Bright v. Bechtel Petroleum, Inc.
780 F.2d 766 (1986)
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Rule of Law:
A plaintiff cannot defeat federal removal jurisdiction by 'artfully pleading' a state-law claim, such as breach of contract, when the claim's true nature is a challenge to an employer's compliance with federal tax withholding laws. An employer is statutorily immune from liability for withholding federal and state income taxes as required by law.
Facts:
- Willie D. Bright entered into an employment contract with Bechtel Petroleum, Inc. (Bechtel).
- Bright submitted a W-4 form to Bechtel, claiming an exemption from federal income tax withholding.
- In accordance with regulations, Bechtel forwarded the W-4 form to the Internal Revenue Service (IRS).
- The IRS issued a directive to Bechtel, declaring Bright's W-4 form invalid and ordering Bechtel to begin withholding federal income tax.
- Pursuant to the IRS directive and a related California regulation, Bechtel began withholding both federal and state income taxes from Bright's wages.
- Prior to filing suit, Bright sent letters to Bechtel threatening a lawsuit for breach of contract over the withholding, criticizing the IRS directive as illegal and citing federal law.
Procedural Posture:
- Willie D. Bright filed a breach of contract action against Bechtel Petroleum, Inc. in California Superior Court (a state court of first instance).
- Bechtel removed the case to the United States District Court for the Northern District of California (a federal trial court), asserting federal question jurisdiction.
- Bright filed a motion to remand the case to state court.
- The U.S. District Court denied Bright's motion to remand, granted Bechtel's motion to dismiss the entire action, and awarded attorney's fees to Bechtel.
- Bright appealed the district court's judgment to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Does a state law breach of contract claim, which is based on an employer's compliance with federal tax withholding laws, arise under federal law for the purposes of removal jurisdiction?
Opinions:
Majority - Beezer, Circuit Judge
Yes. A state law claim that appears to be for breach of contract is properly removed to federal court when its true nature is a challenge to federal law. Although the 'well-pleaded complaint' rule typically limits jurisdiction to the face of the complaint, the 'artful pleading' doctrine is an exception that prevents plaintiffs from concealing the federal nature of their claims. Here, Bright's letters and the complaint's similarity to other tax protestor lawsuits demonstrate that his claim is not a simple contract dispute but a direct challenge to Bechtel's compliance with federal tax withholding laws. Therefore, the claim arises under federal law, making removal proper. On the merits, the claim fails because federal law mandates that employers withhold taxes and grants them immunity from liability for doing so (26 U.S.C. § 3403). The pendent state claim also fails, as California law excuses contractual performance made impossible by operation of law.
Analysis:
This case strongly affirms the 'artful pleading' doctrine as a necessary exception to the well-pleaded complaint rule, allowing federal courts to look beyond the face of a complaint to determine subject matter jurisdiction. It establishes that courts can consider extrinsic evidence, such as pre-litigation correspondence, to uncover the true federal nature of a claim disguised as a state-law issue. The ruling provides significant protection for employers against frivolous 'tax protestor' lawsuits, reinforcing that compliance with mandatory federal and state tax withholding directives cannot form the basis for a breach of contract claim. This precedent solidifies the power of removal as a tool for defendants to bring such fundamentally federal disputes into the proper federal forum.
