Don't get thrown out on your derriere: common mistakes in establishing federal subject-matter jurisdiction.

Author:Brundage, Robert A.
 
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IN federal court, subject-matter jurisdiction is a magic bullet. Jurisdictional problems are particularly pernicious (to the verdict winner) or useful (to the verdict loser) because they can never be waived, the court must address any potential jurisdictional defect it notices, and an incurable jurisdictional defect requires the judgment to be thrown out. We review some common defects in federal subject-matter jurisdiction and potential ways to fix them. (1)

  1. Why Defects In Subject-Matter Jurisdiction Can Destroy Your Victory (Or Save You From Defeat)

    "Federal courts are courts of limited jurisdiction [,]" possessing "only that power authorized by Constitution and statute...." (2) At every stage of litigation, a federal court is required to confirm that it has jurisdiction, and to dismiss the claim if it lacks jurisdiction. (3) A court generally may not rule on the merits of a case without first determining that it has subject-matter jurisdiction. (4) If it appears that the court lacks subject-matter jurisdiction, it must dismiss the action. (5)

    This rule holds even after final judgment has been entered and an appeal filed. A federal appellate court is required to evaluate both its own jurisdiction and that of the district court. If the district court lacked jurisdiction, the appellate court must vacate the judgment:

    [E]very federal appellate court has a special obligation to satisfy itself not only of its own jurisdiction, but also that of the lower courts in a cause under review, even though the parties are prepared to concede it. And if the record discloses that the lower court was without jurisdiction this court will notice the defect, although the parties make no contention concerning it. When the lower federal court lacks jurisdiction, we have jurisdiction on appeal, not of the merits but merely for the purpose of correcting the error of the lower court in entertaining the suit. (6) "A litigant generally may raise a court's lack of subject-matter jurisdiction at any time in the same civil action, even initially at the highest appellate instance." (7) Even if a jurisdictional defect is first discovered after trial or after judgment has been entered, it requires the case to be dismissed. (8) Jurisdiction cannot be created by consent or estoppel, or by '"the parties' litigation conduct.'" (9) Even a party that initially brought the case to federal court can attack jurisdiction. (10)

    Federal district courts and courts of appeals take these requirements seriously. Federal Rule of Appellate Procedure 28(a)(4) requires appellants to explain why the district court and court of appeals have subject-matter jurisdiction. Many district courts and courts of appeals instruct their staff to confirm the court's subject-matter jurisdiction at the inception of a case. Indeed, it is not uncommon for a district court or court of appeals to issue a sua sponte order requiring the parties to explain why there is subject-matter jurisdiction, even when no one disputes it.

    Meticulous attention to the jurisdictional requirements is therefore critical. We outline some common pitfalls in pleading and establishing both diversity and federal subject-matter jurisdiction, and describe some ways to fix them.

  2. Diversity Jurisdiction

    1. Background

      Article III of the U.S. Constitution provides that the judicial power of the United States extends to, inter alia, controversies "between citizens of different states" and "between a state, or citizens thereof, and foreign states, citizens or subjects." (11) Pursuant to this provision, the diversity statute, 28 U.S.C. [sections] 1332, grants federal courts jurisdiction over suits in which the amount in controversy exceeds $75,000 and the dispute is between (a) citizens of different states, (b) citizens of a state and citizens or subjects of a foreign country (excluding lawful permanent residents domiciled in the same state), (c) citizens of different states in which citizens or subjects of foreign countries are additional parties, or (d) a foreign state as plaintiff and citizens of a state or of different states. (12)

      The general diversity statute is interpreted to require that every plaintiff be a citizen of a different state from every defendant. (13) This requirement is known as "complete diversity." Under the general diversity statute, the presence of even one non-diverse party destroys diversity jurisdiction. (14)

      These requirements give rise to a variety of common traps for the unwary.

    2. Common Mistakes

  3. Alleging Residency Instead Of Citizenship

    Section 1332 grants jurisdiction over controversies between "citizens" of different states (or, in some instances, "citizens or subjects" of foreign countries). But parties trying to invoke federal jurisdiction frequently allege residency instead of citizenship. Allegations of residency are insufficient.

    "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."(15) Domicile requires not just residence, but intent to reside there permanently or indefinitely. (16)

    Because residence is not the same thing as domicile, the complaint or notice of removal must allege citizenship, not residence. (17) "When it comes to diversity jurisdiction, the words 'resident' and 'citizen' are not interchangeable" and the allegation that a party is a "resident" of a state is insufficient. (18)

    Some courts cut this distinction exceedingly fine. The Eighth Circuit, for example, holds that "resides" is sufficient to allege citizenship even though "resident" is not. (19)

    1. Alleging That A Party Is Not A Citizen Of The Same State As The Adverse Party

      Ordinarily, a complaint or notice of removal must affirmatively allege each party's citizenship. It is normally not sufficient to allege that a party is not a citizen of the same state as the adverse party. (20)

      Alleging that the party is not a citizen of a specific state does not establish diversity because the party might not be a citizen of any state or foreign country. (21)

      Some courts of appeals are beginning to chip away at this rule. For example, the Third Circuit holds that if a plaintiff cannot determine the defendant's citizenship after reasonable inquiry, the plaintiff may satisfy the diversity requirement by alleging that the defendant is not a citizen of the same state as plaintiff." (22)

    2. Failing To Allege a Corporation's State Of Incorporation And Principal Place Of Business

      In general, a corporation is a citizen of every state or foreign country by which it has been incorporated, as well as the state or foreign country in which it has its principal place of business. (23) Thus, [i]n order to adequately establish diversity jurisdiction, a complaint must set forth with specificity a corporate party's state of incorporation and its principal place of business'"; failure to do so makes the complaint "'inadequate to establish diversity. (24)

      The principal place of business is "where a corporation's officers direct, control, and coordinate the corporation's activities[,]" i.e., the "nerve center." (25) "[I]n practice it should normally be the place where the corporation maintains its headquarters--provided that the headquarters is the actual center of direction, control, and coordination, i.e., the 'nerve center,' and 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)." (26)

    3. Failing To Allege Citizenship Of All Members Of Artificial Entity Other Than A Corporation

      An unincorporated association is a citizen of every state where any of its members are citizens. (27) This rule applies to many important forms of enterprise organization such as limited liability companies, (28) partnerships, (29) and unincorporated labor unions. (30) To allege diversity, the complaint or notice of removal must allege the citizenship of all the association's members. (31) Further, since the citizenship of such an entity is determined by the citizenship of all of its members, "all of the LLC's [or other unincorporated association's] members 'must be diverse from all parties on the opposing side.'" (32)

      The Supreme Court recently reaffirmed these basic principles in a case involving a real estate investment trust organized under Maryland law. In Americold Realty Trust v. Conagra Foods, Inc.,33 the Court explained once again that an unincorporated entity possesses the citizenship of all its members. Thus, the particular trust at issue, which had been sued in its own name, took the citizenship of all its members. Had the plaintiffs sued the trustees in their own names rather than the trust, however, the trustees' citizenship would have been all that mattered for diversity purposes. (34)

      Because the form of a business significantly impacts the required jurisdictional showing, it is important to be clear about what kind of entity is named in a complaint. In Tuck v. United Services Automobile Association, (35) the parties incorrectly believed in the trial court that the defendant insurer was a corporation. Thus it would have been a citizen only of its states of incorporation and principal place of business. On appeal, it was discovered that the insurer was an unincorporated association, making it a citizen of every state where any of its members is a citizen. Worse, one member was a citizen of the same state as plaintiff--destroying diversity. The court of appeals remanded to determine whether there was a way to amend the complaint to eliminate non-diverse parties. It directed the district court to consider whether to sanction defense counsel for allowing the action to proceed when they should have known the parties were not diverse.

    4. Naming A State Or State Agency As A Party

      "[A] State is not a 'citizen' for purposes of [] diversity jurisdiction." (36) A government agency that is an "arm or alter...

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