KAREN NELSON MOORE, Circuit Judge.
The foreclosure crisis that swept the nation in the latter half of the past decade hit Cleveland particularly hard. It also led to this litigation. Though this case has as its background such weighty factual topics as subprime-mortgage lending, foreclosures, and the precarious economic state of the post-industrial Midwest, the issue at stake in this appeal is solely procedural. Our task is to determine whether the district court had subject-matter jurisdiction over a suit by several financial institutions seeking declaratory and injunctive relief from two other lawsuits filed by the City of Cleveland. We conclude that it did. Because the district court nonetheless dismissed the suit sua sponte for failure to state a claim without notice to the parties, we REVERSE the judgment of the district court and REMAND for further proceedings.
The City of Cleveland has seen a record number of home foreclosures in the past decade. Between 2000 and 2008, Cuyahoga County, Ohio, where Cleveland is located, recorded approximately 80,000 foreclosures. Scott Simon, In Cleveland, Foreclosures Decimate Neighborhoods, Nat'l Pub. Radio, May 24, 2008. In 2007, County Treasurer Jim Rokakis described the city as "the epicenter of the mortgage meltdown in America." Thomas Ott & Susan Vinella, Home Loan Foreclosures on the Rise in Cuyahoga, The Plain Dealer, July 4, 2007, at B1. Against this backdrop came the three lawsuits relevant to this case.
In January 2008, Cleveland brought suit against twenty-one financial institutions in Ohio state court, alleging that the defendants' actions in the subprime-mortgage industry constituted a public nuisance under Ohio common law. By securitizing subprime mortgages and later foreclosing on the houses purchased through such mortgages, the defendants allegedly contributed to a financial crisis in the city that included significant declines in property values, a shrinking tax base, and an increase in criminal activity. Cleveland sought to recover for the costs it incurred in monitoring, maintaining, or demolishing foreclosed properties and for decreased tax revenues. The defendants removed the case to federal court on diversity grounds. After denying Cleveland's motions to remand and to amend its complaint by adding JPMorgan Chase Bank, N.A., a non-diverse party, the district court granted the defendants' motion to dismiss on the grounds that the city's suit was preempted by state law and was barred by the economic-loss doctrine, and, alternatively, that the complaint failed to demonstrate that the defendants' actions unreasonably interfered with a public right or were the proximate cause of the alleged harm. City of Cleveland v. Ameriquest
In August 2008, shortly after the district court denied Cleveland's motion to remand in City of Cleveland I, Cleveland filed a second suit in Ohio state court against twenty-eight financial institutions, including the non-diverse JPMorgan Chase Bank, N.A. In addition to pleading another public-nuisance claim, Cleveland alleged that the defendants had violated the Ohio Corrupt Activities Act ("OCAA"), the state RICO analogue, by inaccurately claiming title to mortgages and promissory notes in foreclosure proceedings in violation of Ohio Revised Code § 2921.12(A). See Ohio Rev.Code § 2923.32. Cleveland also sought to recover under Ohio Revised Code § 715.261 for costs incurred maintaining or demolishing foreclosed houses.
In February 2008, while City of Cleveland I was pending, Plaintiffs-Appellants Chase Bank, USA, N.A., JPMorgan Chase Bank, N.A., JPMorgan Mortgage Acquisition Corp., and J.P. Morgan Securities, Inc. (collectively, "Chase Bank") brought the suit that is currently before us. Chase Bank sued Cleveland in federal district court, seeking a declaratory judgment that Cleveland's public-nuisance claim in City of Cleveland I was preempted by the National Bank Act and requesting an injunction against that suit. After Cleveland filed City of Cleveland II, Chase Bank amended its complaint to request declaratory relief and an injunction against both of Cleveland's lawsuits.
Chase Bank timely appealed, contending that the district court had subject-matter jurisdiction to issue both declaratory and injunctive relief pursuant to either 28 U.S.C. § 1331 or 28 U.S.C. § 1343(a)(3) (the jurisdictional counterpart to 42 U.S.C. § 1983). Cleveland cross-appealed, arguing that the district court lacked subject-matter jurisdiction to issue either type of relief. Cleveland alternatively argues that, even if the district court had subject-matter jurisdiction over both the declaratory and injunctive claims, the dismissal can be affirmed on three non-jurisdictional
Since this case left the district court, several developments have occurred in both City of Cleveland I and City of Cleveland II.
In addition, the United States Supreme Court denied Cleveland's petition for a writ of certiorari in City of Cleveland I. City of Cleveland v. Ameriquest Mortgage Sec., Inc., ___ U.S. ___, 131 S.Ct. 1685, 179 L.Ed.2d 618 (2011). Accordingly, Chase Bank's request for injunctive and declaratory relief regarding City of Cleveland I is now moot. All that remains of the suits in which Cleveland is the plaintiff is City of Cleveland II. Because Chase Bank, USA, N.A. and JPMorgan Mortgage Acquisition Corp. are not parties to City of Cleveland II, we dismiss their claims as moot.
"It is a principle of first importance that the federal courts are tribunals of limited subject matter jurisdiction," and can adjudicate only those claims that "(1) are within the judicial power of the United States, as defined in the Constitution, and (2) that have been entrusted to them by a jurisdictional grant by Congress." 13 Charles Alan Wright, Arthur Miller, Edward Cooper & Richard Freer, Federal Practice & Procedure § 3522 at 100 (3d ed. 2008) (hereinafter, Wright & Miller, Federal Practice & Procedure). Accordingly, a federal court must dismiss any claim for which it lacks jurisdiction without addressing the merits. We review de novo a district court's grant of a motion to dismiss for lack of subject-matter jurisdiction based on a facial attack. Carrier Corp. v. Outokumpu Oyj, 673 F.3d 430, 440 (6th Cir.2012). We likewise review de novo a dismissal for failure to state a claim. Id. at 444.
Federal district courts have subject-matter jurisdiction over "all civil actions
Federal courts have jurisdiction under § 1331 "over suits to enjoin state officials from interfering with federal rights" by enforcing state laws that are preempted by federal law. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96 n. 14, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983) (citing Ex parte Young, 209 U.S. 123, 160-62, 28 S.Ct. 441, 52 L.Ed. 714 (1908)); see also Verizon Md., Inc. v. Pub. Serv. Comm'n of Md., 535 U.S. 635, 642, 122 S.Ct. 1753, 152 L.Ed.2d 871 (2002); Ammex, Inc. v. Cox, 351 F.3d 697, 702-03 (6th Cir.2003). The federal law with purported preemptive effect need not expressly provide a cause of action against preempted state law; the cause of action is implied under the Supremacy Clause, U.S. Const. art. VI, cl. 2. See 13D Wright & Miller, Federal Practice & Procedure § 3566 at 292 ("The best explanation of Ex parte Young and its progeny is that the Supremacy Clause creates an implied right of action for injunctive relief against state officers who are threatening to violate the federal Constitution and laws.").
The plaintiff in Ammex, a duty-free store on the U.S.-Canadian border, argued that federal law preempted the Michigan Consumer Protection Act with respect to foreign-trade zones and duty-free stores and sought to enjoin the Michigan Attorney General from enforcing the Act. 351 F.3d at 700, 703. The Attorney General had issued a notice of intended action warning the plaintiff that, unless it halted its alleged misrepresentations, the state would file a lawsuit which could result in an injunction and a fine. Id. at 701.
Federal jurisdiction exists over such preemption-based suits even though "if one were to examine closely the nature of the complaint in such a case, the asserted preemption claim would often be remarkably similar to an anticipation of a federal defense through a declaratory action," which would typically fail to satisfy the well-pleaded complaint rule. Id. at 704; cf. Playboy Enters., Inc. v. Pub. Serv. Comm'n of Puerto Rico, 906 F.2d 25, 30 (1st Cir.1990) (describing the Shaw line of cases as a "limitation" on the well-pleaded complaint rule). Despite the arguable disharmony between the well-pleaded complaint rule and Shaw, the latter is clearly good law that lower courts must apply.
Cleveland contends that Shaw and its progeny do not apply because they involved challenges to state regulations rather than, as here, state litigation. Cleveland characterizes Chase Bank's preemption claim (in both its declaratory and injunctive manifestations) as simply a defense to Cleveland's lawsuit brought in a
As a general matter, this distinction is inconsequential. Like litigation, regulatory enforcement actions often involve proceedings brought by state officials in which the regulated entity could raise preemption as a defense. Without the injunction, the plaintiffs in Shaw would have been subject to state Division of Human Rights proceedings, for example. See 463 U.S. at 92 n. 9, 103 S.Ct. 2890; Burroughs Corp., 1980 WL 18671, at *1-2, 5. Sometimes the enforcement action is a lawsuit; the plaintiff in Ammex sought to enjoin a threatened suit in state court by the state Attorney General for violations of the Michigan Consumer Protection Act. 351 F.3d at 701.
More specifically, Cleveland contends that the litigation at issue in this case is qualitatively distinct from the actions taken or threatened by the state officials in Shaw, Verizon, and Ammex. First, Cleveland describes its lawsuit as an application of "general common-law and statutory principles," Appellee Reply Br. at 5, because neither the common-law doctrine of public nuisance nor the Ohio statutes that Cleveland alleges were violated apply exclusively to the federally regulated activity of banking. The same can be said of the New York Human Rights Law in Shaw and the Michigan Consumer Protection Act in Ammex, however. The New York law barred discrimination based on pregnancy in all aspects of the employment relationship, not just in benefit plans regulated by ERISA, and the Michigan law applied to all businesses, not just duty-free stores subject to federal regulation.
Cleveland also emphasizes that it seeks only money damages and that a private party could have brought essentially the same claims against Chase Bank. For these reasons, Cleveland contends that its lawsuits are proprietary rather than regulatory in nature and that it is acting more like a private litigant than a governmental entity. Common-law actions seeking money damages can serve a regulatory function, even when brought by a private party, and can thus be preempted. See Riegel v. Medtronic, Inc., 552 U.S. 312, 324, 128 S.Ct. 999, 169 L.Ed.2d 892 (2008) (noting that a common-law liability award "`can be, indeed is designed to be, a potent method of governing conduct and controlling policy.'" (quoting Cipollone v. Liggett Group, Inc., 505 U.S. 504, 521, 112 S.Ct. 2608, 120 L.Ed.2d 407 (1992))); Int'l Paper Co. v. Ouellette, 479 U.S. 481, 494-97, 107 S.Ct. 805, 93 L.Ed.2d 883 (1987) (holding plaintiff's common-law nuisance claim preempted by federal law as inconsistent with Congress's chosen regulatory scheme). If such actions are regulatory in nature when undertaken by a private individual, the same conclusion applies a fortiori when common-law claims are brought by a government actor like Cleveland.
Moreover, the fact that a private individual could have brought the same claims against Chase Bank does not distinguish this case from Ammex. The Michigan Consumer Protection Act at issue in Ammex provides a private cause of action, Mich. Comp. Laws § 445.911, as well as enforcement by the state Attorney General, id. § 445.905. Both individuals and the Attorney General can sue for an injunction; an individual can recover actual damages and the Attorney General can seek a civil penalty. Id. §§ 445.911(1)-(2), 445.905(1).
The Second Circuit faced a similar scenario in Philip Morris, Inc. v. Blumenthal, 123 F.3d 103 (2d Cir.1997). Tobacco companies asked the federal district court to enjoin and declare unconstitutional (under, inter alia, the Supremacy Clause) a state-court
Finally, Cleveland's decision to address the issue of subprime-mortgage securitization through litigation arguably reflects an otherwise frustrated regulatory intent, as the city likely could not regulate such activity directly. Ohio law appears to prevent Cleveland from regulating subprime mortgages in the traditional manner (i.e. by municipal ordinance), as it vests the state with sole authority to "regulate the business of originating, granting, servicing, and collecting loans and other forms of credit in the state and the manner in which any such business is conducted." Ohio Rev.Code § 1.63(A). In addition, Ohio law expressly preempts "[a]ny ordinance, resolution, regulation, or other action by a municipal corporation" to regulate such matters. Id. § 1.63(B).
Ultimately, the fact that the official action that Chase Bank seeks to enjoin and declare preempted is a lawsuit might raise Anti-Injunction Act or abstention issues, but does not affect the subject-matter jurisdiction analysis. Because Chase Bank's suit raised a federal question under the Supremacy Clause, the district court had subject-matter jurisdiction.
In its ruling on Cleveland's motion to dismiss under Federal Rule of Civil Procedure 12(b)(1), the district court held that Chase Bank had failed to show irreparable harm and thus was not entitled to injunctive relief. Because Chase Bank would have an opportunity to raise the federal-preemption issue as a defense in Cleveland's federal or state lawsuit, the court reasoned, it would not suffer irreparable
To the extent that the district court dismissed Chase Bank's claim seeking an injunction of pending litigation as unripe, this conclusion was incorrect. A claim is unripe if plaintiffs "seek to enjoin the enforcement of statutes, regulations, or policies that have not yet been enforced against them." Ammex, 351 F.3d at 706. Here, by contrast, Chase Bank faced ongoing litigation under the law that it alleged was preempted at the time that the district court dismissed the claim.
Cleveland contends that, even if the district court had subject-matter jurisdiction, we should nonetheless affirm the dismissal of Chase Bank's suit as an appropriate exercise of the district court's discretion or pursuant to the Anti-Injunction Act or the doctrine of Younger abstention. Cleveland did not raise any of these non-jurisdictional grounds for dismissal before the district court, however, and we typically do not address issues not raised below. See Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 552 (6th Cir.2008). None of the "exceptional cases or particular circumstances" warranting deviation from this rule are present here. Id. (internal quotation marks omitted). Because we are remanding, Cleveland will have an opportunity to present these arguments to the district court.
Chase Bank's suit for declaratory and injunctive relief falls within the line of cases recognizing federal subject-matter jurisdiction over preemption-based challenges to state laws brought against state officials. The fact that the official action that Chase Bank challenges as preempted in this case is a lawsuit rather than direct regulation does not affect the jurisdictional issue; the question of whether it implicates Anti-Injunction Act or abstention concerns is not properly before us. Because the district court erred in dismissing the complaint for failure to state a claim without notice to the parties, it will have an opportunity to address this issue on remand. We REVERSE the district court's dismissal of Chase Bank's suit for declaratory and injunctive relief and REMAND for further proceedings consistent with this opinion.
To the extent that the district court indeed analyzed the declaratory-judgment and injunction requests separately for jurisdictional purposes, this distinction is not supported by the caselaw in which plaintiffs sought both forms of relief, see infra note 5, and is not particularly practical. A federal court that enjoins a state suit on preemption grounds for all intents and purposes declares that the state suit is preempted. Even if the two forms of relief are conceptually distinct for jurisdictional purposes, a federal district court with jurisdiction to issue an injunction could exercise supplemental jurisdiction over the claim for declaratory relief. To the extent that the district court suggests that it would lack subject-matter jurisdiction over a suit seeking only declaratory relief, that question is not before us and we need not answer it. For the reasons described herein, we hold simply that the district court had subject-matter jurisdiction over Chase Bank's suit in its entirety.
