377 F.3d 592 (6th Cir. 2004), 02-1678, Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg.

Docket Nº:02-1678.
Citation:377 F.3d 592
Party Name:GRABLE & SONS METAL PRODUCTS, INC., Plaintiff-Appellant, v. DARUE ENGINEERING & MANUFACTURING, Defendant-Appellee.
Case Date:July 27, 2004
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 592

377 F.3d 592 (6th Cir. 2004)

GRABLE & SONS METAL PRODUCTS, INC., Plaintiff-Appellant,

v.

DARUE ENGINEERING & MANUFACTURING, Defendant-Appellee.

No. 02-1678.

United States Court of Appeals, Sixth Circuit

July 27, 2004

Argued March 9, 2004.

Page 593

Charles E. McFarland (argued and briefed), Campbellsburg, KY, for Plaintiff-Appellant.

Michael C. Walton (argued and briefed), Rhoades, McKee, Boer, Goodrich & Titta, Grand Rapids, MI, for Third Party-Appellee.

Before: BOGGS, Chief Judge; DAUGHTREY, Circuit Judge; and ALDRICH, District Judge.[*]

OPINION

BOGGS, Chief Judge.

Grable & Sons Metal Products Inc., ("Grable") argues that the district court committed two errors in granting judgment to Darue Engineering & Manufacturing ("Darue") in Grable's action to quiet title against Darue. First, Grable argues that its claim, although based on federal tax law, does not present a federal question, and, therefore, that the district court did not have subject matter jurisdiction to adjudicate the case after Darue removed it from Michigan state court. Secondly, Grable appeals the district court's judgment denying its quiet-title claim in property Darue had purchased at a tax sale after the IRS seized it from Grable in 1994.

Grable's quiet-title action is based on provisions of the Internal Revenue Code concerning proper procedures for notifying delinquent taxpayers that their property has been seized. Its claim implicates a substantial federal interest, thereby presenting a federal question. Furthermore, the district court correctly denied Grable's action because the Internal Revenue Code allows for substantial, rather than literal, compliance with regulations regarding tax-seizure notification. Neither federal law nor principles of equity supports Grable's claim, asserted six years after the sale of its property, that notice by certified mail, rather than in person, rendered the IRS sale to Darue invalid. Accordingly, we

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affirm the judgment of the district court in its entirety.

I

The facts in this case are not disputed. In 1994, the IRS seized property at 601-701 W. Plains Road, in Eaton Rapids, Michigan, to satisfy Grable's tax debt resulting from not paying its corporate income taxes for six years. The IRS served notice of the seizure by certified mail, although 26 U.S.C. § 6335(a), the relevant statute, provides that notice must be "given" personally to the owner of the property. The parties agree that the IRS failed to adhere to the exact provisions of the statute but that Grable nevertheless received actual notice of the seizure. The IRS sold the property to Darue on December 13, 1994, for $44,500. The record before us contains no clear evidence that Grable challenged the sale at the time or attempted to redeem the property at issue in this case. Following its standard procedure, the IRS executed a quitclaim deed to Darue on November 13, 1995.

On December 14, 2000, about six years after Darue bought the property, Grable challenged the sale in Eaton County Circuit Court by filing a quiet-title action. Darue removed the case to the United States Court for the Western District of Michigan under 28 U.S.C. § 1441(b). Grable filed a motion to remand based on lack of subject matter jurisdiction. 28 U.S.C. § 1447(c). The district court held that it had jurisdiction to hear the case because the application of § 6335(a) implicates a substantial federal interest, meaning that Grable's claim was based on a federal question. On March 29, 2002, the district court denied Grable's motion to quiet title and awarded judgment to Darue. Grable appealed to this court in a timely manner.

II

Federal Question Jurisdiction

A defendant may remove to federal district court "any civil action brought in a state court of which the district courts of the United States have original jurisdiction." 28 U.S.C. § 1441(a). District courts have original jurisdiction over any civil action "arising under any Act of Congress providing for internal revenue...." 28 U.S.C. § 1340. This court reviews district court decisions regarding subject matter jurisdiction de novo. Caudill v. N. Am. Media Corp., 200 F.3d 914, 916 (6th Cir. 2000). Because we may not rule on the merits of a case over which a district court did not have subject matter jurisdiction, we must decide that issue first. See Thomas v. United States, 166 F.3d 825, 828 (6th Cir. 1999). The parties do not have diversity of citizenship, 28 U.S.C. § 1332(a), nor is the United States a party to this action.1

Federal courts also have original jurisdiction over claims "arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. Whether a claim presents a federal question "must be determined from what necessarily appears in the plaintiff's statement of his own claim." Taylor v. Anderson, 234 U.S. 74, 75-76, 34 S.Ct. 724, 58 L.Ed. 1218 (1914). In its original complaint to quiet title, Grable alleged that Darue's quitclaim deed was invalid because it "was given with improper notice pursuant to 26 U.S.C. § 6331 et seq.... [and] since the tax deed was given pursuant to improper notice as required by 26 U.S.C. § 6335(a), said transfer and claim through the tax deed is null and void and void ab initio. " The key

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question is whether Grable's quiet-title action, based as it is on the faulty process in a tax seizure, "arises under" federal law and thus invokes federal court jurisdiction. We hold that it does.

The statute upon which Grable bases his complaint reads:

As soon as practicable after seizure of property, notice in writing shall be given by the...

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