Opinion
NA 4:04-CV-0086-SEB-WGH.
July 22, 2004
ENTRY GRANTING PLAINTIFF'S MOTION TO REMAND
Plaintiff City of New Albany, Indiana ("City") brought a state court action in Floyd County Circuit Court on March 26, 2004 (amended April 14, 2004) against retailer New Albany DVD, LLC ("DVD"), seeking declaratory and injunctive relief under the City's local ordinances and Indiana law. Defendant DVD removed the action to federal court and asked that it be consolidated with its own claim against the City for constitutional deprivations filed in this court one month earlier.
This matter comes before the Court on the City's motion to remand for lack of subject matter jurisdiction under the removal statute, 28 U.S.C. § 1441. DVD argues that the state claim was properly removed to federal court because, inter alia, the validity of a local ordinance under various Amendments to the federal Constitution is a federal question and, as such, provides the basis for this court's original jurisdiction over the claims.
For the reasons given below, the Court GRANTS the Motion to Remand and DENIES the request for costs, including reasonable attorney's fees.
Factual and Procedural Background
We provide the following detailed background to this motion because the removed case — the City's declaratory judgment action, cause no. 4:04-CV-0086 — is factually and procedurally derived from DVD's federal lawsuit filed earlier in the year, cause no. 4:04-CV-0052. In addition, the City's argument for remand is linked to its motion to dismiss the federal lawsuit; that is, the City contends that remand of the state court action virtually compels the dismissal of the federal lawsuit under theYounger abstention doctrine. The interlocking nature of these litigations requires this elaborated recitation of the facts.
The City objects to DVD's allegation that it is manufacturing abstention by filing a coercive suit, yet we observe that the City's amended state court complaint certainly plants the seeds of such an argument where it seeks to define the federal court litigation as "embryonic." See Am. Compl. ¶ 11. In brief, the abstention doctrine established by Younger v. Harris, 401 U.S. 37 (1971) and its progeny generally requires a federal court to refrain from adjudicating an action when certain kinds of state court actions are proceeding with respect to the same subject matter, and no hearings or rulings on the substance of the merits have occurred in the federal case.
On February 19, 2004, DVD's attempt to open a retail business selling sexually explicit materials at 601 W. Main Street in New Albany, Indiana was thwarted by the Building Commission's judgment that DVD had not complied with relevant zoning and building regulations. Specifically, Edward Hancock, the Building Commissioner, refused both to allow the scheduled final inspection to take place and to issue a Certificate of Occupancy ("CO"), citing DVD's failure to obtain an improvement location permit ("ILP") from, and submit a site plan and parking plan to, the Planning and Zoning Office, as required by § 156.41 of the New Albany Code. When DVD briefly and prematurely opened its doors to the public on that day, Mr. Hancock affixed a "Stop-Work" notice to the front of the store and issued a "Notice-Order" that the building was considered "unsafe" under § 150.125 of the building ordinance and was not permitted to open until and unless it met with regulations and zoning requirements. The store's brief spurt at new business thus ended on its opening day and it has remained closed pending the outcome of this litigation. City's Br. at 2.
Four days later, on February 23, 2004, DVD filed a federal lawsuit against the City alleging various constitutional violations based on the City's arbitrary enforcement actions on February 19, 2004. See New Albany DVD, LLC v. City of New Albany, cause no. 4:04-CV-0052-SEB-WGH. A week later, DVD filed a motion for preliminary injunction which the City sought to have dismissed on a jurisdictional basis no longer before the Court.
On March 18, 2004, the City enacted a new ordinance — No. G-04-10 — regulating sexually oriented businesses such as DVD. The following week, the City filed a declaratory judgment action, asking the Floyd County court for an authoritative construction of the New Albany Building Code, Zoning Code, and the Sexually Oriented Business Ordinance as applied to DVD.
Both parties amended their respective complaints in mid-April to reflect the enactment of Ordinance G-04-10. Based on the removal, the City's amended complaint is now before us on this remand motion. That suit seeks a declaratory ruling as follows: (1) that the City's refusal to conduct a final inspection and issue a CO on February 19 was a valid exercise of governmental discretion; (2) that Ordinance G-04-10 is constitutional in all respects and enforceable against DVD and any other sexually oriented business in the City of New Albany; (3) that the City's Building and Zoning Codes are constitutional on their face and as applied to DVD; and (4) that DVD has no right under local, state or federal laws or constitutions to operate a sexually oriented business (as defined by Ordinance G-04-10) at 610 W. Main Street. Further, the City asks the court to enjoin DVD from operating a sexually oriented business at 610 W. Main Street because the premises are within 1,000 feet of the Main Street United Methodist Church and operation of the store at that location would violate the ordinance. Am. Compl. ¶¶ 20, 23.
DVD promptly removed the City's state court action to this court on April 19, 2004 and requested consolidation with cause no. 4:04-CV-0052-SEB-WGH.
Both lawsuits involving DVD and the City of New Albany are thus currently before this court. We held an evidentiary hearing on May 5, 2004 on DVD's motion for preliminary injunction which produced no final ruling but during which the parties agreed to recess the hearings to allow certain steps to narrow the issues presented in DVD's complaint to be undertaken. With an eye to the need to exhaust administrative remedies, DVD was instructed to apply for the missing ILP; said ILP was promptly applied for and denied May 14, 2004. DVD Status Report, 6/1/04, Exs. 2,3.
DVD's constitutional claim against the City is not before us here. We limit our consideration to the City's declaratory judgment action and the issues presented by the City's Motion to Remand
Legal Analysis
Standard of Removal
A defendant may properly remove to federal court a civil action brought in a state court if the federal district court has original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States. 28 U.S.C. § 1447(b).
The "arising under" language in § 1447(b) parallels the definition of federal question jurisdiction conferred by 28 U.S.C. § 1331.
For purposes of removal of an action from state court to federal court, the United States Supreme Court has long held that the presence or absence of federal question jurisdiction is governed by the "well-pleaded complaint" rule, which provides that federal jurisdiction exists only when a federal question is present on the face of the plaintiff's properly pleaded complaint. Caterpillar Inc. v. Williams, 482 U.S. 386, 392, (1987). In general, "a case may not be removed to federal court on the basis of a federal defense, [including the defense of pre-emption] 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., 482 U.S. at 393 (citing Franchise Tax Bd. v. Laborers Vacation Trust, 463 U.S. 1, 10 (1983); see also, Rivet v. Regions Bank of Louisiana, 522 U.S. 470, 475 (1998).
The Supreme Court in Franchise Tax held that, where "the `law that creates the cause of action' is state law, 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." Franchise Tax Bd., 463 U.S. at 13. Thus, the two circumstances in which a federal district court has original jurisdiction founded on a claim or right `arising under' the Constitution, treaties or laws of the United States include: (1) where the the law that creates the cause of action is expressly federal and (2) where "it appears that some substantial, disputed question of federal law is a necessary element of one of the well-pleaded state law claims." In re Bridgestone/Firestone Inc. Tires Products Liability Litigation, 203 F. Supp.2d 1032, 1035 (S.D. Ind. 2002) (Barker, J.) (citing Franchise Tax Bd., 463 U.S. at 13 (emphasis added). With this understanding, we move to examine the removed action.
The City's Complaint
Strictly speaking, the `law that creates the cause of action' here is state law: the case is brought pursuant to the Indiana Declaratory Judgment Act (the "Act"). Am. Compl. ¶ 16. The Act authorizes the following:
(1) Courts of record within their respective jurisdictions have the power to declare rights, status, and other legal relations whether or not further relief is or could be claimed. No action or proceeding is open to objection on the ground that a declaratory judgment or decree is prayed for. The declaration may be either affirmative or negative in form and effect. The declaration has the force and effect of a final judgment or decree [Ind. Code § 34-14-1-1]; and
(2) Any person interested under a deed, will, written contract, or other writings constituting a contract, or whose rights, status, or other legal relations are affected by a statute, municipal ordinance, contract, or franchise, may have determined any question of construction or validity arising under the instrument, statute, ordinance, contract, or franchise and obtain a declaration of rights, status, or other legal relations thereunder [Ind. Code § 34-14-1-2].
In addition to invoking state law review, the face of the complaint reveals multiple references to federal laws and the U.S. Constitution as well, seeking construction of questions of federal law. For example, in Count One, the City asks the circuit court to declare (1) that the City's conduct with respect to DVD's interactions with the Building and Zoning Department, including most notably its refusal to conduct a final inspection and issue a certificate of occupancy on February 19, was "in all respects legal, constitutional, valid"; (2) that the City's Building and Zoning Codes are constitutional on their face and as applied to DVD; (3) that Ordinance G-04-10 is constitutional in all respects and enforceable against DVD and any other sexually oriented business in the City of New Albany; and (4) that DVD has no right under local, state or federal laws or constitutions to operate a sexually oriented business (as defined by Ordinance G-04-10) at 610 W. Main Street. Am. Compl. ¶ 20 (emphasis added).
This request that the local zoning ordinances be declared constitutional clearly implicates the First Amendment's right to free expression, resolution of which would require reliance upon well-developed federal caselaw involving the use of local zoning and licensing laws to limit the operation of sexually oriented businesses. However, the issues could be resolved under the Indiana constitution without depriving DVD of any federal rights if the Indiana constitution provides greater protections than the federal. We note, however, that Plaintiff makes no distinction between state and federal constitutional claims or defenses in the amended complaint.
The complaint before us explicitly bases its claim on state law (the Indiana Declaratory Judgment Action) and appears to reference federal law only in anticipation of DVD's defenses. Prior to the Supreme Court decision in Franchise Tax, courts applied the Skully Oil doctrine: if the well-pleaded complaint for a declaratory judgment revealed a federal claim, then federal question jurisdiction would exist. See 13B Wright Miller, Federal Practice and Procedure § 3566 (2d ed. Supp. 2004). However, Franchise Tax Board altered the analysis with respect to declaratory judgment actions.
Skully Oil Co. v. Phillips Petroleum Co., 339 U.S. 667 (1950).
In that case, a state agency, the Franchise Tax Board, had sued a trust that administered worker's benefits in state court for the collection of unpaid taxes. The agency sought, inter alia, a declaratory judgment of the rights of the parties under state law. The Trust removed the case to federal court. The case made its way ultimately to the Supreme Court which held that with regard to the propriety of removing a state declaratory judgment action which implicated questions of federal law, there is no federal jurisdiction over an action by a state seeking a declaration as to the validity of state law, even though the party being sued by the state could have raised the same issue in federal court in an action for coercive relief. Franchise Tax Bd., 463 U.S. at 20-22; see also Intern. Soc. for Krishna v. City of Los Angeles, 611 F. Supp. 315 (C.D. Cal. 1984) (holding there is no federal jurisdiction of an action by a city for a declaratory judgment that its ordinance does not violate the federal Constitution).
The case before us presents a similar situation to that addressed in Franchise Tax. The City has brought its action pursuant to state law, seeking an authoritative state court interpretation of its local ordinances — relief which could not be sought in federal court by the City. There is no federal question jurisdiction over this dispute. Removal to this court has been predicated on a federal defense, and even if that defense is anticipated in the plaintiff's complaint and premised on the Constitution, we are required to GRANT the motion to remand
We have considered carefully the defendant's citations to cases upholding removal where substantive federal issues are found to be necessary elements of the well-pleaded complaint rule (see e.g. City of Chicago v. Int'l Coll. of Surgeons, 522 U.S. 156 (1997); Therrien v. Hamilton, 881 F. Supp. 76 (Mass. Dist. Ct. 1995)). From this review, we have determined that none of the cases specifically involves a state entity's action for a declaratory judgment, such as the Supreme Court addressed inFranchise Tax Board and which we confront here.
Further, we find no basis to conclude that this is a case in which the plaintiff has constructed its complaint in such a way as to artfully avoid federal jurisdiction, as argued by the defendant. The City did not amend its complaint to eliminate any and all references to federal law — on the contrary, as we have noted, there are multiple references to federal law — nor did it attempt to "avoid otherwise proper removal by artfully surrounding federal law issues with frivolous state law issues."See DVD's Response at 8, discussing Therrien v. Hamilton, 881 F. Supp. at 81). We think it more likely that the City has engaged in artful litigation strategy than artful pleading by filing its coercive suit in state court on which it could (and) has subsequently based its motion to dismiss DVD's federal claim (see Entry on Defendant's Motion to Dismiss in cause no. 4:04-CV-0052-SEB-WGH). Even so, remand cannot be avoided on such grounds.
The Award of Attorney Fees
Having determined that remand of this action is required for lack of federal question jurisdiction, we next consider the issue of whether attorney's fees should be awarded to the City, under 28 U.S.C. § 1447(c), which provides for the discretionary "payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." The Seventh Circuit views this provision not as a sanctions rule but a fee-shifting statute, entitling the district court to make whole the victorious party. Garbie v. DaimlerChrysler Corp., 211 F.3d 407 (7th Cir. 2000). In addition, a showing that the defendant petitioned for removal in bad faith is not required.Tenner v. Zurek, 168 F.3d 328, 329-30 (7th Cir. 1999). Despite the presumption created by Garbie, the occasions on which fees are awarded are typically those which are not "close calls" and on which the stated grounds for removal are either contrary to the overwhelming authority or without any reasonable basis.Garbie, 211 F.3d at 410; Analytical Surveys, Inc. v. Intercare Health Plans, Inc., 101 F. Supp. 2d 727, 736 (S.D. Ind. 2000);Barnes v. Ford Motor Co., 2003 WL 21277209, *5 (S.D. Ind. 2003).
Accordingly, we hold that the defendant's removal of this action does not fit the Garbie standard of unreasonableness. The resolution of federal question jurisdiction under the well pleaded complaint rule as applied to declaratory judgments brought by state entities is, we submit, a nuanced question of federal jurisdiction. We therefore DENY the City's request for attorney fees relating to the Motion to Remand
CONCLUSION
For the above reasons, this court lacks subject matter jurisdiction over the City's state court action seeking declaratory and injunctive relief of its own regulations and ordinances, despite possible objections to their constitutionality. Under 28 U.S.C. § 1447(c), we GRANT the City's Motion to Remand and remand this action to state court. We also DENY the City's Motion for Attorney Fees.
It is so ORDERED.