Household Bank v. Jfs Group

• Citation: 320 F.3d 1249
• Decision Date: 07 February 2003
• Docket Number: No. 02-11990.,02-11990.
• Parties: HOUSEHOLD BANK, f.s.b., Plaintiff-Appellant, H & R Block, Inc., H & R Block Eastern Tax Services, Inc., H & R Block Tax Services, Inc., Block Financial Corporation, Intervenors-Plaintiffs-Appellants, v. The JFS GROUP, Mary G. Blackmon, Carl T. Brown, William E. Burch, Vincent R. Butler, Margaret A. Callaway, Dorothy Carruthers, Angela G. Christian, Curtis Crews, Letitia A. Crews, Janice Cunningham, Susie Davis, Willie Davis, Billy Devose, Patricia Dixon, Grace Downie, Sandra E. Dumas, Jessie Erkins, Larry Forte, Vivian A. Fortson, Michael A. Fountain, Tangela D. Glenn, Jean Imgram Gordy, Jeanette Harris, Otis G. Hayward, Eyvonne Hill, Jeffery Jackson, Willie J. Jett, Charlene D. Jonson, Gloria A. Johnson, Tonya A. Jones, Michael D. Kelly, Dorothy Kinsey, Latanya S. McCoy, Donald McCray, Johnnie R. McCray, Tonia McGhee, Lisa McQueen, Mary A. Morris, Denise Paige, Yvonne Paige, Aaron C. Patterson, Modester Peterson, Belinda Ann Rogers, Brenda Ruffin, Onnie Simmons, Emogene L. Smith, Cresha D. Thomas, Evelyn P. Thomas, Theresa L. Turner, Eugene Williams, and Winnifer Williams, The Middle District Group, Marie Anderson, Alvester Brafort, Patricia A. Coleman, Caldonia Jackson, Shirley Jernigan, Mamie D. Mitchell, Diane Peterson, Ernestine D. Starks, Gerald Stokes, Albert Thomas, and Earlene Young, The JTMH Group, The Adams Group, The Abraham Group, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

320 F.3d 1249

HOUSEHOLD BANK, f.s.b., Plaintiff-Appellant H & R Block, Inc., H & R Block Eastern Tax Services, Inc., H & R Block Tax Services, Inc., Block Financial Corporation, Intervenors-Plaintiffs-Appellants, v. The JFS GROUP, Mary G. Blackmon, Carl T. Brown, William E. Burch, Vincent R. Butler, Margaret A. Callaway, Dorothy Carruthers, Angela G.

Christian, Curtis Crews, Letitia A. Crews, Janice Cunningham, Susie Davis, Willie Davis, Billy Devose, Patricia Dixon, Grace Downie, Sandra E. Dumas, Jessie Erkins, Larry Forte, Vivian A. Fortson, Michael A. Fountain, Tangela D. Glenn, Jean Imgram Gordy, Jeanette Harris, Otis G. Hayward, Eyvonne Hill, Jeffery Jackson, Willie J. Jett, Charlene D. Jonson, Gloria A. Johnson, Tonya A. Jones, Michael D. Kelly, Dorothy Kinsey, Latanya S. McCoy, Donald McCray, Johnnie R. McCray, Tonia McGhee, Lisa McQueen, Mary A. Morris, Denise Paige, Yvonne Paige, Aaron C. Patterson, Modester Peterson, Belinda Ann Rogers, Brenda Ruffin, Onnie Simmons, Emogene L. Smith, Cresha D. Thomas, Evelyn P. Thomas, Theresa L. Turner, Eugene Williams, and Winnifer Williams, The Middle District Group, Marie Anderson, Alvester Brafort, Patricia A. Coleman, Caldonia Jackson, Shirley Jernigan, Mamie D. Mitchell, Diane Peterson, Ernestine D. Starks, Gerald Stokes, Albert Thomas, and Earlene Young, The JTMH Group, The Adams Group, The Abraham Group, et al., Defendants-Appellees.

No. 02-11990.

United States Court of Appeals, Eleventh Circuit.

February 7, 2003.

As Corrected April 7, 2003.

Burt M. Rublin, Philadelphia, PA, A. Inge Selden, III, Stephen Clark Jackson, Julie L. Wilson, Maynard, Cooper & Gale, P.C., Andrew J. Noble, III, Bradley, Arant, Rose & White, Birmingham, AL, for Plaintiff-Appellant.

Jeff S. Daniel, Jackson, Fraley & Shuttlesworth, Birmingham, AL, William Lloyd Copeland, Mobile, AL, Martha Dubina Roby, Robert D. Segall, Copeland, Franco, Screws & Gill, C. Knox McLaney, III, McLaney & Associates, PC, Montgomery, AL, for Defendants-Appellees.

Appeals from the United States District Court for the Middle District of Alabama.

Before CARNES, HULL and ALARCÓN^*, Circuit Judges.

ALARCÓN, Circuit Judge:

We must decide whether the district court erred in dismissing this declaratory judgment action for lack of subject-matter jurisdiction, notwithstanding the existence of an actual controversy between the parties regarding non-frivolous federal claims that could be brought by the defendants in a coercive action. The district court held that it lacked subject-matter jurisdiction because the plaintiffs failed to demonstrate that the anticipated coercive action could, but would not necessarily present a federal question due to the availability of state-law claims. In reversing this judgment, we join seven of our sister circuits in concluding that federal-question jurisdiction exists in a declaratory judgment action if the plaintiff has alleged facts in a well-pleaded complaint which demonstrate that the defendant could file a coercive action arising under federal law.

I

H & R Block, Inc. ("Block") provides tax preparation services to its customers. For a fee, it will file a customer's tax return electronically with the Internal Revenue Service ("IRS"). Electronically filed tax returns enable a taxpayer to obtain a refund within two weeks. For Block's customers who preferred not to wait that long, Block arranged for Household Bank, f.s.b. or its predecessor-in-interest, Beneficial Financial Bank (collectively "Household") to make a short-term loan in the amount of the anticipated tax refund. These loans are referred to as tax refund anticipation loans ("RAL"). The loan is secured by the amount of the tax refund. Block's customers authorized the IRS to deposit the tax refund in Household's account. Each of Block's customers signed a contract in which he or she agreed that any dispute relating to the RAL would be resolved by binding arbitration.

In 1998, two national class actions were filed against Household in the United States District Court for the Northern District of Illinois (the "Illinois Class Actions") by Block customers who had received RALs. Zawikowski v. Beneficial Nat'l Bank, No. 98-C-2178 (N.D.Ill. Mar. 20, 2002); Turner v. Beneficial Nat'l Bank, No. 98-C-2550 (N.D.Ill. Mar.20, 2002). These actions were certified as Fed.R.Civ.P. 23(b)(3) "opt-out" class actions. The claims in the Illinois Class Actions alleged violations of the federal Truth in Lending Act ("TILA"), the National Bank Act, Racketeer Influenced and Corrupt Organizations ("RICO"), and various state-law claims. A settlement was reached in the Illinois Class Actions. Six hundred and seventy-two class members from Alabama, however, exercised their right to opt out of the Illinois Class Actions in order to file their own actions against Household.

On August 2, 2000, counsel for some of the Alabama RAL recipients who opted out of the Illinois Class Actions executed an affidavit which alleged that "if adequate and fair settlements are not able to be obtained, I intend to pursue litigation through the Courts here in Alabama which are favorable to plaintiffs with valid causes of action such as these." (Emphasis added).

On September 7, 2000, Household filed this action for a declaratory judgment pursuant to 28 U.S.C. § 2201(a) and 9 U.S.C. § 4 of the Federal Arbitration Act against five groups of potential plaintiffs from Alabama who had opted out of Illinois Class Actions (collectively the "Alabama Defendants").¹ Household prayed for a declaration that the arbitration provisions in the RAL agreements are enforceable. Household alleged that the district court had diversity jurisdiction pursuant to 28 U.S.C. § 1332(a), and federal-question jurisdiction pursuant to 28 U.S.C. § 1331 "because certain of the potential claims by the defendants against Household arise under federal law, including the federal Truth in Lending Act...." On the same date, Block filed a claim styled as a "Complaint of Intervention." Block alleged that the district court had federal-question jurisdiction under the Truth in Lending Act, 15 U.S.C. § 1601, et seq. and the National Bank Act, 18 U.S.C. §§ 85 and 86. The Alabama Defendants filed motions to dismiss for lack of subject-matter jurisdiction. The district court granted the motions on March 8, 2002 holding that it did not have subject-matter jurisdiction pursuant to § 1331.²

II

Household and Block contend they are entitled to a declaration that the arbitration clause is enforceable because it is uncontested that, prior to the date this action was filed, the Alabama Defendants could have filed a non-frivolous coercive action in federal court under TILA, the Bankruptcy Act, or RICO. This court reviews de novo the dismissal of an action for lack of subject-matter jurisdiction. Woodruff v. United States Dept. of Labor, 954 F.2d 634, 636 (11th Cir.1992).³

The Federal Arbitration Act, 9 U.S.C. § 1 et seq., does not provide an independent basis for a federal court's subject-matter jurisdiction. Pursuant to 9 U.S.C. § 4, however,

[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.

9 U.S.C. § 4 (2002). Accordingly, we must determine whether the complaints filed by Household and Block set forth facts showing that there is an independent basis for federal court jurisdiction. See Tamiami Partners v. Miccosukee Tribe of Indians, 177 F.3d 1212, 1222-23 (11th Cir. 1999) ("[T]he Federal Arbitration Act alone is insufficient to confer federal jurisdiction over disputes involving arbitration agreements, ... an independent basis of jurisdiction-such as diversity or a federal question-is required."). The Declaratory Judgment Act, 28 U.S.C. § 2201(a), also requires that the plaintiff allege facts showing that the controversy is within the court's original jurisdiction. Section 2201(a) provides in pertinent part:

In a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

"[T]he operation of the Declaratory Judgment Act is procedural only." Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240, 57 S.Ct. 461, 81 L.Ed. 617 (1937). If there is an underlying ground for federal court jurisdiction, the Declaratory Judgment Act "allow[s] parties to precipitate suits that otherwise might need to wait for the declaratory relief defendant to bring a coercive action." Gulf States Paper Corp. v. Ingram, 811 F.2d 1464, 1467 (11th Cir. 1987).

In Article III, § 2 of the Constitution, the founders provided that "[t]he judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States and Treaties made or which shall be made under this Authority...." Id. In 1875, Congress authorized federal trial courts to exercise original jurisdiction over civil actions arising under the Constitution, laws, or treaties of the United States, Act of March 3, 1875, 18 Stat. 470 (codified as amended at 28 U.S.C. § 1331).

Household alleged in its complaint that the district court had subject-matter jurisdiction "under federal law, including the federal Truth in Lending Act." Block also alleged that the district court had federal-question jurisdiction "because the potential claims by Defendants against Household and/or Block arise under federal...