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Bright v. Bechtel Petroleum, Inc.

United States Court of Appeals for the Ninth Circuit · 1986 · Civil Procedure

Civil ProcedureRemovalFederal Question JurisdictionArtful PleadingPendent JurisdictionRule 12(b)(6)Sanctionsremoval

Facts

Bright entered into an employment contract with Bechtel under a collective bargaining agreement and later submitted a W-4 claiming exemption from federal withholding. After the IRS directed Bechtel to disregard that exemption and withhold federal income tax, Bechtel withheld federal tax and also withheld California state income tax pursuant to a California regulation tied to the IRS determination. Bright then filed a state-court breach of contract action alleging that Bechtel issued paychecks for less than the contracted amount. Bechtel's removal papers included letters and affidavits showing Bright was actually attacking Bechtel's compliance with tax withholding requirements rather than asserting an ordinary contract claim.

Issue

Whether Bechtel properly removed Bright's state-court breach of contract suit to federal court on the ground that the complaint, though framed under state law, actually challenged federal income tax withholding. Also, whether the district court properly dismissed both the federal and related state withholding claims, awarded attorney's fees, and denied Bright's postjudgment motion.

Rule

A case arises under federal law when the plaintiff's right to relief necessarily turns on the construction of federal law, and a plaintiff may not avoid federal jurisdiction through artful pleading. Once a removed case properly includes a federal claim, the federal court may adjudicate pendent state claims arising from a common nucleus of operative fact even after dismissing the federal claim. An employer who withholds taxes in compliance with federal law and applicable regulations is not liable to the employee for that withholding, and such suits are barred by 26 U.S.C. Sec. 3403 and may also be barred by the Anti-Injunction Act.

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In Sacramento, Nina Ortiz sued her employer, Sierra Valley Fabrication, in California state court for breach of contract, alleging only that the company paid her less than promised. In its notice of removal, the company attached Nina's pre-suit emails accusing payroll of "illegally enforcing federal withholding rules" after the IRS instructed the company to reject her exemption certificate.

Was removal to federal court most likely proper?

Explanation. Removal was proper under the artful pleading doctrine. Although the well-pleaded complaint rule ordinarily looks to the complaint, the majority held that a plaintiff may not conceal the true federal nature of a claim through artful pleading, and the removal petition and supporting materials may be used to clarify the action presented. Here, the employee's own communications show the alleged underpayment is really a challenge to federal tax withholding, so the claim arises under federal law.