Ultramar America Ltd. v. Dwelle

• Decision Date: 16 April 1990
• Docket Number: 87-6473,Nos. 87-6373,s. 87-6373
• Citation: 900 F.2d 1412
• Parties: ULTRAMAR AMERICA LIMITED, a Delaware Corporation, Plaintiff-Appellant, v. Thomas W. DWELLE, individually and as Trustee of the Walter B. Allen, Jr. Trust and the Marjorie Allen Dwelle Trust created under the Will of Ann Allen, et al., Defendants-Appellees. ULTRAMAR AMERICA LIMITED, Plaintiff-Appellant, and Loyd P. Derby, Real-Party-In-Interest-Appellant, v. Thomas W. DWELLE, individually and as Trustee of the Walter B. Allen, Jr. Trust and the Marjorie Allen Dwelle Trust created under the Will of Ann Allen, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1412

900 F.2d 1412

58 USLW 2640

ULTRAMAR AMERICA LIMITED, a Delaware Corporation, Plaintiff-Appellant, v. Thomas W. DWELLE, individually and as Trustee of the Walter

B. Allen, Jr. Trust and the Marjorie Allen Dwelle

Trust created under the Will of Ann

Allen, et al., Defendants-Appellees.

ULTRAMAR AMERICA LIMITED, Plaintiff-Appellant, and Loyd P. Derby, Real-Party-In-Interest-Appellant, v. Thomas W. DWELLE, individually and as Trustee of the Walter

B. Allen, Jr. Trust and the Marjorie Allen Dwelle

Trust created under the Will of Ann

Allen, et al., Defendants-Appellees.

Nos. 87-6373, 87-6473.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 3, 1988.

Decided April 16, 1990.

Loyd P. Derby, Morgan, Lewis & Bockius, Los Angeles, Cal., for plaintiff-appellant.

William M. Bitting, Arthur B. Cook, William A. White, Hill, Farrer, & Burrill, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before HALL and LEAVY, Circuit Judges, and GEORGE ^*, District Judge.

GEORGE, District Judge:

Three issues are raised in these consolidated appeals, namely whether the district court erred in: (1) dismissing Ultramar America Limited's ("Ultramar's") complaint; (2) sanctioning Ultramar's counsel; and (3) awarding costs and attorney's fees to the respondents, Thomas W. Dwelle, et al., ("Dwelle"). Because we determine that the district court lacked jurisdiction over this action, we reverse and remand with instructions to remand the matter to state court.

BACKGROUND

Ultramar purchased Beacon Oil Company ("Beacon") from Dwelle in November 1981. Dwelle warranted that, to the best of its knowledge, Beacon had not violated any environmental laws as of the purchase date. The parties agreed to deposit $8,850,000 of the purchase price into an escrow account to secure any cognizable indemnity claims brought by Ultramar within five years of the closing date. The parties further agreed that if any disputes resulted in litigation, the prevailing party could recover reasonable costs and attorney's fees.

Sometime prior to August 1986, Ultramar received notices from the California Regional Water Quality Control Board and the State Water Resources Control Board that the agencies would be assessing various dump sites for soil and groundwater contamination. The notices were distributed statewide to advise former and present operators and users of the sites that they might be liable for the costs of the investigation and any remedial measures taken. Ultramar subsequently sued Dwelle for indemnification for whatever liability Beacon might incur ("the escrow action"). ¹ Since Ultramar's indemnification claim was not ripe for adjudication, however, the district court granted summary judgment in favor of Dwelle. This court affirmed the judgment. ²

While the escrow action was on appeal, Ultramar filed the instant action in the Superior Court of the State of California. The claims in this second suit were based upon the same misrepresentations alleged in the prior suit. Dwelle removed the matter to the United States District Court for the Central District of California, alleging federal question jurisdiction. ³ Dwelle thereafter moved to dismiss the action on the bases of res judicata and failure to file a compulsory counterclaim. Ultramar opposed the motion and moved to remand the action to state court for lack of jurisdiction. Without deciding the jurisdiction question, the district court granted Dwelle's motion to dismiss, awarded costs and attorney's fees, and sanctioned Ultramar's counsel pursuant to Rule 11 of the Federal Rules of Civil Procedure. Both Ultramar and its counsel appeal.

DISCUSSION

The primary issue on appeal is whether the district court lacked removal jurisdiction over this action. See Mitchell v. Maurer, 293 U.S. 237, 244, 55 S.Ct. 162, 165, 79 L.Ed. 338 (1934) (an appellate court must satisfy itself of jurisdiction in both the appellate and the district courts). Since diversity jurisdiction does not exist, Dwelle must establish that at least one claim alleged in the complaint "arises under" federal law. See 28 U.S.C. Secs. 1441(b) (1982); id. Sec. 1331; ⁴ Salveson v. Western Dwelle contends that Ultramar's right to relief turns upon construction of federal law, and therefore, although Ultramar couched its claims in terms of state law, the claims in fact "arise under" federal law. See Merrell Dow Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804, 808, 106 S.Ct. 3229, 3232, 92 L.Ed.2d 650 (1986); Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 9, 13, 103 S.Ct. 2841, 2846, 2848, 77 L.Ed.2d 420 (1983). Dwelle further contends that since these claims involve the same parties and the same operative facts as those in the escrow action, the district court could assert jurisdiction to protect the prior federal judgment and prevent Ultramar from circumventing its preclusive effect, citing Sullivan v. First Affiliated Sec., Inc., 813 F.2d 1368, 1375-76 (9th Cir.), cert. denied, 484 U.S. 850, 108 S.Ct. 150, 98 L.Ed.2d 106 (1987), and Salveson, 731 F.2d at 1427.

States Bankcard Ass'n, 731 F.2d 1423, 1426 (9th Cir.1984) (the party seeking removal bears the burden of establishing federal jurisdiction).

A. Claims "Arising Under" Federal Law

Ordinarily, the existence of federal question jurisdiction is determined from the face of the complaint. Whether the complaint states a claim "arising under" federal law must " 'be ascertained by the legal construction of [the plaintiff's] allegations, and not by the effect attributed to those allegations by the adverse party.' " Tennessee v. Union & Planters' Bank, 152 U.S. 454, 460, 14 S.Ct. 654, 656, 38 L.Ed. 511 (1894) (quoting Central R.R. v. Mills, 113 U.S. 249, 257, 5 S.Ct. 456, 459, 28 L.Ed. 949 (1985)). The plaintiff is the "master" of his complaint; where he may pursue state and federal claims, he is free to pursue either or both, so long as fraud is not involved. Salveson, 731 F.2d at 1426-27.

On the other hand, jurisdiction must be determined by reference to the "well-pleaded" complaint. Franchise Tax Bd., 463 U.S. at 9-10, 103 S.Ct. at 2846. Claims brought under state law may "arise under" federal law if vindication of the state right necessarily turns upon construction of a substantial question of federal law, i.e., if federal law is a necessary element of one of the well-pleaded claims. Id. at 13, 27-28, 103 S.Ct. at 2848, 2855-56; see also Merrell Dow Pharmaceuticals, 478 U.S. at 808, 106 S.Ct. at 3232.

Construing Ultramar's well-pleaded complaint, this court cannot say that Ultramar's right to relief necessarily depends upon construction of a substantial question of any federal environmental law. Although Beacon may have violated federal environmental laws prior to its acquisition by Ultramar, in which case Ultramar might be entitled to relief, for every stated cause of action, an alternative theory of relief, one dependent solely upon construction of state law, might also entitle Ultramar to relief. ⁵ The fact that an alternative theory of relief exists for each claim alleged in the complaint, one not dependent upon federal law, is itself grounds to defeat federal question jurisdiction. See Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 810, 108 S.Ct. 2166, 2174, 100 L.Ed.2d 811 (1988).

B. Res Judicata Basis for Removal Jurisdiction

Dwelle contends that even if Ultramar did not allege a federal claim in the second suit, the district court nevertheless had removal jurisdiction based upon the preclusive effect of the prior federal judgment, citing Salveson, 731 F.2d at 1432, and Sullivan, 813 F.2d at 1376. However, for the reasons articulated below, we find that In both Salveson and Sullivan, this court looked to Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981), and concluded that where a plaintiff files state claims after a federal judgment has been entered against him on essentially the same claims, the district court may invoke the artful pleading doctrine as a basis for federal jurisdiction and dismiss the claims under the principles of res judicata. Salveson, 731 F.2d at 1429; Sullivan, 813 F.2d at 1375-76. In Sullivan, we noted that such an application of the artful pleading doctrine was unique; traditionally, the doctrine has applied only when the conduct complained of is governed exclusively by federal law. Sullivan, 813 F.2d at 1372. We could not ignore the Supreme Court's apparent approval of this extraordinary application of the doctrine in Moitie, however, much less our application of the doctrine when confronted with parallel facts in Salveson. See Moitie, 452 U.S. at 397 n. 2, 101 S.Ct. at 2427 n. 2; Salveson, 731 F.2d at 1429. Accordingly, we recognized in those decisions a new basis for invoking the artful pleading doctrine. Sullivan, 813 F.2d at 1373, 1375.

Dwelle's reliance on Salveson and Sullivan is misplaced.

Sullivan states that the source of the "federal character" of the purported state claims in Moitie was "federal res judicata." Id. at 1375. The opinion continues: "Moitie can thus be construed as permitting removal only of state claims filed to circumvent the res judicata impact of a federal judgment." Id. at 1376. Considered in isolation, these statements appear to support Dwelle's contention that the only force driving Moitie removal is the existence of a prior final federal court judgment sufficient to render a later state court proceeding barred by res judicata, without regard for whether that prior federal court sat in diversity or decided federal law. But other language in Sullivan indicates that the source of the original federal court's subject-matter jurisdiction is crucial:

But as in the case of federal preemption coupled with a federal remedy, we can recharacterize a state claim barred by the res judicata effect of a federal judgment as an artfully pleaded...