Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Filing
42
OPINION AND ORDER: Granting 32 "Motion for Reconsideration of Opinion and Order (DKT # 24)." Judgment will be entered accordingly. See Opinion and Order attached. Signed by Judge Pedro A. Delgado-Hernandez on 2/5/2015. (DJP)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
AUTONOMOUS MUNICIPALITY OF
CAROLINA,
Plaintiff,
CIVIL NO. 13-1477 (PAD)
v.
LILLY DEL CARIBE, INC.;
Defendant.
OPINION AND ORDER
The Municipality of Carolina sued Lilly del Caribe Inc. for collection of taxes owed as a
result of Lilly’s breach of a Municipal Grant of Tax Exemption. Before the Court is the Municipality
“Motion for Reconsideration of Opinion and Order (DKT # 24),” seeking remand of the case to the
Carolina Part of the Puerto Rico Court of First Instance (Docket No. 32). After careful evaluation
of the parties’ filings, the issues raised, and the principles and authorities governing their
adjudication, the motion is GRANTED and the case REMANDED to state court.
I.
BACKGROUND
The background is more fully set in the Court’s initial ruling at Docket No. 24. In the main,
the Municipality claims that on September 9, 1999, Lilly became the holder of a Municipal Grant
of Tax Exemption with the Municipality. The exemption, which had an initial effective date of
July 1, 1997, was to expire after ten years but was extended for an additional ten-year period
(Docket No. 1, Exh. 2 at ¶ 27). After the extension became effective, Lilly (1) was authorized to
establish a manufacturing foreign trade subzone in a Foreign Trade Zone (“FTZ”) under the
Foreign Trade Zone Act, 19 U.S.C. §§ 81a-81u (“FTZA”), (2) correspondingly adjusted its
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 2
Municipal License Tax filings for the fiscal year 2009-2010, and (3) ceased paying taxes over its
personal property. Id. at ¶¶ 32, 37, 39 and 40.
In the Municipality’s view, the Grant and the extension are considered a contract agreed
upon the Municipality and Lilly, after the latter represented to the Municipality that projected
increases in sales and the investment in physical plant, machinery and equipment would entail a
corresponding increase in the payment of Municipal License Tax and real and personal property
taxes. At the same time, for the Municipality, Lilly (1) did not notify the Municipality that it was
requesting a Sub-Zone from the Foreign Trade Zone Board, (2) falsely indicated that its projected
savings in municipal taxes and property taxes, if a Sub-Zone was granted, would be around $ 1
Million a year, (3) failed to inform the Board of its agreements with the Municipality, and (4) has
not paid taxes to the Municipality despite what was agreed to in the Grant and Grant Extension,
exempting from its volume of business income based on exemptions to companies that operate in
a FTZ (Docket No. 1, Exh. 2 at ¶¶ 33-41, 44-49, 51, 60).
Focusing on these grounds, the Municipality asserts that Lilly breached its contract with
the Municipality, and sued Lilly in state court to collect the taxes allegedly due as provided in the
Grant and Grant Extension, without attributing credits, deductions, reductions, or exemptions
resulting from Lilly’s designation as a Sub-Zone under the FTZA. Id. Lilly removed the action,
claiming that jurisdiction is proper because the Municipality’s right to relief necessarily depends on
the resolution of a substantial question of federal law, namely the exemption it is entitled to under
the FTZA (Docket No. 1 at ¶ 14). The Municipality moved to remand (Docket No. 10), Lilly opposed
the Municipality’s request (Docket No. 21), and the Court denied it (Docket No. 24). Thereafter, the
Municipality sought reconsideration (Docket No. 32), Lilly opposed the Municipality’s motion
(Docket No. 33), the Municipality replied (Docket No. 34), and Lilly sur-replied (Docket No. 39).
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 3
II.
DISCUSSION
A. Removal Jurisdiction
Pursuant to 28 U.S.C. § 1441(a), any civil action brought in a state court over which federal
courts have original jurisdiction may be removed by the defendant or the defendants to the federal
district court for the district and division embracing the place where such action is pending. Rivet
v. Regions Bank of Louisiana, 522 U.S. 470, 474 (1998); Rhode Island Fishermen’s Alliance v.
Rhode Island Dept. Of Environmental Management, 585 F.3d 42, 47 (1st Cir. 2009).
District courts’ original jurisdiction extends to civil cases arising under federal law. 28
U.S.C. § 1331. City of Chicago v. International College of Surgeons, 522 U.S. 156, 529 (1997).
A case arises under federal law (1) when federal law creates the cause of action asserted; and (2)
in a special and small category of cases, sometimes referred to as “federal ingredient” cases, when
state law creates the cause of action but the action asserted implicates an important federal issue.
Empire Healthchoice Assur., Inc. v. Mc Veigh, 547 U.S. 677, 699 (2006); Franchise Tax Bd. of
State of Cal. v. Construction Laborers Vacation Trust for Southern California, 463 U.S. 1, 8-9
(1983).
The present case revolves around this latter type of jurisdiction.
In those instances,
whether a claim arises under federal law must be answered by reference to the plaintiff’s wellpleaded complaint. Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 808 (1986);
Hernández-Agosto v. Romero-Barceló, 748 F.2d 1, 2 (1st Cir. 1984).
Federal-ingredient
jurisdiction should be applied with caution. Metheny v. Becker, 352 F.3d 458, 460 (1st Cir. 2003).
B. Characteristics of Federal Issue
To sustain federal-question jurisdiction in a case where state law has created the action
asserted, the federal issue must be: (1) necessarily raised; (2) actually disputed; (3) substantial; and
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 4
(4) capable of resolution in federal court without disrupting the federal-state balance approved by
Congress. Gunn v. Minton, --- U.S. ---, 133 S. Ct. 1059, 1064 (2013); Grable & Sons Metal
Products, Inc. v. Darue Engineering & Mfg., 545 U.S. 308, 314 (2005); Rhode Island Fishermen’s
Alliance, Inc., 585 F.3d at 48. When all four of these requirements are met, jurisdiction is proper
because there is a serious federal interest in claiming the advantages thought to be inherent in a
federal forum which can be vindicated without disrupting Congress’s intended division of labor
between state and federal courts. Gunn, 133 S. Ct. at 1065; Grable, 545 U.S. at 314.
C. Initial Ruling
In its initial ruling, the Court denied the Municipality’s remand request, finding that a federal
issue was necessarily raised by the Municipality in describing its challenge to Lilly’s course of action,
and that such issue was disputed, substantial, and capable of resolution without disrupting the sound
division of labor between federal and state courts. (Docket No. 24 at pp. 9-11). It reasoned the issue
was disputed because Lilly claims (1) entitlement to an exemption of personal property taxes over
the personal property inventory it holds at the FTZ, (2) that the exemption was properly claimed
in the personal property tax return corresponding to taxable year 2009-2010, and (3) that the
Municipality is proscribed from imposing such ad valorem taxation. In turn, the Municipality
counters that (1) it is not so proscribed, and (2) Lilly should not have attributed itself any credit,
deduction, reduction or exemption resulting from the Sub-zone designation under the “[FTZ] Act”
in calculating and reporting its municipal taxes (including personal property taxes). Id. at p 9.
The Court considered the issue substantial, since payment and collection of taxes is
important to Lilly as a taxpayer, and to the Municipality as the collector. From that perspective,
the amount of collections directly affects their financial and economic situation. A reduction in
the amount of personal property taxes payable to the Municipality represents a reduction in Lily’s
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 5
operating costs, while to the Municipality, Lilly’s savings represent lost revenues that it could have
potentially appropriated to fund the activities of the local government. Correspondingly, for the
Court, the resolution reached in this case could have a direct and potentially unfavorable effect on
all of the entities authorized to operate in the FTZ’s located in Puerto Rico and on foreign and
interstate commerce, which Congress expressly intended to protect in enacting the FTZ Act. Id.
at p. 10.
The Court ruled that deciding the federal issue in this forum would not tilt the sound division
of labor between federal and state courts. In the Court’s view, the Municipality’s petition requires
interpretation and implementation on state and local ad valorem taxes stated in the FTZ Act, a
provision with preemptive effect that governs creatures of federal law that Congress intentionally
sought to regulate despite being located within the geographical limits of state or local governments.
Id. at p. 11. Examining the matter anew, the Court is persuaded that the federal issue has not been
necessarily raised, nor is it substantial in the sense the Supreme Court has used the term. Its
resolution more properly belongs in state court.
D. Reevaluation
i. Necessity
The Court initially concluded that a federal issue was necessarily raised in the face of the
complaint because the Municipality asked the court to impose municipal taxes on Lilly without
attributing to the latter any credit, deduction, or exemption under the FTZA (Docket No. 24 at p.
9). Even though the reasoning is not counterintuitive, taking the issue to another level yields a
different result.
To determine whether an issue is necessarily raised, the Supreme Court has focused on
whether the issue in question is an essential element of a plaintiff’s claim. In that sense, jurisdiction
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 6
must be determined without reliance on anything plaintiff has alleged in anticipation of defenses
which the defendant may interpose. Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). For
that reason, a federal issue is considered necessary only if it is an element rather than a defense to
the state-law claim. Franchise Tax Bd. of State of Cal., 463 U.S. at 10-11. As an element of the
defense, it is inadequate to confer federal jurisdiction. Merrell Dow Pharmaceuticals, Inc., 478
U.S. at 808. Such is the case here.
In Franchise Tax Bd. of State of Cal., the Franchise Tax Board of California filed a
complaint in state court against a Trust and its trustees, alleging that the Trust had failed to comply
with certain tax levies issued under a state statute, thereby becoming liable for damages, and that
in view of the defendants’ contention that a federal statute – ERISA – pre-empted state law, a
judgment should be issued declaring the parties’ respective rights. The defendants removed the
case to federal district court, the court denied the Tax Board’s motion to remand, and the Supreme
Court ultimately held that the case was not within the district court’s removal jurisdiction conferred
by 28 U.S.C. § 1441. 463 U.S. at pp. 5-7. In so deciding, the Court observed:
. . . a straightforward application of the well-pleaded complaint rule
precludes original federal court jurisdiction. California law establishes a
set of conditions, without reference to federal law, under which a tax levy
may be enforced; federal law becomes relevant only by way of a defense
to an obligation created entirely by state law, and then only if appellant
has made out a valid claim for relief under state law. The well-pleaded
complaint rule was framed to deal with precisely such a situation. . . .
[S]ince 1887 it has been settled law that a case may not be removed to
federal court on the basis of a federal defense, including the defense of
preemption, even if the defense is anticipated in the plaintiff’s complaint,
and even if both parties admit that the defense is the only question truly
at issue in the case.
Id. at 13-14.
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 7
The reasoning applies with equal force to the interplay between the Municipality’s claim
(1) that Lilly breached a contract with the Municipality, and (2) that as a result of that breach, it
owes taxes to the Municipality; and Lilly’s contrary assertion that no taxes are owed on account
of its designation as a Sub-Zone under the FTZA. Federal law may become relevant only as a
defense to an obligation created by state law, and then only if the Municipality is able to make out
a valid claim for relief under that law.
From the complaint, the Municipality would have to establish the existence of a contract
pursuant to which Lilly agreed to pay agreed-on sums of money without relying on FTZ
exemptions, credits or deductions. The breach of the obligation would require Lilly to pay the
Municipality based on what it purportedly agreed to, leading to a payment measured by the local
tax formula (free of FTZ-related exemptions, credits or deductions). None of these elements
requires consideration of federal law to evaluate and determine whether Lilly in fact agreed to
what the Municipality has asserted and claimed. FTZ status might have a role in Lilly’s defense,
albeit to an underlying obligation, created entirely by Puerto Rico law. Accord: Harris County v.
PRSI Trading, LLC, 2014 WL 4924123, *3 (S.D.Tex. September 29, 2014)(FTZ exemption
considered a defense to underlying obligation to pay state tax).
Lilly contends that removal is not based on a defense but on the fact that this is a declaratory
judgment action filed by the Municipality purporting to deny Lilly a right under federal law that
Lilly has been claiming (Docket No. 21 at pp.16-17). From a federal perspective, operation of the
Declaratory Judgment Act is procedural only. Franchise Tax Bd. of State of Cal., 463 U.S. at 15.
With its enactment, Congress enlarged the range of remedies available in the federal courts but did
not extend their jurisdiction. Id. The requirements of jurisdiction were not impliedly repealed or
modified. Id. at 16.
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 8
Setting the framework, if but for the availability of the declaratory judgment procedure, the
federal claim would arise only as a defense to a state created action, jurisdiction is lacking. Id.
(noting current understanding of Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667 (1950)).
Correspondingly, federal courts do not have original jurisdiction, nor do they acquire jurisdiction
on removal, when a federal question is presented by a complaint for a state declaratory judgment,
but Skelly Oil, would bar jurisdiction if the plaintiff had sought a federal declaratory judgment.
See, Franchise Tax Bd. of State of Cal., 463 U.S. at 18-19 (so noting).
The absence of Congressional authorization for the Municipality to bring an action in the
district court – and that authorization is lacking in the FTZA – is fatal under Skelly Oil. If the
federal statute creates no federal cause of action vindicating the same interest that the plaintiff’s
state cause of action seeks to vindicate, recharacterization as a federal claim is not possible so as
to allow the action to be removed as one arising under federal law to be litigated in the federal
court. Railway Labor Executives Ass’n v. Pittsburgh & Lake Erie R. Co, 858 F.2d 936, 941-942
(3d Cir. 1988). As the Supreme Court has pointed out, the fact that Congress has not elected to
provide a statutory right of action to the plaintiff in the case is a thumb on the scale of dismissal.
Merrell Dow Pharmaceuticals Inc., 478 U.S. at 814 n. 12 and 817.
Lilly argues federal jurisdiction exists over a declaratory judgment action when the
defendant could have brought a federal claim in a coercive action in federal court (Docket No.
Docket No. 21 at p. 17). The argument may be said to derive from Franchise Tax Bd. of State of
Cal.’s observation that “[f]ederal courts have regularly taken original jurisdiction over declaratory
judgment suits in which, if the declaratory judgment defendant brought a coercive action to enforce
its rights, that suit would necessarily present a federal question.” Id. at 19. Further, it was relied
upon in American Airlines, Inc. v. Cardoza-Rodríguez, 133 F.3d 111 (1st Cir. 1998), to validate a
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 9
declaratory judgment action brought by an employer against former employees in federal court.
Id. at 114-115. But “[s]imply to state these principles is not to apply them to the case at hand.”
Franchise Tax Bd. of State of Cal., 463 U.S. at 13. Defining this modality is clear Congressional
authorization to initiate civil actions in federal district court.
On this foundation, the First Circuit indicated in Cardoza-Rodríguez that the controversy
arose either as one of the employees’ right to sue under the retirement plan pursuant to ERISA, 29
U.S.C § 1132(a)(1)(B), or as a claim under the Age Discrimination in Employment Act (“ADEA”),
29 U.S.C. § 621 et seq., and the provisions of the Older Workers Benefit Protection Act amending
the ADEA, 29 U.S.C. § 626(F)(1)(A)-(H). Id. at 115 n. 1. 1 So presented, the federal statutes and
the causes of action they created made it possible for the declaratory judgment defendants to sue
the plaintiff in U.S. district court, bridging the gap between those defendants and federal-subjectmatter jurisdiction. Id.
The cases that Lilly cited follow the same principle. See, Kikker, Peabody & Co., Inc. v.
Maxus Energy Corp., 925 F.2d 556, 562 (2d Cir. 1991)(declaratory judgment defendant could have
brought claim under federal securities laws); GNB Battery Technologies, Inc. v. Gould, Inc., 65
F.3d 615, 619-620 (7th Cir. 1995)(declaratory judgment defendant could have brought claims
under Comprehensive Environmental Liability Act); Cartoons, L.C. v. Major League Baseball
Players Ass’n, 95 F.3d 959, 965 (10th Cir. 1996)(declaratory judgment defendant could have
brought claim under Lanham Act); Standard Ins. Co. v. Saklad, 127 F.3d 1179 (9th Cir.
1997)(declaratory judgment defendant could have brought claim under ERISA); Fina Oil and
1
ERISA creates a series of express causes of action in favor of participants, beneficiaries, and fiduciaries of ERISAcovered plans, as well as the Secretary of Labor. See, ERISA § 502(a), 29 U.S.C. § 1132(a). Similarly, the ADEA, as
amended by the OWBPA, permits an aggrieved individual to commence a civil action for such legal or equitable relief
as will effectuate the purpose of the statute. See, ADEA §7(c)(1), 29 U.S.C. § 626(c)(1).
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 10
Chemical Co. v. Ewen, 123 F.3d 1466, 1479 (Fed. Cir. 1997)(declaratory judgment defendant
could have brought correction of inventorship action under 35 U.S.C. § 256); Columbia Gas
Transmission Corp. v. Drain, 237 F.3d 366, 370-371 (4th Cir. 2001)(declaratory judgment
defendant could bring unconstitutional taking claim under Fourteenth Amendment); Household
Bank v. JFS Group, 320 F.3d 1249, 1255 (11th Cir. 2003)(declaratory judgment defendants could
have brought actions under Truth in Lending Act, National Bank Act, and RICO); Wisconsin
Interscholastic Athletic Ass’n v. Gannett Co., Inc., 658 F.3d 614, 622 (7th Cir. 2011)(declaratory
judgment defendant could have sued state actor under Section 1983 claiming actor was unlawfully
censoring speech in violation of the First Amendment); TTEA v. Ysleta del Sur Pueblo, 181 F.3d
676, 679 (5th Cir. 1999)(district court lacked federal-question jurisdiction in declaratory judgment
action where defendant could not bring action under 28 U.S.C. § 81).
The FTZA does not appear to create an action authorizing Lilly to sue the Municipality in
U. S. district courts. Lacking that authorization, Skelly Oil would not permit Lilly as a declaratory
judgment defendant to initiate an action against the Municipality under the FTZA in this court.2
Relying on Jefferson County, Ala. v. Acker, 527 U.S. 423, 433-435 (1999), however, Lilly suggests
that federal jurisdiction exists over a claim brought in state court to collect state taxes that is
removed to federal court, when a defendant may argue that application of the tax violates federal
law (Docket No. 21 at p. 21).
2
It is not beyond the power of Congress to confer a right to a declaratory judgment in a case or controversy arising
under federal law within the meaning of the Constitution or of § 1331 without regard to Skelly Oil’s particular
application of the well-pleaded complaint rule. Nevertheless, Congress has declined to make such a change. At this
point, any adjustments must come from Congress. See, Franchise Tax Bd. of State of Cal., 463 U.S. at n. 17 and 19
(so stating). Congress had previously granted general federal-question jurisdiction to federal courts, but the grant was
repealed one year later. Steffel v. Thompson, 415 U.S. 452, 464 n. 14 (1974).
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 11
In Jefferson County, a county instituted a collection suit in state court against two federal
judicial officers, who in turn removed the matter to the U.S. district court. Removal was effected
through 28 U.S.C. § 1442(a)(3). See, Jefferson County, Ala. 527 U.S. at 429-430 (describing case
background). That provision, part of what is known as the federal office removal statute, states
that a civil action or criminal prosecution commenced in a State court against any officer of the
courts of the United States, for any act under color of office or in the performance of his duties,
may be removed by them to the district court of the United States for the district and division
embracing the place wherein it is pending. 28 U.S.C. § 1442(a)(3). No federal officer sought
removal in the case sub judice.
ii. Substantiality
Originally, the Court considered the federal issue substantial because payment and
collection of taxes is important to Lilly as a taxpayer, to the Municipality as the collector, and to
the federal system as a whole (Docket No. 24 at p. 10).
As interpreted by the Supreme Court, a finding of substantiality requires an issue
significant to the particular parties in the immediate suit, and important to the federal system as a
whole. Gunn, 133 S. Ct. at 1066. Applying the concept, it referred, by way of example, to two
categories involving substantial issues important to the federal system. First, cases where the
Federal government has a “direct interest in the availability of a federal forum to vindicate its own
administrative action.” Id. Second, cases where the decision depends on “the determination of
‘the constitutional validity of an act of Congress which is directly drawn in question.’” Id.
The federal issue around which Lilly centers its claim does not involve any of such
instances. Moreover, the Supreme Court concluded in Franchise Tax Bd. of State of Cal. that the
federal defense to the tax collection action initiated in that litigation was not substantial. 463 U.S.
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 12
at 13, 27-28. Beyond the obvious importance of the issue to the parties, that this case does not fall
within any of the categories recognized as substantial in Gunn and instead deals, much like was
the case in Franchise Tax Bd. of State of Cal., with a defense to a state-based action, persuades the
Court that such defense does not raise to the degree of substantiality needed to confer jurisdiction
within the meaning of 28 U.S.C. § 1441.
iii. State Courts
Initially, the Court concluded that deciding the federal issue in this forum would not tilt the
sound division of labor between federal and state courts. (Docket No. 24 at p. 11). It read the
Municipality’s petition as requiring interpretation and implementation of the prohibition on state
and local ad valorem taxes stated in the FTZ Act, observing that this provision has been construed
as an express preemption by Congress governing creatures of federal law that Congress sought to
regulate despite being located within the geographical limits of state or local governments. Id.
Notwithstanding the appeal of that reasoning, preemption alone does not provide
actionable grounds for removal. There is nothing inappropriate or exceptional about a state court’s
entertaining and applying federal law to a completely preempted claim. Vaden v. Discover Bank,
556 U.S. 49, 62 n. 12 (2009). A suit brought upon a state statute does not arise under an Act of
Congress because prohibited thereby. Franchise Tax Bd. of State of Cal., 463 U.S. at 12.
A federal rule of decision is necessary but not sufficient for federal jurisdiction. Seinfeld
v. Austen, 39 F.3d 761, 764 (7th Cir. 1994). There must also be a right of action to enforce the
rule, and with it Congressional intent to confer federal courts authority to resolve the dispute.
Templeton Bd. of Sewer Com’rs. v. American Tissue Mills of Massachusetts, Inc., 352 F.3d 33, 40
(1st Cir. 2003). Any ambiguity as to the source of the law relied upon to invoke removal ought to
be resolved against removal. Rosselló-González v. Calderón-Serra, 398 F.3d 1, 11 (1st Cir. 2004).
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 13
A deeply-rooted presumption has been recognized in favor of concurrent state-court
jurisdiction to adjudicate federal issues. Burt v. Titlow, --- U.S. ---, 134 S.Ct. 10, 15 (2013); Mims
v. Arrow Financial Services, LLC, --- U.S. ---, 132 S. Ct. 740, 748 (2012); Yellow Freight v.
Donnelly, 494 U.S. 820, 823 (1990). The presumption is rebutted only if Congress affirmatively
outs state courts of jurisdiction over a particular claim. Tafflin v. Levitt, 493 U.S. 455, 458-460
(1990).
The FTZ Act does not divest state courts of their presumptive jurisdiction over federal and
local claims in favor of federal district courts. The absence of authorization to have a case
adjudicated in district court signals Congressional intent to leave intact the traditional allocation
of adjudicative responsibilities between federal and state courts. Exercising jurisdiction where
Congress has not authorized it would disturb the congressionally-approved balance of federal and
state judicial responsibilities. The case may be adjudicated in state court.
iv. Commerce Clause/Administrative Ruling
Lilly alleges that jurisdiction is proper pursuant to 28 U.S.C. § 1337(a) because the case
involves a statute for which the Commerce Clause furnishes predicate (Docket No. 21 at pp. 3, 1820; Docket No. 33 at p. 2). Contrary to Lilly’s allegation, the Supreme Court has not distinguished
between the “arising under” standards of § 1337 and § 1331. Franchise Tax Bd. of State of Cal.,
463 U.S. at 8 n. 7. That condition makes a federal preemption defense to a state-law cause of
action insufficient to confer federal-question jurisdiction on a federal court. Louisville & N.R. Co.
v. Mottley, 211 U.S. 149, 152 (1908); Rhode Island Fishermen’s Alliance, Inc., 585 F.3d at 50-51.
Lilly asserts the Municipality has commenced a challenge to Lilly’s grant of sub-zone
before the FTZ Board, and that any arguments concerning the propriety of the Grant should be
made exclusively before the administrative federal body, not before state courts or this Court. See,
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 14
Docket No. 33 at p. 7. If that were the case, Lilly may so assert as an affirmative defense in state
court. Without a different substantive and procedural setting, it is apparent that this case does not
arise under federal law.
E. CONCLUSION
Removal jurisdiction permits a defendant to force the plaintiff to litigate certain actions in
federal court, rather than in the state forum originally selected. Jack H. Friedenthal, Mary Kay
Kanes & Arthur Miller, Civil Procedure, 59 (4th Ed. 2005). An action is removable only if it
originally could have been brought in a federal district court. The basis of federal jurisdiction may
not consist of a federal defense.
The Municipality’s state cause of action is based on Lilly’s alleged breach of a tax
exemption grant. As it stands, it is one of breach of contract, an action ordinarily entertained by
state courts. Lilly avers that jurisdiction is proper because the adjudication depends on resolution
of a substantial question of federal law. But the basis for jurisdiction alleged by Lilly is grounded
on a federal tax exemption under the FTZA. This, in turn, constitutes a defense as opposed to a
jurisdictional basis insufficient to confer original federal subject matter jurisdiction.
Removal statues are to be strictly construed against removal. Rosselló-González, 398 F. 3d
at 11 (citing Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-109 (1941)). A case may not
be removed to federal court on the basis of a federal defense, including the defense of preemption,
even if the defense is anticipated in the plaintiff’s complaint, and even if both parties admit that
the defense is the only question truly at issue in the case. Franchise Tax Bd. of State of Cal., 463
U.S. at 13.
Autonomous Municipality of Carolina v. Lilly del Caribe, Inc.
Civil No. 13-1477 (PAD)
Opinion and Order
Page 15
Within these constraints, the Court lacks subject matter jurisdiction to entertain this action.
The Municipality’s motion for reconsideration (Docket No. 32) is GRANTED and the case
REMANDED to state court. 3
A court may award costs and attorney’s fees under 28 U.S.C. § 1447 (c) where the removing
party lacks an objectively reasonable basis for seeking removal. Even though Lilly’s attempt to
remove was unsuccessful, the attempt was not objectively unreasonable. Martin v. Franklin
Capital Corp., 546 U.S. 132, 141 (2005). Consequently, Lilly need not pay for the costs, expenses
and attorney’s fees that the Municipality has incurred in this proceeding.
Judgment shall be entered accordingly.
SO ORDERED.
In San Juan, Puerto Rico, this 5th day of February, 2015.
S/Pedro A. Delgado-Hernández
PEDRO A. DELGADO HERNANDEZ
United States District Judge
3
Absence of original federal jurisdiction does not mean there is no federal forum in which a federal preemption
defense may be heard. If the state courts reject that defense, the decision may ultimately be reviewed by the Supreme
Court. McKesson Corp. v. Division of Alcoholic Beverages and Tobacco. Dept. of Business Regulation of Florida,
496 U.S. 18, 26-31 (1990); Franchise Tax Bd. of State of Cal., 463 U.S. at 12 n. 12. Likewise, if the merits of the
claimed exemption had to be brought before the FTZ Board, the Court of International Trade may have jurisdiction
over the agency’s ruling. See, Conoco, Inc. v. U.S. Foreign-Trade Zones Bd., 18 F.3d 1581, 1586 (Fed. Cir.
1994)(Congress amended jurisdictional provision of Court of International Trade to eliminate much of the difficulties
experienced by trade litigants who in the past commenced suits in the district courts only to have those suits dismissed
for want of subject matter jurisdiction); Miami Free Zone Corp. v. Foreign-Trades Zones Bd, Dept. of Commerce,
803 F. Supp. 442, 444 (D.C. Cir. 1992) (since FTZ’s are concerned with shifting tariffs, duties and import conditions,
review of FTZ Board’s actions was intended to be exclusive in the Court of International Trade).
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?