Smith v. Grimm

• Citation: 534 F.2d 1346
• Decision Date: 13 April 1976
• Docket Number: No. 74-2310,74-2310
• Parties: Nathan S. SMITH, Plaintiff-Appellee, v. Arthur R. GRIMM and Jeannine Grimm, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1346

534 F.2d 1346

Nathan S. SMITH, Plaintiff-Appellee, v. Arthur R. GRIMM and Jeannine Grimm, Defendants-Appellants.

No. 74-2310.

United States Court of Appeals, Ninth Circuit.

April 13, 1976.

Rehearing and Rehearing En Banc Denied May 19, 1976.

Louis N. Haas (argued), of Haas & Najarian, San Francisco, Cal., for defendants-appellants.

Steven M. Kipperman (argued), of Kipperman, Shawn & Keker, San Francisco, Cal., for plaintiff-appellee.

OPINION

Before CHAMBERS and SNEED, Circuit Judges, and SMITH, ^* District Judge.

SNEED, Circuit Judge:

Plaintiff Smith sued the Commanding Officer, Air Force Accounting and Finance Center (the "Air Force") and defendant Grimm ¹ for declaratory and injunctive relief with respect to certain salary and retirement payments that the Air Force was to pay to Grimm. Smith alleged that he had an equitable lien, arising out of legal services performed by him for Grimm, on fifty percent of military pay due to Grimm. The trial judge, sitting without a jury, ruled in Smith's favor. Grimm appeals, ² alleging the unconscionability of the contract with Smith, and Smith's lack of performance thereof. We are unable to reach these issues inasmuch as we find that there is no federal jurisdiction to entertain this lawsuit.

I. Statement of Facts.

A comprehension of the factual background is necessary to adequately analyze the jurisdictional posture of this case. In 1963, after approximately eighteen years of service, Captain Grimm was discharged from the Air Force by the Secretary of the Air Force pursuant to the recommendation of a Board of Inquiry. Grimm retained Smith, an attorney, to contest the legality of that discharge. Arising out of this representation, and principally at issue below, was a contingent fee contract between Smith and Grimm whereby Grimm agreed to pay Smith "50% of any and all amounts recovered by (Grimm) as a direct or indirect result of the action."

Smith was successful in his representation, and had the discharge declared null and void. Grimm v. Brown, 291 F.Supp. 1011 (N.D.Cal.1968), aff'd, 449 F.2d 654 (9th Cir. 1971). After the district court decision, Grimm filed suit in the Court of Claims seeking to recover back pay. After the Ninth Circuit affirmance of the district court, there was a dispute and the parties parted ways. The Air Force paid Grimm approximately $3,000 of back pay; Grimm did not pay Smith one-half of this amount. Smith then filed the instant lawsuit.

The district judge found that under the contract Smith was entitled to recover fifty percent of the military pay due Grimm, including future retirement pay. In so doing, the district judge found that the contingent fee contract was not unconscionable, and (implicitly at least) that Smith had substantially performed under it. The Judgment did not require any material performance from the Air Force, but merely ordered Grimm to direct the Air Force to henceforth send his retirement payments to a bank custodial account, from which Smith would automatically be paid fifty percent. ³

II. Federal Jurisdiction.

At bottom, this is a simple contract dispute between Smith and Grimm. Smith wants to collect his contingent fee; Grimm defends upon the grounds of unconscionability and nonperformance. These issues of state law predominate. The role of the Air Force in this case is merely that of the contract debtor.

The district judge did not deny a motion to dismiss made by Grimm based upon lack of subject matter jurisdiction. However, his reasoning was substantially influenced by the fact that, at that time, there was an appeal in this case by the Air Force which was pending before this court. Since that appeal also raised the issue of federal jurisdiction, the district judge denied Grimm's motion "pending a decision by the Ninth Circuit." (R. 123). The Air Force's appeal was subsequently dismissed by stipulation of the parties under Fed.R.App.P. 42(b), so this court has not heretofore decided that jurisdictional question.

The state law focus of the case and the lack of any apparent material nexus between the underlying dispute and federal law, coupled with the district judge's initial reliance upon a non-forthcoming resolution from this court, convinced us that a critical appraisal of the federal jurisdiction of this case was warranted. ⁴ This analysis leads us to conclude that there is no valid federal jurisdictional basis for this case. The complaint alleges two bases of federal jurisdiction, federal question, 28 U.S.C. § 1331(a), and mandamus, 28 U.S.C. § 1361. ⁵ There is no allegation of diversity, and it appears from the record that both Smith and Grimm are California residents. We turn first to the issue whether federal question jurisdiction exists.

A. Federal Question.

Section 1331(a) provides:

The district courts shall have original jurisdiction of all civil actions wherein the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs, and arises under the Constitution, laws, or treaties of the United States.

The issue of what "arises under the Constitution, laws, or treaties of the United States" is one which the courts have grappled without being able to formulate a precise definition. Indeed, the task of determining whether a particular case "arises under" a federal law has been termed by a leading commentator as "the most difficult single problem in determining whether the federal jurisdiction exists." C. Wright, A. Miller, & E. Cooper, 13 Federal Practice and Procedure, 397 (1975).

Given the predominate position of the federal government in our present society and the burgeoning of federal regulation, we are not surprised when even the most "local" lawsuit is tangentially related to a federal law. However, such a relation to a federal law is not sufficient for section 1331(a) jurisdiction unless the lawsuit "really and substantially involves a dispute or controversy respecting the validity, construction, or effect . . . " of the federal law. Shulthis v. McDougal, 225 U.S. 561, 569, 32 S.Ct. 704, 706, 56 L.Ed. 1205, 1211 (1912). In analyzing the nexus between a claim and federal law, we are mindful of the admonition of Justice Cardozo, speaking for the Court in 1936, in words even more appropriate for 1976:

If we follow the ascent far enough, countless claims of right can be discovered to have their source or their operative limits in the provisions of a federal statute or in the Constitution itself with its circumambient restrictions upon legislative power. To set bounds to the pursuit, the courts have formulated the distinction between controversies that are basic and those that are collateral, between disputes that are necessary and those that are merely possible. We shall be lost in a maze if we put that compass by. Gully v. First National Bank in Meridian, 299 U.S. 109, 118, 57 S.Ct. 96, 100, 81 L.Ed. 70, 75 (1936).

Furthermore, the federal law must be a direct and essential element of the plaintiff's cause of action. Id. at 112, 57 S.Ct. at 97, 81 L.Ed. at 71. And even if there is a federal question presented, that federal question must be "substantial." Hagans v. Lavine, 415 U.S. 528, 536, 94 S.Ct. 1372, 1378, 39 L.Ed.2d 577, 587 (1974).

Before analyzing this case under these rather broad standards, we note that the federal question must be an essential element appearing on the face of the complaint. Gully, supra 299 U.S. at 112-13, 57 S.Ct. at 97-98, 81 L.Ed. at 71-72. The federal question may not be inferred from a defense or anticipated defense. Phillips Petroleum v. Texaco, 415 U.S. 125, 127-28, 94 S.Ct. 1002, 1003, 39 L.Ed.2d 209, 211-12 (1974).

We now examine the plaintiff's complaint herein. The complaint initially alleges the factual background with respect to the contract and the subsequent $3,000 payment by the Air Force to Grimm. The complaint then alleges that there is no adequate remedy at law (principally because Grimm was insolvent, had numerous creditors, and refused to pay Smith), and asks for the declaration of an equitable lien, the appointment of a temporary receiver for the funds, and an injunction requiring the moneys to be paid to the receiver.

Nowhere does the complaint allege that any federal statute or constitutional provision is the basis for this cause of action. Indeed, there is no mention of any federal law, statute, or constitutional provision (other than allegation under the jurisdictional sections, 28 U.S.C. §§ 1331(a), 1361 and 2201). The Air Force is mentioned throughout, but only in its role as Grimm's former employer and present debtor.

The litigation below did involve the construction and effect of a federal statute, the "Anti-Assignment Act," 31 U.S.C. § 203. This section provides certain procedural safeguards so that, inter alia, the Government can be sure of the validity of the assignment of a claim against the Government, and renders null and void any attempted assignment of a claim against the Government that does not comply with its procedures. Smith had notified the Air Force of an assignment to him of the contract (complaint, exhibit "C") and the Air Force had raised the issue of the Anti-Assignment Act (complaint, exhibit "D"). The question of whether an equitable lien, arising from a contract with an attorney, is a "transfer by operation of law" and therefore an exception to the Anti-Assignment Act was extensively briefed below by the Air Force and by Smith. However, this statute does not appear in the complaint, and cannot serve as a basis for jurisdiction since it is clearly collateral to Smith's claim. Gully, supra. The existence by virtue of a federal statute of a formal impediment to recognition of the plaintiff's claim grounded in state law does not provide federal question jurisdiction. Cf. Phillips Petroleum Co. v. Texaco, Inc., supra.

Although it is true that the term "laws," within the meaning of section 1331(a), includes federal common law, Illinois v. City of Milwaukee, 406...