Chapter 27-3 Removal on Diversity of Citizenship Grounds
| Jurisdiction | United States |
27-3 Removal on Diversity of Citizenship Grounds
Subject to exceptions, a case may be removed to federal court if the case is one over which the federal courts would have diversity of citizenship jurisdiction. A federal court has diversity of citizenship jurisdiction where the amount in controversy exceeds $75,000, exclusive of interest and costs, and there is complete diversity of citizenship.
27-3:1 Determining the Amount in Controversy Requirement
The amount in controversy must exceed the sum or value of $75,000 exclusive of interest and costs.17 In general, the amount claimed by the plaintiff in good faith in the state court petition is the amount in controversy.18 However, when the plaintiff seeks injunctive relief, when state law does not permit demand for a specific sum, or when state law allows recovery of damages in excess of the amount alleged—the defendant may allege the amount in controversy in the notice of removal.19 Even where the plaintiff alleges an amount in controversy below the jurisdictional threshold of $75,000, information in the record of the state court proceeding as well as in discovery responses regarding the true amount in controversy can trigger the defendant's right of removal.20
27-3:2 The Complete Diversity Requirement
Though not explicitly required by the statute, the Supreme Court read the statute to require complete diversity of citizenship more than 200 years ago.21 Complete diversity means that no plaintiff may share citizenship with any defendant.22
27-3:3 Determining the Citizenship of the Parties
Determining the citizenship of the parties requires, as a threshold matter, identifying the type of person or entity the party is. The tests for citizenship differ based upon whether the party is a human, a corporation, or an unincorporated association.
27-3:3.1 Citizenship for Natural Persons
A human who is a U.S. citizen is a citizen of the U.S. state in which he is domiciled. Domicile is defined as the person's true, fixed and permanent home and the place to which they intend to return when absent.23 Domicile has also been defined in more mathematical terms: residency in a state plus intent to remain in the state indefinitely.24 A natural person may have only one domicile, even if they have several residences.25
Parents or guardians establish the domicile of a minor child.26 Once domicile has been established, either by a parent or by the party himself, the party does not change his domicile unless and until he resides in another state or nation and does so with the intent to remain there indefinitely.27
Thus, a party does not change his domicile simply by intending to move away from the current domicile (such as when they have merely decided to move but have not yet done so), nor does a party change domicile by establishing a temporary residency outside the state of domicile. The party must change his residency and intend to remain indefinitely before a new domicile is established. Parties that frequently reside in a state other than the state of domicile include military personnel,28 college students,29 and prisoners.30
Non-U.S. citizens are considered citizens or subjects of a foreign state under the diversity statute.31 Even if the non-U.S. citizen has been admitted as a permanent legal resident alien and is domiciled in a U.S. state, he is a citizen or subject of the foreign state for diversity purposes.32
However, there is no diversity of citizenship between a citizen of a U.S. state and a permanent legal resident alien who is domiciled in the same state.33 At first blush, the effect of the rule may seem to be no different than state citizenship for the alien in the state of domicile.
Nothing in this provision, however, states that an alien is a citizen of his state of domicile, which would affect the operation of the forum state defendant rule, discussed in Section 27-3:4. A permanent legal resident alien domiciled in the forum state would not be a forum state defendant for purposes of removal because he is not a citizen of the forum state, even though there would be no diversity between the alien and another citizen of the forum state.
The legal representative of the estate of a decedent, a minor or an incompetent is deemed to be a citizen only of the same state as the decedent, minor or incompetent.34
The representative's citizenship therefore is the result of the test described above but as applied to the decedent, minor or incompetent. This rule prevents parties from manufacturing or destroying diversity through the selection of the nominal party who represents the estate, minor or incompetent.
A natural person who is a U.S. citizen and who is domiciled outside of the United States is neither an alien nor a citizen of a state.35 These American expatriates cannot sue or be sued in federal court on diversity grounds.36
27-3:3.2 Citizenship for Corporations
Corporations are citizens of every state or nation in which they are incorporated and of the state or nation in which it has its principal place of business.37 This test routinely results in the corporation being a citizen of multiple jurisdictions—at least one based on its place(s) of incorporation and one based on its principal place of business.
The "nerve" test determines the corporation's principal place of business.38 The corporation's principal place of business is the location of "the place where the corporation maintains its headquarters," which is the "actual center of direction, control, and coordination."39 The "nerve center" is "not simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion)."40
A different test for citizenship applies to insurers (whether or not incorporated) in direct actions on a liability insurance policy where the insured is not a party. In such actions, the insurer is deemed a citizen of (1) every state and foreign state of which the insured is a citizen; (2) all states and nations in which the insurer is incorporated; and (3) the state or foreign state in which the insurer has its principal place of busi-ness.41
27-3:3.3 Citizenship for Unincorporated Business Entities
Congress has not created a test for unincorporated business entities—such as LLCs, LLPs, LPs and partnerships—except in class actions and mass actions under the Class Action Fairness Act.42 In all other cases, there is no test for citizenship for unincorporated business entities.43 Despite acknowledging problems that would result from its decision, the United States Supreme Court refused to create such a test as a matter of common law.44
The result of this inaction on the part of Congress and the U.S. Supreme Court is that unincorporated business entities share citizenship with all of their members, be they partners, general partners or limited partners.45
27-3:3.4 Citizenship Determined at the Time the Complaint Is Filed
The time-of-filing rule provides that the citizenship of the parties is determined based on the facts as they exist at the time the complaint is filed.46 Thus, if the parties are completely diverse at the time of filing, a post-complaint change of citizenship will not deprive the court of jurisdiction.47 Similarly, once diversity jurisdiction is established, the post-complaint addition of a non-diverse party will not deprive the court of subject matter jurisdiction,48 at least where the additional non-diverse part was not an indispensable party at the time the complaint was filed.49 Conversely, where the parties are not completely diverse at the time of filing, a post-complaint change of citizenship will not cure the defect.50
One exception to the time of filing rule is found in the Supreme Court's Caterpillar, Inc. v. Lewis decision.51 The case was removed to federal court while a diversity destroying defendant was still a party to the suit. Plaintiff's motion to remand was denied by the trial court.52 Following removal, the diversity-destroying defendant was dropped from the case following settlement.53 The case proceeded to trial and judgment for the defendant.54 The Supreme Court held that, though diversity did not exist at the time of filing nor at the time of removal, the dismissal of the diversity destroying defendant meant that subject matter jurisdiction existed at the time of judgment and that following a full trial on the merits "considerations of finality, efficiency, and economy become overwhelming."55 Despite Caterpillar, a party's change in citizenship (as opposed to a change in party) cannot cure a...
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