2.6 Diversity of Citizenship/alienage Jurisdiction

• Library: Federal Civil Practice in Virginia (Virginia CLE) (2023 Ed.)

2.6 DIVERSITY OF CITIZENSHIP/ALIENAGE JURISDICTION

2.601 Sources and Basic Rules.

Article III, section 2 authorizes federal courts to exercise jurisdiction over cases between "Citizens of different States . . . and between a State, or the Citizens thereof, and foreign States, Citizens, or Subjects."

28 U.S.C. § 1332 requires diversity of citizenship and an amount in controversy exceeding $75,000 (exclusive of interest and costs).

2.602 Complete Diversity.

The United States Supreme Court has interpreted the constitutional language to require "complete diversity," namely, the citizenship of each plaintiff must be diverse from that of each defendant. ³¹¹

Courts in the Fourth Circuit have denied remand when all known defendants had complete diversity but the plaintiff had sued a "fictitious" or John Doe defendant whose state of residency is not known. ³¹² The courts noted the motion to remand could be renewed if discovery revealed the fictitious defendant to be a Virginia citizen, as such a motion would be directed to the court's subject matter jurisdiction and would not be subject to the 30-day limitation in 28 U.S.C. § 1447(c). ³¹³

2.603 Time for Determining Diversity.

The relevant time for determining whether the parties are diverse is when the suit is filed. ³¹⁴

In removal cases, diversity "must have existed both at the time the action was originally commenced in state court and at the time of filing the petition for removal." ³¹⁵

The Supreme Court has stressed that diversity of citizenship is to be determined from the face of the well-pleaded complaint. Accordingly, when plaintiffs have made arguments that there are other real parties-in-interest who should have been included, and whose citizenship should be taken into account in determining whether complete diversity exists, the Supreme Court has held that it is not incumbent upon a properly joined defendant to "negate the existence of the potential co-defendant whose presence in the action would destroy diversity." ³¹⁶

2.604 Alienage Jurisdiction.

Article III, section 2 of the Constitution authorizes federal courts to exercise jurisdiction over cases between "Citizens of different States . . . and between . . . foreign States, Citizens, or Subjects." ³¹⁷ 28 U.S.C. § 1332(a) provides that

[t]he district courts shall have original jurisdiction of all civil actions . . . between . . . (2) citizens of a State and citizens or subjects of a foreign state [but permanent residents are now excluded]; (3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and (4) a foreign state, defined in s ection 1603(a) of [title 28], as plaintiff and citizens of a State or of different States.

Where aliens are involved in a case, check carefully the changes made to the law by the Federal Courts Jurisdiction and Venue Clarification Act of 2011. ³¹⁸

A. Limitations on Alienage Jurisdiction.

1. Alien Versus Alien or Alien Versus Alien and Citizen.

An alien cannot invoke diversity jurisdiction to sue: (i) other aliens or (ii) a combination of aliens and United States citizens. ³¹⁹

2. Aliens on Both Sides of a Case Involving Diverse Citizens.

Where there are completely diverse United States citizens on both sides of a case but also aliens on one or both sides, 28 U.S.C. § 1332(a)(3) authorizes diversity jurisdiction over such actions.

B. U.S. Citizens Domiciled Abroad.

"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." ³²⁰ A U.S. citizen who has no U.S. domicile is "stateless" for purposes of 28 U.S.C. § 1332, so his or her presence as a party will destroy complete diversity. ³²¹

C. Permanent Residents.

In passing the Federal Courts Jurisdiction and Venue Clarification Act of 2011, which went into effect on January 6, 2012, Congress intended to restrict the existence of diversity jurisdiction in cases involving resident aliens. Section 1332(a)(2) has been amended to clarify that resident aliens are now "deemed" to be citizens for diversity jurisdiction purposes: "the district courts shall not have original jurisdiction under this subsection 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." ³²²

D. Foreign Corporations.

The Federal Courts Jurisdiction and Venue Clarification Act of 2011 also clarifies the citizenship of foreign corporations and foreign insurance companies, and amends 28 U.S.C. § 1332(c)(1) by treating foreign corporations and insurers as citizens of: (i) every foreign state in which they have been incorporated; and (ii) every "State or foreign state" in which they have their principal places of business.

E. Foreign Sovereigns.

Where a foreign country or its governmental institutions are sued, considerations of sovereign immunity come into play. For an illustration of how dramatically sovereign immunity can affect a case procedurally, see Republic of the Philippines v. Pimentel. ³²³ This case involved an interpleader action to determine the ownership of property allegedly stolen by Ferdinand Marcos when he was President of the Republic of the Philippines. Two entities named in the suit invoked their sovereign immunity and were dismissed. Over their objections, the interpleader action proceeded to judgment. The sovereign entities contended that, under Fed. R. Civ. P. 19, the action should have been dismissed once it had become clear that they could not be joined as parties without their consent. The Ninth Circuit had held that the action could proceed without the sovereign entities being included as parties. The Supreme Court reversed because, under Fed. R. Civ. P. 19, they were "required entities," and, without them as parties in the interpleader action, "their interests in the subject matter are not protected." As a result, the Supreme Court ruled that the interpleader action should have been dismissed because of the inability to join sovereign entities whose interests would necessarily have been affected by the disposition of the case. ³²⁴

2.605 States or State Agencies as Parties.

Ordinarily, states are not considered to be "citizens" for diversity purposes, so an action between a state and a citizen of another state will not provide diversity jurisdiction. ³²⁵ "[P]ublic entities and political subdivisions . . . are also not 'citizens of a state' if they are an 'arm or alter ego of the State.'" ³²⁶ Whether a state agency or institution is an "arm" or "alter ego" of the State is a "highly fact intensive" question. ³²⁷ To guide this inquiry, the Fourth Circuit has adopted the same multi-factored test that applies to whether governmental entities are entitled to Eleventh Amendment immunity. ³²⁸ The "most important" factor is "whether the state treasury will be responsible for paying any judgment that might be awarded." ³²⁹ The other relevant considerations are: (i) the degree of operational autonomy from the state; (ii) the entity's involvement in local versus statewide concerns; and (iii) how the entity is treated under state law. ³³⁰

For example, in South Carolina Department of Disabilities & Special Needs v. Hoover Universal, Inc., ³³¹ the plaintiffs, three agencies of the state of South Carolina, had prosecuted an action in federal court, contending that diversity was the basis of the lower court's jurisdiction. After losing a motion for summary judgment, they reversed course and contended that the resulting judgment should be vacated because there was no diversity in the first place. ³³² The state agencies argued that they were arms of the state, or alter egos of the state, and it is well settled that a state cannot be a "citizen" for diversity purposes. ³³³ In view of the fact that subject matter jurisdiction was the issue, the Fourth Circuit court was not particularly troubled by the plaintiffs' seemingly inconsistent volte-face. Applying the four factors discussed above, it found that the three state agencies involved were, in fact, arms of the state of South Carolina, and, thus, they could not be deemed to be "citizens" of any state pursuant to 28 U.S.C. § 1332(a)(1). ³³⁴

2.606 Realignment of the Parties.

To determine whether complete diversity exists, the court has the responsibility to realign parties properly to ensure that the parties' real interests are reflected by the alignment. ³³⁵

The Fourth Circuit employs the "principal purpose" test, in which the court determines the primary issue in controversy and then aligns the parties according to their positions with respect to that issue. ³³⁶ The "primary issue" inquiry is generally understood as "a top-level summary of the claims rather than a discrete, narrow legal issue presented by the case." ³³⁷ It also does not consider cross-claims and counterclaims filed by the defendants; instead, it looks only to plaintiff's principal purpose for filing its suit." ³³⁸

In a derivative suit, the claim pressed by the stockholder against directors or third-parties is not his or her own, but the corporation's. ³³⁹ "At times, however, the nominal corporate party, on whose behalf the suit is brought, may be antagonistic to the shareholder plaintiff." ³⁴⁰ Under these circumstances, district courts may align the parties according to their real interests for jurisdictional purposes where a nominal corporate party's citizenship would otherwise destroy diversity jurisdiction. This "doctrine of antagonism" is "specifically limited to the realignment of the parties in a derivative suit and does not allow for real parties in interest to be ignored when determining whether diversity exists." ³⁴¹

2.607 Failure to Join Necessary Parties Under Fed. R. Civ. P. 19.

Where a court finds that the plaintiff has failed to join a party who is necessary and indispensable to the action, and that the...