New Cert. Petition: Centerior Energy v. Mikulski

The following post is by Monica Sekhon, an associate in Akin Gump’s DC office who worked on the petition discussed. 

We filed this cert. petition Friday in the case of Centerior Energy v. Mikulski, a case that raises the question of when a federal court may exercise jurisdiction over a state law claim that turns on a disputed issue of federal law.  Respondents, shareholders of petitioners FirstEnergy Corporation and its subsidiaries, filed suit against petitioners in state court seeking a refund of allegedly overpaid taxes under state law claims of breach of contract and fraudulent misrepresentation.  Respondents’ suit turns on a dispute over the proper interpretation of a federal tax law provision that affects the amount of taxes owed by shareholders to the IRS.  Petitioners’ interpretation was reflected on forms that they are required by federal law to file with the IRS and to distribute to shareholders.  Respondents claim that they relied on these forms and, consequently, overpaid their taxes.  After petitioners removed the case to federal court, the district court denied respondents’ motion to remand on the ground that the claims raised a disputed and substantial question of federal law – namely, the interpretation of a federal tax provision.

A divided Sixth Circuit, sitting en banc, held that the district court lacked jurisdiction.  Under a multi-factor analysis that considered whether a federal agency was a party to the dispute, whether the federal issue was important to the government, and whether the federal issue would be dispositive of the case and control numerous other cases, the majority concluded that the issue was not substantial enough to confer federal jurisdiction.  The majority further reasoned that exercising jurisdiction over the case would disrupt the balance between federal and state judicial responsibilities.  The dissent maintained that federal jurisdiction was proper, relying on Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308, 310 (2005), which held that federal jurisdiction was properly exercised over a state law claim that turned on a disputed interpretation of federal tax law because “the national interest in providing a federal forum for federal tax litigation is sufficiently substantial to support the exercise of federal question jurisdiction over the disputed issue.”

The petition alleges that the Sixth Circuit’s multi-factor analysis conflicts both with Supreme Court precedent and with the approaches of other courts of appeals for determining when federal question jurisdiction is proper.  Petitioners contend that Grable compels the same result here because the government has a “strong interest,” 545 U.S. at 315, in the interpretation of a provision that governs the amount of revenue owed, and, as in Grable, resolution of the issue would benefit from the advantages of a federal forum – uniformity and federal judges’ experience with complicated issues of tax law.  A contrary conclusion, petitioners argue, would contravene Congress’s intent that the federal tax code be interpreted in a federal forum and given a uniform interpretation.  The petition also alleges that the Sixth Circuit’s multi-factor analysis conflicts with the approaches of the Federal Circuit and the Second and Tenth Circuits.  In determining whether federal question jurisdiction is proper, the Federal Circuit focuses on whether resolution of the disputed federal issue is necessary to the case, and the Second and Tenth Circuits focus on whether the government has an interest in the issue and, specifically, an interest in having it resolved in a federal forum.