Trial Practice and Procedure - John O'shea Sullivan and Ashby L. Kent

• Publication year: 2006

Trial Practice and Procedureby John O'Shea Sullivan^* and Ashby L. Kent^**

I. Introduction

The 2005 survey period yielded several noteworthy decisions relating to federal trial practice and procedure, many of which concerned issues of first impression in the Eleventh Circuit Court of Appeals. This Article analyzes several recent developments in the Eleventh circuit, including significant rulings in the areas of arbitration, civil procedure, statutory interpretation, personal jurisdiction, subject matter jurisdiction, and other issues of interest to the trial practitioner.

II. Jurisdiction

A. Exercise of Supplemental Jurisdiction in Diversity Actions Over Plaintiffs Whose Claims Do Not Meet the Statutory Amount in Controversy Requirement

The consolidated appeals in Exxon Mobil Corp. v. Allapattah Services, Inc.¹ came before the United States Supreme Court on writs of certiorari from the First and Eleventh Circuit Courts of Appeal, and required the Court to determine whether federal courts in diversity actions may exercise supplemental jurisdiction under 28 U.S.C. Sec. 13 67² over additional plaintiffs whose claims do not meet the amount in controversy requirement, even if their claims are part of the same case as plaintiffs whose claims do exceed the statutory minimum.³

In Allapattah Services, Inc. v. Exxon Mobil Corp.,⁴ the Eleventh Circuit upheld the exercise of supplemental jurisdiction over class members whose claims did not meet the statutory minimum, as long as the district court had original jurisdiction over the claims of at least one class representative.⁵ However, in Ortega v. Star-Kist Foods, Inc.,⁶ the First Circuit held that Sec. 1367 authorizes supplemental jurisdiction only when the district court has original jurisdiction over the entire action, and that original jurisdiction was lacking in a diversity case if even one plaintiff failed to satisfy the amount in controversy requirement.⁷ Affirming the Eleventh Circuit's holding, the majority concluded that where the other elements of jurisdiction are present and at least one named plaintiff satisfies the amount in controversy requirement, section 1367 authorizes supplemental jurisdiction over the claims of other plaintiffs in the same case, even if their claims were for less than the jurisdictional amount.⁸

The Court first cited the longstanding principle that "once a court has original jurisdiction over some claims in the action, it may exercise supplemental jurisdiction over additional claims that are part of the same case or controversy."⁹ Before the enactment of section 1367, the Court held in Clark v. Paul Grey, Inc.¹⁰ that every plaintiff in a diversity action must separately satisfy the amount in controversy requirement in order for federal subject matter jurisdiction to exist.¹¹ The Court reaffirmed this rule in the class action context in Zahn v. International Paper,¹² holding that "any plaintiff without the jurisdic- tional amount must be dismissed from the case, even though others allege jurisdictionally sufficient claims."¹³ However, in Finley v. United States,¹⁴ the Court held that "a grant of jurisdiction over claims involving particular parties does not itself confer jurisdiction over additional claims by or against different parties."¹⁵ In sum, before section 1367 was enacted the Court had consistently held that if the district court had original jurisdiction over at least one claim, then the existing jurisdictional statutes implicitly authorized supplemental jurisdiction over all other claims between the same parties arising out of the same case or controversy.¹⁶ But the statutes did not authorize supplemental jurisdiction over additional claims involving other parties.¹⁷

Congress enacted section 1367 in 1990 and "[all] parties to this litigation and all courts to consider the question agree that section 1367 overturned the result in Finley."¹⁸ Section 1367 was meant to confer a broad grant of supplemental jurisdiction that would extend to claims concerning joinder or intervention of additional parties, as well as additional claims.¹⁹ Thus, the question before the Court in Exxon was whether federal courts have original jurisdiction over diversity cases in which the claims of some, but not all, plaintiffs satisfy the amount in controversy requirement.²⁰

The majority first noted that if a district court has original jurisdiction over a single claim in the complaint, it has original jurisdiction over the entire civil action.²¹ The majority dismissed the "indivisibility theory," which stated that all claims in the complaint must stand or fall as a single, indivisible civil action, as well as the "contamination theory," which stated that the inclusion of a claim or party falling outside the district court's original jurisdiction contaminated every other claim in the complaint so as to deprive the court of jurisdiction altogether.²² The majority dismissed these theories as inconsistent with the purpose of supplemental jurisdiction, which would be unnecessary if a district court was required to have original jurisdiction over every claim in the complaint.²³ Thus, the majority held that district courts have original jurisdiction over actions containing multiple claims that are all part of the same case or controversy, even if some of the claims are not within the court's original jurisdiction.²⁴ Thus, district courts have diversity jurisdiction in cases where some, but not all, of the plaintiffs allege a sufficient amount in controversy.²⁵ As a result, the majority determined that section 1367 unambiguously overruled Clark, Zahn, and Finley and authorized supplemental jurisdiction over all claims by diverse parties arising out of the same case or controversy.²⁶ Noting that this holding was supported by section 1367's plain text, the majority saw no need to look to other interpretive tools, such as the legislative history behind the enactment of the statute.²⁷

Dissenting, Justice Ginsburg, while agreeing that section 1367 was designed to overturn Finley, criticized the majority's expansive interpretation of the statue to overrule the pre-Finley holdings in Clark and Zhan.²⁸ The dissent reasoned that by overruling Clark and Zhan, the majority opened the door for co-plaintiffs or class members to easily circumvent the amount in controversy requirement and gain access to federal courts despite having jurisdictionally insufficient claims.²⁹ Justice Ginsburg noted that a narrower construction of section 1367 was consistent with the Court's prior holdings in multi-party cases, including class actions, which had "unyieldingly adhered to the nonaggregation rule" requiring each plaintiff to independently meet the amount in controversy requirement.³⁰

Justice Stevens joined in Justice Ginsburg's dissent, but wrote separately to criticize the majority's refusal to consider the legislative history of section 1367.³¹ Justice Stevens cited language from House Reports that expressly stated that section 1367 was not intended to upset the holdings in Zhan and Clark, and actually was meant to preserve and codify the "pre-Finley understandings of the authorization for and limits on other forms of supplemental jurisdiction."³² Because the House Report explicitly rejected a broad reading of section 1367, Justice Stevens opined that the "sweeping purpose that the Court's decision imputes to Congress bears no resemblance to the House Report's description of the statute."³³

B. Citizenship of Corporations for Purposes of Diversity Jurisdiction

In MacGinnitie v. Hobbs Group, LLC,³⁴ the Eleventh Circuit held, as a matter of first impression, that its "total activities" test for determining a corporation's principal place of business for diversity purposes also applied to determine the citizenship of a defendant corporation that once operated in the same state as the plaintiff, but had since been purchased by and integrated into an out-of-state corporation.³⁵ The court further concluded that where the defendant corporation's principal place of business was in the same state as the purchasing corporation, complete diversity of citizenship exists in a suit against the defendant corporation by a citizen of the corporation's former home state.³⁶

In 1998 Defendant/Appellee Hobbs Group, LLC ("Hobbs"), an insurance brokerage firm, hired plaintiff Douglas J. MacGinnitie ("MacGinnitie") as its senior vice president and general counsel. Hobbs was a Delaware corporation that maintained its principal place of business in Georgia until 2002. Defendant Hilb, Rogal and Hobbs Company ("HRH"), also an insurance brokerage firm, purchased Hobbs in 2002. HRH was incorporated and had its principal place of business in Virginia.³⁷

After MacGinnitie resigned from HRH in September 2003, he and a partner opened a competing insurance brokerage business. MacGinnitie then filed an action in Georgia state court arising out of certain restrictive covenants in his employment agreement with Hobbs, seeking declaratory and injunctive relief. The defendants removed the case on the grounds of diversity jurisdiction. MacGinnitie filed a motion for remand, which the district court denied. MacGinnitie appealed, arguing that complete diversity of citizenship did not exist at the time his complaint was filed. MacGinnitie, a Georgia citizen, contended that Hobbs' principal place of business was in Georgia at the time suit was filed because Hobbs was an "inactive" corporation, and the principal place of business of an inactive corporation remains the same as its last principal place of business while the corporation was still active.³⁸

Acknowledging that the question of an inactive corporation's principal place of business was an issue of first impression in the Eleventh Circuit, the court concluded that it need not reach that issue because the "existing total activities test is sufficient to resolve the question before us."³⁹ Under the total activities test, if a corporation conducts the...