Subject Matter Jurisdiction
Diversity vs. federal question: In the federal courts, there are two basic kinds of controversies over which the federal judiciary has subject matter jurisdiction: (1) suits between citizens of different states (so-called diversity jurisdiction); and (2) suits involving a “federal question.”
Amount in controversy: In federal suits based on diversity, an amount in excess of $75,000 must be in dispute. This is the “amount in controversy” requirement. In federal question cases, there is no amount in controversy requirement.
Burden: The party seeking to invoke the jurisdiction of a federal court must make an affirmative showing that the case is within the court’s subject matter jurisdiction. (Example: If P wants to invoke diversity jurisdiction, in her pleading she must allege the relevant facts about the citizenship of the parties.) [101]
Dismissal at any time: No matter when a deficiency in the subject matter jurisdiction of a federal court is noticed, the suit must be stopped, and dismissed for lack of jurisdiction. See HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxt&search=uscs+fed+rules+civ+proc+r+12” FRCP 12(h)(3), requiring the court to dismiss the action at any time if it appears that the court lacks subject matter jurisdiction.
II. DIVERSITY JURISDICTION
Definition: The Constitution gives the federal courts jurisdiction over “controversies … between the citizens of different states….” This is the grant of “diversity jurisdiction.”
Date for determining: The existence of diversity is determined as of the commencement of the action. If diversity existed between the parties on that date, it is not defeated because one of the parties later moved to a state that is the home state of the opponent.
Domicile: What controls for citizenship is domicile, not residence. A person’s domicile is where she has her true, fixed and permanent home. (Example: P has his main home in New York, but has an expensive second home in Florida. D has her only home in Florida. P can bring a diversity action against D, because P is deemed a citizen only of New York, not Florida, even though P has a “residence” in Florida.)
a. Resident alien: A resident alien (an alien who lives in the United States permanently) is deemed a citizen of the state in which he is domiciled.
b. Presence of foreigner: In a suit between citizens of different states, the fact that a foreign citizen (or foreign country) is a party does not destroy diversity. (Example: P, a citizen of Ohio, sues D1, a citizen of Michigan, and D2, a citizen of Canada. Diversity jurisdiction exists.) (In situations where one side consists solely of foreign citizens or foreign countries, “alienage” jurisdiction applies. See HYPERLINK “http://lawschool.lexis.com/emanuel/web/civpro/civpro03.htm” \l “IIB” below.)
3. Complete diversity: The single most important principle to remember in connection with diversity jurisdiction is that “complete diversity” is required. That is, it must be the case that no plaintiff is a citizen of the same state as any defendant.
Example: P, a citizen of New York, brings a suit against D1, a citizen of New York, and D2, a citizen of New Jersey. We ask, “Is there any plaintiff who is a citizen of the same state as any defendant?” Since the answer is “yes,” the requirement of complete diversity is not satisfied, and there is no diversity jurisdiction.
4. Pleading not dispositive: In order to determine whether diversity exists, the pleadings do not settle the question of who are adverse parties. Instead, the court looks beyond the pleadings, and arranges the parties according to their real interests in the litigation. [104]
a. Nominal parties ignored: In determining the existence of diversity, nominal or purely formal parties are ignored. (Example: Where a guardian of an infant sues, the guardian is deemed to be a citizen only of the same state as the infant. See HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxt&search=28+uscs+1332” 28 U.S.C. §1332(c)(2).) [104 – 105]
B. Alienage jurisdiction: Related to diversity jurisdiction, but analytically distinct, is “alienage” jurisdiction. Alienage jurisdiction exists where there is a suit between citizens of a state, on one side, and foreign states or citizens thereof, on the other. (Example: P, a citizen of Mexico, sues D, a citizen of Illinois. Even if there is no federal question issue, there will be federal subject matter jurisdiction of the “alienage” variety, assuming that the amount in controversy requirement is satisfied.) [106 – 107]
1. Suit between two foreign citizens: But a suit solely between citizens of two foreign countries does not fall within the alienage jurisdiction. (Example: If P, a citizen of Canada, sues D, a citizen of Mexico, there is no alienage jurisdiction.)
C. Diversity involving corporations: For diversity purposes, a corporation is deemed a citizen of any state where it is incorporated and of the state where it has its principal place of business. In other words, for diversity to exist, no adversary of the corporation may be a citizen of the state in which the corporation is incorporated, or of the state in which it has its principal place of business. (Example: XYZ Corp., a corporation which is incorporated in Delaware, has its principal place of business in New York. In order for there to be diversity, no adverse party may be a citizen of either Delaware or New York.) [107]
1. Principal place of business: Courts have taken two different views about where a corporation’s “principal place of business” is.
a. Home office: Some courts hold that the corporation’s principal place of business is ordinarily the state in which its corporate headquarters, or “home office,” is located. This is sometimes called the “nerve center” test.
b. Bulk of activity: Other courts hold that the principal place of business is the place in which the corporation carries on its main production or service activities. This is sometimes called the “muscle” test. This is the more commonly-used standard.
D. Devices to create or destroy diversity: The federal courts will not take jurisdiction of a suit in which any party has been “improperly or collusively joined” to obtain jurisdiction. HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxt&search=28+uscs+1359” 28 U.S.C. §1359. [108 – 110]
1. Assignment: This means that a claimant may not assign her claim in order to create diversity. (Example: Alex and Dennis are both citizens of Florida. Alex wants to bring a diversity action against Dennis. Alex assigns his claim to Barbara, a Massachusetts citizen, with the understanding that Barbara will remit to Alex 80% of any recovery. The court will not take diversity jurisdiction over the Barbara-vs.-Dennis action, because Barbara’s presence in the suit was an improper or collusive joinder. [ HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxe&search=394+us+823” Kramer v. Caribbean Mills]) [108]
2. Devices to defeat removal: A plaintiff suing in state court may sometimes seek to defeat her adversary’s potential right to remove to federal court. There is no federal statute prohibiting “improper or collusive” joinder for the purpose of defeating jurisdiction. However, as a matter of judge-made law, courts will often disregard obvious removal-defeating tactics (e.g., joinder of a defendant who has nothing to do with the underlying dispute, but who is a citizen of the same state as a plaintiff.) [108 – 110]
a. Low dollar claim: But the state-court plaintiff is always free to make a claim for less than the amount in controversy ($75,000), in order to defeat removal, even if P has really suffered a loss greater than this amount. (But the less-than-$75,000 amount must be named before D removes.)
III. FEDERAL QUESTION JURISDICTION
A. Generally: The Constitution gives the federal courts authority to hear “federal question” cases. More precisely, under HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxt&search=28+uscs+1331” 28 U.S.C. §1331, the federal courts have jurisdiction over “all civil actions arising under the Constitution, laws, or treaties of the United States.” [112 – 113]
1. Federal claim: There is no precise definition of a case “arising under” the Constitution or laws of the United States. But in the vast majority of cases, the reason there is a federal question is that federal law is the source of the plaintiff’s claim. (Examples: A claim of copyright infringement, trademark infringement or patent infringement raises a federal question, because in each of these situations, a federal statute – the federal copyright statute, trademark statute or patent statute – is the source of the right the plaintiff is asserting.) [112]
a. Interpretation of federal law: It is not enough that P is asserting a state-created claim which requires interpretation of federal law. (Example: P brings a state-court product liability suit against D for injuries sustained by taking a drug made by D. P claims that D violated the federal FDA statute by mislabeling the drug, and that this mislabeling automatically constitutes common-law negligence. D wants to remove to federal court, so it claims that the case is within federal question jurisdiction, because its disposition requires interpretation of a federal statute. Held, no federal question is raised, because P’s claim did not “arise under” federal law. [ HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxe&search=478+us+804” Merrell Dow Pharmaceuticals, Inc. v. Thompson]) [112]
b. Claim based on the merits: If P’s claim clearly “arises” under federal law, it qualifies for federal question jurisdiction even if the claim is invalid on the merits. Here, the federal court must dismiss for failure to state a claim upon which relief may be granted ( HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxt&search=uscs+fed+rules+civ+proc+r+12” FRCP 12(b)(6)), not for lack of subject matter jurisdiction. [113]
c. Anticipation of defense: The federal question must be integral to P’s cause of action, as revealed by P’s complaint. It does not suffice for federal question jurisdiction that P anticipates a defense based on a federal statute, or even that D’s answer does in fact raise a federal question. Thus the federal question must be part of a “well pleaded complaint.” [113]
Example: P claims that D Railroad has breached its agreement to give P free railroad passes. A recently-passed federal statute prohibits the giving of such passes. In P’s complaint, he anticipates the railroad’s federal statutory defense, claiming that the statute violates the HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxt&search=uscs+const+amend+5” Fifth Amendment.
Held, since P’s claim was merely a breach of contract claim, and the federal statute was not essential to that claim, there was no federal question – the fact that federal law was an integral part of D’s anticipated defense is irrelevant. [ HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxe&search=219+us+467” Louisville & Nashville RR v. Mottley]
IV. AMOUNT IN CONTROVERSY
A. Diversity only: In diversity cases, but not in federal question cases, plaintiff must satisfy an “amount in controversy” requirement. In all diversity cases, the amount in controversy must exceed $75,000. [114]
1. Interest not included: The $75,000 figure does not include interest or court costs.
B. Standard of proof: The party seeking to invoke federal diversity jurisdiction does not have to prove that the amount in controversy exceeds $75,000. All she has to show is that there is some possibility that that much is in question. [115]
1. “Legal certainty” test: To put it another way, the claim cannot b
tatute, arguing that D’s brand name infringes a mark registered to P. P also asserts that D’s conduct violates a New York State “unfair competition” statute. There is clearly no independent federal subject matter jurisdiction for P’s state law unfair competition claim against D – there is no diversity, and there is no federal question. But by the doctrine of supplemental jurisdiction, since the federal claim satisfies subject-matter jurisdictional requirements, P can add the state law claim that is closely related to it.
b. Additional parties to state-law claim: HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxt&search=28+uscs+1367” Section 1367 also allows additional parties to the state-law claim to be brought into the case. [125]
Example: P’s husband and children are killed when their small plane hits power lines near an airfield. P sues D1 (the U.S.) in federal court, under the Federal Tort Claims Act, for failing to provide adequate runway lights. Then, P amends her complaint to include state-law tort claims against D2 and D3 (a city and a private company) who maintain the power lines. There is no diversity of citizenship between P and D2 and D3, and no federal-question claim against them. But because P’s state-law claim against D2 and D3 arises from the same chain of events as P’s federal claim against D1, P may bring D2 and D3 into the suit under the supplemental jurisdiction concept, and the last sentence of §1367(a). [This overrules HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxe&search=490+us+545” Finley v. U.S.] [125]
4. Diversity cases: There is also supplemental jurisdiction in many cases where the “core” claim – the claim as to which there is independent federal subject matter jurisdiction – is based solely on diversity. But there are some important exclusions to the parties’ right to add additional claims and parties to a diversity claim.
a. Claims covered: Here are the principal diversity-only situations in which supplemental jurisdiction applies: [129 – 130]
i. HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxt&search=uscs+fed+rules+civ+proc+r+13” Rule 13(a) compulsory counterclaims.
ii. HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxt&search=uscs+fed+rules+civ+proc+r+13” Rule 13(h) joinder of additional parties to compulsory counterclaims. (Example: P, from New York, brings a diversity suit against D, from New Jersey. The claim is for $80,000. D counterclaims that in the same episode, D was injured not only by P but also by Y; D’s injuries total $1,000. Y is from New Jersey. D may bring Y in as a Rule 13(h) additional defendant to D’s compulsory counterclaim against P, even though D and Y are both from New Jersey, and even though D’s claim does not total $75,000 – supplemental jurisdiction applies, and obviates the need for D-Y diversity or for D to meet the amount in controversy requirement.)
iii. HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxt&search=uscs+fed+rules+civ+proc+r+13” Rule 13(g) cross-claims, i.e., claims by one defendant against another. (Example: P, from Ohio, brings a diversity suit against D1 and D2, both from Kentucky. D1 brings a Rule 13(g) cross-claim against D2 – since it is a cross-claim, it necessarily relates to the same subject matter as P’s claim. Even though there is no diversity as between D1 and D2, the cross-claim may be heard by the federal court.)
iv. HYPERLINK “http://www.lexis.com/research/xlink?searchtype=lxt&search=uscs+fed+rules+civ+proc+r+14” Rule 14 impleader of third-party defendants, for claims by and against third-party plaintiffs, and claims by third-party defendants, but not claims by the original plaintiff against third-party defendants. (Example: P, from California, sues D, a retailer from Arizona, claiming that a product D sold P was defective and injured P. The suit is based solely on diversity. D brings a Rule 14 impleader claim against X, the manufacturer of the item, claiming that if D owes P, X must indemnify D. X is a citizen of Arizona. Because D’s suit against X falls within the court’s supplemental jurisdiction, the lack of diversity as between D and X makes no difference. Supplemental jurisdiction would also cover any claim by X against P. But any claim by P against X would not be within the court’s supplemental jurisdiction, so P and X must be diverse and the claim must meet the amount in controversy requirement.)
b. Claims not covered: Where the core claim is based on diversity, some important types of claims do not get the benefit of supplemental jurisdiction:
i. Claims against third-party defendants: Claims made by a plaintiff against a third-party defendant, pursuant to HYPERLINK
