Court Opinion

ID: 6929432
Source: CourtListenerOpinion
Date Created: 2022-07-23 23:49:54.492901+00
Date Added: 2024-06-11T16:07:05.197539
License: Public Domain

HATCHETT, Circuit Judge,
dissenting:
This case presents a close question of federal jurisdiction: Whether a party’s complaint involves a “substantial question of federal law,” where it predicates its claims, in part, upon the defendant’s violations of federal securities law although not citing a specific federal law. Because the plaintiffs predicate three of their four claims (Counts I, II, and III) on the interpretation and application of federal securities law, the complaint involves a “substantial question of federal law.” I respectfully dissent because the majority opinion too narrowly restricts what constitutes a substantial question of federal law.
Title 28 U.S.C. § 1441 permits the removal of any civil action brought in state court if “founded on a claim or a right arising under the Constitution, treaties or laws of the United States....”
[W]hether a case is one arising under the Constitution or a law or treaty of the United States, in the sense of the jurisdictional *1554statute ... must be determined from what necessarily appears in the plaintiffs statement of his own claim in the [complaint], unaided by anything alleged in anticipation of avoidance of defenses which it is thought the defendant may interpose.
Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 10, 103 S.Ct. 2841, 2846, 77 L.Ed.2d 420 (1983). Thus, federal district courts maintain federal question jurisdiction over cases in which “a well pleaded complaint establishes either that a federal law creates the cause of action or that the plaintiff’s right to relief necessarily depends on the resolution of a substantial question of federal law.” Franchise Tax Board, 463 U.S. at 27-28, 103 S.Ct. at 2855 (emphasis added). Such a substantial question of federal law exists in this case.
In their complaint, the plaintiffs repeatedly predicate their claims and their right to civil damages on the defendant’s failure to comply with federal securities law. Specifically, in paragraph four of the complaint, the plaintiffs allege that the defendant “represented to Company that he and ... his law firm were competent and skilled in providing legal services for matters involving corporations and the federal and state laws applicable to corporate securities.” (Emphasis added.) In their state law claim for negligence (Count I) the plaintiffs allege that the defendant was negligent in the preparation of the Memorandum “under ... federal laws applicable to the sale of corporate securities.” (Emphasis added.) Likewise, in their breach of contract claim (Count II) plaintiffs allege that the defendant breached an agreement in which he agreed to prepare a Memorandum, representing that Memorandum “as having been prepared in accordance with the laws applicable to corporate securities.” This reference obviously refers to federal securities law.
More specifically, Count III of the plaintiffs’ complaint alleges:
The Company offered to sell and did sell the Shares to the plaintiffs in violation of the registration of the Securities Act of Alabama and the Rules applicable thereto as promulgated by the Alabama Securities Commission in that the financial statements of the Company included in the Memorandum did not meet the certification requirement of Regulation D promulgated under the federal securities Act by the Federal Securities and Exchange Commission. (Emphasis added.)
Additionally, plaintiffs attached a copy of federal Regulation D to the complaint.
In Counts I and II, the plaintiffs allege that the defendant violated federal securities law and that those violations entitle them to relief. In Count III the plaintiffs allege a violation of federal securities law with great specificity, actually identifying the federal provision which they allege the defendant violated. Because plaintiffs predicate recovery upon federal securities law, resolution of these claims requires the interpretation and application of federal law. Thus, this is not a case where the complaint merely contains a passing reference to a federal statute or alleged facts that only remotely involved a federal question. See Gulley v. First National Bank, 299 U.S. 109, 117, 57 S.Ct. 96, 99, 81 L.Ed. 70 (1936) (federal jurisdiction does not extend to cases in which a question of federal law is merely “lurking in the background”). Rather, the plaintiffs predicate their right to recovery upon the construction and application of federal law requiring the resolution of a substantial question of federal law.
Because the plaintiffs’ right to relief involves a substantial question of federal securities law the case was properly removed. If the plaintiffs did not intend to maintain federal claims, they should have drafted a complaint that made no reference to federal law. In choosing to make such references, the plaintiffs show their true intent — to prove violations of federal securities law in order to obtain relief.
Although not specifically named, the references to federal securities law in the plaintiffs’ complaint clearly state a claim for relief under the Securities Exchange Act of 1934 (the 1934 Act). 15 U.S.C. § 78j. The 1934 Act provides in part that:
It shall be unlawful for any person, directly or indirectly, by use of means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange—
(b) To use or employ, in connection with the purchase or sale of any security regis*1555tered on a national securities exchange or any security not so registered, any manipulative of deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
Federal courts maintain exclusive jurisdiction over all suits brought to enforce any liability or duty the 1934 Act creates. 15 U.S.C. § 77aa. See also Guinasso v. Pacific First Fed. Sav. & Loan Ass’n, 656 F.2d 1364, 1367 n. 7 (9th Cir.1981) (district courts maintain jurisdiction over matters substantially reliant on propositions that define federal rights, duties, or relationships, even if the plaintiff does not seek a federal remedy), cert. denied, 455 U.S. 1020, 102 S.Ct. 1716, 72 L.Ed.2d 138 (1982). Because the plaintiffs requested relief within the federal district court’s exclusive jurisdiction, the complaint states a claim for relief arising under federal law. It was properly removed.
The majority cites Moore v. Chesapeake & Ohio Ry. Co., 291 U.S. 205, 54 S.Ct. 402, 78 L.Ed. 755 (1934), to support its conclusion “that a violation of a federal standard as an element of a state tort [claim] does not fundamentally change the state nature of the action.” 291 U.S. at 215, 54 S.Ct. at 406. This characterization misconstrues Moore. In Moore, plaintiffs brought a state tort claim which included a federal element. In rejecting the defendant’s attempt to remove the case to federal court the Supreme Court stated:
The Federal Safety Appliance Acts, while prescribing absolute duties, and thus creating correlative rights in favor of injured employees, did not attempt to lay down rules governing actions enforcing these rights. The original Act ... made no provision for suits....
The Safety Appliance Acts having prescribed the duty in this fashion, the right to recover damages sustained by the injured employee through the breach of duty sprang from the principle of the common law ... and was left to be enforced accordingly....
Moore, 291 U.S. at 215-16, 54 S.Ct. at 406 (emphasis added) (citations omitted). Thus, the Supreme Court’s holding turned on whether a federal right of action existed under the federal statute, to vindicate a plaintiffs rights, not upon whether the claim included a federal standard as an element of the state claim. This distinction exists today. See Merrell Dow Pharmaceuticals v. Thompson, 478 U.S. 804, 810-11, 103 S.Ct. at 3233, 92 L.Ed.2d 650 (1986) (primary consideration in determining whether original federal question jurisdiction exists is whether a private federal remedy is provided in the federal statute).
Unlike the Federal Safety Appliance Acts in Moore, the federal securities law contained in the plaintiffs’ complaint, namely the 1934 Act, has an implied private federal remedy. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730, 95 S.Ct. 1917, 1922, 44 L.Ed.2d 539 (1975); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 198, 96 S.Ct. 1375, 1383, 47 L.Ed.2d 668 (1976). The existence of a federal remedy in this case distinguishes it from Moore. In failing to address this distinction, the majority disrupts well-settled law concerning federal jurisdiction.
Because the district court maintains exclusive jurisdiction over the plaintiffs’ federal claims, and pendent jurisdiction over the state claims, this case should not be remanded to state court.