Pipino et al v. Onuska et al

Filing 16

Memorandum Opinion and Order The Court grants Plaintiffs' motion to remand, making it unnecessary to rule upon Defendants' motion to dismiss. Remand is granted on alternative grounds the removal was untimely and the complaint does not allege causes of action arising under federal law. Judge Benita Y. Pearson on 4/29/2011. (S,L)

PEARSON, J.

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

SAMUEL D. PIPINO, et al.,
Plaintiffs,
v.
JEFFREY ONUSKA, et al.,
Defendants.

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CASE NO. 4:11CV00129

JUDGE BENITA Y. PEARSON

MEMORANDUM OF OPINION AND
ORDER

Before the Court are Defendants’ Motion to Partially Dismiss Plaintiffs’ Complaint and
Request for Leave To File Answer Within Fourteen Days After Ruling (ECF No. 1-2), and
Plaintiffs’ Motion to Remand to State Court (ECF No. 10). The Court grants Plaintiffs’ motion
to remand, making it unnecessary to rule upon Defendants’ motion to dismiss.
Remand is granted on alternative grounds– the removal was untimely and the complaint
does not allege causes of action arising under federal law.
I. Background
Securities brokerage customers Samuel and Loraine Pipino (“the Pipinos”) began a
relationship with Defendants’ brokerage firm “for the purposes of obtaining the Defendants’
business, tax, and investment advice, and related services.” ECF No. 1-1 at 5. The Pipinos claim
that despite their clear designation of conservative risk tolerance, Defendants recommended and

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advised risky investments counter the Pipinos’ conservative risk tolerance and charged excessive
and unreasonable fees. ECF No. 1-1 at 6-7. As a result, the Pipinos suffered heavy losses
amounting to more than one million dollars. ECF No. 1-1 at 6-7.
The Pipinos sued Defendants in the Court of Common Pleas for Mahoning County, Ohio,
alleging the following claims:
Count I:
Count II:
Count III:
Count IV:
Count V:
Count VI:

Breach of Contract
Unsuitability
Breach of Fiduciary Duty
Negligence/Gross Negligence
Negligent Misrepresentation
Churning

ECF No. 1-1 at 6-14. In response, Defendants filed a motion seeking dismissal of the (1)
Unsuitability and Churning claims alleging that they fail to state claims upon which relief can be
granted; and (2) Defendants FirstMerit Corporation, FirstMerit Securities, Inc., FirstMerit
Advisors alleging that they had no relationship or dealings with the Pipinos. ECF No. 1-2 at 1.
The Pipinos opposed the motion for partial dismissal. ECF No. 1-3.
Based upon their review of the Pipinos’ brief in opposition to the motion to dismiss,
Defendants removed, theorizing that the Pipinos had “‘elected’ to frame their churning claim as a
securities fraud claim, rather than a claim for breach of fiduciary duty, and, by doing so, the
Pipinos [had] invoked the protections of the federal securities laws to support their churning
claim (as well as their unsuitability claim),” pursuant to15 U.S.C. § 78aa, which confers upon
federal courts exclusive jurisdiction over securities fraud claims arising under Sections 10(b) and
10(b)(5) of the Securities Exchange Act of 1934. ECF No. 1 at 3.

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The Pipinos moved to remand averring that the complaint contains no claims arising
under federal law. ECF No. 10 at 2. Recognizing the heft that the formulation of the claims in
the complaint would wield, Defendants argue that the complaint artfully pleads federal claims as
state claims, raises a federal question or is completely preempted by federal law, obviating the
effect of the well-pleaded complaint rule, which is discussed in greater detail below.
After removal, Defendants withdrew the portion of their motion seeking to dismiss the
unsuitability and churning claims, leaving only the request to dismiss the FirstMerit Defendants
named above. ECF No. 5 at 1.
II. Discussion
With limited exception, state courts are competent to interpret and apply federal law. See
Zwicker v. Koota, 389 U.S. 241, 245 (1967) (“During most of the Nation’s first century, congress
relied on the state courts to vindicate essential rights arising under the Constitution and federal
laws.”). Ordinarily, federal jurisdiction is determine by what cause of action is pled, not by the
defenses raised or even the basis of what claim can prevail. “A federal question ‘is presented’
when the complaint invokes federal law as a basis for relief. It does not suffice that the facts
alleged in support of an asserted state-law claim would also support a federal claim.” Beneficial
Nat’l Bank v. Anderson, 539 U.S. 1, 12 (2003) ( J. Scalia dissenting).
The party who brings the suit decides on what law she will rely. See Fair v. Kohler Die
& Specialty Co., 228 U.S. 22, 25 (1913). The Pipinos initiated a lawsuit in an Ohio state court
based solely upon Ohio law. Despite the absence of federal law, the Pipinos concede that the
conduct alleged as constituting a violation of state law would also constitute a violation of

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federal law. ECF No. 13 at 5. They also acknowledge that, even if the allegations made do not,
as the Pipinos hope, support a state law claim and would only support a federal law claim, federal
jurisdiction does not lie. The fate of the Pipinos’ churning and unsuitability claims are
poignantly conveyed in the Pipinos’ reply brief:
If Ohio recognizes churning and unsuitability as common-law claims, then the
state court can hear and decide them. If Ohio does not recognize churning and
unsuitability as common-law claims, ten the state court can dismiss them. But in
neither case does the Pipinos’ argument make a federal claim, or give any other
basis for federal jurisdiction.
ECF No. 13 at 3.
A. Removal based upon Federal Question Jurisdiction
Advocating that the unsuitability and churning claims raise substantial federal questions
arising under the Securities Exchange Act of 1934 over which federal courts have exclusive
jurisdiction, Defendants allege federal jurisdiction and oppose remand. ECF No. 12 at 1. While
acknowledging that the Court must look, in the first instance, to the language of the complaint
itself when determining the propriety of removing a case based on federal question jurisdiction,
Defendants urge that, under limited circumstances, defendants may force even reluctant plaintiffs
into federal court. Relying upon this device, Defendants argue that the instant matter should
remain in federal court due to the existence of substantial federal questions artfully disguised as
state claims and, possibly, the complete preemption doctrine. Mikulski v. Centerior Energy
Corp., 501 F.3d 555, 560 (6th Cir. 2007); ECF No. 12 at 2.

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1. Actions Removable, Generally
Only state court actions that originally could have been filed in federal court may be
removed to federal court by the defendant. Section 1441, 28 U.S.C., authorizes removal of civil
actions within the original jurisdiction of the federal district courts. Section 1441(b) reads, in
part:
Any civil action of which the district courts have original jurisdiction founded on
a claim or right arising under the Constitution, treaties or laws of the United States
shall be removable without regard to the citizenship or residence of the parties. . .1
In the absence of diversity, a defendant may remove a civil action from state court to
federal court only if the plaintiff's allegations establish “original jurisdiction founded on a claim
or right arising under” federal law. 28 U.S.C. § 1441(b). “To determine whether the claim arises
under federal law, we examine the ‘well pleaded’ allegations of the complaint and ignore
potential defenses[.]” Mikulski, 501 F.3d at 560 (citing Beneficial Nat’l Bank, 539 U.S. at 6).
Under this rule, a federal question must be presented on the face of the plaintiff’s complaint, as
the complaint stands at the time the notice of removal is filed, and the complaint must be
“well-pleaded,” meaning pleaded in conformity with the rules of pleading. Aetna Health Inc. v.
Davila, 542 U.S. 200, 207 (2004) (“Ordinarily, determining whether a particular case arises
under federal law turns on the ‘well-pleaded complaint’ rule.”). “The well-pleaded-complaint

1

The statute explicitly provides that, when removal is sought on the basis of a claim
presenting a federal question, the citizenship and residence of the parties are immaterial. Harper
v. AutoAlliance Intern., Inc., 392 F.3d 195, 202 (6th Cir. 2004). This permits even a defendant
who is a resident or citizen of the forum state may remove a federal question case. Id. at 200-01.
Generally, removal based on Sections 1441(a) and (b) embrace the same class of cases as is
covered by 28 U.S.C. § 1331, the original federal question jurisdiction statute. Id. at 202-03.
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rule makes the plaintiff master of the claim; he or she may avoid federal jurisdiction by exclusive
reliance on state law.” Catepillar Inc. v. Williams, 482 U.S. 386, 392 (1987) (internal quotations
and punctuation omitted).
a. The “Well-Pleaded Complaint” Rule
The existence of federal question jurisdiction is governed by the well-pleaded complaint
rule which provides that federal question jurisdiction exists only when a federal question is
presented on the face of a properly pleaded complaint. Caterpillar, 482 U.S. at 392. The
Supreme Court has explained:
[W]hether a case is one arising under the Constitution or a law or treaty of the
United States, in the sense of the jurisdictional statute[,] . . . must be determined
from what necessarily appears in the plaintiff's statement of his own claim in the
bill or declaration, unaided by anything alleged in anticipation of avoidance of
defenses which it is thought the defendant may interpose.
Aetna Health Inc., 542 U.S. at 207.
The existence of a federal defense does not normally create statutory “arising under”
jurisdiction, and “a defendant may not [generally] remove a case to federal court unless the
plaintiff’s complaint establishes that the case ‘arises under’ federal law.” Aetna Health Inc., 542
U.S. at 207 (quoting Franchise Tax Bd. of Cal., 463 U.S. at 10).2 It follows that the federal claim
or right that provides the predicate for removal must not appear for the first time in the
defendant’s answer by way of defense. City of Warren v. City of Detroit, 495 F.3d 282, 286 (6th

2

In Franchise Tax Bd. of Cal., the Court reversed the decisions of both the district court
and the Ninth Circuit Court of Appeals, and held that a removed suit brought to enforce state tax
levies on an employee benefit trust fund created under the Employment Retirement Income
Security Act of 1974 (ERISA) did not arise under federal law for purposes of federal question
jurisdiction, and that the case had to be remanded to state court. 463 U.S. at 27-28.
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Cir. 2007) (citing well-pleaded complaint rule for determining removability as a federal question
case, and noting that a case may not be removed on the basis of a federal defense); Litchfield v.
United Parcel Service, Inc., 136 F. Supp. 2d 756, 758 (S.D. Ohio 2000) (stating removal was
inappropriate when the federal issue relating to plaintiff’s state law conversion claim was
presented as a defense).
As indicated by Defendants, at least three doctrines provide exceptions to the wellpleaded complaint rule–artful pleading doctrine; complete preemption, and substantial federal
question. Mikulski, 501 F.3d at 560; Franchise Tax Bd. of Cal., 463 U.S. at 9-10; Miller v.
Champion Enter. Inc., 346 F.3d 660, 671 (6th Cir. 2003); see also Beneficial Nat’l Bank, 539
U.S. at 8.
(1). “Artful Pleading” Doctrine
The artful pleading doctrine is implicated when “a plaintiff has carefully drafted the
complaint so as to avoid naming a federal statute as the basis for the claim, and the claim is in
fact based on a federal statute.” Mikulski, 501 F.3d at 561 (citing Franchise Tax Bd. of Cal., 463
U.S. at 22). Relying upon this doctrine, Defendants argue that the Pipinos “framed their
Unsuitability and Churning claims” in a manner to avoid federal jurisdiction despite federal
jurisdiction being appropriate because the case is based on federal securities law. ECF No. 12 at
3. The Pipinos maintain that they “are not making claim[s] that arise[] under the Securities
Exchange Act; they are making common law claims.” ECF No. 13 at 4.
The Sixth Circuit has found that federal securities law and state common law fraud are
distinguishable because “[t]he § 10(b)/Rule 10b-5 claim is not identical to common law fraud,

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but [] it is very useful to analogize between the common law and § 10(b)/Rule 10b-5.”3
Mansbach v. Prescott, Ball, & Turben, 598 F.2d 1017, 1024, 1027 (6th Cir. 1979) (internal
citations, punctuations and footnotes omitted).
Turning first to the common law, churning is more akin to constructive fraud than to
actual fraud.4 Twomey v. Mitchum, Jones & Templeton, Inc., 262 Cal. App. 2d 690, 711-12
(1968). The Sixth Circuit held that “[t]he elements of a claim for actual fraud under Ohio law
are similar to a Rule 10b-5 claim: an actual or implied material misrepresentation or concealment
of a matter of fact, knowledge of the falsity, intent to mislead, reasonable reliance, and resulting
injury. A constructive fraud action does not require proof of intent.” Rubin v. Schottenstein,
Zox, & Dunn, 143 F.3d 263, 270 (6th Cir. 1998). Fraud in a common law churning cause of
action does not arise from a deception surrounding a particular investment decision. Rather,
constructive fraud arises from frustration of the customer’s expectation that if he delegates
authority to a broker to make investment decisions for him, the broker will act in the customer’s
best interest and not his own. Santa Fe Industries v. Green, 430 U.S. 462, 471-74 (1977).

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“[The] dichotomy between the federal and state authorities with respect to a definition
of churning offers opportunities for plaintiffs. State judges do not appear to be bound, as are
their federal counterparts, by the rigidities of a specific definition comprised of specific elements
and are therefore free to react with considerable flexibility to a ‘viscerally raw’ situation where a
customer has been disadvantaged by a broker. Indeed, state judges look to a variety of traditional
state common law concepts in analyzing churning under state law.” 6 Bromberg & Lowenfels on
Securities Fraud § 13:138 (2d ed.).
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Churning, as a stock manipulation involving a breach of the customer’s confidence,
constitutes a deception arising theoretically from a broker’s violation of his or her promise to
fairly deal with the customer implied from the customer-broker relationship. See, e.g., Twomey,
262 Cal. App. 2d at 690.
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Comparatively, in order to prevail on a securities fraud claim under § 10(b) or Rule
10b-5, “a plaintiff must allege, in connection with the purchase or sale of securities, the
misstatement or omission of a material fact, made with scienter, upon which the plaintiff
justifiably relied and which proximately caused the plaintiff's injury.” Miller, 346 F.3d at 673
(citing In re Comshare Inc. Sec. Litig., 183 F.3d 542, 548 (6th Cir. 1999)). The Supreme Court
has defined “scienter” as a “mental state embracing intent to deceive, manipulate or defraud.”
Burns v. Prudential Sec., Inc., 116 F. Supp. 2d 917, 923 (N.D. Ohio 2000) (citing Ernst & Ernst
v. Hochfelder, 425 U.S. 185, 194 (1976)).
Allegations of fraud under the Securities Act must be pled with enough specificity so as
to give rise to “a strong inference that the defendant acted with the required state of mind.” 15
U.S.C. § 78u-4(b)(2). Merely pleading facts establishing that “a defendant had the motive and
opportunity to commit securities fraud” does not establish scienter under the Securities Act. In
Re Comshare, 183 F.3d at 549. A private cause of action will not lie under § 10(b) of the
Securities Exchange Act of 1934 or Rule 10b-5 in the absence of scienter on the part of the
defendant (i.e., an intent to deceive, manipulate, or defraud). Ernst, 425 U.S. at 193.
In assessing whether the complaint at issue pleads a common law churning cause of
action or a federal securities fraud cause of action under § 10(b) or Rule 10b-5, the Court is
mindful that a complaint does not establish a “strong inference” of scienter by merely alleging
facts demonstrating motive and opportunity where those facts do not simultaneously establish
that Defendants acted recklessly or knowingly, or with the requisite state of mind. The Court is
also mindful that a defendant raising the artful pleading doctrine may not rely on facts not alleged

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in the complaint. Caterpillar Inc., 482 U.S. at 397. “Although occasionally [a] removal court
will seek to determine whether the real nature of the claim is federal, regardless of plaintiff's
characterization, most of them correctly confine this practice to areas of the law pre-empted by
federal substantive law.” Id. at 397 n. 11 (emphasis added).
The Sixth Circuit has stated that while facts regarding motive and opportunity may be
“relevant to pleading circumstances from which a strong inference of fraudulent scienter may be
inferred[,]” and may, on occasion, rise to the level of creating a strong inference of reckless or
knowing conduct, the bare pleading of motive and opportunity and even the mere mention of the
term, does not, standing alone, constitute the pleading of a strong inference of scienter.5 In Re
Comshare, 183 F.3d at 551. The Pipinos’ complaint fails to adequately allege the scienter
required for a cause of action under § 10(b) or Rule 10b-5. See Mansbach, 598 F.2d at 1026.
Simply put, the Pipinos’ complaint articulates common law churning and unsuitability
claims which express frustration of the Pipinos’ expectation that, upon delegating Defendants
authority to make investment decisions on the Pipinos’ behalf, Defendants would act in the best
interest of the client, not on their own behalf. The Pipinos’ reliance upon federal case law to
prove the viability of their state law claims does not transform those state law claims into federal
claims.

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If the mere mention of “scienter” were sufficient to convert a state common law claim
into a federal one, there would be absolutely no question of the untimeliness of the removal given
that the Pipinos’ complaint uses the term, albeit without elaboration, in its suitability claim. ECF
No. 1-1 at 9. The issue of untimely filing is discussed later in this Memorandum.
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(2). Substantial Federal Question Doctrine
“Under the substantial-federal-question doctrine, a state law cause of action may actually
arise under federal law, even though Congress has not created a private right of action, if the
vindication of a right under state law depends on the validity, construction, or effect of federal
law.” Mikulski, 501 F.3d at 565 (citing Franchise Tax Bd. of Cal., 463 U.S. at 9). “[T]he ‘law
that creates the cause of action’ is state law, and original federal jurisdiction is unavailable unless
it appears that some substantial, disputed question of federal law is a necessary element of one of
the well-pleaded state claims, or that one or the other claim is ‘really’ one of federal law.”
Mikulski, 501 F.3d at 565 (quoting Franchise Tax Bd. of Cal., 463 U.S. at 13). Likewise, the
“mere presence of a federal issue in a state law cause of action does not automatically confer
federal question jurisdiction, either originally or on removal.” Mikulski, 501 F.3d at 565.
Federal courts must determine jurisdiction on an issue-by-issue basis. Id.
The substantial federal question doctrine does not catapult the Pipinos’ claims from state
law to federal. There must be a substantial federal question that is an integral element of the
plaintiff’s claim for relief, not merely an ancillary federal issue or a claim that, properly analyzed,
arises only under state law. City of Warren, 495 F.3d at 286-87 (reversing denial of remand,
holding that plaintiff’s cause of action did not arise under federal law where a substantial,
disputed, question of federal law was not a necessary element of the claim); see also Eastman v.
Marine Mechanical Corp., 438 F.3d 544 (6th Cir. 2006). Here, the Pipinos’ complaint, in
general, or its common law churning and unsuitability claims, in particular, does not invoke or
reference federal law. Therefore, the Pipinos have not alleged a federal question, nor a

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“substantial” federal question, but rather claims that arises under state law.
(3). Complete Preemption Doctrine
“The complete-preemption doctrine applies in circumstances in which Congress may
intend the preemptive force of a federal statute to be so extraordinary that ‘any claim purportedly
based on that pre-empted state law is considered, from its inception, a federal claim, and
therefore arises under federal law.’” Mikulski, 501 F.3d at 563 (citing Caterpillar Inc., 482 U.S.
at 393).6 The Supreme Court “has found complete preemption in only three classes of cases:
Section 301 of the Labor Management Relations Act of 1947 (LMRA), 29 U.S.C. § 185; the
Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq.; and the
National Bank Act, 12 U.S.C. § 38 et seq.” Mikulski, 501 F.3d at 563-64 (citing Beneficial Nat’l
Bank, 539 U.S. at 7-9). In these areas, federal law does not merely preempt a state law to some
degree; rather, it substitutes a federal cause of action for the state cause of action, thereby
manifesting Congress’ intent to permit removal. Burns, 116 F. Supp. 2d at 921. The Sixth
Circuit has “recognized that complete preemption is a limited rule.” Mikulski, 501 F.3d at 564.
Without much conviction, Defendants argue that the complete preemption doctrine
supports removal, stating that “[a]t least two, and possibly all three, of these exceptions
warranted removal of this lawsuit to federal court.” ECF No 12 at 2 (emphasis added). Clinging
limply to the Sixth Circuit’s ruling that the National Flood Insurance Act completely preempted

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Removal of the state claim is permitted “because ‘[w]hen the federal statute completely
pre-empts the state-law cause of action, a claim which comes within the scope of that cause of
action, even if pleaded in terms of state law, is in reality based on federal law. Aetna, 542 U.S. at
207 (citing Beneficial Nat’l Bank, 539 U.S. at 8).
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state law because it explicitly conferred original jurisdiction on the federal courts, Defendants
timidly suggest that “it could also be argued here that the federal securities laws completely
preempt any state law governing Plaintiff’s churning and unsuitability claims,” because the
Securities Exchange Act, 15 U.S.C. § 78aa, explicitly confers exclusive jurisdiction on the
federal courts, therefore, complete preemption must follow. ECF No. 12 at 10
The complete-preemption doctrine was first used by the Supreme Court in its decision in
Avco Corp. v. Aero Lodge, 390 U.S. 557 (1968). In Avco Corp., the Supreme Court held that
Avco’s claim necessarily arose under Section 301 of the Labor Management Relations Act
(LMRA) and was removable even though the company apparently had pled only state law claims
and had sought a remedy available only under state law. Id. In Metropolitan Life Ins. Co. v.
Taylor, the Supreme Court held the legislative history of ERISA unambiguously described an
intent to treat such actions “as arising under the laws of the United States in similar fashion to
those brought under section 301 of the Labor-Management Relations Act of 1947.” 481 U.S. 58,
65-66 (1987). In Beneficial Nat’l Bank v. Anderson, the Supreme Court upheld the removal of
an action to recover damages from a national bank for allegedly charging excessive interest in
violation of both common-law usury doctrine and state statutory usury law, holding that the
National Bank Act completely preempted plaintiffs’ claims, so as to render them claims arising
under federal law. 539 U.S. at 8.
In the instant matter, the legislative history of § 10(b) and Rule 10b-5 and statutory
language do not unequivocally evince Congress’ intent to displace state law actions in the
absence of manipulation or deception. In Santa Fe Industries, Inc. v. Green, the Supreme Court

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reasoned:
The language of § 10(b) gives no indication that Congress meant to prohibit any
conduct not involving manipulation or deception. Nor have we been cited to any
evidence in the legislative history that would support a departure from the
language of the statute. ‘When a statute speaks so specifically in terms of
manipulation and deception, . . . and when its history reflects no more expansive
intent, we are quite unwilling to extend the scope of the statute . . ..’ Id., at 214, 96
S.Ct., at 1390. Thus the claim of fraud and fiduciary breach in this complaint
states a cause of action under any part of Rule 10b-5 only if the conduct alleged
can be fairly viewed as ‘manipulative or deceptive’ within the meaning of the
statute.
430 U.S. 462, 473-74 (1977). The Court expounded:
As the Court noted in Ernst & Ernst: ‘Neither the intended scope of § 10(b) nor
the reasons for the changes in its operative language are revealed explicitly in the
legislative history of the 1934 Act, which deals primarily with other aspects of the
legislation.’ 425 U.S., at 202, 96 S.Ct., at 1385. The only specific reference to §
10 in the Senate Report on the 1934 Act merely states that the section was ‘aimed
at those manipulative and deceptive practices which have been demonstrated to
fulfill no useful function.’ S.Rep.No.792, 73d Cong., 2d Sess., 6 (1934).
Id. at 473 n. 13.
Defendants have shown no basis in law or legislative intent to extend the complete
preemption doctrine to a permit the federal law to usurp all violations related to securities.
Claims pled under state law, even if they could be construed as arising under federal law, may be
removable but are by no means completely preempted.
2. Timing of Removal
Generally, removal should occur within thirty days of receipt of the initial pleading or
service of the summons or, if “the case stated by the initial pleading is not removable,” within
thirty days of receipt of a motion or other paper “from which it may first be ascertained that the
case is one which is or has become removable.” 28 U.S.C. § 1446(b).
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In this case, removal occurred approximately three months after service of the complaint.
Defendants urge that the removal is timely because Defendants removed within thirty days of
“Defendants’ receipt [] of Plaintiffs’ Brief in Opposition.” ECF No. 1 at 4, ¶10. The Court is not
convinced.
Untimely removal is a defect within the meaning of the removal statute and an
independent and adequate basis for remand. State of Ohio v. Bulgartabac, 167 Fed.Appx. 512,
515 (2006) (citing Things Remembered, Inc. v. Petrarca, 561 U.S. 124, 128 (1995)). Remand
due to any defect other than the lack of subject matter jurisdiction must be made within thirty
days after filing of the notice of removal. 28 U.S.C. § 1447(c). The Pipinos timely sought
remand within thirty days of removal.
Wisely anticipating a challenge to the timeliness of its removal, Defendants explained
that, in its opposition to Defendants’ motion to dismiss, for the “first time in this action,” the
Pipinos “invoked the protections of the federal securities laws or any other laws giving rise to
original jurisdiction” in federal court. ECF No. 1 at 4, ¶7. While it might be that it was not until
reviewing the Pipinos’ opposition that Defendants believed a federal question might exist. The
pleadings defy the allegation that the Pipinos “invoked” federal law.
From the filing of its responsive pleading, Defendants’ litigative effort was focused with
laser beam like precision on the very claims–churning and unsuitability– later used to remove the
action to federal court. It strikes as more than mere coincidence, that these two claims were also
the only substantive claims for which dismissal were sought. After mining for federal
jurisdiction in the Pipinos’ opposition to dismissal, Defendants removed. Yet, nothing had

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changed. The complaint still alleged only state law violations. Citing federal case law in
opposition to a motion to dismiss does not convert state law claims into federal ones any more
than alleging a federal defense does. Caterpillar Inc., 482 U.S. at 392 (“federal jurisdiction
exists only when a federal question is presented on the face of the plaintiffs’ properly pleaded
complaint.”).
The initial pleading placed Defendants on notice of the nature of the claims when served
in late October 2010.7 If removal was to be effected at all, it should have occurred no later than
thirty days after service of the initial pleading. Removal was effected nearly ninety days after
service of the initial pleading and, therefore, is untimely.
III. Conclusion
While it is axiomatic that when a defense to a state claim is based upon federal law,
federal law will have to be consulted to resolve the matter. The presence of a federal question, in
a defensive argument, however, does not override the well-pleaded complaint rule’s maxims that
the plaintiff is the master of the complaint; that a federal question must appear on the face of the
complaint; and that the plaintiff may, when given a choice of venues, simply choose to have her
case heard in state court. “A defendant cannot, merely by injecting a federal question into an
action that asserts what is plainly a state-law claim, transform the action into one arising under
federal law, thereby selecting the forum in which the claim shall be litigated.” Caterpillar Inc.,
482 U.S. at 399. If a defendant had such power, the plaintiff would be master of nothing.

7

The Pipinos’ claim to have effected service on all Defendants by October 29, 2010.
ECF No. 10 at 1. Defendants acknowledge that the last of them was served on October 25, 2010.
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Congress has long since decided that federal defenses do not provide a basis for removal. See id.
For the foregoing reasons, the Court grants Plaintiffs Samuel and Loraine Pipino’s
Motion to Remand to State Court.

IT IS SO ORDERED.

s/ Benita Y. Pearson
United States District Judge

April 29, 2011
Date

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