Skelly Oil Co. et al. v. Phillips Petroleum Co.
339 U.S. 667 (1950)
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Rule of Law:
The Declaratory Judgment Act is a procedural statute that does not expand federal subject matter jurisdiction. For a declaratory judgment action to arise under federal law, the federal question must appear on the face of the complaint that would be filed in a hypothetical coercive action brought by the defendant.
Facts:
- Michigan-Wisconsin Pipe Line Company required a certificate of public convenience and necessity from the Federal Power Commission (FPC) to build a new pipeline.
- To secure the necessary gas reserves for the certificate, Michigan-Wisconsin contracted with Phillips Petroleum Company.
- Phillips, in turn, entered into contracts with Skelly Oil Company, Stanolind Oil and Gas Company, and Magnolia Petroleum Company to purchase the required gas.
- These contracts contained a termination clause allowing the sellers (Skelly, Stanolind, and Magnolia) to cancel the agreements if Michigan-Wisconsin did not secure its FPC certificate by October 1, 1946, with the option to terminate exercisable after December 1, 1946.
- On November 30, 1946, the FPC voted in an executive session to issue a conditional certificate to Michigan-Wisconsin.
- The full text and content of the FPC's order were not made public until December 2, 1946.
- On December 2, 1946, Skelly, Stanolind, and Magnolia each provided written notice to Phillips that they were terminating their contracts, asserting that the FPC certificate had not been issued within the contract's timeframe.
Procedural Posture:
- Phillips Petroleum Company filed suit against Skelly Oil Company, Stanolind Oil and Gas Company, and Magnolia Petroleum Company in the U.S. District Court for the Northern District of Oklahoma.
- Phillips sought a declaratory judgment that its contracts with the defendants remained in full force and effect.
- The defendants moved to dismiss the complaint for lack of federal subject matter jurisdiction, which the District Court denied.
- Following a trial on the merits, the District Court ruled in favor of Phillips, declaring the contracts to be valid and effective.
- The defendants, as appellants, appealed the judgment to the U.S. Court of Appeals for the Tenth Circuit.
- The Court of Appeals affirmed the District Court's judgment.
- The defendants, as petitioners, successfully petitioned the U.S. Supreme Court for a writ of certiorari.
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Issue:
Does a federal court have subject matter jurisdiction over a declaratory judgment action when the plaintiff's claim is based on state contract law and the anticipated federal question would only arise as a defense by the defendant?
Opinions:
Majority - Justice Frankfurter
No. A federal court does not have subject matter jurisdiction over such a declaratory judgment action because the federal question does not arise from the plaintiff's cause of action. The Declaratory Judgment Act is procedural and does not create federal jurisdiction where it would not otherwise exist. Federal question jurisdiction exists only when the federal issue appears on the face of a well-pleaded complaint, unaided by any anticipated defenses. In this case, Phillips's potential coercive action against the defendants for breach of contract would arise under state law. The federal issue—the meaning and timing of the FPC certificate under the Natural Gas Act—would only be introduced as a defense by Skelly and the others. Allowing a plaintiff to manufacture federal jurisdiction by seeking a declaration on an anticipated federal defense would improperly expand federal jurisdiction and contravene the well-pleaded complaint rule established in cases like Louisville & Nashville R. Co. v. Mottley.
Dissenting in part - Chief Justice Vinson
I concur that the cause should be dismissed as to Skelly and Stanolind on jurisdictional grounds, but I dissent from the decision to vacate and remand the cause as to Magnolia, for whom diversity jurisdiction exists. The Court of Appeals judgment regarding Magnolia should be affirmed. The FPC did, in fact, issue a certificate of public convenience and necessity on November 30, 1946. The Commission's order explicitly stated a certificate 'be and it is hereby issued,' and the agency's subsequent actions and press releases confirmed this. The provision in the order delaying the date for rehearing applications does not change the effective date of the certificate's issuance for contractual purposes. Therefore, Magnolia's termination on December 2 was improper, and the lower court's decision should stand without need for further proceedings.
Analysis:
This case is a landmark decision in federal civil procedure, solidifying the application of the 'well-pleaded complaint' rule to actions brought under the Declaratory Judgment Act. It prevents plaintiffs from using the Act as a procedural device to gain entry into federal court by preemptively litigating a federal defense. The decision ensures that federal question jurisdiction remains limited to cases where the plaintiff's own cause of action is based on federal law, thereby preserving the traditional balance of power between state and federal courts. This 'hypothetical coercive action' test remains the standard for determining jurisdiction in declaratory judgment cases involving federal questions.
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