## Facts

- Michigan-Wisconsin Pipe Line Co. sought a Federal Power Commission (FPC) certificate under § 7(c) of the Natural Gas Act to build and operate an interstate pipeline.
- To secure gas reserves, Michigan-Wisconsin contracted with Phillips Petroleum Co., and Phillips contracted to buy gas from producers Skelly Oil Co., Stanolind Oil & Gas Co., and Magnolia Petroleum Co.
- The producer contracts allowed termination if Michigan-Wisconsin failed to secure the FPC certificate by a specified date; producers could terminate by written notice after December 1, 1946, but before issuance of the certificate.
- On November 30, 1946, the FPC issued an order stating a certificate was issued to Michigan-Wisconsin “upon the terms and conditions of this order,” subject to conditions requiring additional approvals and filings; the order was not made public until December 2, 1946.
- On December 2, 1946, the producers sent Phillips written notices purporting to terminate the contracts.
- Phillips filed a federal declaratory judgment action seeking a declaration that the contracts remained in effect because a certificate had already been “issued” within the meaning of the contracts and the Natural Gas Act.

## Issues

1. Whether Phillips’s declaratory judgment action “arises under” federal law for purposes of federal-question jurisdiction when the asserted federal issue would appear, at most, as a defense in a coercive contract suit.
2. Whether diversity jurisdiction permitted the declaratory action to proceed against Magnolia even if federal-question jurisdiction was lacking as to the other producers.
3. Whether the Declaratory Judgment Act itself supplies federal subject-matter jurisdiction.

## Decision

- The Supreme Court held that the Declaratory Judgment Act provides a remedy but does not expand federal subject-matter jurisdiction.
- The Court held there was no federal-question jurisdiction as to Skelly and Stanolind because the dispute was fundamentally a state-law contract controversy and the federal issue would arise only in anticipation of defenses.
- Because there was no diversity of citizenship between Phillips and Skelly/Stanolind, the actions against them had to be dismissed for lack of jurisdiction.
- The Court held the district court had diversity jurisdiction as to Magnolia and could proceed against Magnolia on that basis.

## Legal Principles

- The Declaratory Judgment Act enlarges available remedies but does not confer or extend federal jurisdiction.
- Under the well-pleaded complaint rule, federal-question jurisdiction exists only when a federal question appears on the face of the plaintiff’s properly pleaded claim, not when the plaintiff anticipates a federal defense.
- In a declaratory judgment action, federal-question jurisdiction depends on whether the hypothetical coercive action that would have been brought without declaratory relief would arise under federal law.
- The lack of an equivalent declaratory remedy in state court does not defeat otherwise valid diversity jurisdiction in federal court.

## Conclusion

The Court limited declaratory judgment jurisdiction by requiring an independent jurisdictional basis and by applying the well-pleaded complaint rule to declaratory actions, rejecting attempts to create federal-question jurisdiction through anticipatory pleading, while allowing the suit to proceed only against the diverse defendant.


Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667 (1950)