The Well Pleaded Complaint Rule In Federal Court

The Well Pleaded Complaint Rule: An Introduction

The well pleaded complaint rule requires that a federal question appear "on the face of the complaint" before issues regarding a federal law will be considered by the district court. The purposes behind the rule are: (1) to avoid unneeded intervention in state proceedings; (2) to prevent disruption of the balance between state and federal power; and (3) to minimize the effects of fragmentation of the legal system. The concern that justified the well pleaded complaint rule is that "states have a substantial interest in the maintenance of stability within their own territories, while federal courts have a substantial interest in maintaining their own responsibilities and the harmony between the states and the federal government." The purpose of the well pleaded complaint rule is not to indicate what state claims could have been brought or under what theory of law, but to decide whether the federal courts have jurisdiction over the controversy. Accordingly, the well pleaded complaint rule only applies to federal causes of action, or state causes of action that include an essential federal ingredient. For purposes of the well pleaded complaint rule, "[a] right or immunity created by the Constitution or laws of the United States is selectable by the plaintiff without regard to any special or partisan benefit , notwithstanding any form which he may have given it, or its technical jargon, if any."
Federal Question Jurisdiction involves evaluations of both the federal ingredients of the plaintiff’s claim and the federal ingredients of the situation. There are six situations where there is a federal ingredient: (1) the plaintiff invokes a right under federal law; (2) right or remedy under federal law is essential to the plaintiff’s state law cause of action; (3) the right or remedy under state law is significantly dependent on the resolution of a federal question; (4) the right or remedy under state law is wholly dependent on the resolution of a federal question; (5) the removal statute is not inapplicable; and (6) other circumstances in which the right to relief necessarily depends on the construction of the Constitution or federal law. According to Hindes v. Federal Deposit Insurance Corporation, the federal ingredient must be essential and substantial, that is the "uniqueness of the federal issue must be substantial." Also, the "federal ingredient must be an element of the federal law itself, not a federal law applicable to the parties prosaically considering the entire action."

The Historical Development

The well pleaded complaint rule has its origins in the common law practice of the early English Courts of Common Law. The principle was first adopted in a matter before the Supreme Court in 1886, in transcontinental R. Co. v. Abrams. In that case, a New Jersey state court dismissed a tort action brought by a resident against a New York-based railroad company on the ground that the railroad was a New York citizen. When the complaint was brought in the federal district court (the predecessor to the federal circuit courts of appeal) and removed to that court via 28 U.S.C. § 1441, the circuit court for the district of New York found that the removal was improper because the parties were not "citizens" of different states.
The well pleaded complaint rule first took federal form in 1888, in Louisville, E. & W. R. Co. v. City of Richmond. In that case, the Court recognized that a federal question could be used as grounds for removing an action from state to federal court by defining "arising under" as being a suit based on the Constitution or laws of the United States. The Court extended the rule to cases of federal question jurisdiction in Smith v. Lyon in 1889, which held that the validity of the contract at issue could not be used as the basis of federal question subject matter jurisdiction, writing: The question of the right to recover in the case must depend on the only evidence to be produced, the contract itself, and not upon some extrinsic matter of evidence under it.
In 1990, the United States Supreme Court explicitly limited the scope of the rule in Franchise Tax Board of California v. Construction Laborers Vacation Trust for Southern California, stating that the rule did not apply to statutes conferring federal jurisdiction other than federal question and that it could not be used as a means to bring about removal or remand to federal court in actions where uniformity throughout the states was a significant factor.
Although the well pleaded complaint rule was applied initially solely in circumstances where the litigants were diverse, it was broadened in 2000 to include claims based on both diversity and federal question subject matter jurisdiction, via Tavakoli v. Billings.

The Application of the Rule to Federal Question Jurisdiction

In federal court, the well-pleaded complaint rule determines the threshold question of federal jurisdiction. If the well-pleaded complaint rule does not provide federal question or diversity jurisdiction, state law will apply. The well-pleaded complaint rule requires that a plaintiff’s case be based upon the allegations in the complaint, not upon the potential defenses raised by the defendant. See Louisville & Nash. R. Co. v. Mottley, 211 U.S. 149 (1908). Courts have interpreted the well-pleaded complaint rule to mean that "[a] suit ‘arises under’ the Constitution, laws, or treaties of the United States only when the plaintiff’s statement of his own cause of action reveals that his action is based upon those laws." Franchise Tax Bd. of the State of Cal. v. Constr. Laborers Vacation Trust for S. California, 463 U.S. 1, 10 (1983).
The Supreme Court of the United States has further clarified the meaning of the well-pleaded complaint rule. In Merrell Dow Pharms. Inc. v. Thompson, the Court stated, "the presence or absence of federal-question jurisdiction [must] be determined by the ‘well-pleaded complaint’ rule, which provides that federal jurisdiction exists only when a federal question is presented on the face of the complaint, unaided by anything alleged in a response." 478 U.S. 804, 808 (1986). Even where a complaint raises a federal question, if it is within the exclusive jurisdiction of the state, federal question jurisdiction does not exist. Id. at 813-18 (finding that state common law misbranding claims were "predicated entirely on a violation of state statutes and could not serve as a basis for federal jurisdiction") (citing State of Maryland v. Soper, 270 U.S. 9 (1926)).
Federal courts also have original diversity jurisdiction where the parties are of diverse citizenship and the amount in controversy exceeds $75,000. See 28 U.S.C. § 1332. In determining whether parties are diverse, federal courts use the "complete diversity rule," requiring that no plaintiff is a citizen of the same state as any defendant. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806). The rule also provides that the party invoking diversity jurisdiction bears the burden of establishing the court’s jurisdiction. Basso v. U.S. Disc. Corp., 416 F.2d 901, 902 (9th Cir. 1969).

Limitations and Exceptions to the Rule

It is important to note that the well pleaded complaint rule has its exceptions and limitations. It is the plaintiff’s burden to establish federal jurisdiction; therefore, the plaintiff may state a non-federal federal law fiduciary responsibility or non-diverse state law claim in order to avoid removal. The well-pleaded complaint rule does not apply where the plaintiff "sue[s] in anticipation of a defense." For example, in Kline v. Burke Construction Co., 414 F.2d 278 (3d Cir. 1969), a possible state law claim, a diversity action, was removed and the Third Circuit held that the removal was proper. The Third Circuit distinguished between anticipatory defenses and claims and analyzed the plaintiffs’ purpose for bringing the suit. Ultimately the Third Circuit held that because the plaintiffs believed that the defendant construction company might assert a defense to the contract claim , the plaintiffs had an independent reason for filing in federal court. The converse is also true, in Guam v. American President Lines, Ltd., 28 F.3d 581 (9th Cir. 1994), where the Ninth Circuit held that an anticipatory plaintiff-plaintiff removal may be improper if it is foreseeable that the defendant may file a federal counterclaim. There, the Guam Attorney General filed suit against the shipper. At issue was whether the shipper would file a counterclaim under 28 U.S.C. section 1346(e) against the Guam Attorney General. The Court recognized that removal jurisdiction may also be proper when a plaintiff, in anticipation of a defense, "shifts from a state law to a federal law claim."

Consequences for Plaintiffs and Defendants

The well pleaded complaint rule has unique ramifications for both plaintiffs and defendants. One obvious disadvantage to plaintiffs is that the rule may unnecessarily limit their ability to select the choice of forum. This point underscores yet again the importance of thoroughly analyzing the complaint before it is filed. The ultimate choice of forum in any given case depends not only on the legal issues that may be involved, but also on where those issues may be best resolved. FED R. CIV. P. 82 ("These rules are devised for the purpose of settling controversies in the federal courts, and under them in no case is there a right to change the form of the proceeding without authority of law."). Some plaintiffs’ attorneys do not have the experience or training to make that decision and find themselves losing valuable bargaining power over the place of trial.
This rule also has the additional effect of requiring plaintiffs to folder the court and opposing counsel—often against their will—convoluted material that blurs the line between true allegations and "the so-called" "jurisdictional" allegations that some courts have found to be frivolous as they turn out to be completely unrelated to the cause of action. As a result, plaintiffs who never intended to sue in the federal courts too often are forced to do so.
Conversely, the well pleaded complaint rule also has some obvious benefits to plaintiffs as well. For example, the rule essentially prevents a defendant from removing a claim to federal court just because it conveniently has a federal defense. A defendant is only entitled to remove an action to federal court to the extent that the action is based on a claim that is within original jurisdiction of the district courts. A claim is within the original jurisdiction of the district courts "if it is federal in nature or if there is diversity of citizenship as the basis for federal jurisdiction." Masterson v. Merced Ag & Nutrition Company, 2003 U.S. Dist. LEXIS 1941 at *3 (E.D. Cal. Feb. 6, 2003), citing Franchise Tax Bd. of California v. Constr. Laborers Vacations Trust, 463 U.S. 1 (1983).
Defendants, too, are not immune from the harsh results of this rule. Some defendants may have anticipated a procedural advantage by their choice of the federal court system and, before answering the complaint, spent a lot of time and money during their motion for new trial to dismiss or remand. They will not get that time or expense back.

Recent Developments and Beyond

While there are few signs of change to the Well Pleaded Complaint Rule on the horizon in the near future, changes in three areas are likely. First, the recent Supreme Court decision in Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826 (2002) has raised questions regarding the extent to which Federal Circuit Courts may have discretion to remand cases improperly removed in violation of the Well Pleaded Complaint Rule. A decision from the Federal Circuit addressing this issue is expected, and making it clear that the Supreme Court does not favor discretion based remand rulings would be a welcome development. Second , the application of the Well Pleaded Complaint Rule to multiforum litigation may be ripe for clarification. As the volume of large mass tort litigation continues to grow, that development may signal further debate over diversity jurisdiction as a vehicle for keeping these massive casualty mass tort cases out of state courts. A case from the Federal Circuit may shed light on the question of how the well pleaded complaint rule applies in the geographically broad, multi-forum context of the mass tort. Third, as noted above, the question of what constitutes a claim under the Well Pleaded Complaint Rule remains unsettled. It would be a welcome clarification indeed to have a case or commentary on this issue.