Petition for Writ of Certiorari — City of Loveland v. Board of Commissioners

Supreme Court, U.S.

ay () FILED

\ No. 10-10-9685 — JAN25 zon

OPPFICE OF THE CLERK

Jn the

Supreme Court of the Anited States

CITY OF LOVELAND, OHIO,

Petitioner,

Vv.

BOARD OF COMMISSIONERS OF

HAMILTON COUNTY, OHIO, ET AL.

On Petition for Writ of Certtorari to the United

States Court of Appeals for the Sixth Circuit

PETITION FOR WRIT OF CERTIORARI

Patricia A. Millett Stephen P. Samuels

AKIN, GUMP, STRAUSS, THIAUER Counsel of Record

& Fe_p, LLP Nicole R. Woods

1333 New Hampshire Ave., NW SCHOTTENSTEIN, ZOX &

Washington, DC 20036 Dunn, Co., LPA

T: (202) 887-4450 250 West Street

Columbus, OH 43215

R. Guy Taft T: (614) 462-2700

Franklin A. Klaine, Jr. ssamuels@szd.com

Joseph J. Braun

STRAUSS & ‘TROY Counsel for Petitioner

Federal Reserve Building

150 East Fourth Street

Cincinnati, Ohio 45202

T: (513) 621-2120

January 25, 2011

Becker Gallagher - Cincinnati, OH - Washington, DC. - 800 890 S001

IT.

IIT.

IV.

QUESTIONS PRESENTED

Whether a state law claim raises a substantial

federal question such that the action “arises

under” federal law when the question does not

require the determination of an important and

disputed point of federal law, but instead

entails only the application of settled federal

law to the specific facts of the state-law case.

Whether a state-court defendant can evade the

well-pleaded complaint rule, which prohibits

removal based on a federal defense or

counterclaim, by filing an original declaratory

judgment action in federal court after the state-

court action has commenced seeking preemptive

adjudication of the federal defense’ or

counterclaim.

Whether the potential impact of adjudication of

a state-law claim on a federal court consent

decree constitutes a federal question sufficient

to create federal jurisdiction under 28 U.S.C.

§ 1331.

Whether this Court should grant review to

decide the question reserved in Taylor uv.

Sturgell, 553 U.S. 880 (2008): whether a non-

party is bound by a federal judgment based

solely on conduct that induced reliance by

parties to that judgment.

il

PARTIES TO THE PROCEEDINGS IN

THE SIXTH CIRCUIT

Petitioner is the City of Loveland, Ohio, which was

the defendant in district court and appellant in the

court of appeals.

Respondents are the Board of Commissioners of

Hamilton County, Ohio, which was a plaintiff in

district court and appellee in the court of appeals. The

City of Cincinnati, Ohio, was an intervenor-plaintiff in

the district court and appellee in the court of appeals.

ii

TABLE OF CONTENTS

QUBSLIONS PIERO LIOD 0.65 ec esc ives ences i

PARTIES TO THE PROCEEDINGS IN THE

>) cy he) 4. yer enna eerer eran li

SAI OF CORTE REES ook kc ec ce ews sass th

‘Tek OF GAS TEED 6 ok ce esses sess vi

PETITION FOR A WRIT OF CERTIORARI ..... 1

CHP RUCGIECEY SUEEUE ookc sd sce v ee setae eens es ]

Pr EEE 5 he Cis Pa ee ee eee ]

RELEVANT STATUTORY PROVISIONS ....... 1

STATEMENT OF THE CASE ................ 2

REASONS FOR GRANTING THE WRIT ....... 5

I. THE COURT OF APPEALS’ CREATION OF

FEDERAL COURT JURISDICTION

CONFLICTS WITH THE DECISIONS OF

OTHER CIRCUITS IN TWO RESPECTS AND

SCRIPTS AN END RUN OF THIS COURT'S

LONGSTANDING REMOVAL

PUT LIEPEIETNE, foe 5 eo sees etek ew waene 8

A. The Rule of Law Created By The Sixth

Circuit And Federal Circuit Conflicts With

The Law Of The Ninth, Seventh, and Fifth

Circuits Regarding Whether Mere

Application Of Federal Law To The Facts Of

Il.

C.

1V

A State-Law Cause Of Action Presents A

Substantial Federal Question. ...........

_ The Sixth Circuit Has Decided an

Important Issue of Federal Law That Has

Not Been, But Should Be, Settled By This

Court To Prevent The Wrongful Intrusion

Of Federal Court Jurisdiction Into The

eee SR, soo oa ee we

The Sixth Circuit’s Decision Contradicts The

Law Of The Seventh Circuit Regarding

Whether Federal Question Jurisdiction

Exists When There Is An Adverse Impact On

A Federal Consent Decree. .............

THE SIXTH CIRCUIT’S DECISION

PRESENTS AND WRONGLY RESOLVES A

QUESTION RESERVED BY THIS COURT

CONCERNING WHETHER DUE PROCESS

PERMITS A NON-PARTY TO BE BOUND BY

A FEDERAL JUDGMENT SOLELY BECAUSE

ITS CONDUCT ALLEGEDLY INDUCED

RELIANCE ON THAT JUDGMENT. .......

Cp, 5 6 vo a eos oa ca a ee

APPENDIX

Appendix A: Opinion and Judgment, United

States Court of Appeals for the

Sixth Circuit,

(September 15, 2010) ......

9

14

17

20

24

Appendix B:

Appendix C:

V

Opinion and Judgment, United

States District Court, Southern

District of Ohio, Western

Division,

(Janwary 14, 2010) .......... Pla

Order, United States Court of

Appeals for the Sixth Circuit,

(October 27, 2010) .......... 36a

vi

TABLE OF AUTHORITIES

CASES

Air Measurement Techs., Inc. v. Akin Gump

Strauss Hauer & Feld, LLP,

504 F.3d 1262 (Fed. Cir. 2008)

Bartels Trust v. United States,

88 Fed. Cl. 105 (2009)

Bennett v. Sw. Airlines Co.,

484 F.3d 907 (7th Cir. 2007)

Caterpillar, Inc. v. Williams,

482 U.S. 386 (1987)

Christianson v. Colt Indus. Operating Corp..,

486 U.S. 800 (1988)

Corley v. Jackson Police Dep't,

755 F.2d 1207 (5th Cir. 1985)

Empire Healthchoice Assurance, Inc. v. McVeigh,

947 U.S. 677 (2006)

Firefighters Local No. 93 v. City of Cleveland,

478 U.S. 501 (1986) 7,18, 19

Franchise Tax Bd. v. Constr. Laborers Vacation Tr.,

463 U.S. 1 (1983)

Grable & Sons Metal Prods., Inc. v. Darue Eng’g &

Mfg.,

545 U.S. 308 (2005) passim

Gully v. First Natl Bank,

299 U.S. 109 (1936)

Hansberry v. Lee,

311 U.S. 32 (1940)

Holmes Group, Inc. v. Vornado Air Circulation

Sys., Inc.,

535 U.S. 826 (2002) 6. 15, 17

In re the Application of Cnty. Collector,

96 F.3d 890 (7th Cir. 1996) 7, 18,19

Int'l Union of Operating Eng’rs v. Cnty. of Plumas,

559 F.3d 1041 (9th Cir. 2009)

Kokkonen v. Guardian Life Ins. Co.,

511 U.S. 375 (1994)

Martin v. Wilks,

490 U.S. 755 (1989)

Merrell Dow Pharm., Inc. v. Thompson,

478 U.S. 804 (1986)

MSOF Corp. v. Exxon Corp.,

295 F.3d 485 (5th Cir. 2002)

Public Svc. Comm’n v. Wycoff Co.,

344 U.S. 237 (1952)

Richards v. Jefferson Cnty.,

517 U.S. 793 (1996)

vill

Rivet v. Regions Bank of La..,

522 U.S. 470 (1998)

Singh v. Duane Morris LLP,

538 F.3d 334 (7th Cir. 2008)

Skelly Oil Co. v. Phillips Petroleum Co.,

339 U.S. 667 (1950)

Syngenta Crop Prot., Inc. v. Henson,

537 U.S. 28 (2002)

Taylor v. Sturgell,

553 U.S. 880 (2008)

United States v. ITT Cont Baking Co.,

420 U.S. 223 (1975)

STATUTES

28 U.S.C. § 1254(1)

28 U.S.C. § 1331

28 U.S.C. § 1338

28 U.S.C. § 1441

28 U.S.C. § 1651

33 U.S.C. §§ 1251-1387

42 U.S.C. § 2000e-2(n)

REGULATIONS

68 Fed. Reg. 68651-02 (Dec. 9, 2003) .... . 2,3

OTHER AUTHORITIES

Restatement (Second) of Judgments § 40 (1982) . 2]

Restatement (Second) of Judgments § 62 (1982) . 22

Richard D. Freer, Of Rules and Standards.

Reconciling Statutory Limitations on “Arising

Under” Jurisdiction, 82 In. L.J. 309 (2007) .. 12

]

PETITION FOR A WRIT OF CERTIORARI

The City of Loveland, Ohio, respectfully petitions

for a writ of certiorari to review the judgment of the

United States Court of Appeals for the Sixth Circuit in

this case.

OPINIONS BELOW

The opinion of the court of appeals (App., infra, la

20a) is reported at 621 F.3d 465. The district court’s

opinion (App., infra, 2la-35a) is not reported

JURISDICTION

The court of appeals entered its judgment on

September 15, 2010. A timely petition for rehearing

was denied on October 27, 2010 (App., infra, 36a-37a).

This Court has jurisdiction pursuant to 28 U.S.C

§ 1254(1).

RELEVANT STATUTORY PROVISIONS

Section 1331 of Title 28 of the United States Code

provides:

The district courts shall have original

jurisdiction of all civil actions arising under the

Constitution, laws, or treaties of the United

States.

Section 1441(b) of Title 28 of the United States

Code provides:

(b) Any civil action of which the district courts

have original jurisdiction founded on a claim or

right arising under the Constitution, treaties or

laws of the United States shall be removable

without regard to the citizenship or residence of

the parties. Any other such action shall be

removable only if none of the parties in interest

properly joined and served as defendants is a

citizen of the State in which such action is

brought.

STATEMENT OF THE CASE

Around 1970, petitioner, the City of Loveland, Ohio,

placed its wastewater treatment plant and sewers

(collectively, the “Polk Run System”) into service.

(App., infra, 3a.) In 1985, Loveland and the Board of

Commissioners of Hamilton County, Ohio (“Board”)

entered into an agreement pursuant to which the

Board was to maintain, repair, and operate the Polk

Run System (the “1985 Agreement”). (App., infra, 3a.)

The 1985 Agreement does not have an explicit

termination date.

In 2002, the United States Environmental

Protection Agency and two state regulators filed a

complaint against the Board and the City of Cincinnati

under the federal Clean Water Act, 33 U.S.C. §§ 1251-

1387, because of frequent overflows in the numerous

sewer systems (including Polk Run) operated by the

Board. (App., infra, 3a-4a.) United States v. Bd. of

County Comm'rs, et al., No. 1:02-cv-00107 (S.D. Ohio)

That action was resolved by a pair of consent decrees.

(App., infra, 4a.) Loveland was not a party to that

litigation or either of the resulting consent decrees.

Notice of the lodging of the proposed decrees was

published in the Federal Register on December 9,

2003. 68 Fed. Reg. 68651-02 (Dec. 9, 2003). ‘The

Notice did not mention the Polk Run System, the 1985

Agreement, Loveland, or any limitations on Loveland’s

authority over its sewer system. /d.

On October 29, 2008, Loveland notified the Board

it was terminating the 1985 Agreement effective

December 31, 2009 (App., infra, 5a) because, inter alia,

the Board planned to charge Loveland residents tens

of millions of dollars to remediate other wastewater

treatment plants and sewer systems that provide no

services to Loveland residents. On the same date,

Loveland filed a complaint against the Board in the

Court of Common Pleas for Clermont County, Ohio.

(App., infra, 5a.) Loveland requested (1) a declaratory

judgment that its notice of termination of the 1985

Agreement was reasonable, and (2) an order that the

Board must return control and operation of the Polk

Run System to Loveland no later than January 1,

2010. (App., infra, 5a.)

The Board did not attempt to remove Loveland’s

action to federal court under 28 U.S.C. 8 1441.

Instead, six weeks after Loveland initiated its state-

court action, the Board filed a complaint against

Loveland in the United States District Court for the

Southern District of Ohio. (App., infra, 6a.) The

Board’s complaint sought a declaratory judgment that

Loveland could not terminate the 1985 Agreement.

(App., infra, 5a.) Although the complaint named the

KPA and the two state regulatory agencies as

defendants, the complaint was explicit that “the Board

is not seeking relief from the Regulators.” (Dist. Ct

ECF Doc. No. 1, 4 20.)

The court denied Loveland’s motion to dismiss for

lack of jurisdiction, holding that it had jurisdiction

4

under both 28 U.S.C. § 1331 and the All Writs Act, 28

U.S.C. § 1651. (App., infra, 6a.) On the Board’s and

Cincinnati’s motion, the district court then

consolidated the Board’s action with the consent

decree case. (App., infra, 23a.) A month and a half

later, on July 27, 2009, the Board voluntarily

dismissed the EPA and the Regulators without

prejudice. (Dist. Ct. ECF Doc. No. 364.)

The district court subsequently granted the Board

and Cincinnati’s motion for judgment on the pleadings,

holding that Loveland’s effort to terminate the 1985

Agreement constituted a “collateral attack on the

Consent Decrees.” (App., infra, 30a.) The court held

that, although Loveland was not a party to either the

consent decrees or the litigation that produced them,

Loveland was collaterally estopped from exercising its

state law right to terminate a contract. (App., infra,

32a.)

The court of appeals affirmed. (App., infra, la-

20a.) The court first held that the district court had

jurisdiction because, in its view, the putative impact

that Loveland’s termination of the 1985 Agreement

would have on the consent decrees raised a federal

question because the complaint “requests that the

district court enforce its consent decree.” (App. infra,

12a.)

The court also held that the case raised a

substantial federal question within the meaning of

Grable & Sons Metal Products, Inc. v. Darue

Engineering & Manufacturing, 545 U.S. 308 (2005).

The court reasoned that Loveland’s state-law contract

claim, if granted, might require a modification of the

consent decrees. (App., infra, 13a.) The court then

9)

held that the potential impact of that hypothesized

ruling transformed the state-law contract issue into a

disputed federal question. (App., infra, l1la-12a.) The

court of appeals further held that the complaint raised

a substantial federal question because a federal agency

was a party to the consent decree and the consent

decree sought to enforce a federal statute. (App., infra,

13a.) The court then concluded that the exercise of

jurisdiction would “not disturb any congressionally

approved balance of federal and state judicial

responsibilities.” (App., infra, 14a.) “[{SJince federal

consent decrees are at issue,” the court explained, “it

would make sense to have that court also resolve any

issues that have aé_ direct impact on _ the

implementation of those consent decrees.” (App.,

infra, 14a.) Finally, the court held that “Loveland’s

contention that it is not bound by the consent decree,

while accurate, is immaterial” to the jurisdictional

question. Because Loveland had not commented on

the proposed decree when notice was published in the

federal register, “Loveland forfeited its right to

challenge” the effects of the consent decrees on it and

thus similarly forfeited any state-law right to

terminate its contract. (App., infra, 17a.)

REASONS FOR GRANTING THE WRIT

Five years after this Court characterized the

decisions in Empire Healthchoice Assurance, Inc. v.

McVeigh, 547 U.S. 677 (2006) and Grable & Sons

Metal Products, Inc. v. Darue Engineering &

Manufacturing, 545 U.S. 308 (2005) as being poles

apart, the circuit courts are in conflict over which

cases present Grable-like “nearly pure” questions of

federal law appropriate for resolution by federal

courts, and which present Empire-like legal questions

6

that are fact-specific, to be decided by state courts.

Three circuits interpret Empire as having added gloss

to the substantial federal question analysis articulated

in Grable, and require the substantial federal question

to be one of interpretation. Other circuits, including

the Sixth Circuit in this decision, do not so understand

Grable and Empire, and have held that a “substantial”

federal question is present any time a case requires

the mere application of some federal law to the facts.

In addition, the Sixth Circuit’s decision is at war

with this Court’s longstanding limitations on federal

court jurisdiction—limitations that are critical to

enforcing the federalism balance and limited role of

Article III courts prescribed by the Constitution. This

Court has long held that two basic canons limit the

universe of state-court cases that can be removed to

federal court: (i) cases may be removed only if federal

courts could have exercised original jurisdiction over

the action; and (ii) courts will look only to the state-

court plaintiffs well-pleaded complaint to determine if

it presents a federal question. Rivet v. Regions Bank

of La., 522 U.S. 470, 475 (1998); Caterpillar, Inc. v.

Williams, 482 U.S. 386, 392 (1987). A federal defense

is not part of the complaint and, therefore, removal of

an action from state court may not be premised on

such grounds. Franchise Tax Bd. v. Constr. Laborers

Vacation Tr., 463 U.S. 1, 7 (1983). Nor will an actual

or anticipated federal counterclaim establish “arising

under” jurisdiction. Holmes Group, Inc. v. Vornado Air

Circulation Sys., Inc., 535 U.S. 826 (2002).

The Sixth Circuit has cast all of those limitations

aside by holding that, rather than remove a case, a

state-court defendant can simply file a federal defense

as a declaratory judgment action, and that filing will

7

create the federal court jurisdiction that this Court’s

removal jurisprudence forecloses. This Court’s review

is needed to prevent that end run of longstanding

federalism-based constraints on federal court

jurisdiction.

Another question raised by the Sixth Circuit’s

decision is whether federal question jurisdiction can be

predicated on nothing more than the impact that

adjudication of a _ state-law * claim might

have—depending on how the state court rules—on a

federal consent decree. In Rivet v. Regions Bank of

Louisiana, 522 U.S. 470 (1998), the Court held that

the alleged preclusive effect of federal judgments on

state-court actions does not raise a federal question.

This Court has recognized, however, that federal

consent decrees are different: sometimes considered a

“judgment,” other times labeled a “contract.”

Firefighters Local No. 93 v. City of Cleveland, 478 U.S.

501, 519 (1986). This case raises the still-undecided

question, on which the circuits have adopted

irreconcilable positions, whether the potential

interference of a state-law claim with a federal consent

decree raises a federal question for purposes of 28

U.S.C. § 1331. The Seventh Circuit says it does not.

In re the Application of County Collector, 96 F.3d 890

(7th Cir. 1996). But the Sixth Circuit held here that it

did, and the Fifth Circuit appears to agree. MSOF

Corp. v. Exxon Corp., 295 F.3d 485, 494 (5th Cir.

2002).

Finally, this case squarely presents the question

that the Court has “never had occasion to consider”:

whether, and if so, under what circumstances, a non-

party may be bound by a judgment in litigation to

which it was not a party “through conduct inducing

8

reliance on others.” Taylor v. Sturgell, 553 U.S. 880,

894 n. 7 (2008). In the present case, the Sixth Circuit

ruled that Loveland, although not a party to the

litigation that produced the consent decrees, was

collaterally estopped from exercising its state-law right

to terminate its contract with the Board because the

Board and the other parties to the decrees relied to

their detriment on Loveland’s silence after notice of

the consent decrees was published in the Federal

Register.

I. THE COURT OF APPEALS’ CREATION OF

FEDERAL COURT JURISDICTION

CONFLICTS WITH THE DECISIONS OF

OTHER CIRCUITS IN TWO RESPECTS AND

SCRIPTS AN END RUN OF THIS COURT'S

LONGSTANDING REMOVAL JURIS-

PRUDENCE.

The Sixth Circuit’s decision presents three

significant jurisdictional issues this Court needs to

address. First, it adds to the split between the circuits

whether the application of federal law to a state law

cause of action is sufficient to confer federal court

jurisdiction. Second, the Sixth Circuit decided an

important question of federal law that has not been,

but should be, settled by this Court: whether a state

court defendant can create federal jurisdiction by filing

a declaratory judgment action in federal court that

raises a federal defense to a currently-pending state

law claim. Finally, the court’s holding that a federal

consent decree—and specifically, adverse impact on

the decree—provides a sufficient basis for federal

question jurisdiction is in direct conflict with the law

of the Seventh Circuit.

9

A. The Rule of Law Created By The Sixth

Circuit And Federal Circuit Conflicts With

The Law Of The Ninth, Seventh, and Fifth

Circuits Regarding Whether Mere

Application Of Federal Law To The Facts

Of A State-Law Cause Of Action Presents A

Substantial Federal Question.

It isa fundamental principal that federal courts are

courts of limited jurisdiction. Kokkonen v. Guardian

Life Ins. Co., 511 U.S. 375, 377 (1994). They possess

only the jurisdiction conferred on them by the

Constitution or Congress, and it cannot be expanded

by the judiciary. Jd. A federal court is presumed to be

without jurisdiction over an action, and the burden of

establishing jurisdiction rests with the party wishing

to enter federal court. Id.

Congress, under 28 U.S.C. § 1331, granted district

courts jurisdiction over “all civil actions arising under

the Constitution, laws, or treaties of the United

States.” One basis for federal question jurisdiction is

the presence of a “substantial federal question.”

Franchise Tax Bd. v. Constr. Laborers Vacation Trust,

463 U.S. 1, 8-9 (1983). A state-law cause of action

that turns on a substantial question of federal law

presents federal courts with subject-matter

jurisdiction over the state-law claim. Id.

This Court has held that there is no “single,

precise, all-embracing test” to be used in determining

whether a_ state-law cause of action raises a

substantial federal question. Grable & Sons Metal

Products, Inc. v. Darue Eng’g & Mfg., 545 U.S. 308,

314 (2005). However, woven through the fabric of this

Court’s decisions is the understanding that “the mere

10

presence of a federal issue in a state cause of action

does not automatically confer federal-question

jurisdiction.” Merrell Dow Pharm., Inc. v. Thompson,

478 U.S. 804, 813 (1986). In order to “arise under” a

federal law, a genuine and substantial controversy

must exist regarding the meaning or interpretation of

a federal law. Gully v. First Natl Bank, 299 U.S. 109,

112-13 (1936). A mere federal issue “lurking in the

background” will not suffice. 7d. at 117.

Grable and Empire are the latest pronouncements

by this Court on the subject. In Grable, the Court

articulated the issue as whether “a state law claim

necessarily raise[s] a stated federal issue, actually

disputed and substantial, which a federal forum may

entertain without disturbing any congressionally

approved balance of federal and state judicial

responsibilities.” Grable, 545 U.S. at 314. Finding the

only contested issue in plaintiffs state-law action

involved an interpretation of an important issue of

federal law, the Court held the matter belonged in

federal court. However, in Empire, as in Gully and

Merrell Dow before it, the Court found federal

jurisdiction lacking. Empire Healthchoice Assurance,

Inc. v. McVeigh, 547 U.S. 677 (2006). Contrasting the

issue presented in Empire with the “poles apart” one

found in Grable, the Court stated: “Grable presented

a nearly ‘pure issue of law,” whereas Empire’s

situation was “fact-bound and situation-specific.” Id.

at 700-01. Although that statement differentiated

these two cases, circuit courts have issued conflicting

rules of law for determining when the role of federal

law is “substantial” under those precedents.

11

The Ninth, Seventh, and Fifth Circuits have

interpreted the Court’s decisions as creating a

jurisdictional distinction between state law claims that

require the determination of an important issue of

federal law versus those that involve the application of

settled federal law to the facts of the case. Two

circuits, including the Sixth Circuit in the decision

below, have held that Grable does not so limit federal

jurisdiction. In these circuits, Grable does not stand

for the proposition that only pure issues of law or

claims involving construction of federal law belong in

federal court. These courts found federal jurisdiction

existed where a state law claim would involve the

mere application of federal law to facts.

The Ninth Circuit refused to find federal

jurisdiction in a state-law cause of action involving a

federally regulated collective bargaining agreement.

Int'l Union of Operating Eng’rs v. County of Plumas,

559 F.3d 1041 (9th Cir. 2009). The court explained

that no substantial federal question existed because

the case did “not turn on a construction of a federal

law. Rather, it [was] influenced by an application of

federal law to the arbitration clause.” Jd. at 1045.

The Seventh Circuit similarly denied jurisdiction

over a state-law tort action involving the mere

application of federal aviation regulations. Bennett v.

Sw. Atrlines Co., 484 F.3d 907 (7th Cir. 2007). The

meaning of federal statutes or regulations “play[ed]

little or no role.” Jd. at 909. Instead, the case involved

“fact-specific application of rules that come from both

federal and state law, rather than a context-free

inquiry into the meaning of a federal law.” Id. at 910.

12

Finally, the Fifth Circuit held federal jurisdiction

was lacking over a_ state-law claim for legal

malpractice filed in state court that arose out of

alleged malpractice in a federal trademark case.

Singh v. Duane Morris LLP, 538 F.3d 334 (7th Cir.

2008). In order to present a successful claim for

malpractice, the plaintiff would have to prove his

underlying (federal) cause of action would have been

meritorious but for the malpractice. Jd. at 337.

However, because the case did not directly present a

question involwing the interpretation of federal law,

but only one that required the application of federal

law to the underlying factual argument, the court held

that no substantial federal question was presented.’

Id. at 340.

The Federal and Sixth Circuits have taken the

opposite tack, one that would allow significantly more

cases into federal court. Faced with facts almost

identical to those the Fifth Circuit confronted in Singh,

the Federal Circuit came to a contrary conclusion. Air

Measurement Techs., Inc. v. Akin Gump Strauss Hauer

& Feld, LLP, 504 F.3d 1262 (Fed. Cir. 2008). Opining

that Grable did not stand for the proposition that only

pure issues of law or claims involving construction of

federal law belonged in federal court, the court held

that federal jurisdiction existed over a state-law legal

malpractice claim because it would involve the

application of federal patent law to the facts of the

' See also Richard D. Freer, Of Rules and Standards: Reconciling

Statutory Limitations on “Arising Under” Jurisdiction, 821In LJ

309 (2007)

13

predecessor case to determine whether malpractice

had been committed. Jd. at 1269.’

The Sixth Circuit’s decision that federal jurisdiction

existed in this case is also predicated on nothing more

than the straightforward application of putative

federal law to the particular facts of this case.

According to the court, the federal issue is whether

Loveland “may [] terminate the 1985 Agreement in its

entirety because of the consent decree.” (App., infra,

lla.) Even granting the court’s assumption that the

consent decree is a federal law that presents a federal

issue, the court’s statement makes clear that the

question presented is not “what do federal consent

decrees mean,” or “what do Clean Water Act consent

decrees mean,” or even “how should a _ specific

paragraph or section of a broad spectrum of Clean

Water Act consent decrees be interpreted,” but how

this particular consent decree should be applied to the

facts of this case.

The split among the circuits is outcome

determinative. Had the Sixth Circuit applied the

threshold determination whether the state law claim

involves merely application of federal law, or a

substantial and disputed interpretation of federal

law—as the Fifth, Seventh, and Ninth Circuits do—it

° The fact that federal court jurisdiction in Aur Measurement

derived from 28 U.S.C. § 1338 instead of § 1331 “is of no moment

because in Christianson, the Supreme Court grafted § 1331

precedent onto its § 1338 analysis and held that the phrase

‘arising under’ has the same meaning in § 1338 as it does in

§1331.. .” Id at 1271 (citueng Christianson v. Colt Indus.

Operating Corp , 486 U.S. 800, 808-09 (1988))

14

would have denied federal jurisdiction. This Court’s

review is required in order to resolve this conflict.

B. The Sixth Circuit Has Decided an

Important Issue of Federal Law That Has

Not Been, But Should Be, Settled By This

Court To Prevent The Wrongful Intrusion

Of Federal Court Jurisdiction Into The

States’ Domain.

By upholding federal-court jurisdiction, the Sixth

Circuit has mapped out a jurisdictional end run of this

Court’s precedent that would otherwise sharply

constrain the ability of defendants to litigate their

federal defenses to state-law claims in federal court.

As discussed below, this Court has made clear that

neither a federal defense nor a federal counterclaim

supports federal removal jurisdiction. The Sixth

Circuit’s decision circumvents that law by inviting

state-court defendants to run into federal court with

declaratory judgment actions that seek federal court

adjudication of their defenses to state-court actions

and federal foreclosure of the state-law claim.

The “jurisdictional structure at issue in this case

has remained basically unchanged for [more than a]

century.” Franchise Tax Bd. v. Constr. Laborers

Vacation Tr., 463 U.S. 1, 7 (1983). An action filed in

state court may be removed to federal court only if

federal courts could have exercised original jurisdiction

over the action. 28 U.S.C. § 1441. Another key part of

the jurisdictional structure is the well-pleaded

complaint rule, which provides that federal jurisdiction

exists only where a “federal question is presented on

the face of the plaintiffs properly pleaded complaint.”

Rivet v. Regions Bank of La., 522 U.S. 470, 475

15

(quoting Caterpillar, Inc. v. Williams, 482 U.S. 386,

392 (1987)). These two basic tenets of federal

jurisdiction serve the important role of avoiding

potentially serious federal-state conflicts. Franchise

Tax Bd., 463 U.S. at 9-10.

When determining whether a state court case may

be removed, a defense is not part of the properly

pleaded complaint. Because a plaintiffis “master of the

complaint,” the plaintiffcan choose a state court forum

by abandoning any federal causes of action.

Caterpillar Inc., 482 U.S. at 398-99. Therefore, an

action cannot be removed on the basis of a federal

defense. Franchise Tax Bd., 463 U.S. at 10. An actual!

or anticipated federal counterclaim also cannot form

the basis of removal jurisdiction. Holmes Group, Inc.

v. Vornado Air Circulation Sys., Inc., 535 U.S. 826

(2002).

The well-pleaded complaint rule does not cease to

apply because the action is one for declaratory

judgment. Franchise Tax Bd., 463 U.S. at 16. Just as

a case cannot be removed based on a federal defense to

a state-law claim, a declaratory judgment action

cannot proceed based on a defense to an impending or

threatened state court action. Franchise Tax Bd., 463

U.S. at 16 (citing Skelly Oul Co. v. Phillips Petroleum

Co., 339 U.S. 667, 672 (1950)). “Federal courts will not

seize litigations from state courts merely because one,

normally a defendant, goes to federal court to begin his

federal-law defense before the state court begins the

case under state law.” Public Suc. Comm’n v. Wycoff

Co., 344 U.S. 237, 248 (1952). Therefore, the well

plead complaint rule requires jurisdiction to be

determined by looking at the nature of the underlying

claim, not the declaratory judgment complaint. Jd.

16

The Sixth Circuit decision has circumvented that.

In direct defiance of Wycoff, the court of appeals has

allowed the hijacking of state-court claims filed in

state-court by “one [actually] a defendant” just because

it went “to federal court to begin his federal-law

defense |after] the state-court beg[an]| the case.” Id.

Permitting the Sixth Circuit decision to stand thus

would allow state defendants to create “arising under”

jurisdiction out of their state-court defenses just by

filing a declaratory judgment action after the state

litigation has commenced. If a defendant cannot

create “arising under” jurisdiction by raising a federal

counterclaim, surely the same defendant cannot create

jurisdiction by filing that counterclaim as an original

declaratory judgment complaint after the state-law

action has commenced. If, as the Sixth Circuit has

ruled, nothing more than a reformulation or relabeling

of paperwork suffices to create federal jurisdiction, its

decision will emasculate this Court’s removal

jurisprudence, which has long-stood as a substantive

federalism-rooted constraint on federal jurisdiction.

Here, simply put, Loveland wants to exercise its

contractual rights under the 1985 Agreement and the

Board wants to prevent it from doing so. Had the

Board sought to remove Loveland’s complaint to

federal court, the lack of federal jurisdiction would

have been self-evident under this Court’s precedent.

Relabeling the removal petition as a declaratory

judgment complaint should not change’ the

jurisdictional answer. But by ignoring the pending

state-court action that spawned the defensive federal

declaratory judgment action, the Sixth Circuit

bestowed federal court jurisdiction over ordinary state-

law contract claims, and blew a hole in this Court’s

1‘/

careful balance of state and federal jurisdictional

interests.

This case presents the Court with the opportunity

to settle an important point of law unaddressed by

Skelly Oil, Wycoff, and Franchise Tax Board: whether

a defendant to a currently pending state court action

can avoid the interplay between the well-pleaded

complaint rule and removal requirements by filing its

federal defense or federal counterclaim as an original

federal declaratory judgment action in order to

circumvent this Court’s strict limitations on removal

jurisdiction.

Absent this Court’s intervention, the jurisdictional

structure providing protection to federal-state comity

will buckle under the Sixth Circuit’s significant

expansion of federal jurisdiction. Federal courts will

step on the toes of the “rightful independence of state

governments,” Holmes Group, Inc., 535 U.S. at 831,

extending federal judicial power well beyond that

which the Constitution, Congress, and this Court’s

precedent permit.

>» The Sixth Circuit’s Decision Contradicts

The Law Of The Seventh Circuit

Regarding Whether Federal Question

Jurisdiction Exists When There Is An

Adverse Impact On A Federal Consent

Decree.

In this case, the Sixth Circuit found that possible

interference with a prior federal consent decree creates

federal question jurisdiction. This holding directly

contradicts the Seventh Circuit and necessitates this

Court’s review. The Sixth Circuit’s opinion assumes

18

both that a federal consent decree is a “federal law” for

purposes of 28 U.S.C. § 1331, and that the impact of a

state-law claim on a consent decree raises a federal

question. Neither of these questions has been directly

addressed by this Court.

In In re the Application of County Collector, 96 F.3d

890 (7th Cir. 1996), the plaintiffs filed a complaint in

state court against a school district, claiming the

school district levied taxes against plaintiffs property

in violation of state law. The taxes were levied as a

result of a consent decree entered in a prior federal

lawsuit involving the school district. The consent

decree permitted the school district to levy taxes in

order to fund remedial measures aimed at the school

board’s prior segregation and discrimination. The

school district removed plaintiffs’ complaint, arguing

the complaint presented a federal question because the

action could “effectively frustrate the schoo] district’s

implementation of the consent decree” by drying up its

sources of funds. Id. at 892.

The Seventh Circuit disagreed. “Contrary to the

school district’s position, a state law claim does not

present a federal question merely because it impacts

the terms of a federal consent decree.” Jd. at 897.

Moreover, no federal question jurisdiction existed

merely because the taxes at issue were levied pursuant

to and in compliance with the decree. Jd. at 899.

Consent decrees are part judgment and part contract,

so “it is the agreement of the parties, rather than the

force of law upon which the complaint was originally

based, that creates the obligations embodied in a

consent decree.” Id. (quoting Firefighters Local No. 93

v. City of Cleveland, 478 U.S. 501, 522 (1986)) (original

emphasis removed). Therefor, even though the

19

litigation leading to the consent decree was clearly

based on federal law, the consent decree did not itself

become a federal law. Id.

Although this Court has addressed related issues in

connection with settlement agreements and federal

judgments since County Collector, it has yet to decide

whether an adverse impact on a federal consent decree

presents a federal question.* Such decrees are neither

contracts nor judgments; they contain attributes of

both, which has resulted in them being treated

differently for different purposes. Firefighters Local

No. 93, 478 U.S. at 519 (quoting United States v. ITT

Continental Baking Co., 420 U.S. 223, 237 n. 10

(1975)). Remaining unanswered by the Court is

whether, in light of the hybrid nature of consent

decrees, an adverse impact on them confers federal

jurisdiction.

This case squarely presents that issue to the Court.

The Sixth Circuit found federal question jurisdiction

because Loveland attempted to terminate the 1985

Agreement, which would allegedly impact the consent

decrees due to the “removal of property, the Polk Run

Segment, from the consent decree obligations.” (App.,

infra, lla.) The consent decree was created by

agreement between the Board and the other parties to

* In Syngenta Crop Protection, Inc. v. Henson, 537 U.S. 28, 31

(2002), the Court determined that a federal question is not

presented when a party to a state-court action violates the terms

of a settlement agreement it entered into in a prior federal case.

Additionally, the assertion that state-court claims brought by a

non-party to the previously htigation are completely precluded

due to a prior federal judgment does not present a federal question

either. Rivet, 522 U.S. at 476.

20

the consent decree; it was not created by the Clean

Water Act. Therefore, although the litigation that

begat the consent decree was based on federal law, the

consent decree itself is not a federal law upon which

the district court could predicate federal question

jurisdiction. By the same token, the potential that a

judgment in Loveland’s state court action might have

an adverse impact on the consent decree does not raise

a federal question.

The Sixth Circuit’s decision cannot be reconciled

with the Seventh Circuit. Given the conflict between

the two circuits concerning the jurisdictional effect of

an adverse impact on a federal consent decree, this

Court’s review is required to ensure uniformity in

federal law. Doing so will enforce proper federalism

constraints on _ federal court jurisdiction and

interference with pending state court litigation.

il. THE SIXTH CIRCUIT’S DECISION

PRESENTS AND WRONGLY RESOLVES A

QUESTION RESERVED BY THIS COURT

CONCERNING WHETHER DUE PROCESS

PERMITS A NON-PARTY TO BE BOUND BY

A FEDERAL JUDGMENT SOLELY BECAUSE

ITS CONDUCT ALLEGEDLY INDUCED

RELIANCE ON THAT JUDGMENT.

Generally, “one is not bound by a judgment in

personam in a litigation in which he is not designated

as party or to which he has not been made a party by

service of process.” Hansberry v. Lee, 311 U.S. 32

(1940). See also, Richards v. Jefferson County, 517

U.S. 793 (1996). This rule, however, is tempered by

exceptions, one of which is that “a person who agrees

to be bound by the determination of issues in an action

21

between others is bound in accordance with the terms

of his agreement.” Taylor v. Sturgell, 553 U.S. 880,

893 (2008) (quoting Restatement (Second) of

Judgments § 40(1982)). In Taylor, this Court reserved

the question about the scope of this “agreement,”

specifically whether and under what circumstances a

“nonparty may be bound [by a judgment in litigation to

which he was not a party] . . . through conduct

inducing reliance on others.” /d. at 894 n.7. The Sixth

Circuit’s decision now squarely presents that question

for this Court’s review.

In the instant case, the Sixth Circuit cited the

following “facts” as being sufficient to preclude

Loveland from bringing an action to terminate the

1985 Agreement: Loveland’s putative knowledge of the

previous litigation and consent decrees, Loveland’s

five-year delay (after the consent decrees were

entered) in filing its complaint in state court, the

Board’s (and other parties to the original litigation)

purported reliance on Loveland’s silence, and the

adverse impact on the consent decrees if Loveland’s

contact claim was successful.

There are any number of parameters that courts

might select from in determining whether a non-

party’s conduct should preclude it from asserting a

claim relating to the subject matter of the action. The

Restatement enumerates eight possibilities,* and this

* The Restatement lists: whether the non-party could have been,

or should have been, made a party to the earlier action—which is

the procedure the Wilks Court suggested the original litigants

should have followed to bind the Wilks plaintiffs (and thereby

preclude the subsequent litigation), whether and to what extent

the non-party may be responsible for the fact the earlier action

22

Court identified two others in Martin v. Wilks, 490

U.S. 755 (1989) superseded by statute on other grounds,

42 U.S.C. § 2000e-2(n). In Wilks, the Court observed,

“questions about the adequacy and timeliness of [the

non-party’s] knowledge [of the previous suit] would

inevitably crop up.” /d. at 768. This case raises two

important questions: is reliance-inducing conduct a

basis for non-party claim preclusion and, if so, what

are the criteria on which the courts should base their

decision.

These questions are lurking behind significant

numbers of consent decrees, and pose a potential

obstacle to myriad persons whose rights are affected

by the implementation of those decrees. Until Wilks,

the ability of such persons to have their own day in

court to vindicate their legal rights was, for the most

part, summarily denied by the federal courts on the

ground that suits by such persons constituted

went to judgment without the non-party’s claim being made

known; whether the assertion of the claim will disrupt the

resolution of the controversy apparently achieved by the judgment

between others; whether the delay by the non-party 1n asserting

its claim would work unjust hardship on a person who has already

litigated related issues with another party; whether the non-

party’s conduct has justifiably led to the supposition that the non-

party has no claim or will govern its conduct according to the

outcome of the litigation between others, what the relationship is

among the parties; whether and to what extent there is an

identity of interests between the non-party and the previous

litigants, what the purpose and effect was of the prior litigation;

and what opportunity and duty the non-party had to clarify any

ambiguity about its position. Restatement (Second) of Judgments

§ 62 (1982).

23

“impermissible collateral attack[s]” on the decrees.° Id.

at 762. Because of that broad brush, the courts did not

need to analyze the circumstances of the individuals

who were bringing the suits or the effects of the new

litigation on the parties to the decrees to determine

whether collateral estoppel should apply, but an

examination of those cases reveals that the questions

identified in the Restatement and in Wilks are present

in many of them.®

More recently, the Court of Claims interpreted the

Court’s footnote in Taylor as holding that “[t]he party

need not have an express agreement to be bound;

implied agreement and conduct inducing reliance are

also sufficient to constitute an agreement for the

purposes of this type of non-party preclusion,” and

observing that “[t]his type of nonparty preclusion is

well-established and is common in the federal courts.”

Bartels Trust v. United States, 88 Fed. Cl. 105, 113

(2009). Thus, the Sixth Circuit’s decision, if allowed

to stand, will have far-reaching adverse consequences

on persons who, although not parties to prior

litigation, will be barred from having their own day in

court nevertheless. This case presents a dramatic

example of why this Court needs to take up the

reserved question now.

> See Wilks, 490 U.S. at 762 n.3.

© See, e.g , Corley v. Jackson Police Dep’t, 755 F 2d 1207, 1209 (5th

Cir. 1985)(“[T]o allow plaintiff to attack the decree at this late

point would severely undercut important notions of judicial

efficiency and finalhty of judgment, and would unfairly prejudice

other parties and nonparties ”)

24

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

Stephen P. Samuels

Counsel of Record

Nicole R. Woods

SCHOTTENSTEIN, ZOX & DUNN, Co., LPA

250 West Street

Columbus, OH 43215

T: (614) 462-2700

ssamuels@szd.com

Patricia A. Millett

AKIN, GUMP, STRAUSS, HAUER &

FELD, LLP

1333 New Hampshire Ave., NW

Washington, DC 20036

T: (202) 887-4450

R. Guy Taft

Franklin A. Klaine, Jr.

Joseph J. Braun

STRAUSS & TROY

Federal Reserve Building

150 East Fourth Street

Cincinnati, Ohio 45202

T: (513) 621-2120