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
- 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.
- Whether diversity jurisdiction permitted the declaratory action to proceed against Magnolia even if federal-question jurisdiction was lacking as to the other producers.
- 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.