Ernzen v. Ernzen

Opinion

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* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel.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

-2- 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).

-3- 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

-4- 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

-5- 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.

-6- 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

-7- 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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