Malpractice Cases Against Patent Lawyers Stay in State Court, as Supreme Court Continues to Refine Reach of Grable

In the course of deciding that malpractice cases against patent lawyers belong in state courts (when there is no diversity of citizenship), the United States Supreme Court has issued an important ruling on the scope of “federal question” jurisdiction over claims arising under state law. Gunn v. Minton, No. 11-1118 (Feb. 20, 2013).

Historically, the test of whether a claim “arises under” federal law, so as to confer original jurisdiction on district courts under 28 U.S.C. § 1331, has looked to which sovereign created the cause of action. If federal law creates the cause of action asserted, there is federal jurisdiction to resolve it. See American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260 (1916). The other side of the coin is that generally, if state law is the source of the cause of action, it does not “arise under” federal law. Law school Federal Jurisdiction classes have long agonized students by focusing on the few exceptions (on both sides) to this general rule.

The Court’s 2005 decision in Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U. S. 308, upheld federal jurisdiction over a quiet title action (obviously, a state law claim) because the case turned on whether the procedures that the IRS uses in tax sales violate due process, so as to prevent the passage of good title to the buyer. Since then, lower courts have struggled with how far the Grable exception to the general rule goes. In 2007, the United States Court of Appeals for the Federal Circuit decided that malpractice cases against patent attorneys must be litigated in federal court because (applying a Grable analysis), they “arise under any Act of Congress related to patents,” within the meaning of the (linguistically identical) jurisdictional grant in 28 U.S.C. § 1338(a). See Air Measurement Technologies, Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P., 504 F. 3d 1262 (2007). Following the Federal Circuit’s lead, the Texas Supreme Court deprived the patent lawyers in Gunn of a victory on the merits in a suit filed by their former client in state court by ordering the case dismissed for lack of subject matter jurisdiction. 355 S. W. 3d 634 (2011).

The unanimous Supreme Court, in a typically succinct opinion by Chief Justice Roberts, held that the grant of exclusive original jurisdiction to federal district courts in § 1338 does not extend to legal malpractice claims involving patent work, reversing the Texas court and effectively overruling the Federal Circuit precedent as well.

The Gunn opinion helpfully imposes some much-needed structure on Grable. There will be federal jurisdiction over a state law claim, the Court holds, “if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.” Slip op. at 6. The outcome in Gunn itself turns on the “substantiality” test, properly understood as looking not (as the Texas court had done) to the importance of the issue to the parties in the case — the patent law issue would always meet this test if it were necessarily raised and actually disputed — but to “the importance of the issue to the federal system as a whole.” Id. at 8. Gunn is the second Supreme Court case (Empire HealthChoice Assurance, Inc. v. McVeigh, 547 U. S. 677, 699 (2006), was the other) to hold that Grable did not create a broad exception to the general rule that cases do not “arise under” federal law when state law creates the cause of action sued on.