Ultramar America Ltd. v. Dwelle, s. 87-6373

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Citation: 900 F.2d 1412
• Docket Number: 87-6473,Nos. 87-6373,s. 87-6373
• 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.
• Decision Date: 16 April 1990

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.

Page 1413

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

Page 1414

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

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.

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...