Cohen Cheat Sheet on “Arising Under” Federal Question Subject Matter Jurisdiction
This is one of three intellectually very difficult parts of the course by my estimation (Erie and preclusion are the others), so do not be discouraged if you find this hard at first (or at twelfth!).
The central question is when a claim “arises under” federal law for the purposes of the statutory grant of FQ SMJ.
The simple answer is given by Justice Holmes in American Well Works v. Layne.
To determine whether an action arises under federal law, look to the law that creates the cause of action (the “Creation Test”). If the cause of action is created by federal law (e.g., Congress passes a statute giving you this cause of action) it “arises under” federal law. If instead the cause of action is created by state law, then the cases “arises under” state and not federal law.
Judge Friendly famously summarized the Holmes’ rule in T.B. Harms Co. v. Eliscu, in which he wrote:
In an endeavor to explain precisely what suits arose under the patent and copyright laws, Mr. Justice Holmes state that “[a] suit arises under the law that creates the cause of action;” in the case sub judice, injury to a business involving slander of a patent, he said, “whether it is a wrong or not depends on the law of the State where the act is done” so that the suit did not arise under the patent laws. American Well Works Co. v. Layne…The Holmes’ “creation” test explains the taking of federal jurisdiction in a great many cases, notably copyright and patent infringement actions, both clearly authorized by the respective federal acts…and thus unquestionably within the scope of 28 U.S.C. § 1338; indeed, in the many infringement suits that depend only on some point of fact and require no construction of federal law, no other explanation may exist…”
For 95% of cases this is a good rule. For example, patent infringement actions arise under federal law because they are created by a Congressional statute. The same is true for Title VII discrimination claims.
But the rule is actually not completely accurate. It is the case that federal claims may “arise under” federal law even where the claim is created by state law. The opposite is also possible, although very rare. We will discuss both exceptions:
First, take the proposition that if the cause of action is created by federal law it “arises under” federal law. That is almost completely true, and in practice you can treat it as true, just keep in your mind the one tiny exception of that is Shoshone Mining Co v. Rutter.
Shoshone Mining Co. v. Rutter, 177 U.S. 505 (1900).
Facts: Congress establishes a system that allows miners to file land patents and to settle conflicting claims, and that the right of possession is determined by “local customs or rules of miners in the several mining districts, so far as the same are applicable and not inconsistent with the laws of the united states.” Is there FQ SMJ for claim under this act?
Holding: No. The “adverse suit” to determine the right of possession may not involve any construction of a federal law or the Constitution. Instead it may just turn on a pure factual matter, like the location of a claim on the ground or the meaning and effect of certain local rules and customs of miners. Therefore does not necessarily arise under the Constitution and laws of the U.S.
Take Away: Not all causes of actions created by federal law confers FQ SMJ, so Holmes test is deficient in this regard too.
That said, this case is a total aardvark! It has not borne much if any fruit. Remember it exists, but don’t worry about it.
The second proposition, that if the cause of action is created by state law, then the cases does NOT “ariseunder” federal law is also not always right, and the deficiency is even more serious/complex. This situation is also much more common.
The issue typically comes up when you have a cause of action created by state law, but part of the cause of action turns on an element of federal law.
Before Merrell Dow the S. Ct. seems to behave somewhat inconsistently in Smith v. Kansas City Title & Trust Co. and Moore v. Chesapeake & Ohio Railway Co.
Smith v. Kansas City Title & Trust Co., 255 U.S. 180 (1921)
Facts Shareholder of Trust Co sues to enjoin the Trust Co from investing in certain federal bonds on the ground that the act of congress authorizing the bonds was unconstitutional. The theory of their case was that under Missouri law, an investment in a bond unauthorized by law was ultra vires and thus could be enjoined. The cause of action was thus state corporate law (the claim the investment was ultra vires). Was there SMJ, given that cause of action was Missouri law?
Holding: There is SMJ, right to relief depends on the construction of a federal statute and such federal claim has a reasonable foundation, that’s enough.
In dissent, Justice Holmes yelled creation test! This is a state law cause of action, it merely incorporates federal law the way you might incorporate a contract]
Compare this with: Moore v. Chesapeake & Ohio Railway Co., 291 U.S. 205 (1934).
Facts: Ky Employer Liability Act says that a plaintiff cannot be held contributorily negligent or to have assumed the risk where his injury results from the violation by his employer of any state or federal statute enacted for the safety of the employee. Plaintiff sued defendant for state law tort under the Kentucky Act. He claimed that his injury was due to the failure of employer to comply with the Federal Safety Appliance Act. Was there SMJ, even though this was a state law cause of action?
Holding: No SMJ, this is just state law negligence claim.
These two seemingly conflicting cases set up the issue of Merrell Dow, what to do in a case involving “the presence of a federal issue in a state-created cause of action”?
Merrell Dow Pharmaceuticals v. Thompson, S. Ct. 1986. Please read Merrell Dow from the playlist after you've finished this portion of the playlist.
Before we can understand this case, you need to understand what is a private right of action? It is a right to sue someone under a statute. That is, can private person A sues private person B for violating a statute. Examples: if universities don’t permit military recruiters on campus the federal government can remove all funding, or defund them. That’s a public right of action, but no corresponding right for a private plaintiff to bring the suit. Without a private right of action, under this scenario an individual cannot bring suit against a university for not allowing military recruiters on campus.
What was the case about? Plaintiffs were mothers of children born with multiple deformities as a result of the mother's ingestion of Bendectin during pregnancy. They sued the drug maker. Most of the counts in the complaint were pure state law claims (e.g., fraud, breach of warranty, etc). In none of those counts is there any federal issue lurking. So clearly would not be able to bring them in Federal Court under FQ SMJ. But in one count, they claimed negligence, a state law cause of action, and said that the plaintiff could prove this state law cause of action by showing that there had been a violation of a federal statute (the FDCA).
Facts: Thompson (Canada) and MacTavish (Scotland) sue Merrell Dow in Ohio state court. Each alleges they had a child with multiple deformities because they used Merrell Dow’s drug Benedictin. They press a bunch of state common law theories (negligence, breach of warranty, strict liability, fraud, gross negligence) and claim that the drug was “misbranded” in violation of the Federal Food, Drug, and Cosmetic Act (FDCA) because the labeling did not provide adequate warning that use of drug was dangerous.
They say in complaint that violation of FDCA in “promotion” of Benedictin creates a rebuttable presumption of negligence and that violation of the statute “directly and proximately caused” the injuries suffered.
Def removes (we’ll discuss this later in this section of course, for now all you need to know is you can only remove an action if it could originally be brought in district court) claiming there is jurisdiction under 1331, FQ. Plaintiffs say no, should be remanded to state court because no SMJ.
Relying on Smith case the district court held that there was 1331 jurisdiction for FDCA claim, but dismissed on Forum non conveniens (we’ll talk about this later too, but notice the interaction of multiple jurisdictional devices).
6th Circuit disagrees and says FDCA does not “create or imply” a private right of action for individuals injured as a result of the Act. Fed SMJ only if Pl’s right to relief “depended necessarily” on a substantial question of federal law. Pl’s complaint treats FDCA as only one possible way of determining that Merrell Dow was negligent. A jury could find negligence without finding a violation of the FDCA, so does not necessarily depend on FDCA. So no SMJ.
Holding: Affirmed. No SMJ. The vast majority of cases where there is 1331 Fed Q SMJ fall under Holmes’ creation test, cases in which federal law creates the cause of action. But we’ve also said that a case may arise under federal law “where the vindication of a right under state law necessarily turned on some construction of federal law.”
This case is definitely not of the “creation test” kind, state law not federal law creates the COA. The question is whether the presence of a federal issue in the state-created cause of action is sufficient to create SMJ?
All parties agree that there is no private right of action under the FDCA here. Whether you have a private right of action = whether a statute gives a private pl a right to sue a private def for actions in violation of the statute.
We have yet to deal with a case that looks like this. In a parallel branch of caselaw relating to implied causes of action, we’ve held that it would flout Congress to intent to create a federal cause of action in this kind of case. We think it would equally flout Congressional intent to give federal SMJ for these actions just because violating a federal statute is said to give rise to a “rebuttable presumption” of negligence under state law.
There are three possible noteworthy objections:
(1) The federal issue here is central to the state law claim.
(2) Powerful federal interest in seeing that the federal statute is given a uniform interpretation and FQ SMJ is best way to do that.
(3) Special factors in this particular case. Not clear if FDCA applies to sales in Scotland or Canada, the extraterritorial meaning of the statute is a special particularly important federal question.
Be prepared to discuss these objections and responses in class. Also make sure to read footnote 12 carefully.
Concl: For the category of cases when state law creates the cause of action, the presence of a federal issue in a state tort law case will not give rise to SMJ when Congress did not give a private right of action for violation of the federal statute. The Congressional determination that there be no federal remedy for violations of this statute is equivalent to a decision by Congress that violations of the federal statute are not “substantial” enough to confer FQ for SMJ.
We will discuss the dissent more in-depth in class. We will also discuss the Supreme Court’s recent decision in Gunn v. Minton developing this jurisprudence. After Merrell Dow, the circuits developed a split on whether § 1331 requires a federal private right of action for federal question jurisdiction to be proper or whether a substantial federal issue embedded in the state cause of action would be sufficient.
When you are reading Gunn, pay close attention to the Court’s discussion of prior cases Grable and Empire Health Choice with regards to that question. Here is a summary of that case.
Grable and Sons v. Darue, 545 U.S. 308 (2005) [there is a version in the casebook and you are welcome to read it but this should be sufficient]
Facts: In 1994, IRS seizes Michigan real estate belonging to Grable to satisfy the company’s tax delinquency. A statute (26 U.S.C. § 6335) required IRS to give Grable notice of the seizure, the property is sold, and Grable has a statutory right to redeem the property within 180 days, at which point the government lets it go forever and issues a quitclaim deed (deed extinguishing old owner’s rights) to the buyer. That’s what happens here and the quit claim deed is issued to Darue.
FIVE YEARS LATER Grable bring a quiet title action (NOTABLY A STATE LAW CAUSE OF ACTION) claiming that Darue’s title is invalid because the IRS did not comply with the exact manner of the statutory notice requirement – it did it by certified mail not by in hand delivery, which is what the statute requires. The case was initially brought in state court and then removed to federal court. Is FQ SMJ proper?
District court: Yes, the test is does it “pose a significant question of federal law,” the existence of a federal cause of action is not necessary. Finds FQ SMJ and gives Darue a win on the merits, under Summary Judgment, finding substantial compliance with the statute enough, personal service not required.
6th Cir. Affirms. Thought it was enough for FQ SMJ that the title claim raises an issue of federal law that has to be resolved, and there was a substantial federal interest involved (the construal of federal tax law). Also affirms the merits decision.
S. Ct. Holding: The question answered by the Court is whether Merrell Dow always requires a federal cause of action to get FQ jurisdiction. No, it is not required.
The Court finds that a federal cause of action is most common way of getting an FQ, but not the only way. You can have FQ with a state law claim “that implicate significant federal issues.” Why? Because those questions are substantial and federal and “justify resort to the experience, solicitude, and hope of uniformity that a federal forum offers on federal issues.”
- Is it substantial? Of course not just any federal issue will do, it has to be substantial, meaning “a serious federal interest in claiming the advantages thought to be inherent in a federal forum.” Here, The meaning of a federal tax provision is an important issue of federal law and actually in dispute in this case. Government thus has a direct interest in the availability of a federal forum to vindicate its action, and buyers and delinquents will want a judge expert in federal tax matters.
- However, the Court adds the additional constraint, that it must make sure not to “upset the state-federal line drawn.” Here, state title actions only rarely raise federal law questions so we are not going to be doing too much disturbing of the federal-state division of power
-Full statement of test: “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 approved balance of federal and state judicial responsibilities.””
What about MERRELL DOW? The Court says: don’t confuse what is a sufficient condition for FQ SMJ for what is a necessary one. Merrell Dow wasn’t silently overruling Smith. Indeed, we approved Smith. We explicitly said there are no bright line rules here, but instead we said careful judgments are in order. Absence of a federal cause of action is important but not dispositive of the inquiry. In Merrell Dow, we considered relevant the purpose of § 1331, and the combo of no federal cause of action and no preemption of state law remedies. It would also have attracted a horde of similar state law cases, and the line would have been swamped for any statutory violation. No indication that Congress wanted that, every indication it did not.
Here things are different. State quiet title actions turning on federal law are rare indeed, so not going to disrupt the balance [
Thomas, Concurring, argues for a return to the Holmes’ dissent, making §§ 1331 jurisdiction co-extensive with whether federal law creates a cause of action on a well-pleaded complaint.
BUT GRABLE DOES NOT RESOLVE THE QUESTION ENTIRELY:
Empire HealthChoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006).
Facts: 3rd party injures federal employee McVeigh and he eventually dies. His insurance company pays for a lot of his care. His estate sues the 3rd party and gets lots of money on wrongful death. Insurance company then sues estate to recoup what it paid for his medical expenses. Those expenses were paid as part of a contract with the federal Office of Personnel Management (OPM) to give health insurance to federal employees. The statute governing employee health care is silent on recoupment, but the contract between OPM and insurance company says that insurance company has to take reasonable steps to recoup and employees are warned that if they win a verdict the insurer might seek recoupment. Recoupment is a state law action, is there a federal question?
S. Ct. Holding: NO. Congress did not create a federal cause of action for recoupment by insurance companies. There’s no FQ here, even though there are federal interests in OPM negotiations of master contract, the effect of contract on federal employees, etc.
Why? Because “countervailing considerations control” where Congress explicitly conferred jurisdiction over other benefits but was silent on reimbursement claims (expressio unis). [Dissent’s reply: Failure to confer federal jurisdiction explicitly over reimbursement claims may just reflect a view that it was already covered by §1331.]
Nor is this a substantial federal issue under Grable. Grable is a “special and small category.” Grable can be distinguished because:
- Here it was a federal agency’s action (IRS) under compatibility with a federal statute. By contrast, here the action is triggered by settlement of a suit by private entity against other private entities.
- There the issue was purely legal issue, could be settled once and for all, and would control numerous future tax sale cases. By contrast the claim here is fact-intensive and very situation-specific.
- It’s not clear why the proper federal-state balance should place the non-statutory issue under the determination of federal law by federal courts.
Dissent (don’t dwell on it) (Breyer, J., joined by Kennedy, Souter, Alito): Thought this was federal common law because interpretation of a federal contract and Congress intended that federal courts have jurisdiction. The U.S. is real party in interest because the money is credited to the federal fund. Uniformity important here because benefits are provided under federal program.
Gunn v. Minton is the Supreme Court’s latest foray into this complicated area of jurisprudence and will be our main focus. Pay attention to the Court's summaries of Empire Health and Grable
 Note: At the time the case is decided in determining whether there is a private right of action the court applies the Cort v. Ash 4-factor test. Here they assume 4 factors obtain as to FDCA:
(1) Pl are not in class of people for whose special benefit the FDCA was passed.
(2) No indication that Congress intended to confer on these people a private right of action.
(3) A federal cause of action would not further the legislative scheme of FDCA.
(4) Pl’s cause of action is of the kind traditionally relegated to state law.
Later the S.Ct somewhat backs off of this test, but at time of Merrell Dow this governs…more on this in leg reg + fed courts.