Concept

Pleading Twists

Federal question jurisdiction

Pleading Twists

A federal court decides whether an action arises under federal law by reading the plaintiff's complaint. The method works because the complaint ordinarily tells the truth about the dispute: the party who sues holds the grievance, and the law named in the claim is the law that supplies it.¹ Two situations cut that link. In a declaratory-judgment action, the party who would ordinarily be sued files first, so a federal issue that belongs in an answer turns up in a complaint. In a completely preempted claim, the plaintiff pleads state law, but a federal statute has made the only available claim a federal one. In each, the court looks behind the pleading, and it does so early, because a court that finds at any time that it lacks subject-matter jurisdiction must dismiss the action.²

Declaratory Judgment Actions

A party may sometimes ask a court for a declaration of rights instead of waiting to be sued, and that choice flips the roles the well-pleaded complaint rule assumes. Consider the Mottleys' contract with the railroad. A declaratory complaint filed by either side would recite the contract and the dispute over the new Act of Congress and the Fifth Amendment. In requesting a declaration of rights, it would place the state-law contract claim and the federal statutory and constitutional issues before the court together.³ Read at face value, that complaint would admit through the plaintiff's own pleading the federal defenses that Mottley keeps out. The forum would then depend on who reached the courthouse first. A dispute centered on state law would also reach federal court through a jurisdictional hook, even though state courts can weed out insubstantial federal defenses as effectively as federal courts can.⁴

Skelly Oil Co. v. Phillips Petroleum Co. closed that door. Instead of reading the face of the declaratory complaint, the Court looked to what a hypothetical complaint would have included had one been filed before the legislature created the declaratory remedy, so that the procedure would not expand the jurisdiction of the federal courts.⁵ In the Mottleys' case, the district court would consider only their contract claim and would ignore the issues the railroad might raise as defenses. The unwinding applies whichever party starts the action, so federal jurisdiction would fail whether the Mottleys or the railroad sought the declaration.⁶

The working question is whether the dispute could have reached federal court if no declaratory remedy existed. To answer it, treat the declaratory defendant as the natural plaintiff, imagine the ordinary lawsuit for damages or an injunction that party would have filed, and apply the well-pleaded complaint rule to that complaint. The declaratory action arises under federal law only if the imagined complaint would.⁷

A federal defense is where the declaratory form tempts most.

Hypothetical Illustration

Senator Patty threatens to sue the reporter Dan for libel under state law, and both are citizens of the same state. Dan would answer with the First Amendment, so the federal question would sit in his answer and § 1331 would not be satisfied. Dan files first and asks the federal court to declare his story protected. His complaint is built around the First Amendment, and on its face it seems to clear the well-pleaded complaint rule. Unwinding removes that appearance. Without the declaratory remedy, Dan would have waited and the senator would have been the plaintiff in a state-law libel suit. That is the complaint the court reads, and the First Amendment appears in it only as Dan's defense. The declaratory action does not arise under federal law, and who files first makes no difference.

A disability dispute comes out the other way under the same procedure.

The libel dispute and the disability dispute share a procedural form and differ in one respect: whether the coercive suit the declaratory plaintiff is trying to get ahead of would be pleaded under federal law. Stopping at the observation that a federal question appears in the declaratory complaint reaches the wrong answer in the libel case. The fact that decides the problem is the source of the natural plaintiff's cause of action, and the identity of the party who filed has no bearing on it.

Exam Analysis Steps

A declaratory complaint needs two steps of its own before the ordinary tests apply, so run the analysis in this order:

Identify the coercive claim the declaratory defendant would have brought against the declaratory plaintiff had the Act not existed, and treat the declaratory defendant as the natural plaintiff.
Write the complaint that natural plaintiff would have filed, containing only the elements of that claim and nothing about the defenses the declaratory plaintiff expects to raise.
Ask which body of law creates the cause of action in that unwound complaint. If federal law does not, ask whether an embedded federal issue meets the four-part test, remembering that even then the federal issue must appear in the complaint itself and not in a defense.⁸
Treat the declaratory action as arising under federal law only if the unwound complaint does, whichever party actually filed first.

The first two steps are the additions declaratory claims require, and the last two are the ordinary creation and embedded-issue analysis applied to a rebuilt pleading. Step two is where the work lies, because it removes from the complaint the federal defense the declaratory plaintiff placed there.

Unwinding is not always easy, as Franchise Tax Board of California v. Construction Laborers Vacation Trust shows. A California tax agency sought to collect individual tax obligations by levying on assets held in a trust, and the trust argued that ERISA, a federal statute regulating employee benefit plans, preempted any such levy. The agency sued in state court to enforce the levy and to obtain a declaration that federal law did not preempt it. The trust removed, arguing that the declaratory count presented a federal question, preemption, on its face.⁹ The levy count was simple. State tax law created the right of action, and preemption would arise only as a federal defense, so the well-pleaded complaint rule left that count in state court.¹⁰ The declaratory count was harder. The Court first announced that the Skelly Oil approach applies to state declaratory actions as well, but that left open whether to unwind to the coercive proceeding the state would bring as plaintiff, the tax levy, or to the one a defendant might bring.¹¹ The extension matters on removal, because removal is proper only if the federal court would have had jurisdiction had the plaintiff begun the action there.¹²

A separate judge-made exception must be kept apart from all of this. Under Verizon Maryland, Inc. v. Public Service Commission of Maryland, suits seeking relief from preempted state regulatory schemes may proceed in federal court, even though unwinding the action would show no federal question on the face of the coercive state regulatory proceeding. The exception is analytically distinct both from Skelly Oil and from complete preemption, the doctrine taken up next.¹³

Complete Preemption

Preemption, the doctrine under which federal law overrides conflicting state law, usually enters a case as a defense. A defendant sued on a state-law claim answers that federal law displaces the claim, and that answer, called ordinary preemption, is a federal defense of the kind the railroad raised in Mottley.¹⁵ A federal court lacks original jurisdiction when the complaint presents a state-law cause of action and asserts that federal law deprives the defendant of a defense, and a defendant may not remove unless the plaintiff's complaint establishes that the case arises under federal law.¹⁶ Ordinary preemption therefore supports neither original jurisdiction nor removal, however likely the defense is to succeed.¹⁷

Franchise Tax Board of California v. Construction Laborers Vacation Trust supplies the standard illustration. The state tax agency sued in state court to enforce its levy, and the trust answered that ERISA preempted it. The agency's claim came from state tax law and the preemption argument was the trust's defense, so the claim did not arise under federal law and the trust could not remove on that ground.¹⁸ The defense was not ignored. It remained available in state court, where success would end the agency's claim, but it could not change the forum.

A small group of federal regimes works differently. In what is sometimes called a quirky exception to the well-pleaded complaint rule, some federal regimes exert so strong a preemptive force that they transform a nominally state-law claim into a federal claim for removal purposes.¹⁹ Congress may so completely preempt an area that any complaint raising a select group of claims is necessarily federal in nature.²⁰ In theory, then, the only well-pleaded complaint possible in that area is one asserting a federal claim. The claim arises under § 1331, and a defendant sued on it in state court may remove.²¹

The leading case, Beneficial National Bank v. Anderson, identifies two features that must both be present. First, federal law must establish a preemption defense to any state right of action in the area, so that no state-law claim of that kind could survive. Second, federal law must establish an exclusive federal cause of action, so that the only way to enforce the right is a federal claim. Federal courts then treat any claim the plaintiff attempts to assert in that area as one that necessarily arises under federal law.²² In Anderson both features were present, and a usury claim against a national bank, though nominally grounded in state law, arose under federal law for removal purposes.²³ Earlier decisions had rested on legislative intent to provide for removal, but Anderson moved away from that focus and treated the legislative desire to provide an exclusive federal action as the centerpiece of the analysis.²⁴

The second feature carries most of the explanation. A defense to every state claim shows that Congress meant to displace state law in the area and not merely to override one conflicting rule, and an exclusive federal cause of action gives the displaced grievance a federal counterpart with its own body of federal law. If the state-law label controlled, a state court could recharacterize the claim and apply state precepts to a right Congress meant to have only a federal judicial remedy. Complete or transformative preemption protects that exclusive federal right of action from improper characterization in state court. Ordinary preemption, by contrast, often protects a federal administrative scheme from state interference.²⁵

The doctrine has been recognized in a few settings. Anderson involved claims against national banks, and Avco Corp. v. Machinists permitted removal of a nominally state-law claim for breach of a labor contract.²⁶ ERISA supplies the third: Metropolitan Life Insurance Co. v. Taylor treated a state complaint asserting a right to plan benefits as a cause of action within ERISA's civil enforcement provision, which necessarily arises under federal law and is removable.²⁷ Aetna Health Inc. v. Davila described that mechanism as having "extraordinary pre-emptive power" that converts an ordinary state common-law complaint into one stating a federal claim. The Davila Court also rejected the argument that section 502(a) complete preemption requires the state claim to be preempted under ERISA's separate preemption provision, section 514(a). What matters is that a state cause of action offering an alternative remedy to ERISA's civil enforcement mechanism conflicts with Congress's clear intent to make that mechanism exclusive.²⁸

The exam question is which kind of preemption the defendant is invoking. An employee who sues in state court under state law for denial of benefits under an employer benefit plan has a claim within ERISA's civil enforcement provision, so the claim is treated as federal and is removable.²⁹ The tax agency in Franchise Tax Board also faced an ERISA argument, but it sued to collect state taxes and not to recover plan benefits, so the argument stayed a defense and the case stayed in state court.³⁰ The statute and the preemption vocabulary were the same in both cases. The difference lay in whether the plaintiff's own claim fell inside the exclusive federal scheme. A common error is to reason that because a federal statute preempts the state claim, the claim arises under federal law. That inference fails for ordinary preemption, because the argument says nothing about where the claim comes from.

A defendant gains from the doctrine even though ordinary preemption would already defeat a displaced state claim in state court. The defendant may prefer a federal forum and may expect federal law to supply a defense that is easier to establish there, such as a duty to exhaust arbitral remedies under a labor contract. Removal on this ground may therefore become a popular gambit and could become available under a variety of federal statutes.³¹ Even so, a claim based on state law normally may not be removed on the basis of possible federal preemption, and on an exam the usual answer is that preemption is only a defense.³²

Exam Analysis Steps

Because the doctrine turns on two features of the federal statute, run the analysis in this order, starting with how the preemption argument enters the case:

Read the complaint to identify the claim the plaintiff pleads and the law that creates it on its face, which in these problems is state law.
Identify the federal statute the defendant invokes and treat the argument as ordinary preemption, with no jurisdiction under § 1331, unless the statute displaces state law throughout the area.
Ask whether federal law establishes a preemption defense to any state right of action within the scope of the claim, and not only to the particular claim before the court.
Ask whether federal law supplies an exclusive federal cause of action for claims within that scope.
Treat the claim as arising under federal law only if both answers are yes, and expect that result only under a regime the Court has recognized, such as claims against national banks, ERISA's civil enforcement provision, or labor-contract claims.

Pleading Twists

Declaratory Judgment Actions

Complete Preemption

Endnotes33