Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing

*The Honorab le Ann Aldrich, United States District Judge for the
Northern District of Ohio, sitting by designation.
1
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2004 FED App. 0244P (6th Cir.)
File Name: 04a0244p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
GRABLE & SONS METAL
PRODUCTS, INC.,
Plaintiff-Appellant,
v.
DARUE ENGINEERING &
MANUFACTURING,
Defendant-Appellee.
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No. 02-1678
Appeal from the United States District Court
for the Western District of Michigan at Grand Rapids.
No. 01-00037—David W. McKeague, District Judge.
Argued: March 9, 2004
Decided and Filed: July 27, 2004
Before: BOGGS, Chief Judge; DAUGHTREY, Circuit
Judge; and ALDRICH, District Judge.*
2 Grable & Sons Metal Products
v. Darue Engineering
No. 02-1678
_________________
COUNSEL
ARGUED: Charles E. McFarland, Campbellsburg,
Kentucky, for Appellant. Michael C. Walton, RHOADES,
McKEE, BOER, GOODRICH & TITTA, Grand Rapids,
Michigan, for Appellee. ON BRIEF: Charles E. McFarland,
Campbellsburg, Kentucky, for Appellant. Michael C.
Walton, RHOADES, McKEE, BOER, GOODRICH &
TITTA, Grand Rapids, Michigan, for Appellee.
_________________
OPINION
_________________
BOGGS, Chief Judge. Grable & Sons Metal Products Inc.,
(“Grable”) argues that the district court committed two errors
in granting judgment to Darue Engineering & Manufacturing
(“Darue”) in Grable’s action to quiet title against Darue.
First, Grable argues that its claim, although based on federal
tax law, does not present a federal question, and, therefore,
that the district court did not have subject matter jurisdiction
to adjudicate the case after Darue removed it from Michigan
state court. Secondly, Grable appeals the district court’s
judgment denying its quiet-title claim in property Darue had
purchased at a tax sale after the IRS seized it from Grable in
1994.
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
literal, compliance with regulations regarding tax-seizure

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

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

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Interpretation of the federal law required
Disposition of all the aspects of this case, including those
related to the traditional state law property issues, turn on
construction of federal tax law. Both parties agree that the
only way to resolve the underlying controversy is to evaluate
whether § 6335(a), which mandates notice for IRS seizure of
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
IRS did not comply with the letter of the statute. If
substantial compliance is sufficient, then further analysis and
weighing of the equities of the situation is required.
Therefore the final requirement is met: interpretation of the
federal tax code is necessary to resolve the state law issue.
In sum, Grable’s quiet title action presents a federal
question because it is rooted in the Internal Revenue Code,
the correct interpretation of which represents a substantial
federal interest.
III
Action to Quiet Title
The district court also correctly granted summary judgment
to the appellee, Darue. At issue is whether serving notice
through a certified letter, which Grable in fact received,
constitutes sufficient compliance with the statute to make the
resulting quitclaim deed valid. Evaluating whether
substantial compliance is applicable is a question of law that
is reviewed de novo. In re Eagle-Picher Indus., Inc. 285
F.3d 522, 527 (6th Cir. 2002) (applying substantial
compliance analysis to notice requirements in a bankruptcy
case). However, the rule itself is an equitable doctrine, so that
a district court’s decision to apply it is reviewed for abuse of
discretion. Id. at 529. See Cleveland Newspaper Guild
8 Grable & Sons Metal Products
v. Darue Engineering
No. 02-1678
Local 1 v. Plain Dealer Pub. Co., 839 F.2d 1147, 1155 (6th
Cir. 1988).
The Internal Revenue Code states that:
b) Deed of real property.--In the case of the sale of real
property pursuant to section 6335 --
. . .
(2) Deed as conveyance of title.--If the proceedings of
the Secretary as set forth have been substantially in
accordance with the provisions of law, such deed shall be
considered and operate as a conveyance of all the right,
title, and interest the party delinquent had in and to the
real property thus sold at the time the lien of the United
States attached thereto.
26 U.S.C. § 6339(b)(2) (emphasis added). Therefore, if the
IRS substantially complied with the provisions of § 6335(a),
then the tax sale is valid.
Grable counsels against reading the substantial compliance
provision of §6339(b)(2) as applying to § 6335(a) seizures, in
spite of the statutory language to the contrary, since doing so
would render the notice provisions “totally ineffective.”
Appellant Br. at 31. This argument is not persuasive. Grable
is correct that a basic rule of statutory construction mandates
that a court should read statutes as a whole and not interpret
one provision in a way that would render another meaningless
or superfluous. Beck v. Prupis, 529 U.S. 494, 506 (2000)
(calling the rule a “longstanding canon of statutory
construction”); Lake Cumberland Trust v. EPA, 954 F.2d
1218, 1222 (6th Cir. 1992).
Allowing substantial compliance does not undermine the
purpose of § 6335(a), nor make its provisions superfluous.
Should the IRS fail to adhere to the strict statutory notice

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

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

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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.

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