A doctrine of liability, even one recognized under federal common law, cannot in itself confer “arising under” subject matter jurisdiction over federal questions pursuant to 28 USC §1331 without a sufficiently identified source of law supplying a federal cause of action. In East Central Illinois Pipe Trades Health & Welfare Fund v. Prather Plumbing & Heating, Inc., 2021 WL 2819035 (7th Cir. 2021), the plaintiffs, union-based health and welfare fund and pension funds, sought to impose liability on a newly formed corporation as the alleged successor of a defunct corporation that had failed to make contributions to the healthcare and pension funds created by the union, of which the defunct corporation had been a member. After a default judgment had been obtained against the company that had ceased operations, the plaintiff-funds attempted to collect the judgment against the alleged successor company, which had purchased the physical assets of the alleged predecessor, and had hired a number of its employees who began serving the predecessor’s client. East Central, slip op. p1-2.
The plaintiff-funds sued in federal court under the doctrine of successor liability, an equitable principle that allows an entity to be held responsible for the liabilities of another when there are “sufficient indicia of continuity between the two entities, and the alleged successor has notice of the predecessor’s liability.” East Central, slip op. p2, citing Fall River Dying & Finishing Corp. v. N.L.R.B., 482 U.S. 27, 43 (1987) and Indiana Elec. Workers Pension Benefit Fund v. ManWeb Servs., Inc. 884 F.3d 770, 777-78 (7th Cir. 2018).
Within the Seventh Circuit, as elsewhere, corporate successor liability, while an equitable doctrine having its origins in state law, has consistently been recognized as being encompassed within federal common law in federal question cases. See Moriarity v. Svec, 164 F.3d 323-327 (7th Cir. 1998); Upholsterers Int’l Union Pension Fund v. Artistic Furniture, 920 F.2d 1323, 1329 (7th Cir. 1990); Glass v. Crimmins Transfer Co., 299 F.Supp.2d 878, 889 (C.D. Ill. 2004); Hunts Generator Committee v. Babcock & Wilcox Co., 863 F.Supp. 879, 882 (E.D. Wis. 1994); US Equal Employment Opportunity Comm’n v. Phase 2 Instruments, Inc., 310 F.Supp.3d 550, 569-70 (D. Md 2018); Today’s Child Learning Center, Inc. v. United States, 40 F.Supp.2d 268, 273 (E.D. Pa 1998).
The East Central case proceeded through discovery and to cross-motions for summary judgment, with the plaintiff-funds alleging that the facts of the case warranted holding the alleged successor corporation liable for its alleged predecessor’s failure to properly contribute to the healthcare and pension funds. The alleged successor claimed that the district court lacked federal subject matter jurisdiction over the case and that the funds had no standing to sue. The district court, while recognizing a close case, denied the plaintiff-funds’ motion for summary judgment and ruled in favor of the alleged successor corporation on equitable grounds, holding that it would be unfair to impose the liabilities of the alleged predecessor upon the alleged successor. Id.
On appeal, the Seventh Circuit reviewed the threshold issue of the district court’s subject matter jurisdiction over the case. Noting the constitutionally limited jurisdiction of the federal courts, which can exercise jurisdiction over only those categories of cases and controversies authorized by the Constitution or by Congress, the Seventh Circuit stated that the jurisdictional defect in the plaintiffs’ suit did not lie in Article III, for the plaintiffs’ suit presented a justiciable controversy over whether the defendant owed them for the predecessor company’s unpaid judgment for delinquent contributions, but instead arose from an insufficient statutory basis for federal question jurisdiction. Id.
While the plaintiffs claimed that jurisdiction was founded upon federal common law, which encompasses the doctrine of successor liability, the case was not based upon either of the two recognized ways in which a case arises under federal law for purposes of federal question jurisdiction under 28 USC §1331. First, the case was not based upon a federal law under which jurisdiction could be granted, either by an expressed grant of a private right of action or by implication, insofar as the case was based upon an equitable doctrine as opposed to a federal statute. Slip op. p3.
Secondly, the case did not fall within the narrow confines of the so-called Grable Doctrine in which a state law claim necessarily raises a stated federal issue which a federal forum can entertain “without disturbing any congressionally approved balance of federal and state judicial responsibilities.” Slip op. p4, citing Grable & Sons Metal Prod., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 314 (2005).
Without a federal cause of action upon which to ground their case, such as a claim based upon the civil remedies provisions of ERISA, 29 USC §1132(a)(1)(B), and without the grounds for jurisdiction as created by Grable, the Seventh Circuit determined that the district court had no authority to adjudicate the parties’ dispute under 28 USC §1331, and remanded the case to the district court with instructions to dismiss the case for want of federal question jurisdiction. Slip op. p7.
Although the East Central case was determined with reference to ERISA, 29 USC §1001 et seq., its main holding, i.e. that a doctrine of federal common law does not, in itself, provide a basis for federal question jurisdiction under 28 USC §1331, is applicable to all cases allegedly “arising under” federal law for purposes of federal question jurisdiction.
