Recent Court of Appeals case confirms need for careful analysis of jurisdiction when litigating in Federal Court.

Byline: Ali Teske

While state courts generally can hear almost any legal matter, federal courts are courts of limited jurisdiction. Litigating civil cases in federal court is usually permitted only when one of two conditions is met: (1) the case involves a federal law, regulation, treaty or the U.S. Constitution (which the courts refer to as a "federal question"); or (2) there is complete "diversity of jurisdiction" among the parties, and the amount in dispute exceeds $75,000.

The concept of "diversity jurisdiction" dates back to colonial times. In the late 18th century, the founders of our legal system were concerned that out-of-state defendants might get "home-turfed" by state court systems. After all, the U.S. started as a loose coalition of thirteen colonies that only gradually evolved into a strong united nation. To protect against local abuse, the founders created the concept of diversity jurisdiction, which permits an out-of-state defendant to transfer or "remove" an action from state court to federal court, as long as the plaintiff and defendant are residents of different states. Under the same principle, a plaintiff can bring an action in federal court in the first instance as long as the plaintiff and the defendant are residents of different states, and the case involves at least $75,000 in dispute.

Currently, more than two-thirds of civil cases are brought in federal jurisdiction, these cases could not be litigated in federal courts. A recent case from the Seventh Circuit Court of Appeals details an important variable in determining a company's access to the federal court system.

In 1989, the U.S. Supreme Court determined that a U.S. citizen who is "domiciled" abroad (meaning that person resides outside the U.S. and intends to remain outside the U.S. indefinitely) is not the citizen of any U.S. state, but rather is considered "stateless." The Supreme Court also ruled that a "stateless" person cannot be sued under a theory of diversity jurisdiction. The idea is that a plaintiff from Georgia and a defendant who is a U.S. citizen domiciled in Scotland are not citizens of different states, because the U.S. citizen domiciled in Scotland is not the citizen of any state at all.

It is unusual for federal litigation to be initiated against a U.S. citizen living abroad, so the issue did not come up very often. However, the U.S. Supreme Court subsequently ruled that, for diversity jurisdiction purposes, a partnership has the citizenship of...

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