solution of substantial issue s u n d e r

f e d e r a l l aw . M e mb e r s ’ c la im s a ls o c h ar g e th a t B SC s e r v e d a s ana g e n t o f

a f e d e ral ag ency and that fe dera l la

w g overne d its c onduct in he lping to administer the fe dera l price suppor t prog ram. We there fore deter mine that fede ral subjec t matter jurisdiction exi sts in thi s case . We c on sid e r n e xt wh e the r c oll a te ra l e sto pp e l pr e ve nts me mbe rs fr om b ri ng ingthi s la ws uit

. Members c annot reliti g ate a n issue when 1) the issue in subsequent litigation is i dentical to that resolved in the e arlier

litigation, 2) the issue w as ac tually litigated and decided i n the prior action, 3) t he is sue was nece ssary and essential to a judg ment on the merits in the prior litigation, and 4) the party to be estopped w as a pa rty to the p ri o r ac t i o n or in privity with the party

. See Hickm an v. Comm’r of Internal Rev enue , 183 F.3d 535, 537 ( 6th Cir. 1999).No. 07-6419

Lay v. Burley

Stabiliz ation Corp.

-6- Me mbe rs argue that the fi rs t two e le me nts pr e c lud e the a pp lic a tio n o f c oll a te ra l e sto pp e l in t h i s c a s e . S p e c i f

i c a l l y, t h e y ar g u e t h a tt h e K n o x C o u n t y C i r c u i t C o u rt d e c i d e d o n l y t h a tt h e “ t o t a l i t y” of the c a se make s it

de ri vativ e , w ith ou t making any sp eci fi c fi nd ing s a s to the ind ivi du a l c la ims

. Fur thermore , members point to the diffe renc es between the previous sui t and thi s one as follows: 1) the pr ior a c tio n la c ke d a

c la im f or de c lara tor y re lie f w ithre sp e c t to the tob a c c o r e le a se d to B SC under F ETRA, and 2) BSC’s i ndividual office rs and dire ctors no long er se rve a s defe ndants and no claim for br eac h of fiducia ry duty exis ts. These a rg uments lack mer it. The Knox C ounty Circuit Court alre a d

y d e c id e d, and the district court a g ree d, that Tenne ssee law classifies membe rs’ c laims as derivative. Members c ould have appea led this resul t i n stead of c ollatera lly attackingit. Further

more, the issues in both rounds of li ti gati on are ide nti c a l and

me mbe rs ’ a dd e d r e qu e st f or de c larator

y jud g me nt r e lie s o n th e same
a lle g a tio ns un de rl y ingthe oth e r c la ims . F ina lly , me mbe rs name d B SC a s a de fe nd ant i n b oth

su its , makin g the a

bs e nc e of B SC’ s ind ivi du a l of fi c e rs and dir e c tor s in

the su bs e qu e nt l iti g a tio n ir

re le va nt. Even thoug h members named individual of fice rs in the orig inal suit, however, the y did not cast the

or ig ina l s u i t i n t h e f

o r m o f a d e r i v a t i v e a c t i o n s o i t c o u l d o n l y h a v e b e e n a g a i n s t B S C

. Th us , collater al estoppel a

pplies. B ut e ve n if

c oll a te ra l e sto pp e l di d n ot app ly , membe rs ’ p le a din g s o f t he ir c la ims fa ile d to meet the statutory

require ments for de rivative suits. Tennessee s t at e l aw determines whe ther plaintiffs’ claims are derivative or direc t. McCarthy v. Middle T enn. Elec. Mem bership Corp. , 466 F .3 d 399 , 407 -1 0 (6t

h Cir. 20 06 ). He re , mem

be rs e sse nti a lly

c la im that B SC mi sma

na g e d it s a sse ts

and c a ll f or an a c c ounti ng

of the fu nd s. Te nn e sse e law h a s c la ssi fi e d s uc h c la ims a s d e ri vativ e inNo. 07-6419

Lay v. Burley

Stabiliz ation Corp.

-7- nature
. See, e .g. , id. at 407-410 (viewing proposed class claims for a ccountingand distribution of

e le c tr ic c oo pe rativ e re ve nu e s a s d e ri vativ e ); Davis v. Appalachian Elec. Co-op., I nc. , 373 S.W .2d 450, 453-54 (Te nn. 1963) (c lassify i ng members’ claims to rec over e lectric cooper ative funds a s de ri vativ e ); Range v . Tenn. Burley Tobacc o Growers Ass’n , 298 S.W .2d 545, 549 (Tenn. Ct. App. 19 55 ) ( no tin g that “ sto c kh old e rs [g ro we r- me mbe rs of de fe nd ant t ob a c c o c oo pe rativ e ] have the ir

reme dy within the corpora

tion”). Members’ derivative claims must be broug ht pur suant to T .C.A. § 48-56-401, which in par t provides: “A c omplaint in a proce eding broug ht in the rig ht of a c orporation must b e verifie d and alleg e with par

ticularity the demand ma de, if a

ny , to obtain action by

the direc tors and either

why the plaintiffs could not obtain the a ction or why they did not make t h e demand.” Id. at § 48-56- 401(c) . Members ha

ve fa iled to comply

with statutory

require ments and there fore the district court proper ly dismiss ed their a ction without prejudice. I I I . CONCL USI ON F or the fo re g oin g re a so ns , w e AF F I RM the dis tr ic t c ourt ’s jud g me nt d ism iss ingme mbe rs ’ action ag ainst BSC.No. 07-6419

Lay v. Burley

Stabiliz ation Corp.

-8- KA REN NELSO N MOORE, Circ uit Jud ge, concurr ing in the judgm ent. Ic on c ur in the majority ’s conc lusions t h at (1 ) removal of this action to fede ral c ourt was pr oper, ( 2) issue prec lusion bars the instant suit because the identical issue of whether plaintiffs’ cla ims are de rivative or direc t was l i t i gat ed and decided in a pr evious suit between the parties, a nd (3) e ven if issue prec lusion did not apply , the plaintiffs’ claims are derivative under Te nnessee law and the plaintiffs have fa ile d to c omp ly

wi th t he de mand

re qu ir e me nt f

or de ri vativ e su its

. I wr ite se pa rate ly to e xpla in my disag ree ment with the majority on the proper basis for r emoval of this ac tion to federa l court and to e xpla in m

y re a so nin g on

the oth e r i ssu e s in

de ta il. I. F ED ER

AL -Q UE STIO N J URISD IC TIO N Th e ma jor ity c on c lud e s that the re is fe de ra l- qu e sti on jur isd ic tio n ov e r t he pla int if

fs ’ c la ims on two alternate g rounds: (1) the pla intiffs have a ctually pleade d a fede ral cause of action, or (2) the pla in ti f f s ’ c la im s p r e s e n t a s u

b s ta n ti a l qu e s ti o n o f f

e d e r a l la w . I r e s p e c tf

u ll y d is a g r e e . First, the majority sug g ests that the plaintiffs have actua lly pleade d a fe dera l cause of ac tion based on the fa ct that the complaint uses the lang uag e “pursua nt to F ETRA.” See, e .g. , J oint Appendix (“J.A.”) at 58 (Compl. ¶¶ 73-75). H oweve r, under the well-ple aded- complaint rule, “ [t ]o determine whethe r the claim ar is e s u n d e r f

e d e r a l la w , w e e xa mi n e th e ‘ w e ll p le a d e d ’ a ll e g a ti o n s o f th e c o mp la int and ignor e potential defe nses.” Bene ficial Nat ’l Bank v . Anderson , 539 U.S. 1, 6 (2003). He re, e ach of the pla int if

fs ’ s e ve n c la ims are ex pl icitly ple a de d a s st a te -l aw c la ims . O ne e xce pti on to t he we llple a de d- c omp la int

ru le is the art fu l- ple a din g do c tr ine , w hic h p ro vid e s th a t pl a int if fs may no t avo id removal by

artfully pleadingessentially

fede ral-la

w claims as state -law c laims. F e d e r a te d Dep’ tNo. 07-6419

Lay v. Burley

Stabiliz ation Corp.

-9- Sto re s, In c . v . M

oit ie , 452 U.S. 394, 397 n.2 (1981). That exception, however , does not apply here

. Th e F a i r an d E qu i t a b l e T o b a c c o R e f

o r m A c to f 2 0 0 4 ( “ F E T RA ” ) d o e s n o ti n c l u d e a c i v i l

- s uit provision, nor do the par

ties sugg est that it impl ies a priva te rig ht of ac tion. Given that there is no fede ral c laim that might have been a sserted by the plaintiffs, it is clear

that the plaintiffs d id not

art fu lly dr a ft the ir c omp la int

to a vo id i nv ok inga

fe de ra l st a tut e a s th e ba sis fo r t he ir c la ims

. Ialso ca nnot ag ree with the majorit y ’s conc lusion that there is fede ral “ arising under” jurisdiction over t h e p laintiffs’ state- law cla ims under the substantial-fe dera l-question doctrine. “Unde r the substantial-f

eder al-que stion doctrine, a state law ca use of a ction may

actua lly arise unde r fede ral law , even thoug h Congr ess has not cr eate d a private r i gh t o f ac tion, if the vindication of a rig ht under state la

w depe nds on the validity , construction, or e ffe ct of fe dera l law.” M ik u ls ki v. Centerior Energy Corp. , 501 F.3d 555, 565 (6th Cir. 2007) (en ba nc), cert. de nied , — U.S. —, 128 S. Ct . 2426 (2008). The S upreme Court has ex plained that fede ral-que stion jurisdi ction exis ts over a state- law cla im only if that claim “ne cessa rily raise[s] a stated fede ral issue, a ctually disputed and substantial, which a f

eder al forum may

enter tain without dist urbing any cong ressionally

approve d balanc e of fede ral and state judicial re sponsibili ties.” Grable & Sons Metal Prods., Inc., v . Darue Eng’g &Mfg. , 545 U. S. 308 , 314 (2 00 5) ; se e als o Empire HealthChoice Assurance, I nc. v. M cVe igh , 5 4 7 U. S

. 6 7 7 (2 0 0 6 ) ( ap p l y i n g Grab le ). We ha ve summarized the re quirements for fede ral-que stion jurisdiction under Grab le as follows: “(1) the state-la w c l ai m must necessar ily raise a disputed fede ral issue; (2) the fe dera l interest in the issue must be substantial; (3) t he ex erc ise of jurisdictionNo. 07-6419

Lay v. Burley

Stabiliz ation Corp.

-10- must not di sturb any cong ressionally approve d balanc e of fede ral and state judicial re sponsibili ties.” Mikulski , 5 0 1 F. 3 d

at 5 6 8 (c i t i n g Grab le , 545 U.S. at 314). None of the plaintiffs’ claims appea r to r aise nece ssarily a disputed fede ral issue. Def endant Bur ley Stabiliz ation Corporation (“BSC”) pr imarily points to l ang uag e in the plaintiffs’ c omplaint statin g that “ [p] ursuant to the FETRA , the produc er/membe rs of th e BS C ar e entitl ed to a distribution of the net proce eds fr om the sale of the loan pool tobacc o.” J.A. at 5 8 (C o m p l

. ¶ 75) (empha sis added). A t first g lance this appear s to prese nt a fe dera l issue. Howeve r, a c loser look at FETRA a nd the plaintiffs’ c omplaint indicates that FETRA does not speak to thi s issue and that the cited languag e wa s probably an un i n t en d ed draf

ting e rror by the plaintiffs. I t is undisput ed that pursuant to FE TRA the Commodi ty Credit Corporation (“CCC”) rele ased some 16.1 milli on pounds of tobac co to BSC in 2005. The plaintiffs conte nd that BSC now must distribut e the ne t proce eds from the sa le of that tobac co (the “F ETRA to b ac co”) to its m ember s (i.e., the putative pla intiff class ). Although the lang uag e cited a bove sug g ests that the plaintiffs asse rt their intere st in the FETRA toba cco ba sed on F ETRA, this is not the ca se. The pla intiffs have repe atedly maintained that their rig ht to a distribution of these proce eds re sts solely on state-law

g rounds. Moreove r, nothing in FETRA speaks to the i ssue of whether a grow er association must dist ribute to its members the proc eeds it re ceive s when it sells the t obacc o rele ased to it by the CCC pursuant to FETRA. As part of the winding- up of the fe dera l-tobacc o-support prog ram, F ETRA direc ts the CCC to transfe r
cer tain loan-pool tobac co to as s o ci at i ons for their disposal. See 7 U.S.C. § 519(b). Howe ver, FETRA is simply

si lent on what an a ssociation must do with t he proc eeds f rom the sale of

thatNo. 07-6419

Lay v. Burley

Stabiliz ation Corp.

-11- tob a c c o, a n d , n o ts u r

p r i s i n g l y , B S C p o i n t s t o n o s p e c i f i c p r o v i s i o no f

F E T RA t h a ts p e a k s t o t h is iss ue . B e c a

us e F ET RA do e s n ot c on tr ol t he dis pu ted qu e sti on

of wh e the r B SC mu st d istri bu te proce eds fr om the FETRA toba cco to the pla intiffs, Ibelieve that the majority err s in premising fede ral-que stion jurisdi ction on FETRA. BSC also contends that there is a substantial f eder al question involving the interpr etation of a provision of the f

eder al No Net C o s t T o b ac co Prog ram Ac t, 7 U.S.C. §§ 1445-1 to -2 (repe aled 2004) (“ 1982 Tobac co Ac t ”)

. T he plaintiffs’ c omplaint alleg es that pursua nt to the Tennesse e Cooperative Ma

rketing L aw a

nd Tenne ssee c ommon law, BSC must dist ribute to its members (i.e., the putative plaintiff c l ass) the net profits that BSC rea liz ed fr om the sale of c erta in tobacco f rom the 1983–2004 pool crops. The plaintiffs alleg e that “the CCC rele ased its intere st in certain tobac co pledg ed as secur ity for the 1983–2004 crop y ear loans and any proce eds receive d by the BSC from th e s a le o f th e to b a c c o c o ll a te r a l. ” J. A

. a t 6 1 ( Co mp l. ¶ 9 0 )

. Co n s e qu e n tl y , a c c o r d in g to the pla int if fs , th e B SC r e a lize d pr of

its on the sa le of that tob a c c o “ fr e e and c le ar of any c la im o r i nte re st of the CCC” and should have distributed those profits to its m ember s. Id. B SC c ounte rs that “ thi s claim is completely

err oneous bec ause, at all times rele vant, t he 1982 Tobacco A ct mandate d that CCC ‘shall re tain the net g ains from each of the 1982 and subseque nt crops’ to off set past and f

uture tob a c c o p ro g ra

m lo sse s. ” B SC Br . at 32- 33 n. 18 (q uo tin g 7 U .S. C. § 14 45 -1 (d )( 5) ). Ac c or din g to B SC, t his pr e se nts a

fe de ra l is su e su ff

icien t to c on fe r j ur isd ic tio n und e r t he su bs tanti a l- fe de ra lqu e s t i o n d o c t r i n e . H o w e v e r , B S C ’ s i n v o c a t i o n o f t h i s p r o v i s i o n i s p r o p e r l y c h ar a c t e r i z e d a s a fe de ra l de fe ns e to th e p la in ti f

f s ’ s tate
- la w c la im s . U n d e r

th e w e ll

- p le a d e d

c o mp la in t r

u le , “ [t ]oNo. 07-6419

Lay v. Burley

Stabiliz ation Corp.

The plaintiffs do ref

er the 1982 Tobac co Act in the ir complaint. See, e .g. , J.A . at 58 (C omp l. 2 ¶¶ 71-73). Howeve r, t hese refe renc es si mply provide ba ckg round and do not for m the basis for a

ny of the pla int if

fs ’ c la ims

. Th e fe de ra l of

fi c e r r e mov a l st a tut e pr ov ide s in re le va nt p art : 3 A civil action or criminal prosec ution c ommenced in a State court a g ainst any of the following may

be re moved by them to the di strict court of the United States for the district and di vision embra cing the pl ace wher ein i t is pending . . . [t ]he United States or any ag ency there of or a

ny office r (or any person acting under that office r) of the United States or of a

ny ag ency there of, sued in an of ficial or individual ca

pacity for any a c t un de r c olo r o f suc h o ff ic e or on a c c ount o f a

ny ri g ht, tit le or

a uth or ity c la ime d un de r any Ac t of Con g re ss fo r the a pp re he ns ion or

punis hme nt o f c ri min a ls or the c ollection of the re venue. -12- deter mine whether

the claim arises under feder al law, we examine the ‘we ll pleaded’ alleg ations of the complaint and ig nore pote ntial defe nses.” Anderson , 539 U.S. at 6. “‘[A] suit arises unde r the Constit ution and laws of the U nited States only when the plaintiff’s statement of his own c ause of action shows that it is based upon t h o s e laws or that Constit ution.’” Id. (q u o t i n g Louisvill e & Nashville R. Co. v. Mottley , 211 U.S. 149, 152 (1908) (a lteration in Anderson )). Her e, the plaintiffs base the ir claims entire ly on Tenne ssee law

and do not asser

t claims based on the 1982 Tobac co Act. I nstead, it is BSC that a sserts the 1982 Tobac co Act as a f eder al def ense to the pla intiffs’ state- 2 law cla ims. Only

in limi ted circ umstances and under specia liz ed jurisdictional statutes may remova l be base d on a fe dera l defe nse. I now turn to one of those specia liz ed statutes: the fede ral off icer

remova l statute, 28 U.S.C. § 1442.

II. F ED ER

AL OF F IC ER

RE M OV AL STA TU TE As an a lternative g round for remova l, B SC asse rts that it wa s entitled to r emove the ac tion to fede ral court pursuant to the federa l office r re moval statute. Iwould aff irm the district court’s 3No. 07-6419

Lay v. Burley

Stabiliz ation Corp.

28 U.S.C. § 1442(a)(1)

. -13- de te rm inatio n th a t r e mov a l w a s p ro pe r o n th is a lte rn ativ e g ro un d. Th e statut e “ pe rm its re mov a l on ly if [BSC] , in car

rying out the ‘ act[s] ’ that are the subject of the [plaintiffs’] complaint, was ‘a cting under’ any

‘ag ency ’ or ‘ office r’ of

‘the United States.’ ” W

ats on v . Phil ip M

orris Cos

. , 551 U.S. 142, 127 S. Ct. 2301, 2304 (2007) (quoting 28 U.S.C. § 1442(a) (1) (sec ond alteration in or i g inal)). Fur ther, a defe ndant see king r emoval under the statute must alleg e a “ colora ble fe dera l defe nse.” Me sa v . Ca lif or nia , 489 U.S. 121, 129 (1989). B eca use B SC (like other g rowe r assoc iations) play ed a spec ial role in the administ ration of the federa l g overnme nt’s tobacc o-price -support prog ram, the

a c ts c omp la ine d o f by pl a int if fs re la te to t

he a dmi nis tr a tio n o f t

hat pr og ra

m, a nd B SC a sse rt s a colora ble fe dera l defe nse, I

believe that the action is remova ble under § 1442. First, I believe that BSC meets the require ment that it wa s “ac ting unde r” a fede ral “ office r” or “a g ency .” The Supreme Court re cently cl ar i fi ed the circ umstances unde r which a private f irm may fall within the scope of statutory require ment of “ac ting under” a fede ral officia l or ag ency . See W atson , 128 S. Ct. 2301. I n W atson , the Court r ejec ted the cig are tte manufa cture r Philip Morris’s contention that it was “acting under” fede ral officer s based upon the hi g h level of fede ral re g ulation of the c ompany ’s oper ations and the fa ct that it conducted la boratory testing of cig are ttes under the close super

vision of t h e Fe d er al Tra de Commissi on, a fe dera l ag ency . The Court beg an by explaining that “a cting under” implies a relationship that “ty pically involves ‘subjection, g uidance , or control.’ ” Id. a t2 3 0 7 ( qu o t i n g W e b s t e r ’ s N e w In t e r n a t i o n a l D i c t i o n ar

y 2 7 6 5 ( 2 d e d

. 1 9 5 3 ) )

. It further noted that “t h e p ri vate pe rson’s ‘a cting under’ must invol ve an e ffor t to as sis t , o r t o h e lpNo. 07-6419

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-14- carry out , the duties or tasks of the fe dera l superior.” Id. Turning to Phil ip Morris’s contention that the detailed f

eder al re g ulation and supervision it rec eived br oug ht the company within the statutory require ment that it be “ac ting under” a fe dera l “offic ial,” the Court conc luded that “[a] private firm’s

c omp lia nc e or (n on c omp lia

nc e ) wi th fe de ra l laws , ru le s, and re g ulatio ns do e s n ot b y its e lf fa ll w ith in the scope of the statutory

phrase ‘ac ting unde r’ a

fede ral ‘of

ficial.’” Id. at 2308. The Court noted that “ [a] c on tr ary

de te rm inat ion

wo uld e xpand the sc op e of

the statut e c on sid e ra

bly , p ote nti a lly bring ing w i t h i n its scope state-c ourt ac tions filed ag ainst private f irms in many

highly regulated industries.” Id. I n reje cting Phili p Morris’s invocation of the s tatute, t he C ourt distinguished the c ase f rom lower c ourt case s holding that “Gove rnment contra ctors fall within the terms of the fede ral off icer

remova l statute, at least whe n the re latio n s h ip betwee n the contra ctor a nd the Gover

nment is an unusually close one involving deta iled regulation, monitoring, or supervision.” Id. (c i t i n g W int e rs

v. Diamond Shamrock Chem. Co. , 149 F.3d 387 (5th Cir. 1998), cert. de nied , 526 U.S. 1034 (1999)). The Court explained that, unlike Phili p Morris, the g overnme nt c ontrac tors in those case s provided

a ssi sta nc e that w e nt “ be y on d s imp le c omp lia nc e wi th the law and he lp[e d] of fi c e rs fu lf ill oth e r b a sic g overnme ntal tasks.” Id. For instance, in W

int e rs the g ov ern me nt c on tr a c tor , D owChe mic a l,

“ fu lf ill e d th e te rm s of a c on tr a c tua l a g re e me nt by pr ov idi ng the Go ve rnme nt w itha pr od uc t th a t it used to help conduc t a war .” Id. Thus, the gover nment contra ctors in t hose ca ses “pe rfor med a job that, i n th e a

bs e nc e of a c on tr act with a

pr ivate fi rm , th e Go ve rnme nt i tse lf wo uld have ha d to perf orm.” Id.No. 07-6419

Lay v. Burley

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-15- Ibe lie ve tha

t th e sp e c ia l r ole pla

y e d b y g ro we r a sso c ia tio ns su ch a s B SC in he lpi ngto administer the fe dera l tobacco- price -support prog ram bring s BSC within the scope of the statutory

re qu ir e me nt t

hat it wa s “ a c tin g un de r” a

fe de ra l “ of

fi c e r. ” Th e 19 82 To ba c c o A c t w a s in te nd e d “ to limit fede ral tobac co expenditures to administrative costs.” Leaf Tobacco Exporters Ass’n, Inc . v. Block, 749 F.2d 1106, 1109 ( 4th Cir. 1984). I n other wo rd s , i t aimed to relieve taxpay ers of the burden of supporting the prog ram. To a ccomplish this goa l, the Act r equire d BSC and other g rowe r associations to establish either a No Net Cost Toba cco Fund, 7 U.S.C. § 1445-1 (repe aled 2004) , or a No Net Cost Tobac co Account wit hin the CCC , 7 U.S.C. § 1445-2 (repe aled 2004) , the latter of which wa s evidently

established by BSC . The purpose of a N o Net Cost Tobacc o Acc ount (“A ccount” ) wa s to e nsure that the CCC —and there fore the taxpay ers—suff ere d no net losses on the loans that the CCC m ade to a ssociations on the 1982 tobacc o crop a nd all later c rops. Id. § 1445- 2(e) . Gene rally

speaking , an Ac count had two diff ere nt s o u rc es o f funding . First, produc ers a nd purcha sers of loa

n-pool tobacc o wer e re quired to pay assessments into the Acc ount on eac h pound of tobac co sold or purchased at rate s set by the Secr etar

y of Ag riculture. Id. § 1445-2(d) . When a produce r deliver ed tobac co to an a ssociation, the association was requir ed to collec t the assessment fr om t he pr od uc e r and pa y it i nto the a sso c ia tio n’ s A c c ount at th e CCC. 7 C. F .R. § 1 46 4. 10 (i )( 1) (i ii) (re mo v e d 2 0 0 5 )

. Se c o n d , if an a s s o c iati o n s u c h a s B SC r e a li ze d mo r e r e v e n u e f r o m th e sale of a pa rt ic ula r y e ar’ s c ro p th an n e c e ssa ry to r epa y the CCC o n lo ans re la te d to that c ro p, tho se pr of its , or “ Ne t G a ins ,” we re a ls o tr ans fe rr e d to the Ac c ount. 7 U .S. C. § § 1 44 5- 1( d) (5 ), 14 45 -2 (h ) ( bo th repe aled 2004) . Consist ent with this requireme nt, BSC asser ts that the Net Gains on the sales of the 1983-2004 cr ops “we re tra nsfer red to BSC’s no Net C ost Acc ount as they acc rued.” BSC Br . at 19No. 07-6419

Lay v. Burley

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-16- n.9. By collecting assessments from produce rs and by transfe rring the profits on the sales of e ach

c ro p to an A c c ount at th e CCC, the B SC and oth e r g ro we r a sso c iat io ns pl ay ed an in te g ra l r ole in administering the tobacc o-price -support prog ram and ensuring , afte r 1982, that taxpay ers would be

re lie ve d o f t

he c os ts o f t

he pr og ra m. De pa rtme nt o f A g ri c ult

ur e re g ulatio ns imp le me nti ngthe 19 82 To ba c c o A c t f ur the r i llu str a te that g rowe r assoc iations such as B SC were c harg ed with helping to administer the re vised tobacc oprice -support prog ram under the g uidance and supervision of the CCC , a fede ral ag ency . T he regulations provided that the prog ram would be “ca rried out by

cooper ative mar

keting associations . . . act i n g o n b eh alf of the ir produce r member s,” but would be “ under the g ener al direc tion and supervision of the . . . CCC.” 7 C.F.R. § 1464.1(a) (re moved 2005). Thus, g rowe r assoc iations such as B SC gene rally

car ried out this gove rnment prog ram, but the CCC direc ted and supervised how they did so. For instanc e, the CCC ex erc ised detailed supe rvision and control over the contra cts that associations such a s BSC made to sell l o an -p o ol tobacco. When a n association contr acte d with a tobacc o-auc tion ware house to sell loan-pool tobac co, the c ontrac t was re quired to be “on a form of

a g r e e me n t a

p p r o v e d b y CC C.” Id. § 1 46 4. 2( b) (1 )( i) . F ur the r, wh e n th e CCC b e lie ve d th a t a parti cu l ar t obacc o-auc tion ware house would not honor its obligations under a c ontrac t with an association, the “ CCC rese rve[d] t he rig ht to direct the a ssociation to withhold a contrac t under the price support prog ram” from that wa rehouse

. Id. § 1464.2(b)( 1)(iii). L ike the g overnme nt contrac tors that have invoke d succe ssfully the fe dera l office r re moval statute in other cour

ts, e.g. , W int e rs , 14 9 F .3 d 38 7, I be lie ve that g ro we r a sso c ia tio ns su c h a s B SCNo. 07-6419

Lay v. Burley

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-17- provided a s s i s t an ce to the gove rnment that we nt “beyond simple compliance w ith the law and help[ ed] office rs fulfill other ba sic g overnme ntal tasks.” W atson , 127 S. Ct . at 2308. Under the g e ne ra l di re c tio n a

nd su pe rv isi on of the CCC, B SC and oth e r as so c ia tio ns pla y e d a c ru c ia l r ole in administering the prog ram under the 1982 Tobac co Act by , among other things, co l l ec t ing

a sse ssm e nts fr om p ro du c e rs and re mit tin g Ne t G a ins fr om t he sa le of loa

n- po ol tob a c c o to a c c ounts maintained at the CCC, furth eringthe statute’s g oal that the prog ram would have no net c ost for taxpay ers. I n so doing, B SC and other associations “perf ormed a job that,” in their abse nce, “ the Gover nment itself would have ha d to perfor m.” Id. Acc ording ly , Ibelieve that BSC falls within the ambit of the statutory

phrase “ac ting unde r” a

fede ral “ office r.” 28 U .S.C. § 1442(a)(1)

. To come w ithin the scope of the statute, BSC must also have car ried out the acts that are the subject of the plaintiffs’ complaint while acting under a fede ral off icer

. See W

atson , 127 S. Ct . at 2304. Fur ther, B SC m ust alleg e a “ colora ble fe dera l defe nse.” Me

sa , 489 U.S. at 129. Ibelieve that the s e a d d i t i o n a l r e qu i r e m e n t s ar e s a t i s f i e d

. A s d i s c u s s e d a

b o v e , t h e p l a i n t i f

f s a l l e g e tha t B SC improperly

reta ined the net pr ofits from the sale of the 1983–2004 loan- pool tobacco instea d of dis tr ibutin g tho se pr of

its to i ts m e mbe rs . T he pla int if fs c on te nd

that bec a us e the CCC re le a se d to BSC any interest in ce rtain t obacc o for those crop y ear s, the BSC rea liz ed prof its on the sale of that tob a c c o “ fr e e a nd

c le ar o f a ny c la im o r int e re st of the CCC” and sh ou ld h a ve dis tr ibute d th os e pr of its to i ts m e mbe rs . J.A . at 61 (C omp l. ¶ 90 ). B SC’ s def

e ns e is that it

wa s r e qu ir e d to re mit

tho se pr of

its to i ts N o N e t Co st T ob a c c o A c c ount a t CCC be c a

us e “ the 19 82 To ba c c o A c t ma nd a te d th a t CCC ‘shall re tain the net g ains from e ach of the 1 9 8 2 and subseque nt crops’ to off set past and f

utureNo. 07-6419

Lay v. Burley

Stabiliz ation Corp.

I n th e fi rst s uit , th e CCC a s w e ll a s v ari ou s o ff ic e rs and dir e c tor s o f t

he B SC w e re a lso 4 name d a s defen dan ts, wh e re a s in the ins tant s uit

the pla int if

fs name on ly

B SC a s a

de fe nd a nt. Ho we ve r, the a lle g a tio ns and c la ims a g a ins t B SC in

the tw o s uit s a

re vir tua lly ide nti c a l. -18- tobacc o prog ram l o s s es . ” BSC Br . at 32-33 n.18 (quoting7 U.S.C. § 1445-1(d)(5) ). At lea st on B SC’ s th e or

y of the c a se , B SC pe rf

or me d th e act s com plai ne d o f b y the pla int if

fs purs ua nt t o it s administrative obligations under the 1982 Tobac co Ac t and in acc ord with its ag ree ments with the CCC

. Simi larly , BSC raises a “color able f

eder al def ense” beca

use it asserts that it was r equire d by the 19 82 To ba c c o Ac t to re mit the Ne t Ga ins on the sa le of

the 19 83 –2 00 4 lo an- po ol t ob a c c o to its Acc ount at CCC and could not ha ve distributed the Net Gains to its members. The pl ai n t i ffs appar ently

contend that the loa

n-pool tobacc o at issue was not subjec t to the Act’s re quirement that Net Gains be remitted to the C CC Acc ount. But that mere ly raises a fac t question, and at this point BSC “nee d not prove the asser ted defense, but need only articulate its ‘colora

ble’ a pplicability

to the plaintiff[s’] claims.” W

int e rs , 1 49 F .3 d at 40 0; se e als o W illingham v. Morgan , 395 U.S. 402, 407 (1969) ( “The office r nee d not win his case be fore he ca n have it re moved.”)

. B e c a us e I be lie ve that BSC is with in the sc op e of the fe de ra l of fi c e r r e mov a l st a tut e , I

wo uld aff irm the district court’s r

uling that r emoval wa s proper on this alternative g round. III . I SSU E P RE CL USI ON Iag ree with the majority

that issue prec lusion (collatera l estoppel) bar s rel i t i gat i o n of the iss ue of wh e the r p la int if

fs ’ c la ims are de ri vativ e . As the ma jor ity e xpla ins , this iss ue wa s a c tua lly litigated a

nd decide d by

the district court in a virtua lly i d entical pr ior ac tion broug ht by the plaintiffs. I n the first suit, filed in state court and later remove d to f eder al cour

t, the district court 4No. 07-6419

Lay v. Burley

Stabiliz ation Corp.

-19- adopted a n ear lier ruling of th e s t at e court that the plaintiffs’ claims ag ainst BSC were derivative

un de r T e nn e sse e law a

nd dis mis se d th os e c la ims without prejudice beca

use the plaintiffs ha d neither satisfied the de mand require ment under Tenne ssee law nor shown that a de mand would have been futil e . In th is s e c on d s uit , s ix of the se ve n c la ims a sse rt e d a g a ins t B SC are ide ntical to cl a ims

asser ted in the first suit. Only

Count 1 in the instant suit is nominally differ ent. The plaintiffs styled Count 1 in t he first suit as a br eac h of fiducia ry duty by curr ent and f

ormer of fice rs and dire ctors of the B SC and requeste d distribution of funds in the BSC’ s No Net Cost Tobacc o Acc ount and proce eds fr om the sale of the FE T R A t o b ac co. C ount 1 in this suit is s ty led as a decla ratory judgm en t ac t i on ag ainst BSC seekinga dec laration that the members of the BSC are entitled to a distribution of the procee ds from the sale of the F ETRA tobacc o. Notwithstanding the chang e in the leg al label put on Count 1, Iag ree with the majority ’s conc lusion that the issue of der ivative standing prese n t ed i n the two suits is i dentical a nd that the district court’s r uling in the f

irst suit t hat the pla int if fs ’ c la ims are de ri vativ e is e nti tle d to iss ue pr e c lus ive e ff e c t. I n the fi rs t suit, the dis tr ic t court dis mis se d th e pla int if fs ’ c la ims without

prejudice , so that the plaintiffs could re asser t the sam e cl ai m s against BSC by curingthe def

ects that led to the dismiss al, i.e., by satisfying the demand requireme nt which is a precondition for de rivative a ctions

un de r T e nn e sse e law

. Bec a us e the pla int if

fs did no t c ur e thi s d e fe c t and

ins te a d s imp ly

mod e stl y
re pa c ka g e d th e same c la ims a sse rt e d in the fi rs t su it, the dis tr ic t c ourt in t he ins tant ( se c on d) su it ag ain dismissed the plaintiffs’ cla ims without prejudice , rul i n g that issue prec lusion barre d relitig ation of th e is sue of de rivative standing . I ssue pre clusion is appropriate here beca use theNo. 07-6419

Lay v. Burley

Stabiliz ation Corp.

By contra st, when an issue is not appealable, issue prec lusion does not apply

. See D ixon v. 5 W allowa Cou nty , 336 F.3d 1013, 1020 (9th Cir. 2003) (“I ssue preclusion does not apply to an issue that is no t a

pp e a la ble .” ); R E S TA TE ME NT (S EC OND ) O F J UD GME NT S § 28(1) (1982) (stating that issue prec lusion does not apply when “[t ]he party ag ainst whom prec lusion is sought could not, as a matter of law, ha ve obtained r eview of

the judg ment in the initial action”).

-20- pla int if fs c ou ld h a ve a

pp e a le d th e dis tr ic t c ourt ’s ru lin g in t he fi rs t su it that th e ir c la ims a g a ins t B SC

wer e der ivative. When a d i s t ri ct court “ dismiss [es] . . . a complaint, as oppose d to an ac tion, 5 without prejudice” that “is not a final and appea lable order.” Robert N. Clemens Trust v. Morgan Stanley DW

, Inc. , 48 5 F .3 d 8 40 , 8 45 (6 th C ir . 2 00 7) ; see Azar v . Conley , 480 F.2d 220, 223 ( 6th Cir. 1973) (same). Howeve r, when “the dist rict court dismi sses an action without prejudice, . . . the order is final and appe alable.” Morgan Stanley , 485 F.3d at 845 (interna l quotation marks omitted). Here , in the first suit, the district court issued, along with its m emora ndum and orde r of Ma

rch 14, 2007, a fina l judgment dismissing a l l o f the plaintiffs’ c laims ag ainst BSC “without prejudice ” and dismiss ing the action in i ts e nti re ty , not jus t the pla int if fs ’ co mpl a int

. Th is wa s cle arl y an a pp e a la ble final judg ment. The plaintiffs ha d an opportunity to ap p ea l t h e d i strict court’s de termination that their cla ims ag ainst BSC are derivative, but they declined to do so. B e c a us e the iss ue of de ri vativ e sta nd ing wa s a c tua lly lit ig a te d and de c ide d in the fi rst suit

and ne c e ssa ry to t he re so lut ion

of the fi rs t su it, and

be c a us e the pla int if

fs ha d a n o pp or tun ity to appea l that ruling, I

ag ree with the majority

that issue prec lusion bars relitig ation of this issue.No. 07-6419

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-21-

IV. DERIVATIVE NATURE OF CLAIMS F ina lly , I a g re e wi th the ma

jor ity that eve n if issu e pr e c lus ion did no t a pp ly , th e pla int if

fs ’ claims are d er i v at ive under Tenne ssee law

and ther efor e the district cour t properly dismiss ed the action for failure to comply

with the demand r equire ment. Our opinion in Mc Car th y v. Mid dle TennesseeElectric M

embe rship Corp. , 466 F.3d 399, 407-10 (6th Cir. 2006) , make s i t cl ea r t hat Tenne ssee law

g overns whe ther the pla intiffs’ claims are derivative or direc t. L ike McCarthy , the instant case e ssentially

involves claims of “mismanag ement, self- dealing , and breac h o f fiduciary duty .” 466 F .3d at 410 (interna l quotation marks omitted). I n essenc e, the plaintiffs ma intain that BSC, a nonprof

it ag ricultural c ooperative, improperly failed to dist ribute t o its members pr ocee ds from sale s of ce rtain loan-pool tobac co as r equire d by the Tenne ssee Cooper ative Mar keting L aw
and va ri ou s c omm on -l aw the or ie s. Ibe lie ve that th is c a se is i nd ist inguis ha ble fr om McCarthyand the Tenne ssee Supre me Court’s dec ision in Davis v. Appalachian Electric Co-operative , Inc. , 373 S.W .2d 450 (Tenn. 1963) , wher e similar claims for acc ountings a

nd distributions of cooperative fu nd s w e re c la ssi fi e d a s d e ri vativ e rathe r t ha n d ir e c t.