UNITED STATES COURT OF APPEALS
Filed 1/9/97
TENTH CIRCUIT
YVONNE M. ERNZEN, as special
administrator for the Daniel Ernzen
Estate, and SHIRLEY ANN ERNZEN,
Plaintiffs - Appellants,
No. 95-3145
v.
(D.C. No. 94-2265-EEO)
(District of Kansas)
RONALD F. ERNZEN and ALAN
SCHULER, as executors of the
Frances Ernzen Estate,
Defendants - Appellees.
ORDER AND JUDGMENT *
Before SEYMOUR, PORFILIO and LUCERO, Circuit Judges.
Frances Ernzen died in 1982. Shortly thereafter, Dan Ernzen and his wife
Shirley Ernzen purchased farm land from the Francis Ernzen estate. Their
purchase enabled the estate to claim a “special use” valuation under 26 U.S.C. §
2032A, thereby saving the estate approximately $125,000.00 in taxes. However,
these tax savings remained subject to recapture should the Ernzens fail to comply
*
This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. This court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
with the provisions of § 2032A for a period of ten years. With this possibility in
mind, the executors opted to keep the estate open with enough money to pay the
recapture tax should it become due.
Things went well down on the farm during the intervening years, at least
from a § 2032A standpoint. The Ernzens’ uninterrupted compliance with the
statute enabled the tax savings to become fully vested in 1992, at which time the
Internal Revenue Service filed a Certificate of Release of Federal Estate Tax
Lien. Thereafter, the executors filed a Petition for Final Settlement in the probate
division of the District Court of Atchison County, Kansas.
Dan and Shirley Ernzen challenged the pro rata distribution called for by
Frances Ernzen’s will, arguing that their compliance with § 2032A entitled them
to a larger share of the estate. The state probate court charged with deciding the
matter voluntarily stayed its proceedings to permit the Ernzens to seek declaratory
relief in federal court. When the Ernzens sought such relief, appellees countered
with a motion to dismiss for lack of federal subject-matter jurisdiction. The
district court granted appellees’ motion, and this appeal ensued.
Unlike state courts, federal courts are courts of limited jurisdiction, and
may only exercise jurisdiction when specifically authorized to do so. 1 A party
State courts, by contrast, “have concurrent jurisdiction with federal courts over all
1
matters within federal jurisdiction unless there is a specific federal statute creating
exclusive federal jurisdiction.” Erwin Chemerinsky, Federal Jurisdiction § 5.1, at 250 (2d
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seeking to invoke a federal court’s jurisdiction bears the burden of establishing
that such jurisdiction exists. McNutt v. General Motors Acceptance Corp., 298
U.S. 178, 189 (1936). We review jurisdictional questions de novo, see United
States ex. rel. General Rock & Sand Corp. v. Chuska Dev. Corp., 55 F.3d 1491,
1492 (10th Cir. 1995), mindful that our determinations “require sensitive
judgements about congressional intent, judicial power, and the federal system.”
Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 810 (1986).
Appellants have chosen to place all their eggs in one jurisdictional basket.
They invoke 28 U.S.C. § 1331, more commonly referred to as “federal question”
jurisdiction, which provides that “[t]he district courts shall have original
jurisdiction of all civil actions arising under the Constitution, laws, or treaties of
the United States.” However, “[t]here is no ‘single, precise definition’ of that
concept; rather, the phrase ‘arising under’ [federal law] masks a welter of issues
regarding the interrelation of federal and state authority and the proper
management of the federal judicial system.” Merrell Dow, 478 U.S. at 808
(quoting Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1,
8 (1983)). The Supreme Court has stated that a case “arises under” federal law
for § 1331 purposes only when “a well-pleaded complaint establishes either that
federal law creates the cause of action or that the plaintiff’s right to relief
ed. 1994).
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depends on resolution of a substantial question of federal law.” Franchise Tax
Bd., 463 U.S. at 27-28. It is this test we now apply.
At the outset we note that the procedural posture of this case is not
jurisdictionally determinative. This matter was brought before the district court
as a declaratory judgment action pursuant to 28 U.S.C. § 2201. However, it is
well settled that the Declaratory Judgment Act is procedural in nature and does
not confer subject-matter jurisdiction upon federal courts. See Cardtoons v.
Major League Baseball Ass’n, 95 F.3d 959, 964 (10th Cir. 1996). Accordingly,
the district court’s power to grant declaratory relief must lie in some independent
basis of federal subject-matter jurisdiction. Id.
Plaintiffs’ complaint states that “this action arises under Section 2032A of
the Internal Revenue Code; 26 I.R.C. §§ 2032A (1982) and C.F.R. §§ 20.2032A-1
et seq.” Appellant’s App. at 12. The district court disagreed. “Though
plaintiffs’ allegations are far from clear, they definitely do not state a federally-
created cause of action.” Ernzen v. Ernzen, 878 F. Supp. 190, 191 (1995). We
see no reason to disturb this conclusion. Appellants concede that their suit “is
properly viewed as an action under both Kan.Stat.Ann. §§ 60-1002 and 60-1005,
to determine an interest in property, and/or for replevin.” Appellants’ Reply Br.
at 9. Section § 2032A “provides a method of valuing farm property for estate tax
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purposes[,]” Ernzen at 192, and does not expressly evidence Congressional intent
to provide a private right of action.
Nor does § 2032A impliedly create such a right of action. While several
factors have been deemed relevant in determining when a private remedy may be
inferred, see Cort v. Ash, 422 U.S. 66, 78 (1975), the ultimate question is whether
Congress intended to create a private cause of action. Schmeling v. Nordam, 97
F.3d 1336, 1344 (10th Cir. 1996) (citing Touche Ross Co. v. Redington, 442 U.S.
560 (1979)). Neither the objective language of the statute nor its legislative
history indicate an intent to fashion a remedy as between private entities. As the
district court correctly noted, “[s]ection 2032A is implicated only to the extent its
legislative history provides guidance relevant to distribution under estate and
probate law.” Ernzen 878 F. Supp. at 192.
We now turn to the alternative basis for invoking § 1331 subject-matter
jurisdiction: “where the vindication of a right under state law necessarily turn[s]
on some construction of federal law.” Franchise Tax Bd., 463 U.S. at 9 (citations
omitted). This language, however, “must be read with caution.” Merrell Dow,
478 U.S. at 809. It does not “disturb the long-settled understanding that the mere
presence of a federal issue in a state cause of action does not automatically confer
federal-question jurisdiction.” Id. at 813. In particular, “a complaint alleging a
violation of a federal statute as an element of a state cause of action, when
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Congress has determined that there should be no private, federal cause of action
for the violation does not state a claim ‘arising under’ the Constitution, laws, or
treaties of the United States.” Id. at 817. Appellants’ complaint makes precisely
such an allegation and, consequently, does not arise under federal law.
In support of their jurisdictional claim, appellants rely on Smith v. Kansas
City Title & Trust Co., 255 U.S. 180 (1921). Smith involved a suit by a
shareholder to enjoin a company from purchasing certain bonds issued by the
federal government. There, the Court stated:
The general rule is that, where it appears from the bill or statement of the
plaintiff that the right to relief depends upon the construction or application
of the Constitution or laws of the United States, and that such federal claim
is not merely colorable, and rests upon a reasonable foundation, the District
Court has jurisdiction . . . .
Although Smith remains good law, its reach has been narrowed by
subsequent Supreme Court rulings, including Moore v. Chesapeake & Ohio Ry.
Co., 291 U.S. 205 (1934). A key question in Moore was whether the defendant
railroad had violated a federal safety statute. The plaintiff contended that the
presence of this “federal question” provided jurisdiction. The Court disagreed:
“[I]t does not follow that a suit brought under the state statute which defines
liability . . . and brings within the purview of the statute a breach of duty imposed
by the federal statute, should be regarded as a suit arising under the laws of the
United States and cognizable in the federal court . . . .” Id. at 214-215.
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Thus, while a question of federal law was likely to be outcome-
determinative in both Smith and Moore, jurisdiction was deemed to exist in the
former, but not the latter. Pointing to “the nature of the federal interest at stake,”
Merrell Dow attempts to reconcile this case-law:
In Smith . . . the issue was the constitutionality of an important federal
statute. In Moore, in contrast, the Court emphasized that the violation of
the federal standard as an element of state tort recovery did not
fundamentally change the state tort nature of the action.
Id. at 814 n.12.
The instant action is more akin to Moore than to Smith. The Ernzens’
underlying claim is one arising under state law—as an action for replevin or
ancillary theory of recovering personal property. Thus, § 2032A will be
implicated only as a manifestation of federal tax policy within the state law cause
of action.
The district court noted that the Kansas probate court “is particularly well-
suited to determine the effect of section 2032A’s legislative history on estate and
probate law, given the state court’s especially strong interest and well-developed
competence in the area of probate law.” Ernzen, 878 F. Supp. at 192 (internal
quotation and citation omitted). We agree. The nature of the federal interest at
issue here does not warrant the exercise of federal subject-matter jurisdiction
under § 1331. The Ernzens are free to pursue their claims in the underlying
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probate action. State courts routinely interpret and apply federal law, and we see
no reason why this case will present an unmanageable anomaly.
AFFIRMED.
ENTERED FOR THE COURT
Carlos F. Lucero
Circuit Judge
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