Aiming for simplicity, Supreme Court makes things more complicated

Even among many who otherwise generally endorse more complicated balancing tests for courts to use in resolving substantive legal issues, there is a broad consensus that bright-line rules are more appropriate for jurisdictional questions. The logic is simple: A bright-line rule may be less accurate, and produce less just results, than a balancing test; it is, however, much easier to apply and thus invites less litigation. Since a jurisdictional inquiry is ancillary to the substantive legal dispute, it makes sense to have more resources — both of the judicial system and of litigants — devoted to resolving the substantive dispute than the jurisdictional inquiry.

{mosads}Nevertheless, in a case decided this past Term — Merrill, Lynch, Pierce, Fenner & Smith v. Manning — the Supreme Court expanded the scope of a jurisdictional standard that has flummoxed lower courts and lawyers alike. The court extended this murky standard beyond its moorings under one jurisdictional statute to another. Making matters worse, whereas application of the standard under the first jurisdictional statute (where it originated) is limited to federal courts seeking to verify their own jurisdiction, the application of the second jurisdictional statute will now invite state courts to confront the standard’s morass. The court’s decision, in other words, will expand the mischiefs wrought by the unclear standard.

Despite the preference of many commentators for bright-line jurisdictional rules, the Supreme Court has for many decades woven a jurisdictional complexity into the fabric of so-called “federal-question jurisdiction” of the federal courts. Congress has conferred on the federal trial courts — in Section 1331 of the Judicial Code — jurisdiction to hear cases that “arise under” federal law. It is without controversy that this grant extends to cases that raise causes of action that are actually created by federal law. And note how easy this rule is to apply: If federal law creates the cause of action in question, then there is federal-question jurisdiction to hear the case.

What has been far more controversial — and complicated — is the notion, dating back to the early 20th century, that the grant of federal-question jurisdiction extends not only to causes of action created by federal law, but also to some causes of action created by state law. The court has emphasized the importance of providing federal jurisdiction as to certain state law claims that implicate strong federal interests. For example, the court has upheld federal-question jurisdiction over a dispute over title to real property (a quintessential state-law cause of action) where one litigant claimed to have obtained the property from the IRS, while the other litigant argued that the IRS hadn’t followed proper procedures in seizing the property, thus invalidating the first litigant’s claim. In the end, then, the case turned upon an important question of federal law: the procedures by which the IRS can successfully seize real property for unpaid taxes.

Whatever the merits of allowing certain state law claims to generate federal jurisdiction, unlike the bright-line rule for federal causes of action, not all state-law causes of action give rise to federal-question jurisdiction. Indeed, the test for when a state-law cause of action qualifies for federal-question jurisdiction is highly contingent on the circumstances and generates unpredictable outcomes. So unclear was the standard after 80 years of Supreme Court development that the Supreme Court in 2013 commented: “In outlining the contours of this slim category, we do not paint on a blank canvas. Unfortunately, the canvas looks like one that Jackson Pollock got to first.”

Court decisions over the last few years have clarified the test a bit, but the standard still remains highly contingent and unpredictable in practice. Simplifying somewhat, a cause of action created by state law can be brought in federal trial court under that court’s federal-question jurisdiction to the extent that the cause of action turns in the end on an issue of federal law that is necessarily disputed by the parties, provided that having federal courts hear such cases does not interfere with the congressional desire to balance the interests of the federal and state judiciaries. (What a mouthful!) This standard governing this limited category of federal-question jurisdiction for some state-law causes of action — to which I will refer as “state-law federal-question cases” (unlike “federal-law federal-question cases,” where federal law creates the causes of action in question) — continues to prove difficult for lower courts to apply and for lawyers to analyze.

This past term, in the Merrill, Lynch case, the court had an opportunity to limit the state-law federal-question jurisdiction to the federal-question statute itself. Instead, it chose to extend it to a jurisdictional provision of the federal Securities Exchange Act that (using completely different language from Section 1331) provides for exclusive federal court jurisdiction over any suit “brought to enforce any liability or duty created by” the Securities Exchange Act or the regulations promulgated thereunder. Ironically, the court insisted its choice simplified the jurisdictional calculus.

Justice Elena Kagan’s majority opinion states that extending state-law federal-question jurisdictional analysis to the Securities Exchange Act’s exclusive jurisdiction provision “promotes ‘administrative simplicity.'” But this assertion is highly questionable. For one thing, the court majority’s claim that state-law federal-question jurisdictional analysis “provides ready answers to jurisdictional questions” is — even after the court’s recent attempts to clarify the standard — dubious at best.

For example, Kagan contended elsewhere in the majority opinion that, if “a state statute … makes illegal ‘any violation of the Exchange Act involving naked short selling,'” then a “plaintiff seeking relief under that state law must undertake to prove, as the cornerstone of his suit, that the defendant infringed a requirement of the federal statute.” That being the case, according to Kagan, the plaintiff’s suit would fall within the Exchange Act’s exclusive jurisdiction provision thanks to state-law federal-question analysis. But this analysis is conclusory — and, indeed, it is at odds with prior Supreme Court precedent that states quite clearly that the mere fact that state law implicates a federal statute is not always enough to guarantee federal-question jurisdiction. At the least, Kagan’s artificially facile treatment paints state-law federal-question analysis as far more straightforward than it actually is.

Moreover, the setting of exclusive federal jurisdiction will serve to multiply the potential for state-law federal-question analysis to create mischief by encouraging more litigation and greater unpredictability. The trial courts of the various states enjoy concurrent jurisdiction with the federal trial courts over matters falling within the scope of Section 1331. Then, since state trial courts enjoy plenary jurisdiction unless Congress divests them of it, a state trial court will never need to verify that federal-question jurisdiction exists (including the application of state-law federal-question analysis); only a federal court must assure itself that federal-question jurisdiction exists — including the application of state-law federal-question analysis — when parties argue that a case should be heard in federal court.

But the setting of a provision — like the Securities Exchange Act jurisdiction provision — that establishes exclusive federal jurisdiction, not only requires that federal courts assure themselves that their jurisdiction is proper, but also requires state courts to assure themselves that a cause of action does not fall within the federal courts’ exclusive jurisdictional sphere before proceeding. In other words, after the court’s holding, state courts, too, will have to deploy the morass that is state-law federal-question analysis.

In the end, the court’s argument for simplicity proceeds on a false premise. The court assumes that having two jurisdictional statutes employ the same jurisdictional test is necessarily the more straightforward and administrable option. To be sure, there is some simplicity in limiting the number of jurisdictional tests: This is simplicity through uniformity in jurisdictional tests. However, there is also simplicity in limiting the scope of complex, unpredictable jurisdictional tests: This is simplicity through greater uniformity in outcomes.

The reality is that either option would introduce its own complexity: The court’s chosen route limits the number of jurisdictional tests, but at the cost of extending the scope of a complex, unpredictable standard. The other option — limiting the Securities Exchange Act’s exclusive jurisdiction provision to causes of action actually created by the act and the regulations thereunder — would, it is true, introduce (in some sense) an additional jurisdictional test, but one that is eminently straightforward to apply. Seen in this light, this second option is clearly the one that is more straightforward and administrable: Uniformity in outcomes is, at least in the context of jurisdictional questions, of greater value than is a uniform of jurisdictional test that produces unpredictable results when applied.

Nash is professor of law at Emory University School of Law. He specializes in the study of courts and judges, federal courts and federal jurisdiction, legislation and regulation, and environmental law. Follow him on Twitter @JonathanRNash.