The Creation Test

The Creation Test

Section 1331 gives the district courts original jurisdiction over “all civil actions arising under the Constitution, laws, or treaties of the United States.”¹ The phrase “arising under” has resisted every attempt at a single, precise definition, but the most familiar one comes from Justice Holmes in American Well Works Co. v. Layne & Bowler Co.: “A suit arises under the law that creates the cause of action.”²

That definition answers the question the well-pleaded complaint rule leaves open. The rule tells a court where to look, and the Holmes test tells it what to look for.³ The court reads only the well-pleaded allegations and asks whether they assert a right to relief that federal law creates. If they do, the test is met, and the case will almost always be found to arise under federal law.⁴

One question puts the test to work. Suppose the plaintiff stands before the bench and the judge asks, “Why do you think you have a right to relief from the defendant?” If the plaintiff can answer, “Because federal law creates such a right, Your Honor,” the case arises under federal law.⁵ The Mottleys could not give that answer. They sued the railroad on a contract, state common law gave them the right to demand specific performance, and their suit therefore arose under state law and failed the test, even though the case turned entirely on the railroad’s federal-law justification for refusing to honor the contract.⁶

A plaintiff like Rodney King gets the opposite answer. Suing under section 1983, King would assert a violation of his Fourth Amendment right to freedom from an unreasonable seizure. The Amendment supplies the right, § 1983 supplies the right of action, and both derive from federal law, so the claim arises under the Constitution and laws of the United States and no one would doubt jurisdiction.⁷

The same license can produce both answers. Apex holds a federal patent on a component and licenses Allied to use it at ten dollars per unit. If Allied falls behind on payments and Apex sues for the balance, the right to payment comes from the license agreement, so state contract law creates the claim and the patent is only background. If Apex instead sues to stop Allied from making the component without permission, the patent statute creates the right to exclude others and authorizes the suit, so the case arises under federal law.⁸

The test sorts cases by the source of the claim because the great majority of state-created claims will stay in state court, just as the great majority of federal claims will be proper subjects of federal question jurisdiction. The sort does not work perfectly, since some state-law claims contain federal ingredients that justify federal jurisdiction, but it remains the essential starting point.⁹ It also describes most of the cases in the district courts, so a plaintiff who seeks relief under a federal statute or regulation can ordinarily count on § 1331.¹⁰

Holmes’s formula turns on the cause of action, and a cause of action is more than a right. A right is a judicially enforceable obligation that the law places on someone, and a cause of action is the further step of empowering a class of plaintiffs to go to court to enforce that right. Every cause of action rests on a right, but Congress can set a federal standard without giving private plaintiffs any action to enforce it. A statute may create a private right of action expressly, as Title VII does for employment discrimination, and a statute may sometimes be thought to create one by implication; a suit on either kind presents a federal question.¹¹ A federal statute, regulation, or defense that merely sits in the background therefore does not satisfy the test, and neither does a state-law cause of action that borrows a federal standard.

Merrell Dow Pharmaceuticals Inc. v. Thompson shows the difference. Plaintiffs who blamed the drug Bendectin for birth defects sued its manufacturer on state tort theories, and one theory asserted that the drug’s warnings violated the labeling requirements of the federal Food, Drug, and Cosmetic Act.¹² That statute set a federal labeling standard but gave no private person a right to sue for its breach. The only cause of action in the complaint was the state tort of negligence, so the Holmes test was not met.¹³ Students most often lose points here by treating a federal standard that appears in the complaint as if it were a federal cause of action. Whether such a federal element can still support jurisdiction is the question the section on embedded federal issues takes up.

The creation test asks whether the complaint asserts a federal cause of action, and it does not ask whether the plaintiff will win on it. A court must have the power to hear a case before it can decide that the claim fails. A plaintiff who makes a colorable assertion of a federal cause of action, meaning an arguable one, therefore satisfies the test, and jurisdiction is settled before the court asks whether the complaint states a claim on which relief can be granted.¹⁴ The two dispositions say different things about the court’s power. A dismissal under Rule 12(b)(1) for lack of subject-matter jurisdiction says the court cannot hear the case.¹⁵ A dismissal under Rule 12(b)(6) for failure to state a claim says the court heard the case and the plaintiff loses on the merits.¹⁶

Bell v. Hood applied the same reasoning to a complaint drawn to seek recovery directly under the Constitution. The Court held that the federal court, with two possible exceptions, must entertain such a suit, and that jurisdiction is not defeated because the complaint might fail to state a cause of action on which the plaintiffs could recover.¹⁹ A later section of this chapter takes up the exceptions for claims that are insubstantial.

The creation test identifies cases that are certainly inside § 1331, but the Court has rejected it as an exclusionary principle. In Franchise Tax Board of California v. Construction Laborers Vacation Trust, the Court said that Holmes’s formula better describes the vast majority of cases that belong in the district courts than it identifies the cases that fall outside. It added that a case can arise under federal law when the vindication of a right under state law necessarily turns on some construction of federal law.²⁰ The jurisdictional rule therefore has two parts: the well-pleaded complaint must establish either that federal law creates the cause of action or that the plaintiff’s right to relief necessarily depends on resolving a substantial question of federal law.²¹ Smith v. Kansas City Title & Trust Co. is the classic example of the second part, and a later section of this chapter develops it.²²

Engle’s case shows where the test runs out. Suppose she is fired after refusing to engage in accounting practices that violate a federal statute. If the statute also gives her a right to sue, her claim arises under federal law because federal law is the source of her right to relief. If she sues instead for bad-faith discharge under state tort law, the test is not met, yet she cannot recover without proving a proposition of federal law: that the practices she refused to follow violated the federal statute.²³ That second complaint raises the question the embedded-federal-issue doctrine addresses.

Because a case that satisfies the creation test will almost certainly be held to arise under federal law, the test is a reliable sufficient condition for § 1331, even though it does not describe every case that belongs in the district courts.²⁴