Franchise Tax Board of the State of CA v. Construction Laborers Vaca. Trust Case Brief
Summary of Franchise Tax Board of the State of CA v. Construction Laborers Vaca. Trust, U.S. Supreme Ct. (1983)
Cause of action: The following is a cause of action for declaratory judgment for back taxes under the theory that the back taxes came from workers who had funds in a trust, they were subject to SMJ within the state of CA via statute. CLVT alleges their back taxes are protected by the federal Employment Retirement Income Security Act of 1974, which preempted the State’s power to attach funds held in trust for beneficiaries under this vacation plan.
Second cause of action is under CA’s Declaratory Judgment Act.
Procedural History: Agency brought the action in state court for declaratory judgment that CVLT and its trustees were obligated to honor its demand for payment. Pursuant to federal statute that allows, with exceptions, permits cases that could have been filed in fed. court by PL to be removed from state to federal ct., CVLT removed the case to fed. Dist. Ct., PL filed motion to remand the case to state court, upon the federal question.
Trial court denied the motion, and then on the merits, ruled in favor of the state agency. On appeal, 9th circuit reversed the ruling. Cert granted on issue at hand, and vacate judgment of Court of Appeals and case remanded back to Superior Court of CA.
Facts: CLVT was created by a collective bargaining agreement between employer associations and local unions in So. CA as a mechanism for funding annual paid vacations for the union members. Three of these members did not pay back personal income taxes, so the state went after the fund.
Issue(s): Under federal rules of civil procedure, does the Employment Retirement Income Security Act of 1974 permits state tax authorities to collect unpaid state income taxes by levying on funds held in trust for taxpayers under an ERISA-covered vacation benefit plan?
Court’s Rationale/Reasoning: The Court cites reasons which are most historic than logical in its holding. Primarily of note is the “well-pleaded complaint rule,” which states that a DF may not remove a case to federal court unless the cause of action establishes that the case “arises under” federal law. Further, the court deems “jurisdiction” to mean the kinds of issues which give right of entrance to federal courts (Skelly Oil case). The Court determines that CLVT cannot bring its first cause into federal court for the reason it simply is not arguing a cause of action which is a federal question.
If CLVT were bringing suit for declaratory judgment to enforce its rights, it could survive as a federal question under the premise already stated. However, here the argument is simply to remove the case from state court on a federal question which has nothing to do (ERISA v. CA back taxes) with a state action. ERISA suits are limited to parties whom Congress was necessary to further the statute’s purposes. This claim for declaratory judgment is removed from the spirit of the gist of the Act. CLVT says their action arises under ERISA policy, however CA Tax Board is neither a participant, beneficiary or fiduciary of a plan covered by ERISA who may seek relief.
Rule: 28 U.S.C. § 1331: The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.
DF may not remove a case to fed. ct. unless cause of action establishes that the case “arises under” federal law.
Holding: No. The lower federal courts had no jurisdiction to decide the declaratory judgment issue before the Court, or when the case is removed, when a federal question is presented by a complaint for a state declaratory judgment.
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 b/c it turns on a question of federal law.