MSR Exploration, Ltd. v. Meridian Oil, Inc., 94-35833

• Decision Date: 22 January 1996
• Docket Number: No. 94-35833,94-35833
• Citation: 74 F.3d 910
• Parties: , 28 Bankr.Ct.Dec. 608, Bankr. L. Rep. P 76,761, 96 Cal. Daily Op. Serv. 419, 96 Daily Journal D.A.R. 693 MSR EXPLORATION, LTD., a Canadian corporation; Gypsy-Highview Gathering System, Inc., a Montana corporation, Plaintiffs-Appellants, v. MERIDIAN OIL, INC.; Fina Oil & Chemical Co., Inc.; Blackleaf Partners, Inc.; Blackleaf Gas Assocs., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 910

74 F.3d 910

64 USLW 2511, 28 Bankr.Ct.Dec. 608, Bankr.

L. Rep. P 76,761,

96 Cal. Daily Op. Serv. 419,

96 Daily Journal D.A.R. 693

MSR EXPLORATION, LTD., a Canadian corporation Gypsy-Highview Gathering System, Inc., a Montana corporation, Plaintiffs-Appellants, v. MERIDIAN OIL, INC.; Fina Oil & Chemical Co., Inc. Blackleaf Partners, Inc.; Blackleaf Gas Assocs. Defendants-Appellees.

No. 94-35833.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 17, 1995.

Decided Jan. 22, 1996.

Kenneth D. Tolliver, Wright, Tolliver and Guthals, Billings, Montana, for plaintiffs-appellants.

Stephen H. Foster and W. Scott Mitchell, Holland & Hart, Billings, Montana, Steven M. Johnson, Church, Harris, Johnson & Williams, Great Falls, Montana, and Mark D. Parker, Billings, Montana, for defendants-appellees.

Appeal from the United States District Court for the District of Montana.

Before: WRIGHT, FERNANDEZ, and KLEINFELD, Circuit Judges.

FERNANDEZ, Circuit Judge:

MSR Exploration, Ltd. and Gypsy-Highview Gathering Systems, Inc. (collectively MSR) brought this action for malicious prosecution against Meridian Oil, Inc., Fina Oil & Chemical Co., Inc., Blackleaf Partners, Inc., and Blackleaf Gas Associates, LLC (collectively Producers). The action was based upon MSR's claim that Producers had maliciously filed and pursued creditors' claims in MSR's Chapter 11 bankruptcy proceeding. The district court dismissed for lack of jurisdiction because it found that the action was entirely preempted by the provisions of the bankruptcy law. We agree that it is preempted and we affirm.

BACKGROUND

MSR had a contract with the Producers' predecessors in interest to take and process raw natural gas from the Blackleaf Canyon Unit in Teton County, Montana. The contract required MSR to pay for the gas on a monthly basis and also required MSR and the Producers to share equally in any drop in gas prices. From 1982 until 1985, MSR purchased and paid for the gas each month without dispute.

However, in late 1984 after a drop in the price of processed gas, MSR informed the Producers that it would be reducing the price it paid for gas from the Unit. In early 1985, a unit operator employed by one of the Producers objected to the lower price, wrote a letter stating that the deduction was contrary In 1992, MSR filed a Chapter 11 bankruptcy proceeding in the United States Bankruptcy Court for the District of Montana. The Producers filed creditors' claims against MSR based upon the assertion that had been made by the unit operator in 1985. After MSR filed objections to the Producers' claims, the bankruptcy court entered an order disallowing them. MSR did not pursue sanctions, attorneys fees, or any other remedy in the bankruptcy court.

                to the contract, and directed MSR to "stop making these deductions immediately and issue a check to us to cover all prior deductions."   MSR did not agree and continued as before, without dispute.  In 1987, because the Producers were unable to meet the contract requirements, MSR and the Producers agreed to a new pricing schedule.  MSR continued to purchase and pay for raw gas pursuant to that schedule
                

Instead, MSR waited until its reorganization plan was confirmed and substantially consummated, whereupon it brought this malicious prosecution action in the district court. The Producers asserted that the claim was preempted and could only be pursued in the bankruptcy court itself. The district court agreed and dismissed for lack of subject matter jurisdiction. This appeal ensued.

STANDARD OF REVIEW

The existence of subject matter jurisdiction is a matter of law reviewed de novo. Seven Resorts, Inc. v. Cantlen, 57 F.3d 771, 772 (9th Cir.1995) (this court reviews de novo the district court's determination that it lacks subject matter jurisdiction); Valdez v. United States, 56 F.3d 1177, 1179 (9th Cir.1995) (same). Similarly, preemption is a question of law which we review de novo. See Greany v. Western Farm Bureau Life Ins. Co., 973 F.2d 812, 816 (9th Cir.1992) (ERISA preemption).

DISCUSSION

The major issue in this case is whether state malicious prosecution actions for events taking place within the bankruptcy court proceedings are completely preempted by federal law. If they are, it is clear that there is a federal question involved in this action, and that will establish the jurisdiction of the district court to rule upon the issue. See 28 U.S.C. Sec. 1331. As the Supreme Court said in Caterpillar, Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 2430, 96 L.Ed.2d 318 (1987) (citation omitted), "[o]nce an area of state law has been completely pre-empted, any claim purportedly based on that pre-empted state law is considered, from its inception, a federal claim, and therefore arises under federal law." See also Ramirez v. Fox Television Station, Inc., 998 F.2d 743, 747-48 (9th Cir.1993); Milne Employees Ass'n v. Sun Carriers, Inc., 960 F.2d 1401, 1406 (9th Cir.1991), cert. denied, --- U.S. ----, 113 S.Ct. 2927, 124 L.Ed.2d 678 (1993). Thus, preemption and jurisdiction are to that extent inexorably intertwined. We shall so consider them here.

We do recognize that preemption assertions are normally matters of defense and will not suffice to establish federal jurisdiction. See, e.g., Caterpillar, 482 U.S. at 392-93, 107 S.Ct. at 2430. Again, the complete preemption doctrine is often an exception to that rule. Id. Even then we must be careful. A plaintiff remains master of his pleading and may pitch his complaint on entirely separate grounds, even though he could have spelled out what would have been a preempted claim. When that occurs, a preemption assertion remains a matter of defense and will not establish jurisdiction. See Caterpillar, 482 U.S. at 398-99, 107 S.Ct. at 2433; Karambelas v. Hughes Aircraft Co., 992 F.2d 971, 974-75 (9th Cir.1993); Westinghouse Elec. Co. v. Newman & Holtzinger, P.C., 992 F.2d 932, 935-36 (9th Cir.1993). That conceptual difficulty is not a difficulty in this case. The complaint filed by MSR is self-consciously and entirely one which seeks damages for a claim filed and pursued in the bankruptcy court. The complaint states precisely that on its face and even goes on to refer to the fact that Federal Bankruptcy Rule 9011 provides sanctions for those who file improper claims. Therefore, nothing is hidden here. The Producers did not need to inject anything into the case in order to show what its true nature was.

Of course, the district court did ultimately determine that preemption deprived it of jurisdiction, but we see no anomaly in that. It is true that we have indicated that "where federal law preempts state law yet fails to provide its own cause of action" federal jurisdiction is not established. Ultramar America, Ltd. v. Dwelle, 900 F.2d 1412, 1416 (9th Cir.1990); see also Garibaldi v. Lucky Food Stores, Inc., 726 F.2d 1367, 1370 n. 5 (9th Cir.1984), cert. denied, 471 U.S. 1099, 105 S.Ct. 2319, 85 L.Ed.2d 839 (1985). That presents no impediment here because there is a federal remedy even if it is not to be found outside of the bankruptcy court. The fact that MSR did not avail itself of the remedy does not suggest that the district court had no jurisdiction to determine whether the purported malicious prosecution action was preempted. Nothing in Ultramar indicates the contrary. In addition, it almost goes without saying that the district court had jurisdiction to decide whether it had jurisdiction. In making that decision, it had to consider the preemption issue, as we must now do. ¹ Having cleared away the underbrush, we now turn to the trees.

As the Supreme Court said in Fidelity Federal Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 152-53, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664 (1982) (citations omitted):

The pre-emption doctrine, which has its roots in the Supremacy Clause, U.S. Const., art. VI, cl. 2, requires us to examine congressional intent. Pre-emption may be either express or implied, and "is compelled whether Congress' command is explicitly stated in the statute's language or implicitly contained in its structure and purpose." Absent explicit pre-emptive language, Congress' intent to supersede state law altogether may be inferred because "[t]he scheme of federal regulation may be so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it," because "the Act of Congress may touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject," or because "the object sought to be obtained by federal law and the character of the obligations imposed by it may reveal the same purpose."

See also Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137-38, 111 S.Ct. 478, 482, 112 L.Ed.2d 474 (1990); FMC Corp. v. Holliday, 498 U.S. 52, 58, 111 S.Ct. 403, 407, 112 L.Ed.2d 356 (1990). For a number of reasons, we are satisfied that preemption does apply in this case.

First, Congress has expressed its intent that bankruptcy matters be handled in a federal forum by placing bankruptcy jurisdiction exclusively in the district courts as an initial matter. 28 U.S.C. Sec. 1334(a). The mere fact that exclusive jurisdiction over a particular action is in the district courts would not necessarily mean that a later malicious prosecution action must be brought there. However, it does militate in that direction. In Berg v. Leason, 32 F.3d 422 (9th Cir.1994), we allowed a malicious prosecution claim to go forward. There the defendant had brought, and lost, a RICO claim, 18 U.S.C. Sec. 1961-68, and a federal securities claim, 15 U.S.C. Secs. 78j(b), 78t(a) in federal court. There was concurrent state and federal court jurisdiction over the RICO claim, but federal court jurisdiction over the securities claim was exclusive. We did not find it dispositive, but did agree that the defendant's argument against allowing a malicious pro...