Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing

Brief Fact Summary.

Grable’s property, which was seized by the IRS to satisfy tax delinquency, was sold by the IRS to Darue. Five years later, Grable brought an action in state court to quiet title to the property, alleging that the IRS sale was invalid because the way that notice of the sale was provided to it by the IRS (by certified mail) was not proper. Darue removed the case to federal court based on a federal question; i.e., interpretation of the notice statute in the federal tax law pursuant to which the sale was made. The district court declined Grable’s request for remand and granted summary judgment in Darue’s favor. The court of appeals affirmed. The Supreme Court granted certiorari.

Synopsis of Rule of Law.

Where federal issues are embedded in state law claims in a non-diversity case, the question for determining federal jurisdiction is whether a state law claim necessarily raises an actually disputed and substantial federal issue that a federal forum may entertain without upsetting any congressionally approved balance of responsibilities between federal and state courts.

Facts.

The IRS seized and sold property owned by Grable to satisfy Grable’s tax delinquency.  The property was sold to Darue. Grable received actual notice of the sale by certified mail. Five years later, Grable brought an action in state court to quiet title to the property. Grable asserted that the applicable federal notice statute required personal service, not service by certified mail. Darue removed the case to federal court, asserting the interpretation of the federal notice statute as the basis for jurisdiction. The district court refused remand, concluding that the interpretation of the federal notice statute posed a significant question of federal law, and that Grable’s lack of a federal right of action did not bar federal jurisdiction. On the merits, the district court granted summary judgment in Darue’s favor, holding that substantial compliance with the notice statute via service by certified mail was sufficient. The court of appeals affirmed. The Supreme Court granted certiorari.

Issue.

Did the absence of a federal cause of action for Grable’s proceeding to quiet title to the land after a federal tax sale preclude removal of the action to federal court to determine a disputed issue regarding the interpretation of a federal notice statute?

Held.

No. The national interest in providing a federal forum for federal tax litigation supported the exercise of federal jurisdiction in this case.

Concurrence.

Justice Thomas

Justice Thomas stated that in an appropriate future case, he would consider a rule limiting jurisdiction under 28 USC 1331 to cases in which federal law creates the cause of action pleaded on the face of the complaint.

Discussion.

In certain “arising under” cases, federal jurisdiction will lie over state law claims that implicate significant federal issues. In such cases, there must be a substantial federal issue, indicating a serious federal issue and need for any advantages that might be obtained in the federal forum. Also, the exercise of jurisdiction must be consistent with congressional judgment about the division of labor between state and federal courts.