Facts
- California’s Franchise Tax Board (FTB) sought to collect delinquent state income taxes by serving levies on funds held for taxpayers by a third party, as authorized by California law.
- The Construction Laborers Vacation Trust for Southern California (Trust), an ERISA-covered employee welfare benefit plan, held vacation benefits for participating workers.
- The FTB served levies on the Trust to reach amounts credited to delinquent taxpayers’ vacation accounts (about $380 total).
- The Trust refused to comply, citing trust provisions restricting third-party levies and asserting that ERISA preempted the state levy scheme and limited the trustees’ authority to turn over plan funds.
- The FTB sued the Trust and its trustees in California state court asserting: (1) a state-law enforcement/damages claim for failure to honor the levies, and (2) a state-law declaratory judgment claim seeking a declaration of the parties’ rights in light of the Trust’s ERISA position.
Issues
- Whether the action was removable under 28 U.S.C. § 1441 because it fell within federal-question jurisdiction under 28 U.S.C. § 1331 when the complaint pleaded only state-law causes of action and anticipated an ERISA preemption defense.
- Whether seeking declaratory relief about an expected ERISA preemption defense can supply federal-question jurisdiction.
Decision
- The Supreme Court unanimously held that the case was not within federal removal jurisdiction because it did not fall within original federal-question jurisdiction under § 1331.
- The Court applied the well-pleaded complaint rule: federal jurisdiction must appear on the face of the plaintiff’s complaint and cannot rest on an anticipated federal defense, including preemption.
- As to the levy enforcement/damages claim, California law supplied the elements of the claim without reference to federal law; ERISA mattered only as a potential defense.
- As to the declaratory judgment claim, the Declaratory Judgment Act did not expand jurisdiction; the court looked to the coercive action that would have been brought absent declaratory relief, which remained a state-law levy enforcement action met by a federal preemption defense.
- The Court vacated the Ninth Circuit’s judgment and remanded with instructions to remand the case to state court, leaving the ERISA preemption merits for state-court resolution.
Legal Principles
- Removal under § 1441 is proper only if the case could have been filed originally in federal court; for federal-question cases, that depends on § 1331.
- Under the well-pleaded complaint rule, a case “arises under” federal law only when the federal issue appears in the plaintiff’s properly pleaded complaint; a federal defense, including preemption, does not create § 1331 jurisdiction even if dispositive and anticipated.
- The Declaratory Judgment Act is procedural and does not create federal jurisdiction; jurisdiction is assessed by asking whether the hypothetical coercive suit (without declaratory relief) would arise under federal law.
- Ordinary preemption functions as a defense and does not support removal; only a federal statutory scheme that provides a cause of action displacing the state claim (complete preemption) can recharacterize certain state-law claims as federal for jurisdictional purposes, and the claims asserted here were not treated as such.
Conclusion
Because the FTB’s complaint pleaded only state-law claims and depended on federal law solely as an expected ERISA preemption defense, the action did not “arise under” federal law and was not removable; the federal courts lacked subject-matter jurisdiction and the case had to be returned to state court.