Estate of Robert Cornell, Jr. v. Bayview Loan Servicing

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 18a0251p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

ESTATE OF ROBERT CORNELL, JR.; AUDREY D. ┐

BANTOM, as Personal Representative of the Estate of │

Robert L. Cornell, Jr.; ANTHONY CORNELL, │

Plaintiffs-Appellants, │

│

> No. 18-1245

v. │

│

│

BAYVIEW LOAN SERVICING, LLC; THIEN HOANG │

TRAN, │

Defendants-Appellees. │

┘

Appeal from the United States District Court

for the Eastern District of Michigan at Detroit.

No. 2:17-cv-12121—Gershwin A. Drain, District Judge.

Decided and Filed: November 13, 2018

Before: SUHRHEINRICH, MOORE, and BUSH, Circuit Judges.

_________________

COUNSEL

ON BRIEF: Vanessa G. Fluker, VANESSA G. FLUKER, ESQ., PLLC, Detroit, Michigan, for

Appellants. Deborah S. Lapin, Martin S. Frenkel, MADDIN, HAUSER, ROTH & HELLER,

P.C., Southfield, Michigan, for Appellee Bayview Loan Servicing. Joseph J. Bernardi,

BERNARDI, RONAYNE & GLUSAC, P.C., Plymouth, Michigan, for Appellee Thien Hoang

Tran.

SUHRHEINRICH, J., delivered the opinion of the court in which BUSH, J., joined.

MOORE, J. (pp. 12–28), delivered a separate dissenting opinion.

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 2

_________________

OPINION

_________________

SUHRHEINRICH, Circuit Judge. This appeal concerns a non-judicial foreclosure under

Michigan law. After reviewing the pleadings, we conclude that the district court lacked subject

matter jurisdiction to hear the case. Thus, we VACATE the judgment of the district court with

instructions to REMAND to Michigan state court.

I. FACTS

Robert Cornell, Jr. (“Robert”) died on July 29, 2015, owing an outstanding mortgage

amount of $113,358.12 on his home at 8615 Wisconsin Street in Detroit, Michigan. At the time

of Robert’s death, the monthly mortgage payments on the Wisconsin Street home were up to

date. Yet in the five months following his death, the mortgage went unpaid. Defendant Bayview

Loan Servicing, LLC (“Bayview”), the mortgage holder, sent a delinquency notice to the home

on December 16, 2015, showing an unpaid balance of $5,813.95. On November 3, 2016,

Bayview foreclosed on the mortgage and purchased the home by sheriff’s deed at public auction.

Bayview later sold the home to Defendant Thien Hoang Tran (“Tran”).

II. PROCEDURAL HISTORY

On May 25, 2017, Plaintiffs-Appellants Estate of Robert L. Cornell, Jr. (“Estate”), by and

through Personal Representative Audrey D. Bantom and Anthony Cornell (collectively,

“Plaintiffs”) filed a complaint in Michigan state court alleging four causes of action against

Bayview, including most notably a lack of standing to foreclose under the Garn-St. Germain

Depository Institutions Act of 1982, codified at 12 U.S.C. § 1701j-3 (“Garn-St. Germain Act” or

“Act”) and MICH. COMP. LAWS § 445.1626. Bayview timely removed to federal court on the

basis of federal question jurisdiction under 28 U.S.C. § 1331, citing the Garn-St. Germain Act.

Plaintiffs did not object to removal or seek remand. Instead, Plaintiffs filed an amended

complaint asserting an additional claim of quiet title against Tran (Count V). Defendants moved

for judgment on the pleadings in part on the argument that the Garn-St. Germain Act does not

authorize a private right of action. The district court agreed, ruling that the Garn-St. Germain

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 3

Act does not authorize a private right of action, the Garn-St. Germain Act did not apply to

Plaintiffs’ claims, or both. The district court granted Defendants’ motion on all counts and

entered a judgment in their favor. The district court denied Plaintiffs’ motion for

reconsideration, and Plaintiffs filed this timely appeal.

III. ANALYSIS

“Federal courts are courts of limited jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of

Am., 511 U.S. 375, 377 (1994). The district courts “have original jurisdiction of all civil actions

arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331.

A defendant may remove a case only if the claim could have been brought in federal court.

28 U.S.C. § 1441(a). Removal jurisdiction is determined from the “well-pleaded complaint.”

Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 808 (1986).

Although no one has specifically addressed subject matter jurisdiction to this point, we

have an independent obligation to consider it and may do so sua sponte. Answers in Genesis of

Kentucky, Inc. v. Creation Ministries Int’l, Ltd., 556 F.3d 459, 465 (6th Cir. 2009); see also

United States v. Cotton, 535 U.S. 625, 630 (2002) (Subject matter jurisdiction “can never be

forfeited or waived.”). We must correct any defect in subject matter jurisdiction regardless of

whether the district court considered it, Cotton, 535 U.S. at 630, even if “many months of work

on the part of the attorneys and the court may be wasted,” Henderson ex rel. Henderson v.

Shinseki, 562 U.S. 428, 435 (2011); see also Hampton v. R.J. Corman R.R. Switching Co.,

683 F.3d 708, 711–12 (6th Cir. 2012) (vacating district court’s grant of summary judgment after

determining that Federal Railroad Safety Act did not create a private cause of action).

The face of the complaint references a federal statute, the Garn-St. Germain Act,

12 U.S.C. § 1701j-3, which was the sole basis for federal question jurisdiction removal from

state court. Before Congress passed the Garn-St. Germain Act, many states had laws restricting

the enforcement of due-on-sale clauses.1 Dupuis v. Yorkville Fed. Sav. & Loan Ass’n, 589 F.

1A due-on-sale clause is a “contract provision which authorizes a lender, at its option, to declare due and

payable sums secured by the lender’s security instrument if all or any part of the property, or an interest therein,

securing the real property loan is sold or transferred without the lender's prior written consent.” 12 U.S.C. § 1701j-

3(a)(1).

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 4

Supp. 820, 822 (S.D.N.Y. 1984). The Garn-St. Germain Act prohibits states from banning due-

on-sale clauses, providing in principal part that “[n]otwithstanding any provision of the

constitution or laws (including judicial decisions) of any State to the contrary, a lender may,

subject to subsection (c) of this section, enter into or enforce a contract containing a due-on-sale

clause with respect to a real property loan.” 12 U.S.C. § 1701j-3(b)(1). That means a due-on-

sale clause is presumptively valid unless it qualifies as one of nine exceptions listed in § 1701j-

3(d):

With respect to a real property loan secured by a lien on residential real property

containing less than five dwelling units, including a lien on the stock allocated to

a dwelling unit in a cooperative housing corporation, or on a residential

manufactured home, a lender may not exercise its option pursuant to a due-on-

sale clause upon—

(1) the creation of a lien or other encumbrance subordinate to the

lender’s security instrument which does not relate to a transfer of rights of

occupancy in the property;

(2) the creation of a purchase money security interest for household

appliances;

(3) a transfer by devise, descent, or operation of law on the death of a

joint tenant or tenant by the entirety;

(4) the granting of a leasehold interest of three years or less not

containing an option to purchase;

(5) a transfer to a relative resulting from the death of a borrower;

(6) a transfer where the spouse or children of the borrower become an

owner of the property;

(7) a transfer resulting from a decree of a dissolution of marriage, legal

separation agreement, or from an incidental property settlement

agreement, by which the spouse of the borrower becomes an owner of the

property;

(8) a transfer into an inter vivos trust in which the borrower is and

remains a beneficiary and which does not relate to a transfer of rights of

occupancy in the property; or

(9) any other transfer or disposition described in regulations prescribed

by the Federal Home Loan Bank Board.

In other words, after the Garn-St. Germain Act, states can only regulate nine types of

due-on-sale clauses. In response to the Garn-St. Germain Act, Michigan created its own cause of

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 5

action for lendees harmed by one of those nine banned due-on-sale clauses. See MICH. COMP.

LAWS § 445.1626 (“A lender shall not enforce a due-on-sale clause in a residential real property

loan in any circumstances under which enforcement is prohibited under section 341(d) of the

Garn-St. Germain depository institutions act of 1982, 12 U.S.C. 1701j-3, as currently in force.”);

MICH. COMP. LAWS § 445.1628 (creating a private cause of action for a violation of § 445.1626).

To fulfill our obligation of ascertaining subject matter jurisdiction, we must determine

whether a private cause of action “arises under” the statute sufficient to confer federal subject

matter jurisdiction. The “arising under” gateway into federal court in fact has two distinct paths:

1) “litigants whose causes of action are created by federal law,” and 2) “state-law claims that

implicate significant federal issues.” Hampton, 683 F.3d at 711 (quoting Eastman v. Marine

Mech. Corp., 438 F.3d 544, 550 (6th Cir. 2006)). Because the Garn-St. Germain Act does not

meet this first test, we join those courts, including this one, that have concluded 12 U.S.C.

§ 1701j-3 does not establish subject matter jurisdiction based on a federal cause of action.

Turman v. Wells Fargo Bank, N.A., No. 16-6546, 2018 WL 1840199, at *2 (6th Cir. Mar. 21,

2018) (order) (dismissing because “section 1701j–3 . . . does not provide a right of action”);

Dupuis, 589 F. Supp. at 823 (concluding “§ 1701j–3(d)(1) does not create a cause of action for

damages”); Nelson v. Nationstar Mortg. LLC, No. 7:16-CV-00307-BR, 2017 WL 1167230, at *2

(E.D.N.C. Mar. 28, 2017) (dismissing because “the Garn-St. Germain Act does not create a

cause of action for damages”). As we explain below, subject matter jurisdiction is also not

established under the second test.

A. Causes of Action Created by Federal Law

“[T]he vast majority of cases brought under the general federal-question jurisdiction of

the federal courts are those in which federal law creates the cause of action.” Hampton, 683 F.3d

at 711 (quoting Merrell Dow, 478 U.S. at 808). To determine whether a private cause of action

exists, we must begin with the text of the statute. Touche Ross & Co. v. Redington, 442 U.S.

560, 568 (1979). The cause of action may be express, Ohlendorf v. United Food & Commercial

Workers Int’l Union, Local 876, 883 F.3d 636, 640 (6th Cir. 2018), or implied, California v.

Sierra Club, 451 U.S. 287, 292–93 (1981).

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 6

1. Express Cause of Action

The Garn-St. Germain Act does not create an express cause of action because it does not

state, “in so many words, that the law permits a claimant to bring a claim in federal court.”

Ohlendorf, 883 F.3d at 640 (quoting Traverse Bay Area Intermediate Sch. Dist. v. Mich. Dep’t of

Educ., 615 F.3d 622, 627 (6th Cir. 2010)). Section 1701j-3(b)(1) tells states that they cannot

pass laws that restrict the use of due-on-sale clauses, subject to nine exceptions. And while

§ 1701j-3(d) lists the nine things a lender may not do, it does not offer an aggrieved lendee

recourse in federal court.

2. Implied Cause of Action

Nor does the Garn-St. Germain Act create an implied cause of action. “[T]he fact that a

federal statute has been violated and some person harmed does not automatically give rise to a

private cause of action in favor of that person.” Touche Ross, 442 U.S. at 568 (quoting Cannon

v. Univ. of Chicago, 441 U.S. 677, 688 (1979)). Instead, we must discern congressional intent

before implying a remedy. Thompson v. Thompson, 484 U.S. 174, 179 (1988). Absent

congressional intent, we may not imply a remedy, no matter how desirable it may be. Bowling

Green v. Martin Land Dev. Co., 561 F.3d 556, 559 (6th Cir. 2009).

When Congress wishes to create new rights—even implied rights of action—“it must do

so in clear and unambiguous terms.” Gonzaga Univ. v. Doe, 536 U.S. 273, 290 (2002).

Congress implies a right of action when its rights-creating language is “clear and unambiguous.”

Ohlendorf, 883 F.3d at 641 (quoting McCready v. White, 417 F.3d 700, 703 (7th Cir. 2005)).

Thus, the statute must specify the right and identify the beneficiary.2 Id.; see also Alexander v.

Sandoval, 532 U.S. 275, 289 (2001) (“Statutes that ban conduct but do not identify specific

beneficiaries do not suffice.”). This Act does not do both. Section 1701j-3(a)(1) bans states

from passing laws restricting due-on-sale clauses, and § 1701j-3(d) bans lenders from exercising

2For example, a statute that merely prohibits the funding of “any educational agency or institution which

has a policy or practice of permitting the release of education records” does not create any rights, even though

students may benefit from the statute and have an interest in enforcing it. Ohlendorf, 883 F.3d at 641 (quoting

Gonzaga, 536 U.S. at 287–88). Similarly, “a statute that authorizes federal agencies ‘to effectuate the provisions of

[a ban on intentional race discrimination] . . . by issuing rules, regulations, or orders of general applicability’” does

not create any rights. Id. (quoting Alexander v. Sandoval, 532 U.S. 275, 288–89 (2001)).

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 7

due-on-sale clauses in certain scenarios. Neither section identifies specific beneficiaries.

Although mortgagors may benefit, because § 1701j-3 “focus[es] on the person[s] regulated rather

than the individuals protected,” Sandoval, 532 U.S. at 289, and does not unambiguously specify

a beneficiary, no right of action can be implied.

This conclusion is consistent with the legislative history, assuming it is even relevant, 3

and the traditional areas of state regulation. The legislative history is silent regarding a remedy;

at most, it references the general goal of the statute to preempt state laws restricting due-on-sale

clauses. “The Senate Bill provides a federal preemption of state laws and judicial decisions

which restrict the enforcement of due-on-sale clauses in real property loans . . .” S. REP. NO. 97-

641, at 89 (1982) (Conf. Rep.). Nothing in the legislative history of the Garn-St. Germain Act

suggests that Congress intended to displace all state mortgage laws. Instead, all it does is draw a

line for state regulation of due-on-sale clauses—with certain exceptions—and leaves states in

control of the quintessentially state areas of contract and mortgage law. See § 1701j-3(b)(2)

(“the exercise by the lender of its option pursuant to such a clause shall be exclusively governed

by the terms of the loan contract, and all rights and remedies of the lender and the borrower

shall be fixed and governed by the contract” (emphasis added)); see also 12 C.F.R. § 591.4

(same). Thus, in states that allow judicial foreclosure actions, a mortgagor can raise as a defense

an exception to the Garn-St. Germain Act in state court.4 Dupuis, 589 F. Supp. at 822. And in

states that allow non-judicial foreclosures, like Michigan, the state can create its own cause of

action that allows a mortgagor to preemptively to raise the defense. See, e.g., MICH. COMP.

LAWS §§ 445.1626, 445.1628. But there is nothing implicit in the Act granting immediate access

to federal court.

3See Gonzaga, 536 U.S. at 286 (“[W]here the text and structure of a statute provide no indication that

Congress intends to create new individual rights, there is no basis for a private suit, whether under § 1983 or under

an implied right of action.” (emphasis added)); Sandoval, 532 U.S. at 288 (“We therefore begin (and find that we

can end) our search for Congress’s intent with the text and structure of Title VI.” (emphasis added)).

4Butthis, as we know, is not a free ticket for removal into federal court because the cause of action must be

determined from the face of the complaint. Hampton v. R.J. Corman R.R. Switching Co., 683 F.3d 708, 711 (6th

Cir. 2012).

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 8

B. State Law Implicates Substantial Question of Federal Law

State laws that implicate a “substantial question of federal law” also open the door into

federal court. See Grable & Sons Metal Prod., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 312

(2005). We ask whether (1) “a state-law claim necessarily raise[s] a stated federal issue,”

(2) that is “actually disputed and substantial,” (3) “which a federal forum may entertain without

disturbing any congressionally approved balance of federal and state judicial responsibilities.”

Id. at 314. This pathway is a “slim category,” Empire Healthchoice Assur., Inc. v. McVeigh,

547 U.S. 677, 701 (2006), that is to be read narrowly, Mikulski v. Centerior Energy Corp.,

501 F.3d 555, 568 (6th Cir. 2007) (en banc). In this case, MICH. COMP. LAWS §§ 445.1626 and

445.1628 reference the Garn-St. Germain Act, but the question they raise is not sufficiently

substantial to justify federal question jurisdiction.5

Grable provides direction here. In that case, the Supreme Court held that a state quiet

title action implicated a substantial question of federal law because it required the interpretation

of the federal tax code. Grable, 545 U.S. at 314–15. The entire dispute would be resolved by

interpretation of the federal provision. Id. at 315. The Court reasoned that the question was

substantial because the IRS “has a strong interest in the prompt and certain collection of

delinquent taxes” and a direct interest in vindication via a federal forum. Id. (citation omitted).

The Court also explained that federal judges have more experience in federal tax matters. Id.

Finally, the Court noted that allowing disputes over federal tax title provisions would only have a

“microscopic impact on the federal-state division of labor.” Id.

Applying three-prong test articulated in Grable makes it clear that no federal question

exists here. While the first prong favors jurisdiction because §§ 445.1626 and 445.1628

reference the Garn-St. Germain Act and nominally raise a federal issue,6 the second and third

5Notably, the dissent does not argue that the Garn-St. Germain Act contains an express or implied cause of

action, and therefore implicitly acknowledges that Congress did not intend to create one.

6The dissent suggests that “the case for subject matter jurisdiction here is even stronger” than in City of

Chicago v. Int'l Coll. of Surgeons, 522 U.S. 156 (1997) (ICS) because the claim would not exist without the federal

statute. Dissenting Op. at 19. In ICS, the Chicago Landmarks Commission made a preliminary determination that

seven buildings qualified for designation as a landmark district. ICS, 522 U.S. at 159–60. The plaintiffs challenged

the administrative decision by filing two complaints in state court via a state cause of action—the Illinois

Administrative Review Law—alleging Due Process, Equal Protection, and Takings Clause violations under the Fifth

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 9

prongs disfavor jurisdiction. This question is not substantial and creating a gateway into federal

court will specifically disrupt the deference Congress gave to state courts to regulate in their

traditional areas of expertise.

For the second prong of the Grable analysis, there are four “substantiality” factors to

consider: (1) “whether the case includes a federal agency, and particularly, whether the agency’s

compliance with the federal statute is in dispute”; (2) “whether the federal question is important

(i.e. not trivial)”; (3) “whether a decision on the federal question will resolve the case (i.e. the

federal question is not merely incidental to the outcome)”; and (4) “whether a decision on the

federal question will control many other cases (i.e. the issue is not anomalous or isolated).”

Mikulski, 501 F.3d at 570. All four cut against finding substantiality. The first factor “is both

objective and apparent, and in this case weighs against characterizing the federal interest as

substantial because there is no federal agency in this dispute.”7 Id. (citing Empire, 547 U.S. at

700). The second factor—which focuses on “the importance of the issue to the federal system as

a whole,” Gunn v. Minton, 568 U.S. 251, 260 (2013)—also weighs against substantiality. The

Garn-St. Germain Act sets a limit on state regulation in one very particular aspect of state

property law. See Columbia Gas Transmission, LLC v. Singh, 707 F.3d 583, 590 (6th Cir. 2013)

(holding that the second factor “point[ed] away from a substantial federal interest” when the

claim involved “a typical state-law property issue”). It is hard to fathom how determining the

contours of the nine circumstances in which states may prohibit a lender from enforcing a due-

on-sale clause is especially important to the federal government. As for the third factor, even if

and Fourteenth Amendments. Id. at 160. The defendants removed to federal court, and the Supreme Court

eventually considered whether federal courts have original jurisdiction to review claims that local administrative

actions violate federal law. Id. at 163. The Court summarily concluded that the federal claims at issue

“unquestionably” raised substantial issues of federal law. Id. at 164. That is not the case here, where no

constitutional issues are at play. See Grable, 545 U.S. at 320 n.7 (“[C]onstitutional questions may be the more

likely ones to reach the level of substantiality that can justify federal jurisdiction.” (citation omitted)). In addition,

ICS preceded Grable, and the Grable Court did not rely on ICS to craft its three-prong test that we apply today. See

id. at 313.

7The dissent mentions that the Federal Home Loan Mortgage Corporation and the Federal National

Mortgage Corporation have an interest in the stability of the housing market and the uniform interpretation of the

Garn-St. Germain Act. Dissenting Op. at 22. While that may be true, the nine exceptions at issue leave so little

room for dispute that it should make no difference whether a state or federal court interprets them. And in any

event, those agencies are “not affected by the resolution of the dispute between these two parties.” Mikulski,

501 F.3d at 570.

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 10

we were to consider the parties’ claims, they dispute whether a due-on-sale clause was even

used, much less whether it was invoked in violation of the Garn-St. Germain Act’s nine

exceptions. We would not have to interpret federal law to resolve the dispute, and, even if we

did, other issues would remain. Finally, the fourth factor cuts against substantiality. As the

dissent notes, “only two states—Michigan and New Mexico—supply a cause of action for a

violation of 12 U.S.C. § 1701j-3,” Dissenting Op. at 26, so it is doubtful that a decision on the

federal question will control many other cases. Considering these factors, the federal question

embedded in Plaintiffs’ state law claim is not substantial.

As for the third Grable prong, entertaining the state law claim would certainly disturb the

balance of state and federal responsibilities. Grable, 545 U.S. at 314. We start by noting, again,

that Congress chose not to provide a remedy. Mikulski, 501 F.3d at 573 (explaining while “the

absence of a cause-of-action provision is not determinative, [it] certainly provides a starting point

for this part of the analysis”). And with good reason—state contract and property law are

uniquely within the province of the states. Shifting resolution of such traditional state law claims

from state courts to federal courts when the Garn-St. Germain Act does nothing more than

articulate a straightforward prohibition to the states, with nine plain exceptions that states are

perfectly capable of interpreting, is an unnecessary usurpation of state law domain.8 We see no

reason to manage state-law mortgage cases that would otherwise be barred from federal court

because of such a simple determination of law. This case is a far cry from Grable, where the

government was concerned about its ability to collect delinquent taxes, 545 U.S. at 315, or Smith

v. Kansas City Title & Trust Co., 255 U.S. 180 (1921) where the government’s constitutional

ability to issue bonds was called into question. And while we will not speculate on the amount

of cases this would bring into federal court, “even if the actual number of cases proved not to be

overwhelming, or even uncomfortably burdensome, it appears unlikely that Congress—through

its silence—intended to open the federal court door quite so wide.” Mikulski, 501 F.3d at 574.

8For example, state courts are perfectly capable of determining whether a lender exercised a due-on-sale

clause upon “a transfer to a relative resulting from the death of a borrower” or “a transfer where the spouse or

children of the borrower become an owner of the property.” 12 U.S.C. § 1701j-3(d)(5)–(6).

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 11

The dissent argues “That a federal court would throw the Act’s interpretation into the

hands of the states, and only the states, seems to undermine Congress’s expressed intent in the

text of the Act.” Dissenting Op. at 27. To the contrary, the only expressed intent in the statute is

that states cannot ban due-on-sale clauses unless they qualify as one of the nine types listed in

§ 1701j-3(d). Congress may provide a remedy and chose not to do so with this statute.

Congress, as it intended, left that task in the capable hands of the states because it did not want to

disrupt the federal-state balance in an area where states have a much stronger interest and

experience.

“As every schoolchild learns,” the states “retain substantial sovereign authority” of their

own property laws. Gregory v. Ashcroft, 501 U.S. 452, 457 (1991) (citing THE FEDERALIST NO.

45, at 292–93 (James Madison) (C. Rossiter ed., 1961) (“The powers reserved to the several

States will extend to all the objects which, in the ordinary course of affairs, concern the lives,

liberties, and properties of the people . . . .”)). As courts of limited jurisdiction, we can only

entertain questions of state law when Congress has authorized us to do so (i.e. diversity

jurisdiction) or when a state law raises a substantial question of federal law. This is not that case.

IV. CONCLUSION

In sum, because the federal statute does not create a cause of action, and the federal issue

nested inside Plaintiffs’ state law cause of action is not substantial, the district court lacked

subject matter jurisdiction. Therefore, we VACATE the district court’s judgment with

instructions to REMAND the case to state court.

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 12

_________________

DISSENT

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KAREN NELSON MOORE, Circuit Judge, dissenting. This case began as a simple

dispute about whether a mortgage lender enforced a due-on-sale clause in a circumstance where

federal law prohibited enforcement. But the case has now veered into the significant question of

the meaning of the words “arising under” in 28 U.S.C. § 1331. The majority concludes that there

is no substantial federal question in this case, and consequently, that the federal courts lack

subject matter jurisdiction. In fact, the claim at issue turns exclusively on federal law and is well

within federal question jurisdiction under § 1331. For the reasons that follow, I respectfully

dissent.

I. BACKGROUND

Audrey Bantom is the personal representative for the Estate of Robert Cornell, Jr., and

Anthony Cornell (collectively “Plaintiffs”) resided in the Detroit, Michigan home that is at issue

in this case. R. 4 (Am. Compl. at 1) (Page ID #23). Bayview Loan Servicing and Thien Hoang

Tran are the Defendants. Before his death, Robert Cornell, Jr. entered into a mortgage contract

with Bayview, which is a mortgage lending company. Id. at 2 (Page ID #24). Most relevant to

the issue of our subject matter jurisdiction, the Plaintiffs allege that Bayview illegally foreclosed

on the home upon the death of their father, Robert, in violation of the federal Garn-St. Germain

Act, 12 U.S.C. § 1701j-3(d), and Michigan law, Mich. Comp. Laws § 445.1626. Id. at 4–5 (Page

ID #26–27). Michigan law provides a cause of action for this claim against Bayview. Mich.

Comp. Laws § 445.1628.

Perhaps not the most well-known statute, the Garn-St. Germain Act (“the Act”) is

nonetheless a fascinating piece of legislation in that Congress chose to interpose in areas of

law—property and contract—traditionally regulated by the states. Under the Act, a due-on-sale

clause is presumptively valid, 12 U.S.C. § 1701j-3(b)(1)–(2), unless one of nine exceptions

apply, id. at § 1701j-3(d). A due-on-sale clause is defined as, “a contract provision which

authorizes a lender, at its option, to declare due and payable sums secured by the lender’s

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 13

security instrument if all or any part of the property, or an interest therein, securing the real

property loan is sold or transferred without the lender’s prior written consent.” Id. at § 1701j-

3(a)(1). The Act prohibits enforcement of such clauses upon, among other circumstances, “a

transfer to a relative resulting from the death of a borrower” or “a transfer where the spouse or

children of the borrower become an owner of the property.” Id. at § 1701j-3(d)(5)–(6).

Michigan law then provides a cause of action for money damages, injunctions, and/or

declaratory judgments against lenders who violate these provisions of the Garn-St. Germain Act.

Mich. Comp. Laws §§ 445.1626, 445.1628. Michigan, or any state, cannot add to or subtract

from the federal law because the Garn-St. Germain Act preempts any state laws, including

judicial decisions, contrary to its provisions. 12 U.S.C. § 1701j-3(b)(1).

The context in which Congress enacted this law sheds light on the Act’s importance.

When Congress passed the statute, state legislatures and state courts restricted the enforcement of

due-on-sale clauses. Id.; S. Rep. No. 97–536 at 20–21 (1982) (“Senate Rep.”). Congress sought

to help new home buyers and lenders, as well as to clear-up confusion on the enforceability of

such clauses. Senate Rep. at 20–21. State due-on-sale clause restrictions “adversely affect[ed]

secondary mortgage markets, which rely on uniform, homogenous mortgage documents to

efficiently operate,” and these “restrictions . . . caused the Federal Home Loan Mortgage

Corporation and the Federal National Mortgage Corporation to alter their investment practices in

several states.” Id. at 21. Thus, these state restrictions were adversely affecting entities

sponsored by the federal government, and consequently, Congress intervened to protect the

federal interests at play. At the same time, Congress balanced helping new homebuyers and

lenders, 12 U.S.C. § 1701j-3(b)(1)–(2), with safeguards for existing homeowners, id. at § 1701j-

3(d). Clearly, in Congress’s judgment uniformity was required because the states were not

adequately doing the job of balancing these various interests. See id. at § 1701j-3(b)(1); Senate

Rep. at 20–21.1

1The Office of the Comptroller of the Currency, an independent bureau within the Department of Treasury,

shared Congress’s concerns. As it explained in an interpretive letter after the Act was passed:

Pursuant to the Comptroller’s power to regulate real estate lending activities of national

banks, on September 22, 1981, this Office issued a proposed rule . . . to ensure that the

congressional intent of encouraging national bank participation in the real estate finance market

would not be thwarted by state laws. The proposed regulation would have validated the inclusion

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 14

II. CLARIFYING THE FOCUS OF SUBJECT MATTER JURISDICTION

A. Federal Question or “Arising Under” Jurisdiction

A defendant can remove a case from state court if the plaintiff could have originally

brought the case in federal court. 28 U.S.C. § 1441(a). The federal district courts have “original

jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United

States.” 28 U.S.C. § 1331. The Plaintiffs originally filed their case in state court. Then the

Defendants removed the case to federal court on the basis that “Plaintiffs’ Complaint is founded

upon claims or rights arising under the laws of the United States.” R. 1 (Notice of Removal at 2–

3) (Page ID #2–3).2 Whether removal was proper, therefore, solely depends on the existence of a

federal question such that the case “arises under” federal law.

First, we must carefully dissect the anatomy of this case to determine what is actually

relevant for our jurisdictional inquiry. The Plaintiffs bring a claim under 12 U.S.C. § 1701j-3,

and Mich. Comp. Laws § 445.1626. Michigan law prohibits a lender from enforcing a “due-on-

sale clause in a residential real property loan in any circumstances” that are prohibited by the

Garn-St. Germain Act. Mich. Comp. Laws § 445.1626; 12 U.S.C. § 1701j-3(d). The state law,

therefore, turns exclusively on the Garn-St. Germain Act, which creates the federal right that the

Plaintiffs argue Bayview violated. As the Plaintiffs note, Mich. Comp. Laws § 445.1628, in turn,

supplies a cause of action. Appellant’s Br. at 8–9; Mich. Comp. Laws § 445.1628(3)

(authorizing suits for declaratory judgment and/or an injunction); id. at § 445.1628(4)

(authorizing actions for money damages). Accordingly, the state-created cause of action is

of due-on-sale clauses in real estate loans held by national banks in their portfolios and would

have made such clauses fully enforceable. In addition, the regulation would have revalidated due-

on-sale clauses in loans made prior to the rendering of a state court decision or the passage of a

state statute impairing the enforceability of such clauses.

Some time after publication of the proposed rule, Congress began consideration of

federal preemption of state laws limiting the enforceability of due-on-sale clauses. This

deliberation ultimately resulted in section 341 of the Garn-St Germain Depository Institutions Act

of 1982 (“Act”) (codified at 12 U.S.C. § 1701j-3) that established a federal preemption of state

restrictions on the enforcement of due-on-sale clauses.

Office of the Comptroller of the Currency, OCC Interpretive Letter (Jan. 13, 1986), 1986 WL 144000 at *1.

2The Plaintiffs allege that the amount in controversy exceeds only $25,000, R. 4 (Am. Compl. at 2) (Page

ID #24), and therefore, the Plaintiffs fail to overcome the $75,000 threshold for diversity jurisdiction under

28 U.S.C. § 1332(a).

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 15

simply a remedial vehicle for a plaintiff to vindicate a right, the contours of which are defined

entirely by federal law.

Turning to 28 U.S.C. § 1331, for a federal court properly to exercise federal question

jurisdiction under that statute, a federal question must appear on the face of a plaintiff’s well-

pleaded complaint. Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 152 (1908). Here,

the Plaintiffs satisfied the well-pleaded complaint rule. Count I of the complaint recites the

§ 1701j-3(d) exemptions on which the Plaintiffs rely. R. 4 (Am. Compl. at 4–5) (Page ID #26–

27). Putting aside (for now) issues of whether this federal question is sufficiently “substantial,”

it is worth emphasizing that only this claim matters for the inquiry of whether we have federal

question jurisdiction. See City of Chicago v. Int’l Coll. of Surgeons, 522 U.S. 156, 166–68

(1997) (ICS). Although the Plaintiffs assert other claims that rest entirely on state law, a federal

court has discretion to hear those claims or not. 28 U.S.C. § 1367(c). In other words, this case

has two distinct jurisdictional hooks: Count I (the Garn-St.Germain Act and Mich. Comp. Laws

§§ 445.1626, 445.1628) is on the federal question hook; Counts II–V are on the discretionary

supplemental jurisdiction hook. To analyze properly whether we have subject matter

jurisdiction, we must imagine this case as if the Plaintiffs pleaded only the purported federal

question claim. See ICS, 522 U.S. at 166 (“The District Court’s original jurisdiction derives

from [a plaintiff’s] federal claims, not its state law claims.”). If a federal court determines that

jurisdiction lies over the claim with the federal question, it must hear the claim; and then,

separately, a court has discretion over whether to welcome the other claims that rest on state law

into federal court under § 1367. The Supreme Court has rejected as “mistaken” and “erroneous”

the “view that the district courts lack jurisdiction even over the federal claims” because “other,

nonfederal claims somehow take [a] complaint[] in [its] entirety (including the federal claims)

out of the federal courts’ jurisdiction.” Id. at 168. Thus, as it relates to subject matter

jurisdiction, the entire focus is on the Plaintiffs’ first claim, which incorporates federal law.

The majority misunderstands the importance of this separation between the purported

federal question claim and the other purely state-law claims. The majority reasons that, even if

this case required the interpretation of federal law, “other issues would remain”; and the majority

also believes that hearing the federal question claim here would require federal courts “to

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 16

manage state-law mortgage cases.” Majority Op. at 10. The majority’s reasoning misses the

mark. As explained, federal courts can hear the federal question claim and then decline to hear

the other state-law claims. Section 1367 gives federal courts the discretion to do so.

B. The Federal Cause of Action Analysis is Separate and Distinct from Subject Matter

Jurisdiction

The question of whether a federal court has subject matter jurisdiction is separate from

whether there is a federal cause of action. First, if the two analyses were one and the same, then

the longstanding rule that the federal courts can exercise federal question jurisdiction over state-

law causes of action would be wrong—and it is not. See Grable & Sons Metal Prods., Inc. v.

Darue Eng’g & Mfg., 545 U.S. 308, 312–13 (2005); ICS, 522 U.S. at 164; Smith v. Kansas City

Title & Trust Co., 255 U.S. 180, 199 (1921); Hopkins v. Walker, 244 U.S. 486, 490–91 (1917);

cf. De Sylva v. Ballentine, 351 U.S. 570, 571–82 (1956) (deciding on the merits a state-law claim

that involved the federal Copyright Act, without discussing jurisdiction), cited in Richard H.

Fallon, Jr., et al., Hart & Wechsler’s The Federal Courts and the Federal System 836 n.6 (7th ed.

2015). Second, Shoshone Mining Co. v. Rutter would be wrongly decided for the opposite

reason. There, the Supreme Court held that the federal courts lacked jurisdiction because the

claim turned on “a determination of the meaning and effect of certain local rules and customs”

related to mining rights, even though the plaintiff pleaded a federal cause of action. Shoshone,

177 U.S. 505, 509–10 (1900) (“A statute authorizing an action to establish a right is very

different from one which creates a right to be established. An action brought under the one may

involve no controversy as to the scope and effect of the statute, while in the other case it

necessarily involves such a controversy, for the thing to be decided is the extent of the right

given by the statute.”); see also Shulthis v. McDougal, 225 U.S. 561, 569–70 (1912) (a plaintiff’s

claim to title derived from federal law, but the federal statutes were not subject to “any

controversy respecting their validity, construction or effect”). The presence or absence of a

federal cause of action is not dispositive, in either direction, for the jurisdictional question.

For a classic example of this separation of remedies and jurisdiction, consider the

declaratory judgment statute. 28 U.S.C. § 2201. Congress added declaratory relief to the menu

of remedies available to plaintiffs in federal court, but Congress did not expand federal

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 17

jurisdiction in doing so. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950). On

the other hand, even if Congress explicitly forecloses a federal remedy, it does not follow that

Congress intends to foreclose federal jurisdiction. Erwin Chemerinsky, Federal Jurisdiction 307

(6th ed. 2012). Of course, if Congress wished to limit the federal courts’ jurisdiction, it could

enact such limits and vest jurisdiction in the state courts. See, e.g., 15 U.S.C. § 2310(d) (setting

certain thresholds for a claim under the Magnuson-Moss Warranty Act, which if not met, deprive

a federal court of jurisdiction to hear such a claim). Such a limit does not exist in the Garn-St.

Germain Act.

Importantly, the remedial question is easily answered in this case: Michigan law

explicitly provides a cause of action. Mich. Comp. Laws § 445.1628. We need to answer only

whether the federal courts have jurisdiction over a state-created cause of action under § 1331.

With that, we can explore the statute.

III. SUBJECT MATTER JURISDICTION IN THIS CASE

Under Article III of the United States Constitution, a federal question exists whenever

federal law is a potential ingredient in the litigation. Osborn v. Bank of the U.S., 22 U.S. (9

Wheat.) 738, 823 (1824). Section 1331, however, requires more than a mere federal ingredient.

And in this case, federal law is the whole recipe.

For over a century, the Supreme Court has recognized that federal question jurisdiction

will lie over state-law claims that have a federal question nested inside the state claim. See, e.g.,

Grable, 545 U.S. at 312–13; Smith, 255 U.S. at 199; Hopkins, 244 U.S. at 490–91. The test is

whether a state-law claim: (1) raises a federal issue, (2) that is “actually disputed and

substantial,” and where (3) hearing the state-law claim in federal court would not disturb the

federal-state balance of judicial responsibilities. Grable, 545 U.S. at 314. In sum, although a

plaintiff cannot use a “federal issue” as an automatic “password” to open federal courts, a federal

statute plus a federal cause of action is also not the only combination that unlocks jurisdiction

under § 1331. Id. A federal issue nested inside a state-law cause of action can also suffice.

The majority engages with this test and Supreme Court precedent in a cursory and

conclusory fashion, and it fails to understand the consequences of the Garn-St. Germain Act.

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 18

The majority states that “the Garn-St. Germain Act does nothing more than articulate a

straightforward prohibition to the states.” Majority Op. at 10. Not so. The Act, in addition to

preempting state laws contrary to its provisions, § 1701j-3(b)(1), prescribes the situations in

which due-on-sale clauses must be enforced, § 1701j-3(b)(2), details specific situations in which

such clauses cannot be enforced, § 1701j-3(d), and authorizes the Federal Home Loan Bank

Board to issue rules and regulations3 pursuant to the Act, § 1701j-3(e). Furthermore, the

majority suggests that Congress’s choice to preempt state laws in this area is insignificant. To

the contrary, Congress thought a sufficiently significant problem existed, as well as a sufficient

threat to federal interests, which prompted intervention into the traditionally state-regulated areas

of property and contract. Senate Rep. at 20–21. When Congress passed the Garn-St. Germain

Act and preempted any state law contrary to the Act’s provisions, Congress also created federal

rights. Most relevant here, individuals have “a federal right . . . to be free from a lender’s

purported enforcement of a due-on-sale clause” in the circumstances outlined in § 1701j-3(d).

See Dupuis v. Yorkville Fed. Sav. & Loan Ass’n, 589 F. Supp. 820, 822 (S.D.N.Y. 1984).4

A more thorough examination of whether the federal question in this case is “substantial”

is needed. But as a preliminary matter, no one contests that the Plaintiffs raise a federal issue

and that it is actually disputed. As it relates to Count I of the complaint, the applicability of the

Act “is actually in dispute,” and “it appears to be the only legal or factual issue contested” for

that claim. See Grable, 545 U.S. at 315. Therefore, I will focus on whether this federal question

is sufficiently “substantial” (it is), and whether welcoming this claim into federal court would

disturb the federal-state balance of judicial responsibilities (it would not).

3See, e.g., 12 C.F.R. § 591.1–591.6 (regulations on the preemption of state due-on-sale laws); 12 C.F.R.

§ 591.5(a) (“due-on-sale practices of Federal savings associations and other lenders shall be governed exclusively by

the Office’s regulations, in preemption of and without regard to any limitations imposed by state law on either their

inclusion or exercise including, without limitation, state law prohibitions against restraints on alienation,

prohibitions against penalties and forfeitures, equitable restrictions and state law dealing with equitable transfers.”).

4Notably, even the district court in Dupuis recognized the existence of a federal right, despite the district

court’s conclusion that the Act itself did not create a federal cause of action. 589 F. Supp. at 822–23. I do not

express any view on whether the Act contains a cause of action here. But, for the sake of argument, even if the Act

did not contain a cause of action, that is simply irrelevant because Michigan law provides one.

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 19

A. The Substantial Federal Question

1. Whether Federal Law is Directly and Exclusively Relevant

To start, this case should be situated alongside relatively recent Supreme Court precedent

that found federal question jurisdiction to lie over a state-law claim. In a sense, the case for

subject matter jurisdiction here is even stronger than in Grable and ICS. Grable involved a quiet

title action, the outcome of which turned on whether proper notice was given under a federal

statute. 545 U.S. at 311. ICS involved federal constitutional claims brought via a cause of action

created by state law. 522 U.S. at 164; see also 735 Ill. Comp. Stat. 5/3-103. In both cases, as

here, the validity of the claims depended exclusively on federal law. But not all quiet title

actions are based upon a federal question, and the same is true for claims under the Illinois

statute at issue in ICS. This Michigan cause of action involved here, however, would literally

not exist without federal law. The relevant substance of the Michigan law reads, “[a] lender shall

not enforce a due-on-sale clause in a residential real property loan in any circumstances under

which enforcement is prohibited under section 341(d) of the Garn-St. Germain depository

institutions act of 1982 . . . as currently in force.” Mich. Comp. Laws § 445.1626. For every

single action brought under this state-law claim, a federal law will be the singular consideration.

Supreme Court precedent does not draw bright lines when it comes to determining

whether a federal question is “substantial” or “essential” to a plaintiff’s claim. As Justice

Cardozo explained, whether a case “arises under” federal law calls for a “common-sense

accommodation of judgment to [the] kaleidoscopic situations” that present a federal question.

See Gully v. First Nat’l Bank, 299 U.S. 109, 117 (1936); see also Grable, 545 U.S. at 313. Of

course, a federal question could always be “lurking in the background” such that “countless

claims of right can be discovered to have their source or their operative limits in the provisions

of a federal statute or in the Constitution itself.” Gully, 299 U.S. at 117–18. Thus, “[t]o set

bounds to the pursuit [for a substantial federal question], the courts have formulated the

distinction between controversies that are basic and those that are collateral, between disputes

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 20

that are necessary and those that are merely possible.” Id. at 118.5 One could imagine a

spectrum of cases: on one end are cases where the federal issue is “so far removed from plain

necessity,” id. at 117, that it is not substantial or essential; on the other end are cases where the

federal issue is directly and actually in dispute and a claim turns exclusively on the federal issue,

see, e.g., Grable, 545 U.S. 308; ICS, 522 U.S. 156; Smith, 255 U.S. 180, such that the federal

issue is substantial and essential. Under this view, this prong of the Grable test turns on how

relevant state law is to the underlying substance of a plaintiff’s claim as compared to federal law,

and whether the federal question is at the forefront of the case rather than simply “lurking in the

background.”

The Garn-St. Germain Act further bolsters the conclusion that substantive state law is

irrelevant because the Act preempts state laws contrary to its provisions. 12 U.S.C. § 1701j-

3(b)(1). For example, states cannot create new rights by expanding upon the exemptions listed

in the Act. Id. at § 1701j-3(d). That is not to say preemption alone confers jurisdiction, see

Empire HealthChoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 697 (2006), but it leaves no

doubt that only federal law is relevant, cf. Hart & Wechsler at 835 (noting that the Supreme

Court in Empire “described with some skepticism the argument that federal law would govern”

the issue of an attorney’s share of a state tort settlement); Empire, 547 U.S. at 701 (stating that it

was “hardly apparent why a proper ‘federal-state balance’ would place such a nonstatutory issue

under the complete governance of federal law”). Indeed, one cannot seriously dispute that

federal law is at the forefront of the Plaintiffs’ claim here. This case does not involve a

settlement or attorney’s fees issue that is ancillary to the actual merits of the claim, Empire,

547 U.S. 677, or a “backward-looking” legal malpractice claim, the outcome of which will not

change the previously answered federal question, Gunn v. Minton, 568 U.S. 251, 261 (2013), or a

situation in which the violation of federal law does not entirely determine the success of a state

tort claim, see, e.g., Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804 (1986) (violation of a

5Cf. McGoon v. N. Pac. Ry. Co., 204 F. 998, 1001 (D. N.D. 1913) (explaining that cases do not “arise

under” federal law where “the right asserted in the complaint was not a right created by federal law,” or “such law

was only indirectly and remotely” relevant in the litigation), cited in Puerto Rico v. Russell & Co., 288 U.S. 476,

483–84 (1933) (“[Federal jurisdiction] may not be invoked . . . merely because the plaintiff’s right to sue is derived

from federal law . . . . The federal nature of the right to be established is decisive—not the source of the authority to

establish it.”).

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 21

federal statute created a rebuttable presumption of negligence); Mikulski v. Centerior Energy

Corp., 501 F.3d 555, 571 (6th Cir. 2007) (en banc) (violation of a federal statute satisfied some,

but not all, of the elements of the state tort claim). Instead, the Plaintiffs in this case allege that

Bayview violated a federal law that “is directly drawn into question,” Smith, 255 U.S. at 201, and

their claim “turn[s] exclusively on federal law,” ICS, 522 U.S. at 164. In short, the entirety of

the Plaintiffs’ claim rises or falls on the answer to the federal question.

The majority misreads—and arguably goes against—Supreme Court precedent in its

attempt to distinguish the present case. The majority states that, in this case, “no constitutional

issues are at play,” as in ICS, and that the Supreme Court “did not rely on ICS to craft” the

Grable test. Majority Op. at 9 n.6. The first part of the majority’s statement is irrelevant and the

second part is false. Grable expressly rejects that, as to the substantiality question, we should

differentiate constitutional claims from statutory claims. 545 U.S. at 319–20 n.7 (“There is . . .

no reason in [§ 1331’s] text or otherwise to draw such a rough line.”). What’s more, Grable did

not turn a blind eye to ICS. To the contrary, the Court saw ICS as consistent with the

substantiality test articulated in Grable. See id. at 313 (citing ICS as an example of a case that

implicated a substantial federal issue). Simply put, the majority’s reasoning on these points

cannot be squared with ICS or Grable.

2. The Importance of the Federal Question to the Federal System as a Whole

Moreover, “[t]he substantiality inquiry under Grable looks . . . to the importance of the

issue to the federal system as a whole.” Gunn, 568 U.S. at 260. When we view the substantiality

issue through this lens, we focus our sight on a broader picture and not on the parties in this

particular dispute. Id. (stating that in Grable, the Court “primarily focused not on the interests of

the litigants themselves, but rather on the broader significance of the [federal] question”). The

majority here, however, somehow sees only state interests—an odd observation for a statute in

which Congress displaced a variety of state laws.

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 22

We have previously outlined four factors to consider when assessing the substantiality of

a federal interest:

(1) whether the case includes a federal agency, and particularly, whether that

agency’s compliance with the federal statute is in dispute; (2) whether the federal

question is important (i.e., not trivial); (3) whether a decision on the federal

question will resolve the case (i.e., the federal question is not merely incidental to

the outcome); and (4) whether a decision as to the federal question will control

numerous other cases (i.e., the issue is not anomalous or isolated).

Mikulski, 501 F.3d at 570. Importantly, none of these factors are dispositive, and not all are

equally applicable in any one case. Id. Further, this list of factors is not exhaustive. Id. (“While

certain of these factors may be more applicable than others in any given set of circumstances, no

single factor is dispositive and these factors must be considered collectively, along with any

other factors that may be applicable in a given case.”). I will address each in turn.

Though true that this case does not involve a federal agency and a federal agency’s

compliance with the Act is not in dispute, I question the weight of this factor in light of Gunn,

which the Supreme Court decided after our decision in Mikulski. See Gunn, 568 U.S. at 260. If

we follow Gunn’s admonition not to focus solely on the litigants at hand, see id., we should

instead consider the federal government’s interest in the question more generally. Before

Congress passed the Garn-St. Germain Act, government-sponsored entities (i.e., the Federal

Home Loan Mortgage Corporation and the Federal National Mortgage Corporation) were

altering their investment strategies in several states because of uncertainty and a lack of

uniformity related to due-on-sale restrictions. Senate Rep. at 21. Both entities are currently

under the conservatorship of the Federal Housing Finance Authority.6 While the FHFA and

these government-sponsored entities may not have a stake in this particular dispute, the federal

government has an interest in the stability of the housing market and uniform enforcement of

due-on-sale clauses, and consequently, the scope of the Garn-St. Germain Act’s exceptions in

§ 1701j-3(d). Notably, in Grable, the federal government also lacked a direct interest in the

property at issue in the case. 545 U.S. at 317 n.4. But the Court still concluded that the federal

6Federal Home Loan Mortgage Corporation, https://www.usa.gov/federal-agencies/federal-home-loan-

mortgage-corporation-freddie-mac (last visited Oct. 5, 2018); Federal National Mortgage Association,

https://www.usa.gov/federal-agencies/federal-national-mortgage-association-fannie-mae (last visited Oct. 5, 2018).

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 23

question could “claim[] the advantages thought to be inherent in a federal forum.” Id. at 313. If

a lack of uniformity among the states motivated Congress to pass this Act, and if we believe that

the federal courts provide the advantage of uniform interpretation, then the meaning of the Act

“is an important issue of federal law that sensibly belongs in a federal court.” Id. at 315.

We have described the second Mikulski factor—whether the federal question is important

and not trivial—as “far more subjective.” 501 F.3d at 570. But in the present matter, we can

look to a more objective factor: the statute itself. At risk of belaboring the point, clearly

Congress thought this issue was important enough to preempt state laws, including judicial

decisions, in areas traditionally reserved to the states. 12 U.S.C. § 1701j-3(b)(1). The upshot is

that this case does not involve “a typical state-law property issue.” Columbia Gas Transmission,

LLC v. Singh, 707 F.3d 583, 590 (6th Cir. 2013). The issue is the applicability of exemptions in

a federal statute. In Singh, we further noted that “there is no allegation that [state courts] are not

enforcing the property rights of natural gas companies or are otherwise impeding the [federal

interest in] safe transmission of natural gas in a way that would call for a federal forum.” Id.

Congress found the opposite to be true in this case. See Senate Rep. at 20–21. Not only that, but

Congress also gave the power to promulgate rules and to publish interpretations of the Act to a

federal agency. 12 U.S.C. § 1701j-3(e). Considering the context in which Congress enacted the

Garn-St. Germain Act, as well as the Act’s plain text, the majority cannot say with a straight face

that hearing this claim in federal court would “disrupt the deference Congress gave to state

courts to regulate in their traditional areas of expertise.” Majority Op. at 9. The inescapable fact

is that Congress took away such deference from the states and replaced state law with a federal

statute.

As stated, however, preemption alone should not be dispositive. In Mikulski, we also

noted that “the IRS has never issued a rule” or “ever litigated an action” involving the provision

of law at issue. 501 F.3d at 571. Thus, Mikulski’s analysis of this factor seemed to blend in with

the first factor because we continued to reference the IRS’s role (or lack thereof) in that case. Id.

at 570–71. First, unlike Mikulski, the Federal Home Loan Bank Board has promulgated

regulations in this area. See supra footnote 3. Second, Mikulski’s suggestion that more frequent

litigation counseled in favor of finding jurisdiction cannot be squared with Grable’s and Merrell

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 24

Dow’s concern about welcoming in a “horde” of state cases into federal court. See Grable,

545 U.S. at 318 (describing Merrell Dow). Grable itself also gives no indication that the IRS

had frequently litigated the question at issue in that case. Taken together, the first two factors

militate in favor of finding that the federal question here is substantial.

The third and fourth factors—will answering the federal question dispose of “the case”

and will it control numerous other “cases”—require some clarification on the meaning of

“case(s).” Mikulski, 501 F.3d at 570.

The “case” in the third factor is really the “claim” on which the federal court’s subject

matter jurisdiction rests. To reiterate, the sole claim that matters for whether we have subject

matter jurisdiction over this case is Count I of the Plaintiffs’ complaint, which alleges a violation

of the Garn-St. Germain Act. See supra II.A. The Supreme Court has flatly rejected the notion

that we should look at any non-federal claims, which would fall under the discretionary

supplemental jurisdiction in 28 U.S.C. § 1367, when we consider whether we have subject matter

jurisdiction over the purported federal question claim. ICS, 522 U.S. at 167–68. If we

concluded that the Plaintiffs’ federal question claim fails on the merits, that could, in fact,

dispose of the entire case because the federal court need not hear the other state claims.

28 U.S.C. § 1367(c). More importantly, the answer to the federal question will completely

resolve the relevant state claim because that claim turns exclusively on federal law.

Accordingly, this third factor weighs in favor of substantiality.

As to the fourth factor, we have to reconcile the “numerous other cases” language with

the concern, once again, that we could throw open the courthouse doors to too many state claims.

Admittedly, Gunn seems to suggest that “cases” refers to the amount of litigation. See 568 U.S.

at 262 (“If the question arises frequently, it will soon be resolved within the federal system,

laying to rest any contrary state court precedent; if it does not arise frequently, it is unlikely to

implicate substantial federal interests.”). On this point, Gunn (and Empire) seem to be in tension

with Grable. In discussing the federal-state balance issue, Grable thought the fact that “it will be

the rare state title case that raises a contested matter of federal law” counseled in favor of

welcoming the state-law claim into federal court. 545 U.S. at 315. Assuming for the sake of

No. 18-1245 Estate of Robert Cornell, Jr., et al. v. Bayview Loan Servicing, et al. Page 25

argument that we should focus on the amount of litigation, this factor leans against substantiality.

The Garn-St. Germain Act does not appear to be frequently litigated.

But this factor is not dispositive and there are good reasons to give it less weight in the

instant case. For one, hostile state-court precedent caused federal entities to alter their

investment strategies in several states, which then motivated Congress to pass the Garn-St.

Germain Act in the first place. Senate Rep. at 21. Additionally, even if this issue is not

frequently litigated, due-on-sale clauses are common in mortgage contracts, and government-

sponsored entities, lenders, and home buyers and sellers may find it beneficial to know how far

the Act’s due-on-sale enforcement exemptions reach. Finally, even if this factor weighs against

substantiality, the other considerations already mentioned overwhelm any concern about the low

amount of litigation.

In sum, on balance the Mikulski factors weigh in favor of substantiality. Moreover, those

factors should be considered alongside the fact that federal law is directly and exclusively

relevant to the Plaintiffs’ state-law cause of action. In the “selective process which picks

substantial [federal questions] out of the web and lays the other ones aside,” Gully, 299 U.S. at

118, we can pick this federal question out of the web so that it can claim “the advantages thought

to be inherent in a federal forum,” Grable, 545 U.S. at 313.

B. The Federal-State Balance

This is not the sort of “garden variety” state case that has raised concerns in prior cases.

For example, this case is nothing like Merrell Dow. In that case, the exercise of federal question

jurisdiction over state-law tort claims “would have attracted a horde” of cases “raising other state

claims with embedded federal issues.” See Grable, 545 U.S. at 318; Merrell Dow, 478 U.S. 804.

In essence, the Supreme Court in Grable clarified that Merrell Dow was concerned about the

“tremendous number” of negligence cases that would be swept into federal court, Grable,

545 U.S. at 318, if federal question jurisdiction existed “solely because the violation of [a]

federal statute is said to be a ‘rebuttable presumption’ or a ‘proximate cause’ under state law,”

Merrell Dow, 478 U.S. at 812. In contrast, “it is the rare state quiet title action that involves

contested issues of federal law,” and consequently, jurisdiction over that action “would not

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materially affect, or threaten to affect, the normal currents of litigation.” Grable, 545 U.S. at

319. We have previously read these cases together in this manner. See Hampton v. R.J. Corman

R.R. Switching Co., 683 F.3d 708, 712–13 (6th Cir. 2012) (noting the Supreme Court’s

distinction between “the rare state quiet title action” in Grable and the “garden variety state tort

claim” in Merrell Dow, and concluding that, because the case involved a garden variety

negligence claim, the case was more like Merrell Dow). As it pertains to this federal law, only

two states—Michigan and New Mexico—supply a cause of action for a violation of 12 U.S.C.

§ 1701j-3. See Mich. Comp. Laws §§ 445.1626, 445.1628; N.M. Stat. §§ 48-7-20, 48-7-24.7

Welcoming these claims into federal court, therefore, would not “disturb[] any congressionally

approved balance of federal and state judicial responsibilities,” or clog the “currents of litigation”

in federal court. See Grable, 545 U.S. at 314, 319.

Indeed, Merrell Dow required clarification. Many commentators noted the confusion and

uncertainty the case caused, eventually leading the Supreme Court to correct course in Grable.

See James E. Pfander, Principles of Federal Jurisdiction 101 (West 2006) (“Judged solely by the

degree to which it brought clarity to jurisdictional law, one might consider the Merrell Dow

decision a failure.”); see also Hart & Wechsler at 824–25; Chemerinsky at 306–07. The Court

also admitted as much in its most recent decision in this area. See Gunn, 568 U.S. at 258 (stating

that Grable was “an effort to bring some order to this unruly doctrine”). The confusion, of

course, centered on the relevance of the absence of a federal cause of action. Hart & Wechsler at

824–25; Chemerinsky at 306–07.

Meanwhile, the majority resurrects the very confusion Grable sought to correct. One

reading the majority opinion might understandably think that the cause of action analysis is

determinative to the jurisdictional issue. See, e.g., Majority Op. at 10 (relying on the absence of

a cause of action to say that hearing this claim in federal court would “disturb the balance of state

and federal responsibilities.”). If the majority’s analysis on this prong is taken too seriously and

applied to its fullest extent, that would effectively undercut over a century of Supreme Court

7California and Indiana also incorporate parts of the Garn-St. Germain Act, but they do not appear to

supply a cause of action.

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precedent that recognizes federal question jurisdiction even in the absence of a federal cause of

action. But at the very least, the majority goes against Grable’s reading of Merrell Dow.8

Finally, even if all fifty states adopted a law like Michigan’s, the exercise of jurisdiction

over such laws would not amount to a federal court disturbing the federal-state balance. Again,

Congress wanted the Garn-St. Germain Act to displace any “laws (including the judicial

decisions) of any State to the contrary.” 12 US.C. § 1701j-3(b)(1). If there is a disturbance in

the federal-state balance, it is not the disturbance the majority is looking for. Majority Op. at 10–

11. That a federal court would throw the Act’s interpretation into the hands of the states, and

only the states, seems to undermine Congress’s expressed intent in the text of the Act. To be

sure, state courts are presumptively competent to adjudicate issues of federal law, Tafflin v.

Levitt, 493 U.S. 455, 458–59 (1990), including this one. But that fact settles nothing about

whether the federal courts have jurisdiction. The majority, however, seems to believe that the

Tafflin v. Levitt presumption weighs against finding federal question jurisdiction. Majority Op.

at 10 n.8, 11. If so, the majority is wrong. Ultimately, this final prong of the Grable standard

focuses on congressional intent. In this case, the federal courts exercising jurisdiction is, if

anything, consistent with Congress’s intent to ensure that state courts do not restrict the

enforcement of due-on-sale clauses. See 12 U.S.C. § 1701j-3(b)(1); Senate Rep. at 20–21; see

also OCC Interpretive Letter, supra footnote 1, at *1.9

8Furthermore, the majority’s analysis is inconsistent with the analysis of our own precedent, which reads

Merrell Dow as the Supreme Court did in Grable. See Hampton, 683 F.3d at 711–13 (analyzing the cause of action

issue and the substantial federal question issue separately).

9Whether or not “every schoolchild” actually learns that “states retain substantial sovereign authority of

their own property laws,” Majority Op. at 11 (internal quotations omitted), I am confident that every law student

learns that Congress can regulate interstate commerce and preempt state laws. Congress did just that with the Garn-

St. Germain Act. And as a result, the Plaintiffs’ first claim here turns entirely on federal law and has nothing to do

with state law or state sovereignty. If the majority believes there is “an unnecessary usurpation of state law

domain,” id. at 10, the majority’s real problem is with Congress and the fact that it enacted a statute that displaces

certain state property and contract laws.

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IV. CONCLUSION

The difficulty of the issue of subject matter jurisdiction is matched by its importance.

Subject matter jurisdiction is so fundamental that a court can (indeed a court must) rule on the

matter sua sponte, without any motions by a party. Fed. R. Civ. P. 12(h)(3). We are the first

circuit court of appeals to address this issue as it relates to the Garn-St. Germain Act. We have

done so without the benefit of any briefing from the parties on the jurisdictional issue of whether

the federal question is substantial.

This case presents an exceptionally unique cause of action and federal question. But that

makes this case a prime candidate to “squeeze[] into the slim category” of state-law claims that

“arise under” federal law. See Empire, 547 U.S. at 701; 28 U.S.C. § 1331. Indeed, the category

is slim because the claims that fit into it are unique.

For the reasons expressed above, I respectfully dissent.