           RECOMMENDED FOR FULL-TEXT PUBLICATION
                Pursuant to Sixth Circuit Rule 206                      2    Grable & Sons Metal Products                 No. 02-1678
        ELECTRONIC CITATION: 2004 FED App. 0244P (6th Cir.)                  v. Darue Engineering
                    File Name: 04a0244p.06
                                                                                            _________________
UNITED STATES COURT OF APPEALS                                                                   COUNSEL
                  FOR THE SIXTH CIRCUIT                                 ARGUED:        Charles E. McFarland, Campbellsburg,
                    _________________                                   Kentucky, for Appellant. Michael C. Walton, RHOADES,
                                                                        McKEE, BOER, GOODRICH & TITTA, Grand Rapids,
 GRABLE & SONS METAL             X                                      Michigan, for Appellee. ON BRIEF: Charles E. McFarland,
 PRODUCTS, INC.,                  -                                     Campbellsburg, Kentucky, for Appellant. Michael C.
          Plaintiff-Appellant,    -                                     Walton, RHOADES, McKEE, BOER, GOODRICH &
                                  -   No. 02-1678                       TITTA, Grand Rapids, Michigan, for Appellee.
                                  -
           v.                      >                                                        _________________
                                  ,
                                  -                                                             OPINION
 DARUE ENGINEERING &              -                                                         _________________
 MANUFACTURING,                   -
          Defendant-Appellee. -                                            BOGGS, Chief Judge. Grable & Sons Metal Products Inc.,
                                  -                                     (“Grable”) argues that the district court committed two errors
                                 N                                      in granting judgment to Darue Engineering & Manufacturing
       Appeal from the United States District Court                     (“Darue”) in Grable’s action to quiet title against Darue.
  for the Western District of Michigan at Grand Rapids.                 First, Grable argues that its claim, although based on federal
  No. 01-00037—David W. McKeague, District Judge.                       tax law, does not present a federal question, and, therefore,
                                                                        that the district court did not have subject matter jurisdiction
                     Argued: March 9, 2004                              to adjudicate the case after Darue removed it from Michigan
                                                                        state court. Secondly, Grable appeals the district court’s
               Decided and Filed: July 27, 2004                         judgment denying its quiet-title claim in property Darue had
                                                                        purchased at a tax sale after the IRS seized it from Grable in
  Before: BOGGS, Chief Judge; DAUGHTREY, Circuit                        1994.
          Judge; and ALDRICH, District Judge.*
                                                                           Grable’s quiet-title action is based on provisions of the
                                                                        Internal Revenue Code concerning proper procedures for
                                                                        notifying delinquent taxpayers that their property has been
                                                                        seized. Its claim implicates a substantial federal interest,
                                                                        thereby presenting a federal question. Furthermore, the
                                                                        district court correctly denied Grable’s action because the
    *
                                                                        Internal Revenue Code allows for substantial, rather than
     The Honorab le Ann Aldrich, United States District Judge for the   literal, compliance with regulations regarding tax-seizure
Northern District of Ohio, sitting by designation.

                                 1
No. 02-1678 Grable & Sons Metal Products v. Darue              3    4       Grable & Sons Metal Products                        No. 02-1678
                                     Engineering                            v. Darue Engineering

notification. Neither federal law nor principles of equity                                               II
supports Grable’s claim, asserted six years after the sale of its
property, that notice by certified mail, rather than in person,     Federal Question Jurisdiction
rendered the IRS sale to Darue invalid. Accordingly, we
affirm the judgment of the district court in its entirety.             A defendant may remove to federal district court “any civil
                                                                    action brought in a state court of which the district courts of
                               I                                    the United States have original jurisdiction.” 28 U.S.C.
                                                                    § 1441(a). District courts have original jurisdiction over any
   The facts in this case are not disputed. In 1994, the IRS        civil action “arising under any Act of Congress providing for
seized property at 601-701 W. Plains Road, in Eaton Rapids,         internal revenue . . . .” 28 U.S.C. § 1340. This court reviews
Michigan, to satisfy Grable’s tax debt resulting from not           district court decisions regarding subject matter jurisdiction
paying its corporate income taxes for six years. The IRS            de novo. Caudill v. N. Am. Media Corp., 200 F.3d 914, 916
served notice of the seizure by certified mail, although 26         (6th Cir. 2000). Because we may not rule on the merits of a
U.S.C. § 6335(a), the relevant statute, provides that notice        case over which a district court did not have subject matter
must be “given” personally to the owner of the property. The        jurisdiction, we must decide that issue first. See Thomas v.
parties agree that the IRS failed to adhere to the exact            United States, 166 F.3d 825, 828 (6th Cir. 1999). The parties
provisions of the statute but that Grable nevertheless received     do not have diversity of citizenship, 28 U.S.C. § 1332(a), nor
actual notice of the seizure. The IRS sold the property to          is the United States a party to this action.1
Darue on December 13, 1994, for $44,500. The record before
us contains no clear evidence that Grable challenged the sale          Federal courts also have original jurisdiction over claims
at the time or attempted to redeem the property at issue in this    “arising under the Constitution, laws, or treaties of the United
case. Following its standard procedure, the IRS executed a          States.” 28 U.S.C. § 1331. Whether a claim presents a
quitclaim deed to Darue on November 13, 1995.                       federal question “must be determined from what necessarily
                                                                    appears in the plaintiff’s statement of his own claim.” Taylor
   On December 14, 2000, about six years after Darue bought         v. Anderson, 234 U.S. 74, 75-76 (1914). In its original
the property, Grable challenged the sale in Eaton County            complaint to quiet title, Grable alleged that Darue’s quitclaim
Circuit Court by filing a quiet-title action. Darue removed the     deed was invalid because it “was given with improper notice
case to the United States Court for the Western District of         pursuant to 26 U.S.C. § 6331 et seq. . . . [and] since the tax
Michigan under 28 U.S.C. § 1441(b). Grable filed a motion           deed was given pursuant to improper notice as required by 26
to remand based on lack of subject matter jurisdiction.             U.S.C. § 6335(a), said transfer and claim through the tax deed
28 U.S.C. § 1447(c). The district court held that it had            is null and void and void ab initio.” The key question is
jurisdiction to hear the case because the application of            whether Grable’s quiet-title action, based as it is on the faulty
§ 6335(a) implicates a substantial federal interest, meaning
that Grable’s claim was based on a federal question. On
March 29, 2002, the district court denied Grable’s motion to
quiet title and awarded judgment to Darue. Grable appealed              1
to this court in a timely manner.                                        In order to be a pa rty to a quiet title action, the United States m ust
                                                                    have an interest in the property, which it no longer has in this case. 28
                                                                    U.S.C. § 2 410 (a).
No. 02-1678 Grable & Sons Metal Products v. Darue               5   6    Grable & Sons Metal Products                 No. 02-1678
                                     Engineering                         v. Darue Engineering

process in a tax seizure, “arises under” federal law and thus       (6th Cir. 2000); see e.g., Howery v. Allstate Insurance Co.,
invokes federal court jurisdiction. We hold that it does.           243 F.3d 912, 918 (5th Cir.), cert. denied, 534 U.S. 993
                                                                    (2001); Seinfeld v. Austen, 39 F.3d 761, 763 (7th Cir. 1994),
  The statute upon which Grable bases his complaint reads:          cert. denied sub nom. Abbott Labs v. Seinfeld, 514 U.S. 1126
                                                                    (1995). The asserted federal right in this case, personal
  As soon as practicable after seizure of property, notice in       notification of seizure of property as provided by IRS
  writing shall be given by the Secretary to the owner of           regulations, fulfills these three requirements.
  the property . . . or shall be left at his usual place of
  abode or business if he has such within the internal              Substantial Federal Interest
  revenue district where the seizure is made. If the owner
  cannot be readily located, or has no dwelling or place of           To identify a federal question, we must make “a pragmatic
  business within such district, the notice may be mailed to        assessment of the nature of the federal interest at stake,”
  his last known address.                                           Howery, 243 F.3d at 917 (citing commentators), a simple task
                                                                    in this context. The federal government cannot function
26 U.S.C. § 6335(a) (emphasis added). The parties agree that        without effective tax collection. See United States v. Kimbell
the IRS failed to “give” or “leave” notification and that           Foods, 440 U.S. 715, 734 (1979) (citing McCulloch v.
therefore the service of notice did not comply with the statute.    Maryland, 17 U.S. (4 Wheat.) 316, 425, 428, 431 (1819)).
See Goodwin v. United States, 935 F.2d 1061, 1064 (1991)            Society has a strong interest in clear rules for handling
(noting government concession that the literal meaning of the       delinquent taxpayers. The IRS must have transparent
statute requires personal service); Howard v. Adle, 538 F.          procedures for seizing and selling property so that people will
Supp. 504, 507 (E.D. Mich. 1982) (demonstrating that                be willing to purchase property at tax sales, allowing the IRS
certified mailing is insufficient for compliance with the           to provide a predictable stream of tax revenue. Determining
statute by quoting 26 C.F.R. § 301.6335-1(b)(1)(1981) and           the scope of the IRS’s authority to seize property to satisfy a
IRS Manual § 5356.1(2)(1980); the latter specifies that the         tax debt undoubtably implicates a substantial federal interest.
“original notice of sale will be delivered to the taxpayer
personally”). Although Grable’s complaint hinges on a               Presentation as a state law claim
violation of the Internal Revenue Code, Grable insists that its
cause of action does not arise under federal law.                     Grable sued to quiet title, which is generally a state law
                                                                    cause of action. However, the scope of a taxpayer’s right to
  The long history of Supreme Court guidance concerning the         due process in the form of notice of the tax seizure and sale is
meaning of “arising under” the laws of the United States has        the essential element of this claim. Grable would not have
been synthesized into a three-part test.              Although      any cause of action, and Darue would have undisputed title to
formulations differ slightly among the circuits, a federal          the property, were it not for the technical notice requirements
question may arise out of a state law case or controversy if the    of § 6335(a). Therefore the Internal Revenue Code, not state
plaintiff asserts a federal right that 1) involves a substantial    property law, lies at the center of this dispute. The state and
question of federal law; 2) is framed in terms of state law;        federal claims are sufficiently entwined to allow us to find
and 3) requires interpretation of federal law to resolve the        that Grable has presented a federal question.
case. Long v. Bando Mfg. of America, 201 F.3d 754, 759
No. 02-1678 Grable & Sons Metal Products v. Darue              7    8         Grable & Sons Metal Products             No. 02-1678
                                     Engineering                              v. Darue Engineering

Interpretation of the federal law required                          Local 1 v. Plain Dealer Pub. Co., 839 F.2d 1147, 1155 (6th
                                                                    Cir. 1988).
  Disposition of all the aspects of this case, including those
related to the traditional state law property issues, turn on           The Internal Revenue Code states that:
construction of federal tax law. Both parties agree that the
only way to resolve the underlying controversy is to evaluate           b) Deed of real property.--In the case of the sale of real
whether § 6335(a), which mandates notice for IRS seizure of             property pursuant to section 6335 --
property for non-payment of taxes in person, requires strict,
or merely substantial, compliance with its provisions to allow          ...
the IRS deed to convey title. If strict compliance is necessary,
then Grable is entitled to get his property back because the            (2) Deed as conveyance of title.--If the proceedings of
IRS did not comply with the letter of the statute. If                   the Secretary as set forth have been substantially in
substantial compliance is sufficient, then further analysis and         accordance with the provisions of law, such deed shall be
weighing of the equities of the situation is required.                  considered and operate as a conveyance of all the right,
Therefore the final requirement is met: interpretation of the           title, and interest the party delinquent had in and to the
federal tax code is necessary to resolve the state law issue.           real property thus sold at the time the lien of the United
                                                                        States attached thereto.
  In sum, Grable’s quiet title action presents a federal
question because it is rooted in the Internal Revenue Code,         26 U.S.C. § 6339(b)(2) (emphasis added). Therefore, if the
the correct interpretation of which represents a substantial        IRS substantially complied with the provisions of § 6335(a),
federal interest.                                                   then the tax sale is valid.

                              III                                      Grable counsels against reading the substantial compliance
                                                                    provision of §6339(b)(2) as applying to § 6335(a) seizures, in
Action to Quiet Title                                               spite of the statutory language to the contrary, since doing so
                                                                    would render the notice provisions “totally ineffective.”
   The district court also correctly granted summary judgment       Appellant Br. at 31. This argument is not persuasive. Grable
to the appellee, Darue. At issue is whether serving notice          is correct that a basic rule of statutory construction mandates
through a certified letter, which Grable in fact received,          that a court should read statutes as a whole and not interpret
constitutes sufficient compliance with the statute to make the      one provision in a way that would render another meaningless
resulting quitclaim deed valid.             Evaluating whether      or superfluous. Beck v. Prupis, 529 U.S. 494, 506 (2000)
substantial compliance is applicable is a question of law that      (calling the rule a “longstanding canon of statutory
is reviewed de novo. In re Eagle-Picher Indus., Inc. 285            construction”); Lake Cumberland Trust v. EPA, 954 F.2d
F.3d 522, 527 (6th Cir. 2002) (applying substantial                 1218, 1222 (6th Cir. 1992).
compliance analysis to notice requirements in a bankruptcy
case). However, the rule itself is an equitable doctrine, so that     Allowing substantial compliance does not undermine the
a district court’s decision to apply it is reviewed for abuse of    purpose of § 6335(a), nor make its provisions superfluous.
discretion. Id. at 529. See Cleveland Newspaper Guild               Should the IRS fail to adhere to the strict statutory notice
No. 02-1678 Grable & Sons Metal Products v. Darue              9    10    Grable & Sons Metal Products                 No. 02-1678
                                     Engineering                          v. Darue Engineering

provisions, it then has the burden of showing it substantially      Like Grable, Kabakjian owed the IRS taxes, and his property
complied with them. Proving that a recalcitrant taxpayer            was seized and sold at auction. He sued the government,
actually received notice of a seizure or sale could be quite        claiming that the notices he received pursuant to § 6335(a)
difficult. No court would uphold a seizure without notice.          were defective because he received them by certified mail,
Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306,            rather than personal delivery. The Third Circuit held that the
313 (1950) (stating that “there can be no doubt that at a           notices “were not so defective as to void the seizure of
minimum [the due process clause] require[s] that deprivation        property and its transfer to third parties” because § 6339(b)(2)
of life, liberty or property by adjudication be preceded by         allowed for substantial compliance. Ibid. Because Kabakjian
notice and opportunity for hearing appropriate to the nature of     could not demonstrate any prejudice beyond a theoretical
the case”).                                                         deprivation of his right to notice, the court ruled that all his
                                                                    property rights had transferred to a third party, and his claim
   Ignoring the provisions of § 6335(a) puts the IRS at risk        failed on the merits. Ibid.
that a court will find its alternative notification procedures
inadequate and invalidate the tax sale. Gauging how much              Protecting the interests of bona fide purchasers is an
variation will be tolerated puts the IRS in very uncertain          important aspect of quiet title analysis. In the one opportunity
territory. For instance, a simple public announcement of a tax      the Sixth Circuit has had to address the question of substantial
sale, as provided for in 26 U.S.C. § 6335(b), is                    compliance in the context of a tax seizure and sale, we too
“constitutionally inadequate.” Verba v. Ohio Cas. Ins. Co.,         held that procedural irregularities could not void a tax sale.
851 F.2d 811, 816 (6th Cir. 1988). Attempting twice to notify       PM Group Inv. Corp. v. PYK Enter., No. 97-1335, 1998 WL
the taxpayer in person of the public sale of his property, and      242337, at **3 (6th Cir. May 8, 1998) (unpublished opinion)
then sending a certified letter, which was returned, and a          (holding that issuance of a certificate of sale was conclusive
regular letter, which was not, is insufficient notice to validate   evidence of the regularity of the sale). We noted that
the tax sale. Reece v. Scroggins, 506 F.2d 967, 969 (5th Cir.       § 6339(b)(2) was enacted to protect bona fide purchasers,
1975). Nor will a court be swayed by the facts that taxpayer        such as Darue in this case. Ibid. (citing United States v.
received proper notice of the initial property seizure and          Whiting Pools, 462 U.S. 198, 211 (1983)).
found out about the auction before the bidding began. Ibid.
Adjudication of substantial compliance cases is very fact-             Grable argues that “provisions of law” in § 6339(b)(2)
specific, and the outcome is uncertain for the litigants. We do     means provisions of state law, citing Fuentes v. United
not believe that the latitude allowed by § 6339(b)(2)               States, 14 Cl. Ct. 157, 167 (1987), and, therefore, that strict
undermines the strong motivation for the IRS to follow the          adherence to the statute is required. Fuentes dealt with a
letter of § 6335(a). Only by doing so can it ensure the             homeowner’s suit against the IRS for delivering a quitclaim
validity of its tax sales, effectively collect back taxes, and      deed that was invalid under Puerto Rican law. The Court of
avoid litigation.                                                   Claims noted “that a sharp focus must be placed on the
                                                                    distinction between the law applicable to the efficacy of a tax
  The Third Circuit approved the application of the                 sale and the law applicable to the execution of a deed
substantial compliance doctrine to §6335(a) in Kabakjian v.         stemming therefrom. As to the former, we find that federal
United States, 267 F.3d 208, 213 (2001), a case that is             law is applicable; and as to the latter, local law governs.” Id.
directly on point, and upon which the district court relied.        at 166. This case deals with the efficacy of the tax sale, rather
No. 02-1678 Grable & Sons Metal Products v. Darue                          11     12    Grable & Sons Metal Products                 No. 02-1678
                                     Engineering                                        v. Darue Engineering

than the validity of the deed,2 and is thus a question of federal                    In this case, however, Grable was amply protected. It
law. See also Reece, 506 F.2d at 970 (holding that faulty                         received actual notice of the tax sale, which was one of
notice provisions made the sale voidable ab initio) (emphasis                     several resulting from a six-year hiatus from paying taxes. It
added). We also adopt the district court’s analysis rejecting                     has not alleged any actual prejudice as a result of receiving
Grable’s reading of Fuentes. The district court correctly                         notice through certified mail, nor did it take any action
pointed out that the substantial compliance language of                           against Darue for six years. The protections in the statute are
§ 6339(b)(2) does not refer to the execution of the deed, but                     designed to prevent the government from seizing property
rather to the proceedings by which the Secretary sells real                       without warning. The district court did not err in refusing to
property pursuant to § 6335, and therefore the statute directly                   extend these protections to a delinquent taxpayer who knew
contradicts Grable’s theory that the substantial compliance                       that its property was being seized but waited years to assert its
provisions only apply to state law. Grable & Sons Metal                           rights.
Products, Inc. v. Darue Engineering & Mfg., 207 F. Supp. 2d
694, 697 (W.D. Mich. 2002) (emphasis in the original).                               Although the statute allows for substantial compliance, the
                                                                                  district court also analyzed the case under equitable
   Some courts have determined that substantial compliance                        principles, coming to the same favorable conclusion for
is not acceptable in the context of a tax seizure. This view                      Darue. Because we may affirm the district court on any
follows that of Chief Justice Marshall that “the person                           ground supported by the record, we do not have to review the
invested with such a power [to convey land] must pursue with                      district court’s application of equity, Shaw v. Deaconess
precision the course prescribed by the law, or his act is                         Hosp., 355 F.3d 496, 498 (6th Cir. 2004), but we make two
invalid . . . .” Thatcher v. Powell, 19 U.S. (6 Wheat.) 119,                      short points. In a case with similar defects in notice, the
125 (1821). In Reece v. Scroggins, the leading case                               United States District Court for the Eastern District of
advocating strict construction, the court voided a tax sale                       Michigan applied equity in holding that substantial
because the IRS “handled this sale of land in a somewhat                          compliance was sufficient to validate the sale. Howard, 538
casual fashion,” including failure to comply with notice                          F. Supp. at 508 (applying Michigan law to resolve the quiet
requirements and irregularities in the subsequent public                          title action). Secondly, the district court’s decision to apply
auction. Reece, 506 F.2d at 970. The main rationale behind                        equity to dismiss Grable’s quiet title motion does not
the court’s holding was a recognition of the “Damoclean                           contradict an earlier Michigan Court of Appeals quiet-title
nature” of the IRS’s ability to seize property to satisfy                         action that was decided in Grable’s favor. Village of
legitimate tax deficiencies and of the importance of strict                       Dimondale v. Grable, 618 N.W.2d 23 (Mich. App. 2000). In
adherence to the statute to protect the taxpayer. Id. at 971;                     defending an action to quiet title to another piece of property
Aqua Bar & Lounge, Inc. v. United States Dept. of Treasury,                       that Mr. Grable owned personally, he argued that the tax sale
539 F.2d 935, 939 (2d Cir. 1976) (same).                                          was not valid because of defective IRS notice. The state
                                                                                  appeals court held that, as a defendant, he did not have to
                                                                                  worry about sleeping on his rights but was entitled to assert
    2                                                                             any valid defense. Dimondale, 618 N.W.2d at 31-32. The
      See Robert Kratovil, Real Estate Law 49 (6th ed. 1974) (explaining          court also noted that “equity is a shield, not a sword.” Id. at
that a “quitclaim deed pu rports to convey only the grantor's present
interest in the la nd, if any, rather than the land itself . . . . If he has no   32. The district court properly relied on that maxim when it
interest, no ne will be conveyed.”) (Emph asis in original.)
No. 02-1678 Grable & Sons Metal Products v. Darue            13
                                     Engineering

held that a delay of approximately six years in pressing a
claim provided sufficient basis in equity to deny Grable relief.
                              IV
  For the reasons set out above, we AFFIRM the decision of
the district court to deny Grable summary judgment and to
award judgment to Darue.
