Opinion ID: 472552
Heading Depth: 2
Heading Rank: 2

Heading: Other Grounds for Removal

Text: 18 Appellees seek to defend the judgment in No. 85-7937 on the alternative ground that Travelers' state court complaint is removable because there are federal ingredients to Travelers' state law claims. To prevail on its state law claims, Travelers must establish that Midstate is liable to it and that defendants, by unlawfully diverting Midstate's assets, are responsible for Midstate's debts. Appellees argue that Travelers' state claims contain three federal ingredients: (1) New York law grants Travelers an action on the Texas judgments against Midstate only to the extent that the Texas judgments are entitled to full faith and credit under the Constitution, (2) federal law dictates the law New York must apply in determining defendants' liability for Midstate's debts, and (3) the Due Process Clause of the Fourteenth Amendment limits Travelers' ability to enforce the Texas judgments. 19 Normally, a case arises under federal law, 28 U.S.C. Sec. 1331 (1982), if federal law creates plaintiff's cause of action. See American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260, 36 S.Ct. 585, 586, 60 L.Ed. 987 (1916). The Supreme Court has also allowed federal jurisdiction for state-created claims that involve construction of federal law, see Smith v. Kansas Title & Trust Co., 255 U.S. 180, 41 S.Ct. 243, 65 L.Ed. 577 (1921); Hopkins v. Walker, 244 U.S. 486, 37 S.Ct. 711, 61 L.Ed. 1270 (1917), but only if the federal element is substantial. See Gully v. First National Bank, supra; Shulthis v. McDougal, 225 U.S. 561, 32 S.Ct. 704, 56 L.Ed. 1205 (1912). The Court has excluded state-created claims with only a minor, technical federal element. For example, an action to establish title to land does not arise under federal law merely because, as part of his case, plaintiff must trace his title back to an undisputed federal grant. See Shulthis v. McDougal, supra; Joy v. City of St. Louis, 201 U.S. 332, 26 S.Ct. 478, 50 L.Ed. 776 (1906). To hold otherwise would federalize every action to establish title to real estate (at least in the newer states) ..., as all titles in those states come from the United States or by virtue of its laws. Shoshone Mining Co. v. Rutter, 177 U.S. 505, 507, 20 S.Ct. 726, 726, 44 L.Ed. 864 (1900). Because it would be equally anomalous to federalize every action seeking to enforce an out-of-state judgment, Travelers' state court complaint is not removable simply because the plaintiff expects compliance with the Full Faith and Credit Clause. New York law explicitly provides that foreign judgments are enforceable only to the extent required by the Full Faith and Credit Clause, N.Y.Civ.Prac.Law & R. Secs. 5401, 5402 (McKinney 1972). To whatever extent New York has thereby made observance of the Full Faith and Credit Clause an element of plaintiff's cause of action, this federal element is too insubstantial to support federal question jurisdiction. 20 We also reject appellees' argument that the bearing of federal law on the choice of law issue allows removal. Appellees are incorrect when they assert that federal law determines the law New York must apply in determining their liability for Midstate's debts. New York is free to apply its own choice of law rule, subject only to the full faith and credit and due process limitations that it may not apply the law of a jurisdiction lacking a significant relation to the litigation. See Phillips Petroleum Co. v. Shutts, --- U.S. ---, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985); Allstate Insurance Co. v. Hague, 449 U.S. 302, 101 S.Ct. 633, 66 L.Ed.2d 521 (1981) (plurality opinion); Clay v. Sun Insurance Office, Ltd., 377 U.S. 179, 84 S.Ct. 1197, 12 L.Ed.2d 229 (1964); Watson v. Employers Liability Assurance Corp., 348 U.S. 66, 75 S.Ct. 166, 99 L.Ed. 74 (1954); Home Insurance Co. v. Dick, 281 U.S. 397, 50 S.Ct. 338, 74 L.Ed. 926 (1930). The constitutional limitations form no part of Travelers' affirmative claims, and the case does not arise under federal law merely because federal law defines the operative limits of a state rule. Gully v. First National Bank, supra, 299 U.S. at 118, 57 S.Ct. at 100. 21 Finally, appellees argue that Travelers may not enforce the Texas judgments unless such enforcement is consistent with due process. However, the due process issue forms no part of Travelers' affirmative claims and is properly raised as a defense to Travelers' complaint. A federal issue raised by way of defense will not support removal jurisdiction. See, e.g., Franchise Tax Board v. Construction Laborers Vacation Trust, supra.