CORRECTED OPINION [PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
____________________________ FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 02-11990 FEBRUARY 7, 2003
____________________________ THOMAS K. KAHN
D. C. Docket No. 01-01405-CV-A-N CLERK
HOUSEHOLD BANK, f.s.b.,
Plaintiff-Appellant,
H & R BLOCK, INC.
H & R BLOCK EASTERN TAX SERVICES, INC.,
H & R BLOCK TAX SERVICES, INC.,
BLOCK FINANCIAL CORPORATION,
Intervenors-Plaintiffs-
Appellants,
versus
THE JFS GROUP, Mary G. Blackmon,
Carl T. Brown, William E. Burch,
Vincent R. Butler, Margaret A. Callaway,
Dorothy Carruthers, Angela G. Christian,
Curtis Crews, Letitia A. Crews
Janice Cunningham, Susie Davis,
Willie Davis, Billy Devose,
Patricia Dixon, Grace Downie,
Sandra E. Dumas, Jessie Erkins,
Larry Forte, Vivian A. Fortson,
Michael A. Fountain, Tangela D. Glenn,
Jean Imgram Gordy, Jeanette Harris,
Otis G. Hayward, Eyvonne Hill,
Jeffery Jackson, Willie J. Jett,
Charlene D. Jonson, Gloria A. Johnson,
Tonya A. Jones, Michael D. Kelly,
Dorothy Kinsey, Latanya S. McCoy,
Donald McCray, Johnnie R. McCray,
Tonia McGhee, Lisa McQueen,
Mary A. Morris, Denise Paige,
Yvonne Paige, Aaron C. Patterson,
Modester Peterson, Belinda Ann Rogers,
Brenda Ruffin, Onnie Simmons,
Emogene L. Smith, Cresha D. Thomas,
Evelyn P. Thomas, Theresa L. Turner,
Eugene Williams, and Winnifer Williams,
THE MIDDLE DISTRICT GROUP, Marie Anderson,
Alvester Brafort, Patricia A. Coleman,
Caldonia Jackson, Shirley Jernigan,
Mamie D. Mitchell, Diane Peterson,
Ernestine D. Starks, Gerald Stokes,
Albert Thomas, and Earlene Young,
THE JTMH GROUP,
THE ADAMS GROUP,
THE ABRAHAM GROUP, et al.,
Defendants-Appellees.
_________________________
Appeal from the United States District Court
for the Middle District of Alabama
_________________________
(February 7, 2003)
Before CARNES, HULL and ALARCÓN*, Circuit Judges.
ALARCÓN, Circuit Judge:
*
Honorable Arthur L. Alarcón, United States Circuit Judge for the Ninth Circuit, sitting
by designation.
2
We must decide whether the district court erred in dismissing this
declaratory judgment action for lack of subject-matter jurisdiction,
notwithstanding the existence of an actual controversy between the parties
regarding non-frivolous federal claims that could be brought by the defendants in
a coercive action. The district court held that it lacked subject-matter jurisdiction
because the plaintiffs failed to demonstrate that the anticipated coercive action
could, but would not necessarily present a federal question due to the availability
of state-law claims. In reversing this judgment, we join seven of our sister circuits
in concluding that federal-question jurisdiction exists in a declaratory judgment
action if the plaintiff has alleged facts in a well-pleaded complaint which
demonstrate that the defendant could file a coercive action arising under federal
law.
I
H & R Block, Inc. (“Block”) provides tax preparation services to its
customers. For a fee, it will file a customer’s tax return electronically with the
Internal Revenue Service (“IRS”). Electronically filed tax returns enable a
taxpayer to obtain a refund within two weeks. For Block’s customers who
preferred not to wait that long, Block arranged for Household Bank, f.s.b. or its
predecessor-in-interest, Beneficial Financial Bank (collectively “Household”) to
3
make a short-term loan in the amount of the anticipated tax refund. These loans
are referred to as tax refund anticipation loans (“RAL”). The loan is secured by
the amount of the tax refund. Block’s customers authorized the IRS to deposit the
tax refund in Household’s account. Each of Block’s customers signed a contract
in which he or she agreed that any dispute relating to the RAL would be resolved
by binding arbitration.
In 1998, two national class actions were filed against Household in the
United States District Court for the Northern District of Illinois (the “Illinois Class
Actions”) by Block customers who had received RALs. Zawikowski v. Beneficial
Nat’l Bank, No. 98-C-2178 (N.D. Ill.); Turner v. Beneficial Nat’l Bank, No. 98-C-
2550 (N.D. Ill.). These actions were certified as Fed. R. Civ. P. 23(b)(3) “opt-out”
class actions. The claims in the Illinois Class Actions alleged violations of the
federal Truth in Lending Act (“TILA”), the National Bank Act, Racketeer
Influenced and Corrupt Organizations Act (“RICO”), and various state-law claims.
A settlement was reached in the Illinois Class Actions. Six hundred and seventy-
two class members from Alabama, however, exercised their right to opt out of the
Illinois Class Actions in order to file their own actions against Household.
On August 2, 2000, counsel for some of the Alabama RAL recipients who
opted out of the Illinois Class Actions executed an affidavit which alleged that “if
4
adequate and fair settlements are not able to be obtained, I intend to pursue
litigation through the Courts here in Alabama which are favorable to plaintiffs
with valid causes of action such as these.” (Emphasis added).
On September 7, 2000, Household filed this action for a declaratory
judgment pursuant to 28 U.S.C. § 2201(a) and 9 U.S.C. § 4 of the Federal
Arbitration Act against five groups of potential plaintiffs from Alabama who had
opted out of Illinois Class Actions (collectively the “Alabama Defendants”).1
Household prayed for a declaration that the arbitration provisions in the RAL
agreements are enforceable. Household alleged that the district court had diversity
jurisdiction pursuant to 28 U.S.C. § 1332(a), and federal-question jurisdiction
pursuant to 28 U.S.C. § 1331 “because certain of the potential claims by the
defendants against Household arise under federal law, including the federal Truth
in Lending Act. . . .” On the same date, Block filed a claim styled as a
“Complaint of Intervention.” Block alleged that the district court had federal-
question jurisdiction under the Truth in Lending Act, 15 U.S.C. § 1601, et seq. and
the National Bank Act, 12 U.S.C. §§ 85 and 86. The Alabama Defendants filed
motions to dismiss for lack of subject-matter jurisdiction. The district court
1
These groups are: the JFS Group, the Middle District Group, the JTMH
Group, the Adams Group, and the Abraham Group.
5
granted the motions on March 8, 2002 holding that it did not have subject-matter
jurisdiction pursuant to § 1331.2
II
Household and Block contend they are entitled to a declaration that the
arbitration clause is enforceable because it is uncontested that, prior to the date
this action was filed, the Alabama Defendants could have filed a non-frivolous
coercive action in federal court under TILA, the National Bank Act, or RICO.
This court reviews de novo the dismissal of an action for lack of subject-matter
jurisdiction. Woodruff v. United States Dept. of Labor, 954 F.2d 634, 636 (11th
Cir. 1992).3
2
The district court also concluded that it did not have diversity jurisdiction
because Household and Block had failed to demonstrate that the amount in
controversy exceeded $75,000. Household and Block have not appealed from this
ruling.
3
Citing Wilton v. Seven Falls Co., 515 U.S. 277 (1995), counsel for the JFS
Group, the Middle District Group, and the Brewer Group argue in their responsive
brief that we must apply the abuse of discretion standard of review on appeal. We
disagree.
In Wilton, the Supreme Court held that a district court has the discretion to
stay a declaratory judgment during the pendency of parallel state court
proceedings. Id. at 290. The Court held that “district courts possess discretion in
determining whether and when to entertain an action under the Declaratory
Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional
prerequisites.” Id. at 282. The district court concluded it lacked subject-matter
jurisdiction, and, thus, it did not purport to exercise its discretion to grant a stay.
6
The Federal Arbitration Act, 9 U.S.C. § 1 et seq., does not provide an
independent basis for a federal court’s subject-matter jurisdiction. Pursuant to
9 U.S.C. § 4, however,
[a] party aggrieved by the alleged failure, neglect, or
refusal of another to arbitrate under a written agreement
for arbitration may petition any United States district
court which, save for such agreement, would have
jurisdiction under Title 28, in a civil action or in
admiralty of the subject matter of a suit arising out of the
controversy between the parties, for an order directing
that such arbitration proceed in the manner provided for
in such agreement.
9 U.S.C. § 4 (2002). Accordingly, we must determine whether the complaints
filed by Household and Block set forth facts showing that there is an independent
basis for federal court jurisdiction. See Tamiami Partners v. Miccosukee Tribe of
Indians, 177 F.3d 1212, 1222-23 (11th Cir. 1999) (“[T]he Federal Arbitration Act
alone is insufficient to confer federal jurisdiction over disputes involving
arbitration agreements, . . . an independent basis of jurisdiction–such as diversity
or a federal question–is required.”). The Declaratory Judgment Act, 28 U.S.C.
§ 2201(a), also requires that the plaintiff allege facts showing that the controversy
is within the court’s original jurisdiction. Section 2201(a) provides in pertinent
part:
In a case of actual controversy within its jurisdiction, . . .
7
any court of the United States, upon the filing of an
appropriate pleading, may declare the rights and other
legal relations of any interested party seeking such
declaration, whether or not further relief is or could be
sought. Any such declaration shall have the force and
effect of a final judgment or decree and shall be
reviewable as such.
“[T]he operation of the Declaratory Judgment Act is procedural only.”
Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937). If there is an
underlying ground for federal court jurisdiction, the Declaratory Judgment Act
“allow[s] parties to precipitate suits that otherwise might need to wait for the
declaratory relief defendant to bring a coercive action.” Gulf States Paper Corp. v.
Ingram, 811 F.2d 1464, 1467 (11th Cir. 1987).
In Article III, § 2 of the Constitution, the founders provided that “[t]he
judicial Power shall extend to all Cases, in Law and Equity, arising under this
Constitution, the Laws of the United States and Treaties made or which shall be
made under this Authority . . . .” Id. In 1875, Congress authorized federal trial
courts to exercise original jurisdiction over civil actions arising under the
Constitution, laws, or treaties of the United States, Act of March 3, 1875, 18 Stat.
470 (codified as amended at 28 U.S.C. § 1331).
Household alleged in its complaint that the district court had subject-matter
jurisdiction “under federal law, including the federal Truth in Lending Act.”
8
Block also alleged that the district court had federal-question jurisdiction “because
the potential claims by Defendants against Household and/or Block arise under
federal law, including the Federal Truth in Lending Act.” Additionally, it is
undisputed between the parties that there is an actual controversy between them
arising under federal law. The Alabama Defendants contend that there are also
state law controversies. Citing the Fifth Circuit’s unpublished decision in Battiste
v. H & R Block, Inc., 209 F.3d 719 (5th Cir. 2000) (table), Block has alleged,
though, that “the potential [RAL] claims of the Defendants are completely
preempted by the National Bank Act, 12 U.S.C. §§ 85 and 86.”
The dismissal of a federal-question claim for lack of subject-matter
jurisdiction is “justified only if that claim were ‘so attenuated and unsubstantial as
to be absolutely devoid of merit,’ or ‘frivolous.’” Baker v. Carr, 369 U.S. 186,
199 (1962) (internal citations omitted). The district court did not conclude that the
claims by Household and Block were “absolutely devoid of merit, or frivolous.”
Instead, it dismissed this action because of its determination that
[t]he position of the Plaintiffs would eviscerate the long-
standing principle that the plaintiff is the master of his
claim: if a declaratory judgment plaintiff may seek relief
in federal court based on the fact that the declaratory
judgment defendant may assert a federal claim, even
though he may also limit his coercive action to only state
claims, that is tantamount to allowing a declaratory
9
judgment plaintiff to force the other party to litigate a
claim that he may have no intention of pursuing.
Household Bank v. JFS Group, 191 F. Supp. 2d 1292, 1303 (M.D. Ala. 2002).
The district court ruled that “while the DJA does allow a plaintiff to precipitate a
suit based on federal law, he may only do so where the anticipated coercive action
would of necessity arise under federal law.” Id. In support of this theory, the
district court relied upon the following statement in Franchise Tax Board v.
Construction Laborers Vacation Trust, 463 U.S. 1 (1983): “‘Federal 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.’” Household, 191 F. Supp.
2d at 1301 (quoting Franchise Tax Bd., 463 U.S. at 19).
The district court characterized the quoted language from Franchise Tax
Board as a “rather unassuming passage.” Id. It did not refer to it as a holding, or
even obiter dictum. Nevertheless, the district court concluded that “this court
understands the Franchise Tax Board passage to stand for the more limited
proposition that where a declaratory judgment defendant’s anticipated coercive
action would have to be federal in nature, the court would have federal court
jurisdiction.” Id. at 1301-02. We disagree. The “rather unassuming passage” in
10
Franchise Tax Board was a mere observation of the historical fact that federal
district courts have taken original jurisdiction when a declaratory judgment
defendant’s potential coercive action necessarily presents a claim arising under
federal law. The Court did not hold in Franchise Tax Board that a district court
lacks original jurisdiction over an action filed under the federal Declaratory
Judgment Act where the plaintiff’s well-pleaded complaint alleges that the
defendant could assert non-frivolous state and federal law claims in a coercive
action.
The jurisdictional issue addressed by the Court in Franchise Tax Board is
clearly distinguishable from the question presented in this appeal. In Franchise
Tax Board, the Appellant state agency filed a complaint in a California court
against the Construction Laborers Vacation Trust for Southern California
(“CLVT”). It alleged in its first cause of action that CLVT had violated a
California statute that requires any person who possesses property belonging to a
taxpayer to withhold the amount of any tax, interest, or penalty due from the
taxpayer and to transmit the amount withheld to the Franchise Tax Board.
Franchise Tax Bd., 463 U.S. at 5. In its second cause of action, the Franchise Tax
Board requested that the state court grant declaratory relief under California’s
Declaratory Judgment Act, Cal. Code Civ. Proc. § 1060 (West 1980) and hold that
11
CLVT was not entitled to pre-emption under § 514 of the Employee Retirement
Income Security Act of 1974 (“ERISA”) 88 Stat. 829 as amended, 29 U.S.C.A.
§ 1001 et sec. (1976 ed. and Supp. V). Id. at 6-7.
CLVT removed the action in Franchise Tax Board to the United States
District Court for the Central District of California. That court denied Franchise
Tax Board’s motion for a remand to the state court. It ruled that ERISA did not
pre-empt the State’s power to levy on funds held in trust by CLVT. Id. at 7. The
Ninth Circuit Court of Appeals reversed the judgment. It held that ERISA pre-
empted California’s attempt to levy on the vacation trust fund for unpaid taxes.
Franchise Tax Bd. v. Const. Laborers Vac. Trust, 679 F.2d 1307, 1308-09 (9th
Cir. 1982).
The Supreme Court held that the federal courts had no jurisdiction to decide
the questions presented by the Franchise Tax Board in its complaint. The Court
vacated the judgment of the court of appeals and directed it to remand the matter
to the state trial court from which it was removed. Franchise Tax Bd., 463 U.S. at
28.
The Court ruled that the district court did not have removal jurisdiction over
the Franchise Tax Board’s first cause of action to enforce its levy under state law
because it did not present a substantial question of federal law under the well-
12
pleaded complaint rule. Id. at 13. Regarding the Franchise Tax Board’s second
cause of action for declaratory relief under California law, the Court declared that
under § 502(a) of ERISA 29 U.S.C. § 1132(a), only certain persons—participants,
beneficiaries, fiduciaries, or the Secretary of Labor—may file an action in federal
court. Id. at 21-25. The Court reasoned as follows:
[Section 502(a)] did not go so far as to provide that any
suit against such parties must also be brought in federal
court when they themselves did not choose to sue. The
situation presented by a State’s suit for a declaration of
the validity of state law is sufficiently removed from the
spirit of necessity and careful limitation of district court
jurisdiction that informed our statutory interpretation in
Skelly Oil and Gully to convince us that, until Congress
informs us otherwise, such a suit is not within the
original jurisdiction of the United States district courts.
Id. at 21-22.
In this matter, Household and Block alleged that the Alabama Defendants
could file a coercive action asserting federal claims under the Truth in Lending
Act, the National Bank Act and RICO. Unlike the limited jurisdictional provisions
of ERISA, the statutes that could support a federal claim in a coercive action filed
by the Alabama Defendants do not expressly limit the persons who may invoke the
original jurisdiction of the federal courts.
In Franchise Tax Board, the Court noted that the only question in dispute
13
between the parties was whether “section 514 of ERISA preempts state law and
that the trustees lack the power to honor the levies made upon them by the State of
California.” Id. at 6. The Supreme Court held that
a suit by state tax authorities both to enforce its levies
against funds held in trust pursuant to an ERISA-covered
employee benefit plan, and to declare the validity of the
levies notwithstanding ERISA, is neither a creature of
ERISA itself nor a suit of which the federal courts will
take jurisdiction because it turns on a question of federal
law.
Id. at 28. The Court concluded that it lacked jurisdiction over the federal pre-
emption issue because it is only a defense to the Franchise Tax Board’s right to
enforce its levy under California law. Id. at 17-19. In reaching this decision, the
Court applied the rule it announced in Skelly Oil Co. v. Phillips Petroleum Co.,
339 U.S. 667 (1950).
In Skelly Oil, the Court concluded that the district court did not have
original jurisdiction over the claim for declaratory relief filed by Phillips
Petroleum Company because “[w]hatever federal claim Phillips may be able to
urge would in any event be injected into the case only in anticipation of a defense
to be asserted by [defendants].” Id. at 672. The Court instructed that
[s]ince the matter in controversy as to which Phillips
asked for declaratory judgment is not one that “arises
under the . . . laws . . . of the United States” and since as
14
to Skelly and Stanolind jurisdiction cannot be sustained
on the score of diversity of citizenship, the proceedings
against them should have been dismissed.
Id. at 674. The Supreme Court’s reliance on Skelly Oil in Franchise Tax Board
belies the district court’s determination that an action under the Declaratory
Judgment Act may be filed “only . . . where the anticipated coercive action would
of necessity arise under federal law.” Household, 191 F. Supp. 2d at 1303. We
note also that in Skelly Oil, the Court affirmed the order denying the motion to
dismiss the action on jurisdictional grounds against Magnolia Petroleum
Company. The Court held that the district court had original jurisdiction over
Phillips’ state-law claims against Magnolia Petroleum Company based on
diversity jurisdiction. Skelly Oil, 339 U S. at 675-78.
In the matter sub judice, the federal claims that could be filed in a coercive
action by the Alabama Defendants have not been injected into the complaint by
Household and Block as a potential defense to their state-law causes of action.
Therefore, under Franchise Tax Board and Skelly Oil, the district court had
subject-matter jurisdiction over Household and Block’s request for a declaration
that the arbitration provisions of its RAL agreements were enforceable because
they alleged in a well-pleaded complaint that the declaratory judgment defendants
could file non-frivolous federal claims against them.
15
III
The question whether a district court lacks subject-matter jurisdiction over a
declaratory judgment action unless the defendant’s anticipated coercive action
would of necessity arise under federal law has not been squarely addressed by this
court. In Gulf States Paper Corp. v. Ingram, 811 F.2d 1464 (11th Cir. 1987),
however, this court affirmed the district court’s conclusion that it had subject-
matter jurisdiction over a declaratory judgment action brought by the plaintiff to
determine its obligations under the Vietnam Era Veterans’ Readjustment
Assistance Act of 1974, 38 U.S.C. §§ 2021 et seq. (1979). Id. at 1466. In Gulf
States all of the defendant’s possible claims were federal, whereas here it is
undisputed that the Alabama Defendants could file a coercive action asserting
state or federal claims. Nevertheless, this court’s reasoning in Gulf States
supports our conclusion that federal subject-matter jurisdiction exists in a
declaratory judgment action in which a defendant could have brought a federal or
state claim in a coercive action.
In Gulf States, this court reasoned as follows:
To decide whether the well-pleaded complaint for
declaratory relief in the present case properly asserts a
substantial federal claim, we must determine whether,
absent the availability of declaratory relief, the instant
case could nonetheless have been brought in federal
16
court. To do this, we must analyze the assumed coercive
action by the declaratory judgment defendant.
The coercive action in this case would be a suit by
Ingram under the Veterans’ Reemployment Rights Act
seeking reinstatement in her job at Gulf States when she
returned from her training program. Ingram’s coercive
action clearly would present a federal cause of action.
Her suit would satisfy both Holmes’ and Cardozo’s
arising under tests. Therefore, Gulf States’ suit here that
merely anticipates Ingram’s federal claim against it falls
within section 1331 jurisdiction via the bootstrapping
mechanism of the declaratory judgment suit.
Id. at 1467 (emphasis added). This court also stated in Gulf States that the
Declaratory Judgment Act permits a party, “‘to bootstrap its way into federal
court’ by bringing a federal suit that corresponds to one the opposing party might
have brought.” Id. at 1467 (emphasis added) (quoting Superior Oil Co. v. Pioneer
Corp., 706 F.2d 603, 607 (5th Cir. 1983)).
In Gulf States, this court did not discuss the Supreme Court’s earlier
decision in Franchise Tax Board in holding that subject-matter jurisdiction is
present in a declaratory judgment action if “the instant case could nonetheless
have been brought in federal court.” Gulf States, 811 F.2d at 1467 (emphasis
added). In this matter, the district court stated that this court’s holding in Gulf
States is “consistent with the narrower reading suggested by the use of the word of
‘necessarily’ in Franchise Tax Board.” Household, 191 F. Supp. 2d at 1302. The
17
district court pointed out that this court stated in Gulf States that the declaratory
judgment plaintiff’s coercive action “clearly would present a federal cause of
action.” Id. (citing Gulf States, 811 F.2d at 1467).
We disagree with the district court’s interpretation of this court’s holding in
Gulf States. This court expressly held in Gulf States that in deciding whether a
district court has subject-matter jurisdiction over a well-pleaded complaint for
declaratory relief, it must determine whether “absent the availability of declaratory
relief, the instant case could nonetheless have been brought in federal court.” Gulf
States, 811 F.2d at 1467. In applying this rule, this court “analyze[d] the assumed
coercive action by the declaratory judgment defendant.” Id. Since, the plaintiff in
Gulf States sought a declaration that it was not liable under the Vietnam Era
Veterans’ Readjustment Assistance Act, the well-pleaded complaint clearly raised
a federal question.
Here, the district court erred in failing to apply the test set forth in Gulf
States to determine whether a district court has subject-matter jurisdiction over a
declaratory judgment action. It is undisputed that the Alabama Defendants could
have filed a coercive action against the Appellants under several federal statutes.
Therefore, Appellees’ coercive action “clearly would present a federal cause of
action.” Gulf States, 811 F.2d at 1467. The Supreme Court commented in
18
Textron Lycoming Reciprocating Engine Div., Avco Corp. v. United Auto.
Aerospace & Agricultural Implement Workers of America, 523 U.S. 653 (1998),
that it had observed in Franchise Tax Board 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 660 n.4. (quoting
Franchise Tax Bd., 463 U.S. at 19). The Court also stated in Textron Lycoming
that “[t]he cases brought forward to support that observation, however, were suits
by alleged patent infringers to declare a patent invalid, which of course themselves
raise a federal question.” Id. (citing Franchise Tax Bd., 463 U.S. at 19 n.19
(emphasis added). Thus, the Court’s reference to cases arising under patent law
illustrates an obvious example of an action which involves a federal claim within
the exclusive jurisdiction of the district court. The test adopted by this court in
Gulf States is consistent with the Supreme Court’s interpretation in Textron
Lycoming of its observation in Franchise Tax Board regarding a district court’s
subject-matter jurisdiction over a declaratory judgment action that necessarily
raises a federal law question in a well-pleaded complaint.
The Court’s observation in Franchise Tax Board and Textron Lycoming is
reflected in the following syllogism:
19
A district court has subject matter jurisdiction over a
declaratory judgment action if the plaintiff’s well-
pleaded complaint alleges that the defendant could
institute a coercive action arising under federal law.
The owner of a patent can assert a coercive action within
the exclusive jurisdiction of the district court against an
alleged patent infringer.
Therefore, the district court “necessarily” has subject
matter jurisdiction over a declaratory judgment action
filed by an alleged infringer who challenges the validity
of a patent.
This conclusion is obvious because disputes over the infringement or the validity
of a patent can only be resolved in a federal district court because jurisdiction
“shall be exclusive of the courts of the states in patent . . . cases.” 28 U.S.C.
§ 1338(a).
In enacting the Declaratory Judgment Act, Congress did not limit a district
court’s jurisdiction to federal questions within its exclusive jurisdiction. We lack
the power to ignore the words used by Congress in creating the remedy set forth in
28 U.S.C. § 2201 where its intention is set forth in plain and unambiguous
language. Concerns that permitting a party to seek a declaration under the DJA
where the defendant could file a coercive action under state or federal law
eviscerates the principle that plaintiff is the master of his or her claim, must be
addressed to the legislative branch of our Government.
20
In holding that a district court does not have original jurisdiction to issue a
declaration regarding an anticipated coercive action unless it is a claim that would,
of necessity, arise under federal law, the district court expressly declined to apply
decisions rejecting this theory from the Fourth, Fifth, Ninth, and Tenth Circuits.
Each of these circuits has concluded that a federal court has subject-matter
jurisdiction over a declaratory judgment action where the defendant could have
brought a federal claim in a coercive action. See Columbia Gas Transmission
Corp. v. Drain, 237 F.3d 366, 370-71 (4th Cir. 2001) (“Because [the federal
declaratory judgment plaintiff’s] complaint . . . seeks declaratory relief on a matter
for which [the declaratory judgment] could bring a coercive action . . . arising
under federal law, we conclude the district court possessed subject-matter
jurisdiction pursuant to § 1331.”) (emphasis added); TTEA v. Ysleta Del Sur
Pueblo, 181 F.3d 676, 682 (5th Cir. 1999) (“If [a federal statutue] gave the
[defendant] a right to sue [the plaintiff], we would hold that TTEA could sue for
declaratory judgment that the [defendant] stated no claim.”) (emphasis added);
Standard Ins. Co. v. Saklad, 127 F.3d 1179, 1181 (9th Cir. 1997) (“A person may
seek declaratory relief in federal court if the one against whom he brings his action
could have asserted his own rights there.”) (emphasis added); Cardtoons, L.C. v.
Major League Baseball Players, 95 F.3d 959, 965 (10th Cir. 1996) (“Because [the
21
defendant] could have brought a federal Lanham Act claim as part of a well-
pleaded complaint against [the plaintiff] the district court had federal question
jurisdiction over this declaratory judgment action.”) (emphasis added).
Three other circuits have also concluded that subject-matter jurisdiction is
present where the facts alleged in a declaratory judgment plaintiff’s well-pleaded
complaint demonstrate that the defendant could allege a coercive claim under
federal law. In Kidder, Peabody & Co., Inc. v. Maxus Energy Corp., 925 F.2d 556
(2d Cir. 1991), the Second Circuit held that a district court had subject-matter
jurisdiction over a declaratory judgment action in which the defendant threatened
litigation under several causes of action, one of which was federal. Id. at 562.
The court ruled that where a party “might assert” a federal claim, a declaratory
judgment action could be “properly commenced in light of the real threat of
litigation.” Id. (emphasis added). Similarly, in GNB Battery Techs., Inc. v.
Gould, Inc., 65 F.3d 615 (7th Cir. 1995), the Seventh Circuit held that a district
court has subject-matter jurisdiction over a declaratory judgment action where the
plaintiff’s well-pleaded complaint “presumes the possibility of an action by [the
defendant] under [federal law].” Id. at 619 (emphasis added).
In Fina Oil and Chemical Co. v. Ewen, 123 F.3d 1466 (Fed. Cir. 1997), the
Federal Circuit held as follows: “We determine whether there is jurisdiction in a
22
declaratory judgment action by applying the well-pleaded complaint rule. We
apply that rule not to the declaratory judgment complaint but the hypothetical
action the declaratory defendant would have brought.” Id. at 1470 (internal
citation omitted). The Federal Circuit concluded that the declaratory judgment
plaintiff satisfied the well-pleaded complaint rule by assuming that it held “a
recognized interest in a patent that could be adversely affected by an action
brought under [35 U.S.C.] section 256.” Id. at 1471 (emphasis added).
Under the law of this circuit, pursuant to the decision in Gulf States, a
federal district court has subject-matter jurisdiction over a declaratory judgment
action if, as here, a plaintiff’s well-pleaded complaint alleges facts demonstrating
the defendant could file a coercive action arising under federal law. No federal
appellate court has reached a contrary conclusion.
IV
In this matter, the Alabama Defendants informed the district court that they
did not intend to file a federal claim against Household and Block. We were
advised during oral argument that some of the Alabama Defendants had filed non-
federal claims in state court subsequent to the date that Household and Block filed
their complaints in this matter. In determining whether a district court has subject-
matter jurisdiction, we must look to the facts as they existed at the time the action
23
was filed. Keene Corp. v. United States, 508 U.S. 200, 207 (1993); Leonard v.
Enter. Rent A Car, 279 F.3d 967, 972 (11th Cir. 2002).
In Kidder, Peabody, the declaratory judgment defendant also argued that
subject-matter jurisdiction was lacking because, it had “committed never to assert
[its federal claims] against [the plaintiff].” 925 F.2d at 562-63. The Second
Circuit held that the dispute was not mooted because without a binding, judicially-
enforceable agreement, the defendant could file an action against the declaratory
judgment plaintiff asserting claims arising under federal law. Id. at 563.
The Alabama Defendants have not entered into a settlement agreement or
filed a release of their federal claims in this matter, nor did they request the district
court to enter judgment against them. Regardless of their present renunciation,
without a binding, judicially enforceable agreement, the Alabama Defendants
could still put Household and Block to the task of defending against the non-
frivolous federal law claims alleged in this declaratory judgment action. We agree
with the Second Circuit that “[a] judicial declaration that [the Defendants are]
barred from asserting the [federal] claims would both settle the matter between
these parties once and for all and dispel all uncertainty regarding the liability of
[the Plaintiffs] for these claims.” Id.
CONCLUSION
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The district court erred in concluding that it lacked subject-matter
jurisdiction over this declaratory judgment action. Accordingly, we VACATE the
judgment dismissing this action.
25