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Home Away from Home:
L IVING A BROAD W ITH ( OR W ITHOUT ) D IVERSITy J URISDICTION
By Jeff Bowen*
D
iversity jurisdiction permits federal courts to hear certain disputes “between citizens of different
states” and between “citizens of a State and citizens or subjects of a foreign state,” among other
categories. But what happens when a citizen of a foreign state permanently resides in the United States,
or when a citizen of the United States resides abroad? Under current rules, Congress has eliminated
jurisdiction for disputes between permanent residents and citizens of the same State but permitted
jurisdiction over disputes between permanent residents and citizens of other States. With respect to
United States citizens domiciled abroad, however, diversity jurisdiction simply does not exist, regardless
of any other parties to the dispute. In fact, any partnership or similar entity with one of its partners residing
abroad may find itself excluded from diversity jurisdiction. Attorneys representing partnerships with
international connections, including large law firms, need to consider whether any of those partners live
abroad when confronting diversity jurisdiction in federal courts.
“Alienage jurisdiction” and Permanent Residents of the United States
Jurisdiction over disputes involving foreigners, also known as alienage jurisdiction, appears in Article
III of the Constitution, which provides that the “judicial Power shall extend to all Cases, in Law and
Equity . . . between a State, or the Citizens thereof, and foreign States, Citizens or Subjects.” In the
Federalist Papers, Alexander Hamilton specifically argued that national courts should hear disputes
involving non-citizens because such cases may have consequences for the conduct of foreign
relations. The Federalist No. 80. Other concerns included the ability of state courts to protect noncitizens adequately. Kevin Johnson, Why Alienage Jurisdiction?
Continued on page 54
*
Jeff Bowen is the Wisconsin Chair of the Circuit Rider and is a Partner at Perkins Coie LLP in the litigation group’s insurance
recovery practice. He is a graduate of Boston University, summa cum laude, and a Ph.D candidate in political science from Stanford.
He is a 2002 graduate of Yale Law School, where he was an Editor of the Yale Law Journal. He clerked for Judge Barketton on the
Eleventh Circuit and Judge Thomason on the Ninth Circuit. He is currently an Adjunct Professor at the University of Wisconsin Law
School (LLM Program).
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Historical Foundations and Modern Justifications for Federal
Jurisdiction over Disputes Involving Noncitizens, 21 Yale J.
Int’l L. 1, 10-12 (1996). Although Congress originally granted
federal jurisdiction over any dispute of at least $500 “in which
an alien is a party”, the Supreme Court
effectively held that Article III did not
permit Congress to extend federal
jurisdiction to disputes between two
non-citizens. Id. at 18-20; Hodgson v.
Bowerbank, 9 U.S. (5 Cranch) 303
(1809). Congress later clarified that
any controversy involving a non-citizen
must also involve United States citizen
in order to trigger federal jurisdiction.
Act of Mar. 3, 1875, 18 Stat. 470, 470.
In addition, appellate courts generally
interpreted the statute to preclude
jurisdiction over a lawsuit involving a
non-citizen on one side, and a citizen
and non-citizen on the other side.
Saadeh v. Farouki, 107 F.3d 52, 55
(D.C. Cir. 1997) (collecting cases).
The actual domicile of non-citizens
played little role in federal jurisdiction
for almost two hundred years. Courts routinely upheld
jurisdiction over disputes involving non-citizens living
permanently in the United States, regardless of where they
resided. For example, in 1833, the Supreme Court affirmed
jurisdiction over a lawsuit brought by Swiss citizens residing in
New Orleans against two citizens of Louisiana to enforce a
debt. Breedlove v. Nicolet, 32 U.S. 413 (1833). Justice Marshall
wrote that “If originally aliens, they did not cease to be so, nor lose
their right to sue in the federal court, by a residence in Louisiana.
Neither the constitution nor acts of congress require that aliens
should reside abroad, to entitle them to sue in the courts of the
United States.” Id. at 431-32.
In 1988, however, the Judicial Conference of the Untied States
called on Congress to change the rule and remove diversity
jurisdiction between a non-citizen permanent resident and a
citizen of the same State. The Conference report argued that
“[t]here seems to be no reason why actions involving persons
who are permanent residents of the United States should be
heard by Federal courts merely because one of them remains a
citizen or subject of a foreign state or has not yet become a citizen
of the United States.” Proceedings of the Judicial Conference
of the United States, 76-77 (Sep. 1988). In part, the Judicial
Conference appeared motivated by a desire to reduce the federal
diversity jurisdiction caseload. In response, Congress added a
provision to the diversity jurisdiction
statue providing that, for the purposes
of federal jurisdiction, “an alien admitted
to the United States for permanent
residence shall be deemed a citizen of
the State in which such alien is
domiciled.” Pub.L. No. 100–702, 102
Stat. 4642 (1988), codified at 28
U.S.C. § 1332 (a).
Everyone agreed that the new law
removed jurisdiction between a noncitizen permanently residing in a State
and a citizen of that same State. Once
the permanent resident was treated as a
citizen, diversity jurisdiction rested on §
1332(a)(1), which only applied to
“citizens of different States.” The new
law created a significant anomaly,
however. If a non-citizen permanent
resident were “deemed” a citizen of a State for all jurisdictional
purposes, she could sue a non-citizen in a different state under §
1332(a)(2), which covered ‘citizens of a State and citizens or
subjects of a foreign state.” This appeared to many observers
to violate the constitutional prohibition on cases involving only
non-citizens and as well as to undermine the traditional rule barring
suits between a non-citizen and both a citizen and non-citizen.
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Three appellate courts considered the 1988 law, and each
reached a different conclusion. The Third Circuit upheld
jurisdiction over a lawsuit brought by an Indian citizen
permanently residing in the U.S. against both an German
company and its American subsidiary. Singh v. Daimler-Benz
AG, 9 F.3d 303, 304-05 (3d Cir. 1993). The court concluded
that the plain language of the 1988 law “deemed” Singh a
citizen for diversity purposes and declined to defer to the
somewhat ambiguous legislative history. Id. at 308-10. In
Saadeh, by contrast, the D.C. Circuit vacated a judgment in
favor of a non-citizen against a non-citizen permanent resident
based on lack of diversity jurisdiction. 107 F.3d 52. The court
concluded that the legislative history of the 1988 act indicated
a clear intent to constrict diversity jurisdiction, rather than to
expand it, and noted that a literal reading of the statute would
conflict with Supreme Court precedent on suits involving only
non-citizens. Id. at 58-60. The court therefore held that the law
“did not confer diversity jurisdiction over a lawsuit between an
alien on one side, and an alien and a citizen on the other side,
regardless of the residence status of the aliens.” Id. at 61. Finally,
the Seventh Circuit held that the 1998 law “deemed” a permanent
resident to be a citizen of her State but only in addition to her
foreign citizenship. Intec USA, LLC v. Engle, 467 F.3d 1038,
1042-43 (7th Cir. 2006). Consequently, the court dismissed a
suit brought by a limited liability company with one non-citizen
member. Because the permanent resident member of the plaintiff
carried New Zealand citizenship as well as the “deemed”
United States citizenship, the case lacked the necessary
complete diversity. Id.
In December 2011, Congress changed the statute again and
resolved this dispute. Congress eliminated the language deeming
a permanent resident to be a citizen of her state of residence,
instead providing that “the district courts shall not have original
jurisdiction… of an action between citizens of a State and
citizens or subjects of a foreign state who are lawfully admitted
for permanent residence in the United States and are domiciled
in the same State.” Pub. L. No. 112-63 (H.R. 394), 125 Stat.
758 (2011). The new language still precludes lawsuits between
permanent residents and citizens living in the same State. In
light of prior case law, however, it effectively restores the ban
on lawsuits between a non-citizen on one side and a citizen and a
non-citizen on the other. At the same time, Congress placed the
non-citizen residence restriction solely within § 1332(a)(2). Thus,
under § 1332(a)(3), a citizen of one state may add a non-citizen
from the same State as an additional party, so long as the primary
suit involves a citizen from another state. That would not have
been possible under the 1988 provision. See Wright & Miller,
Federal Practice and Procedure § 3604 (2012).
United States Citizens Residing Abroad
Unlike diversity jurisdiction involving non-citizen permanent
residents, diversity jurisdiction over United States citizens residing
abroad has remained completely consistent — it simply doesn’t
exist. Federal courts have uniformly held that the statutory grant
of diversity jurisdiction does not extend to citizens domiciled
outside of the country, and Congress has never responded by
changing the law. This result may seem surprising, but courts
have consistently held that the specific language of § 1332(a)
compels this conclusion. The four subsections of that section
grant jurisdiction over disputes between “citizens of different
States” or between “citizens of a State” and another category
of person or party. 28 U.S.C. §§ 1332(a)(1)-(4). For a citizen
to fall within this language, the individual “must be both (1) a
citizen of the United States and (2) a citizen of a particular state.”
Sadat v. Mertes, 615 F.2d 1176, 1180 (7th Cir. 1980). A citizen
domiciled abroad is no longer a citizen of a particular state under
the statute and cannot invoke diversity jurisdiction. Smith v. Carter,
545 F.2d 909, 911 (5th Cir. 1977) (holding that a United States
citizen living in Canada cannot invoke diversity jurisdiction because
he is neither a citizen of a particular State nor a foreign subject).
See also Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826,
828 (1989) (“In order to be a citizen of a State within the meaning
of the diversity statute, a natural person must both be a citizen
of the United States and be domiciled within the State.”).
Some courts have recognized scholarly criticism of the rule
excluding citizens living abroad from diversity jurisdiction.
See, e.g., Sadat, 615 F.2d at 1180 n.4. Other courts have expressed
surprise that Congress has not addressed this gap in federal
diversity jurisdiction. For example, the Fifth Circuit “recognize[d]
the anomaly of the existing rule” but insisted that
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“Congress is the appropriate body to make such a change.”
Smith, 945 F.2d at 912. Similarly, the Second Circuit noted
“we are unclear as to Congress’s rationale for not granting
United States citizens domiciled abroad rights parallel to those
it accords to foreign nationals” but concluded that “the
language of § 1332(a) is specific and
requires the conclusion that a suit by or
against United States citizens domiciled
abroad may not be premised on diversity.”
Cresswell v. Sullivan & Cromwell, 922 F.2d
60, 68 (2d. Cir. 1990). As a result, no court
has found any reason for “upsetting settled
law.” Sadat, 615 F.2d at 1180.
Courts have consistently applied this
diversity rule in a wide variety of settings,
focusing on a party’s domicile at the time the
complaint was filed. The Seventh Circuit
recently ordered supplemental briefing on the
domicile of a United States citizen plaintiff
apparently residing in Greece. Winforge, Inc. v.
Coachmen Industries, Inc., 691 F.3d 856, 867
(7th Cir. 2012). Although the court noted
that “a United States citizen who establishes
domicile in a foreign country is no longer a
citizen of any State of the United States and
destroys complete diversity under 28 U.S.C. § 1332,” the court
determined that the plaintiff had moved to Greece two years
after the complaint had been filed and had therefore satisfied
diversity requirements. Id. at 867-68. By contrast, in Sadat, 615
F.2d 1176, a naturalized American citizen filed claims arising
out of a car accident he experienced in 1973 on the way to the
airport to relocate to Beirut as part of a new job. He left Beirut
in 1975, filed a lawsuit in 1976 while living in Egypt, and
returned to the United States in 1978. Although he claimed he
intended to return to the United States in 1975 and never
intended to stay in Egypt, the Seventh Circuit concluded that
he had not reestablished domicile in the United States at the
time of the lawsuit and affirmed dismissal for lack of diversity
jurisdiction. Id. at 1181. Thus, any attorney representing a
United States citizen residing abroad for significant periods
should consider how that individual’s domicile affects potential
diversity jurisdiction.
Moreover, attorneys representing partnerships or limited
liability companies should realize that any citizen partners or
members of those entities residing abroad could preclude
diversity jurisdiction. For diversity purposes, a partnership
assumes on the citizenship of each of its partners, and any
partner domiciled abroad precludes diversity jurisdiction over
the partnership as a whole. Cresswell, 922 F.2d at 69. In
Herrick Co. v. SCS Communications, 251 F.3d 315 (2d. Cir.
2001), plaintiffs sued over a failed joint
venture and added the attorneys, Skadden
Aarps as defendants. After an adverse
verdict, the defendants pointed to the
number of Skadden attorneys working
overseas, leading the Second Circuit to
vacate the judgment and remand for further
consideration of jurisdictional issues.
Similarly, in Swiger v. Allegheny Energy,
Inc., 540 F.3d 179 (3d Cir. 2008), the
plaintiff brought a diversity action against
his former employer and the employer’s
law firm, Morgan Lewis. The Third Circuit
affirmed dismissal for lack of jurisdiction
because one partner in the defendant law
firm had dual United States/United
Kingdom citizenship and was domiciled in
the United Kingdom. Id. at 184-85. The court
noted that “Morgan Lewis has a stateless
partner, and thus, all partners of Morgan
Lewis are not diverse from all parties on the opposing side.” Id.
at 185. See also Coudert Bros. v. Easyfind Intern., Inc., 601
F.Supp. 525 (S.D.N.y. 1985) (remanding to state court for lack
of diversity jurisdiction because the plaintiff law firm had
citizen partners domiciled abroad).
At first glance, the absence of diversity jurisdiction for United
States citizens living abroad appears to be a quirky, somewhat
obscure rule of federal jurisdiction. Because every partnership
or limited liability company assumes the citizenship of each of
its members, however, this seemingly minor rule may have a
much larger impact than it first appears.