Court Opinion

ID: 9634151
Source: CourtListenerOpinion
Date Created: 2023-08-22 12:50:24.509405+00
Date Added: 2024-06-11T09:43:30.250566
License: Public Domain

MARTHA CRAIG DAUGHTREY, Circuit Judge,
concurring in part and dissenting in part.
A majority of the court relies upon two bases for its decision today that federal courts may not exercise jurisdiction over the claims asserted by the plaintiffs in this case. First, the majority concludes “that 26 U.S.C. § 7422 does not preempt the present case.” With that determination, I am in full agreement. Second, the majority states that there is no substantial federal interest in obtaining a federal court decision regarding the effective date of a provision of the federal Internal Revenue Code that will enhance the ability of a federal agency to collect the monies necessary to carry on the workings of the federal government. Even if the federal interest were held to be substantial, the majority nevertheless contends that we should remand this matter to the state court lest provision of a federal forum would portend an extension of federal jurisdiction that would embroil us in “any dispute over the meaning or effect of virtually any provision in the entire federal tax code,” as well as in state malpractice actions, shareholder suits, and other decidedly non-federal disputes. See Maj. Op. at 572-74. From these portions of the majority’s ruling, I respectfully dissent.
Congress has seen fit to entrust federal district courts with original jurisdiction over “civil actions arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331 (emphasis added). Because the non-diverse plaintiffs in this litigation allege that their suit raises claims based only upon the Ohio state law concepts of breach of contract and fraudulent misrepresentation, they argue that any exercise of federal jurisdiction in this matter would be unjustified. As recognized almost 25 years ago by the United *575States Supreme Court, however, “[e]ven though state law creates [a litigant’s] causes of action, its case might still ‘arise under’ the laws of the United States if a well-pleaded complaint established that its right to relief under state law requires resolution of a substantial question of federal law in dispute between the parties.” Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 13, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983).
Significantly, the Supreme Court has ruled just two years ago in Grable & Sons Metal Products, Inc. v. Darue Engineering and Manufacturing, 545 U.S. 308, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005), another case from this circuit, that even a state-law action to quiet title can implicate “a substantial federal interest (in construing federal tax law).” Id. at 311, 125 S.Ct. 2363. In that case, although Grable & Sons filed its complaint in state court against only Darue Engineering and Manufacturing, the entity then in possession of an Internal Revenue Service-issued quitclaim deed to the plaintiffs former property, the Court recognized that the determinative issue involved an analysis of the validity of the notice provided to Grable & Sons by a government agency. Consequently, not only does “[t]he Government ... [have] a direct interest in the availability of a federal forum to vindicate its own administrative action ...,” id. at 315, 125 S.Ct. 2363, but “the national interest in providing a federal forum for federal tax litigation is sufficiently substantial to support the exercise of federal question jurisdiction over the disputed issue on removal, which would not distort any division of labor between the state and federal courts, provided or assumed by Congress.” Id. at 310, 125 S.Ct. 2363 (emphasis added).
As the majority concedes, even the Supreme Court’s subsequent ruling in Empire Healthchoice Assurance, Inc. v. McVeigh, — U.S. -, 126 S.Ct. 2121, 165 L.Ed.2d 131 (2006), has “not shut the jurisdictional door propped open in Grable.” See Maj. Op. at 568. Empire involved a dispute concerning a federal employee’s insurance carrier’s attempt to obtain reimbursement from the insured after the estate of the federal employee recovered damages “(unaided by the carrier-administrator) in a state-court tort action against a third party alleged to have caused the accident.” Id. at 2127. Concluding that such a quintessential state-law contribution claim does not raise a substantial federal question, even though a federal employee’s recovery pursuant to a federal employees’ insurance policy was at issue, the Court emphasized numerous differences in the Grable and the Empire scenarios. Foremost among those differences was the simple fact that Grable “centered on the action of a federal agency (IRS) and its compatibility with a federal statute.” Empire, 126 S.Ct. at 2137. The Court further explained that the federal question in Grable was substantial, that judicial resolution of the question would be dispositive of the case before it, as well as of future cases, and that the dispute involved a pure issue of law. See id.
Despite the Court’s successful effort in Empire to distinguish the situation presented in that case from the scenario in Grable, the justices have also recognized that there is no “single, precise, all-embracing test for jurisdiction over federal issues embedded in state-law claims between nondiverse parties.” Grable, 545 U.S. at 314, 125 S.Ct. 2363 (internal quotation marks and citation omitted). “Instead, the question is, does a state-law claim necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally ap*576proved balance of federal and state judicial responsibilities.” Id.
In addressing that question in this action, the majority opinion first correctly concedes that a federal issue is indeed raised in the plaintiffs’ complaint and that the federal issue “is actually disputed.” See Maj. Op. at 570. Despite that concession, the majority asserts that the substance of the dispute is somehow minimized by the absence of participation by a federal agency, citing Empire’s recognition that Grable “centered on the action of a federal agency.” See Maj. Op. at 570, citing Empire, 126 S.Ct. at 2137. Nowhere in Grable nor in Empire, however, did the Supreme Court indicate that agency participation in litigation constituted a sine qua non to the exercise of federal jurisdiction. Rather, such participation was merely one factor in reaching the ultimate conclusion that “the national interest in providing a federal forum for federal tax litigation is sufficiently substantial.” Grable, 545 U.S. at 310, 125 S.Ct. 2363. In this case, however, even in the absence of participation by a federal agency, the federal interest in the interpretation of federal tax laws still remains not only substantial, but paramount.
Indeed, as recognized by the majority, “resolution of this issue will require the analysis and interpretation of federal law, specifically the Deficit Reduction Act of 1984, Pub. L. No. 98-369, § 61(e), 98 Stat. 494 (1984), and 26 U.S.C. § 312.” See Maj. Op. at 571. Furthermore, although “the specific question at issue [might] concern[ ] only the interpretation of the effective date of an accounting provision,” that interpretation “governs certain earnings- and-profits calculations.” See Maj. Op. at 571. Thus, the pure issue of law in this case — the effective date of a statutory provision — affects directly “how much tax security-holders must pay,” Mikulski v. Centerior Energy Corp., 435 F.3d 666, 678 (6th Cir.2006) (Daughtrey, J., concurring in part and dissenting in part), and it is the amount of that tax collected from citizens, corporate and individual, that determines the levels of funding available for health, safety, and public welfare concerns; for programs and institutions designed to safeguard private rights, civil rights, and the general public interest; and for the daily operation of government activities including warfare, homeland security, and other aspects of national defense.
Perhaps the most disconcerting aspect of the majority’s analysis of the “importance” of the question to be resolved in this case is its “subjective view ... that this particular question is not particularly important to the federal government” because the IRS has not litigated a case involving the provision in the 22 years since its enactment. See Maj. Op. at 571. Clearly, such a lack of litigation bears no necessary correlation to the importance of the subject matter. As recognized by our sister circuit, for example, in the 216 years since the adoption of the Third Amendment to the United States Constitution, “[j]udicial interpretation of [that provision] is nearly nonexistent.” Custer County Action Ass’n v. Garvey, 256 F.3d 1024, 1043 (10th Cir.2001). The Third Amendment’s prohibition on the quartering of soldiers in private residences without consent is, however, one of the constitutional bulwarks protecting privacy rights inherent in American citizenship. Especially in this time of seemingly unfettered governmental efforts to intrude into private realms, I would hope that the majority would not equate the “nearly nonexistent” litigation involving the Third Amendment with a lack of importance of the principles protected by that provision.
In its next effort to bolster its declaration that the issue presented in this litigation is not substantial, the majority claims *577that resolution of the inquiry into the propriety of Centerior’s earnings and profits calculation is not necessarily dispositive of this case. See Maj. Op. at 571. As I noted in my partial dissent in the original panel treatment of this case, however:
[T]he question of Centerior’s compliance with Section 312(n)(l) of the Code ... is central to the plaintiffs’ state law claim ... [and] also supports the district court’s exercise of federal jurisdiction. In their complaint, the plaintiffs charged that the defendants “failed to follow and apply the structure and conceptual framework of the tax laws, as set forth in the Internal Revenue Code and the regulations promulgated thereunder.” They also answered an interrogatory intended to clarify their claims with the statement that “Centerior violated the Internal Revenue Code by doing what ... the Code specifically forbids-” Furthermore, at oral argument on the issue of federal jurisdiction before the district court, the attorney for the plaintiffs acknowledged that an analysis of the tax code is “critical” to the case and that a violation of the Code is not only the measure of damages but also the “underlying rationale for the fraud.” The majority asserts that in analyzing the plaintiffs’ claims, a federal court would “engage in only insubstantial analysis or interpretation of federal law,” but this conclusion fails to recognize that determining whether the defendants complied with the Code is essential to a resolution of the plaintiffs’ claims.
Id. at 677-78 (Daughtrey, J., concurring in part and dissenting in part).
Finally, the majority submits that a recognition of federal jurisdiction in this limited instance raises “the possibility of encumbering the federal courts with these tax-code related cases.” See Maj. Op. at 573. I continue to believe, however, that it is instead more likely than not “that the refund procedures in the Internal Revenue Code, in conjunction with state statute of limitations, would act as a reasonable limit on the number of cases that were actually heard in federal court.” Id. at 678 (Daughtrey, J., concurring in part and dissenting in part). To the extent that they do not, we and our federal colleagues around the country will, I am convinced, continue to perform our sworn duties to judge those matters raising substantial federal questions, whatever they may turn out to be.
For these reasons, I concur in the majority’s preemption analysis, but I respectfully dissent from the remainder of the majority opinion and would thus affirm the district court’s denial of the plaintiffs’ motion to remand this matter to state court. I am authorized to say that Judges Martin, Moore, Cole, and Clay join in this separate opinion.