Opinion ID: 539932
Heading Depth: 2
Heading Rank: 2

Heading: Res Judicata Basis for Removal Jurisdiction

Text: Dwelle contends that even if Ultramar did not allege a federal claim in the second suit, the district court nevertheless had removal jurisdiction based upon the preclusive effect of the prior federal judgment, citing Salveson, 731 F.2d at 1432, and Sullivan, 813 F.2d at 1376. However, for the reasons articulated below, we find that Dwelle's reliance on Salveson and Sullivan is misplaced. In both Salveson and Sullivan, this court looked to Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981), and concluded that where a plaintiff files state claims after a federal judgment has been entered against him on essentially the same claims, the district court may invoke the artful pleading doctrine as a basis for federal jurisdiction and dismiss the claims under the principles of res judicata. Salveson, 731 F.2d at 1429; Sullivan, 813 F.2d at 1375-76. In Sullivan, we noted that such an application of the artful pleading doctrine was unique; traditionally, the doctrine has applied only when the conduct complained of is governed exclusively by federal law. Sullivan, 813 F.2d at 1372. We could not ignore the Supreme Court's apparent approval of this extraordinary application of the doctrine in Moitie, however, much less our application of the doctrine when confronted with parallel facts in Salveson. See Moitie, 452 U.S. at 397 n. 2, 101 S.Ct. at 2427 n. 2; Salveson, 731 F.2d at 1429. Accordingly, we recognized in those decisions a new basis for invoking the artful pleading doctrine. Sullivan, 813 F.2d at 1373, 1375. Sullivan states that the source of the federal character of the purported state claims in Moitie was federal res judicata. Id. at 1375. The opinion continues: Moitie can thus be construed as permitting removal only of state claims filed to circumvent the res judicata impact of a federal judgment. Id. at 1376. Considered in isolation, these statements appear to support Dwelle's contention that the only force driving Moitie removal is the existence of a prior final federal court judgment sufficient to render a later state court proceeding barred by res judicata, without regard for whether that prior federal court sat in diversity or decided federal law. But other language in Sullivan indicates that the source of the original federal court's subject-matter jurisdiction is crucial: But as in the case of federal preemption coupled with a federal remedy, we can recharacterize a state claim barred by the res judicata effect of a federal judgment as an artfully pleaded federal claim. The federal judgment would ordinarily preclude the plaintiff from relitigating any federal or state claim arising out of the same operative facts. A purported state claim based on those facts would be in effect the same federal claim against which the judgment had been entered. The removing court could thus recharacterize the state claim as an artfully pleaded federal claim filed to circumvent the res judicata effect of the federal judgment. Id. (emphasis added) (citation omitted). This passage indicates that the Sullivan court assumed that recharacterization of purported state-law claims into federal claims was essential before removal could occur. For the reasons that follow, recharacterization is only possible when the prior federal judgment resolved questions of federal law. An artfully pleaded claim is one that in reality arises under federal law and thus must be recharacterized as such despite the fact that it purports to rely solely on state law. See, e.g., Olguin v. Inspiration Consol. Copper Co., 740 F.2d 1468, 1472 (9th Cir.1984) (citing Franchise Tax Bd., 463 U.S. at 22, 103 S.Ct. at 2852). One example, cited by the Sullivan court in the passage above, is that of federal preemption coupled with a federal remedy. When the defense of preemption is absolute, any purported state-law claim in actuality arises under whatever federal law preempts the state law. Franchise Tax Bd., 463 U.S. at 23-24, 103 S.Ct. at 2853-54. The preemption defense allows for recharacterization of the state-law claim into a federal one. It would be inaccurate to say, however, that the concept of preemption itself is the federal claim. One cannot sue in federal court on a mere claim of preemption. Similarly, in Moitie removal, the defense of federal res judicata cannot by itself be a federal claim: one cannot sue in federal court on a claim of federal res judicata. 6 Recharacterization must occur. When the prior federal judgment sounded in federal law, new purported state claims can be recharacterized as the old federal claims in disguise. But when the prior federal judgment was based on state law, new purported state claims can be recharacterized only as the old state claims from the first suit. In such a situation, there is not a federal claim in sight, and removal is impermissible even though res judicata probably bars the suit. The situation is directly analogous to that where federal law preempts state law yet fails to provide its own cause of action. In such a situation, although federal law is a perfectly valid defense to a state claim, that claim cannot be said to actually be a federal claim, for no federal right of action exists on point. See, e.g., Garibaldi v. Lucky Food Stores, Inc., 726 F.2d 1367, 1370 n. 5 (9th Cir.1984) (excellent discussion of difference between an artfully pled complaint and one that is preempted, but not removable), cert. denied, 471 U.S. 1099, 105 S.Ct. 2319, 85 L.Ed.2d 839 (1985); see also Franchise Tax Bd., 463 U.S. at 24, 103 S.Ct. at 2854 ([I]f a federal cause of action completely preempts a state cause of action any complaint that comes within the scope of the federal cause of action necessarily 'arises under' federal law.) (emphasis added). The Sullivan court's discussion of recharacterization reveals that this concept still retains vitality in the artful pleading context. Thus, when the court states that the source of the federal character of the state claims in Moitie was federal res judicata principles, the court actually and implicitly means federal res judicata such that the state claims can successfully be recharacterized into federal claims. See Sullivan, 813 F.2d at 1375; see also People of the State of Cal. v. Chevron Corp., 872 F.2d 1410, 1415 (9th Cir.1989). 7 Any reading of Sullivan that focuses solely on the court's statement that Moitie is limited to the removal of state claims precluded by a federal judgment, Sullivan, 813 F.2d at 1376, in effect advances the view that Sullivan worked a fundamental change in artful pleading analysis--and hence, in the well-pleaded complaint rule and arising under jurisdiction generally--by abrogating the requirement of recharacterization. Without an explicit holding to that effect, we doubt that Sullivan meant to rework the law of federal question removal so fundamentally. Moreover, we do not read Sullivan as conflicting with the result we reach today. Indeed, we think that Sullivan's res judicata defense discussion only meant to underscore that the prior federal claim must be one that has been finally adjudicated. After all, the issue before the Sullivan court was whether removal was proper where parallel state and federal actions are brought but no final judgment on the federal action has been rendered. Additionally, Sullivan's conclusion that removal was improper without a final federal judgment makes perfect sense given the rationale for Moitie removal. The Moitie doctrine seems based on a court divining a litigant's motives for bringing suit. When a litigant has suffered a final defeat on a federal claim yet thereafter files a similar-although-not-preempted state claim in state court, the sequence of events gives rise to an inference that the litigant is not interested in the state cause of action per se, but is instead attempting to circumvent the effects of the federal question judgment. In this limited instance, removal is allowed. But when there has not yet been a final judgment on the federal cause of action, as was the case in Sullivan, no such circumventing motive can properly be inferred: after all, the litigant still might prevail on the federal claim. To sum, the Sullivan court did not face the situation which now confronts us. The situation where a prior federal judgment was grounded in state law has never been reached. We hold that when the prior federal judgment was grounded in state law, the state claims contained in a subsequent action filed in state court cannot be recharacterized as federal for purposes of removal.