I. DIVERSITY OF CITIZENSHIP JURISDICTION
A. INTRODUCTION
The federal courts have been given subject matter jurisdiction over controversies
between citizens of different states, even though the controversies do not involve
questions of federal substantive law, in order to protect an out-of-state party from
possible local bias in state courts.
B. DIVERSITY AMONG THE PARTIES
1. Complete Diversity When Action is Commenced
a. Multiple Parties—Complete Diversity
Diversity jurisdiction requires “complete diversity,” meaning that no
plaintiff may be a citizen of the same state as any defendant. If one
defendant and one plaintiff are co-citizens of the same state, complete
diversity is lacking and there is no diversity jurisdiction.
1) But Note
The rule of complete diversity does not require that every party be
of diverse citizenship from every other party. It requires only that
no plaintiff be a co-citizen with any defendant. Thus, two plaintiffs
who are both citizens of Missouri may invoke diversity of
citizenship jurisdiction against three defendants, all three of whom
are citizens of Kansas.
2) Interpleader Exception
a) Federal Interpleader Statute—Minimal Diversity
The federal interpleader statute (1335) requires only that
among the parties there be “two or more adverse claimants,
of diverse citizenship.” Thus, “minimal diversity” is
sufficient to confer jurisdiction under the statute. If there is
diversity between any two of the claimants, all other
claimants may be citizens of the same state. (Also, section
1335 only requires that the money or property at issue be
valued at $500 or more.)
b. “Alienage” Jurisdiction
Most bar exam questions in this general area involve basic
diversity of citizenship jurisdiction, in which the dispute
involves “citizens of different states,” as discussed
immediately above. However, section 1332(a)(2) grants
subject matter jurisdiction over “alienage” cases, in which
the dispute is between a citizen of a U.S. state and an
“alien”—meaning a citizen or subject of a foreign country.
Jurisdiction is denied, however, if the case is between a
citizen of a state and a citizen of a foreign country who has
been admitted to the United States for permanent residence
and domiciled in the same state as the U.S. citizen. Also
note that the U.S. Constitution does not provide for federal
jurisdiction over cases by an alien against an alien; there
must be a citizen of a U.S. state on one side of the suit to
qualify for alienage jurisdiction.
2. Questions of Citizenship
a. State Citizenship of an Individual—domicile
The determination of the state of citizenship of a natural person
depends on the permanent home to which he intends to return. The
concept is the same, except in name, as domicile. A new state citizenship
may be established by (i) physical presence in a new place and (ii) the
intention to remain there, ie., no present intent to go elsewhere. The
citizenship of a child is that of her parents. In most cases, the citizenship
of a party will be determined by the court, but it may be left to the jury.
b. Citizenship of a Corporation—Possible Multiple Citizenships
For diversity purposes, a corporation’s citizenship is defined by 28
U.S.C. Section 1332. Under this statute, a corporation is deemed to be a
citizen of every state and foreign country in which it is incorporated and
the one state or foreign country in which it has its principal place of
business. The Supreme Court has held that a corporation’s “principal place
of business” is the state from which the corporation’s high-level officers
direct, control, and coordinate the corporation’s activities (its “nerve
center” which will usually be the corporation’s headquarters.) (Hertz Corp
v. Friend)
c. Business Trusts
The trustees of a business trust are the real parties in interest and
their citizenship, not that of the individual shareholders, determines
whether there is diversity. (Navarro Savings v. Lee)
d. Class Actions
If a suit is brought by several named persons on behalf of a class
under Rule 23, diversity is determined on the basis of the citizenship of the
named members of the class who are suing. The Class Action Fairness
Act also expands the court’s jurisdiction over class actions.
e. Nonresident United States Citizens
A United States citizen domiciled abroad is not a citizen of any
state and also is not an alien.
3. Collusion and Devices to Create or Defeat Diversity
The federal court does not have jurisdiction if a party “by assignment or
otherwise, has been improperly or collusively made or joined to invoke jurisdiction.” (28
U.S.C. 1359)
4. “Supplemental” Jurisdiction
Occasionally, a claim may be joined that could not, by itself, invoke
federal question jurisdiction or diversity jurisdiction (because, for
example, it is a state claim between parties who are citizens of the same
state or because it does not involve the requisite amount in controversy).
The federal court may nonetheless entertain such claims under its
supplemental jurisdiction. This requires that the supplemental claim arise
from a common nucleus of operative fact as the claim that invoked the
original (diversity or federal question, usually) federal subject matter
jurisdiction. Some courts consider the common nucleus test to mean that
the claims must arise from the same transaction or occurrence, but the
growing trend is that the common nucleus test is broader than that.
5. Joinder or Subsequent Addition of Parties
The Federal Rules permit numerous methods by which multiple claims or
parties may be joined or added to the case.
a. Restriction on the Use of Supplemental Jurisdiction in Diversity
Cases
For cases that are in federal court based solely on diversity,
supplemental jurisdiction may not be used to support:
i. Claims by plaintiffs against persons made parties under Rules 14
(impleader), 19 (compulsory joinder), 20 (permissive joinder) or
24 (intervention);
ii.
Claims by persons proposed to be joined as plaintiffs under Rule
19, and
iii.
Claims by persons seeking to intervene as plaintiffs under Rule
24;
When the exercise of supplemental jurisdiction would be inconsistent
with the requirements for complete diversity. (28 U.S.C. 1367 (b))
b. Third-Party Practice—Impleader
Under Rule 14, after the third-party defendant is impleaded, he
may assert a claim against the plaintiff in the pending case if the
claim arises from the same transaction or occurrence as the
underlying suit. In addition, under Rule 14, after the third-party
defendant is impleaded, the plaintiff may assert a claim against
him if it arises from the same transaction or occurrence as the
underlying suit.
c. Cross-Claims
Rule 13 allows a party to assert a claim in a pending case against a
co-party, but only if the claim arises from the same transaction or
occurrence as the underlying dispute.
1) Subject Matter Jurisdiction Required
Cross-claims, like all claims in federal court, must invoke
subject matter jurisdiction. Therefore, after determining that a
cross-claim would be filed, assess whether that claim could invoke
diversity of citizenship or federal question jurisdiction. If so, the
claim may be asserted in federal court. However, if a cross-claim
does not invoke diversity of citizenship or federal question
jurisdiction, the cross-claim could nonetheless be asserted in
federal court through supplemental jurisdiction.
C. JURISDICTIONAL AMOUNT: IN EXCESS OF $75,000
Actions brought in federal court under diversity must meet the jurisdictional
amount requirement. (28 U.S.C. 1332). The complaint can be dismissed only if it
appears there is no legal possibility that recovery will exceed that amount.
Jurisdiction is not retroactively defeated by the fact that the amount actually
recovered is less than the jurisdictional amount.
1. Aggregation of Separate Claims
a. One Plaintiff Against One Defendant
For the purposes of meeting the jurisdictional amount, the plaintiff may
aggregate all her claims against a single defendant. This aggregation is
permitted regardless of whether the claims are legally or factually related
to each other.
b. One Plaintiff Against Several Defendants
A plaintiff who has an action against several defendants CANNOT
aggregate claims based on separate liabilities.
c. Several Plaintiffs Against One Defendant
Several plaintiffs can aggregate their claims only where they are seeking
“to enforce a single title or right in which they have a common or
undivided interest” This rule has special importance in class actions, in
which the rule is that the claims o the class members cannot be aggregated
if their rights are “separate” rather than “joint” or “common”. One class
representative’s claim must exceed $75,000, and the court will have
supplemental jurisdiction over the claims that no not exceed $75,000.
2. Supplemental Jurisdiction over Claims Not Exceeding $75,000 in Diversity Cases
Claims that do not meet the minimum for diversity may invoke supplemental
jurisdiction if they arise from a common nucleus of operative facts as a claim that
invoked diversity. However, the supplemental jurisdiction CANNOT be used to
override the COMPLETE DIVERSITY RULE (need amount in excess and
diverse places)
3. Counterclaims
A defendant’s counterclaim (Rule 13) cannot be combined with the plaintiff’s
claim to each the jurisdictional amount.
D. ERIE DOCTRINE AND THE LAW APPLIED UNDER DIVERSITY JURISDICTION
A federal court, in the exercise of its diversity jurisdiction, it required to apply the
substantive law of the state in which it is sitting, including the state’s conflict of law
rules. (Erie Railroad v. Tompkins) However, the federal courts apply federal
procedural law.
1. Federal Statutes or Federal Rules of Civil Procedure
To determine whether federal law should be applied, the first question to ask is
whether there is a federal law (statute, Federal Rule of Civ. Pro) on point. If there
is, the federal statute or federal rule will apply, provided that it is valid. Of course,
if there is a federal constitutional provision (e.g. right to jury trial in cases over
$20, it applies.)
Example: Federal Rule 4 permits substituted service of process. Suppose that state law
(of the state in which the federal court sits) does not permit substituted service. The court
will apply the Federal Rule, because it is on point and is valid. A federal rule of civil
procedure is valid if it is “arguable procedural” (Hanna v. Plumer)
a. Caution
Sometimes it is difficult to determine whether a federal statute or rule is
on point.
b. Recent Application
Under the Rules Enabling Act, a Federal Rule is valid if it deals with
“practice or procedure” and does not “abridge, enlarge, or modify” a
substantive right.
2. If there is No Federal Statute or Rule on Point, Is the Issue Substantive or
Procedural?
If there is no federal statute or rule on point, can a federal judge refuse to follow
state law on a particular issue? The answer depends on whether the law on that
issue is substantive or procedural. If it is a procedural issue, the federal judge may
ignore state law.
a. Some Situations Are Clearly Established
In some instances, the characterization as substance or procedure is well
established.
For example: The Supreme Court has established that statutes of
limitations and rules for rolling statutes of limitations are substantive
for Erie purposes; therefore, a federal judge in a diversity case must follow
state law on those issues. (Guaranty Trust Co. v. York) Choice of law
rules are also substantive for Erie purposes, and a federal judge in a
diversity case must follow state law on that issue as well. Finally, of
course, elements of a claim or defense are substantive.
b. Law is Unclear in Other Situations
Outside these areas, when there is no federal directive on point, it is often
difficult to determine whether an issue is substantive or procedural for
Erie purposes. The Supreme Court has given different “tests” at different
times on this point, and has failed to integrate the tests comprehensively.
One such test is outcome determination, which holds that an issue is
substantive if it substantially affects the outcome of the case. (Guaranty
Trust Co. v. York) another test is balance of interests, in which the court
weighs whether the state or federal judicial system has the greater interest
in having its rule applied. (Byrd v. Blue Ridge) Yet another test is forum
shopping deterrence, which directs that the federal judge should follow
state law on the issue if failing to do so would cause litigants to flock to
federal court. (Hanna v. Pumer)
3. Statutes Involving Both Substance and Procedure
Sometimes, a state statute or rule may be both.
4. Interpreting State Law
The federal court is bound to apply the substantive state law that would be applied
by the highest court of the state. If the state courts have not decided the issue that
is before the federal court, or if the decisions on point are old and no longer
current with the decisions of other jurisdictions, the federal court may consider
the law of other jurisdictions in reaching its decision. However, the focus of the
federal court is to determine what decision the highest court of the state would
reach if confronted with the issue.
a. De Novo Review of District Court’s Decision
On appeal, the federal appellate court reviews the federal trial judge’s
decision as to state law de novo.
b. Subsequent State Court Decisions
If the highest state court renders a decision on an issue after the federal
court has made its determination, the decision of the district court may be
changed to conform to the new decision of the highest state court until the
disposition of the final federal appeal.
E. FEDERAL COMMON LAW
1. When Federal Courts Create Federal Common Law Rules
Although Erie held that federal courts cannot create “federal general common
law” rules to govern state-law claims, Erie did not change the authority of federal
courts to create “federal common law”
a. Interpretation of Federal Statute or Constitution
The federal courts create substantive rules of federal law when interpreting
the meaning of federal statutes of the federal Constitution.
b. Creating Rules to Fill Gaps in Federal Regulatory Schemes
The federal courts may also create substantive rules of federal law based
on the determination that Congress has expressly or by implication
authorized the federal courts to do so for the purpose of filling in gaps or
silences in a federal regulatory statute.
*Federal common law pleading: assumpsit, trover, and trespass.
F. EXCEPTIONS TO DIVERSITY OF CITIZENSHIP JURISDICTION
For historical reasons, even though the requirements for diversity of citizenship
jurisdiction are satisfied, federal courts will not exercise jurisdiction over domestic
relations or probate proceedings.
G. MULTIPARTY, MULTIFORUM TRIAL JURISDICTION ACT
This act applies to accidents meeting the statutory definition. The principal points are
these:
1. Requirements
a. The Action
The act grants jurisdiction to federal district courts of civil actions that (i)
arise “from a single accident, (ii) where at least 75 natural persons
have died in the accident (iii) at a discrete location.” (28 U.S.C. 1369
(a))
b. Minimal Diversity
Such jurisdiction attaches based on minimal diversity of citizenship, thus
all that is required is that at least one plaintiff be of diverse citizenship
from at least one defendant.
c. One Additional Condition
In addition, however, one of three other conditions must be satisfied:
either (i) a defendant “resides” in a different state from the place where a
“substantial part” of the accident took place (even if the defendant also resides
here the accident took place); (ii) any two defendants “reside” in different states;
or (iii) substantial parts of the accident took place in different states.
2. Intervention
Anyone “with a claim arising from the accident” is permitted to intervene as a
plaintiff, even if she could not have maintained an action in the district where the
case is pending. (28 U.S.C. 1369 (d))
3. Service of Process
Finally, the Act provides for nationwide service of process. (28 U.S.C. 1697)