Limited Jurisdiction of Federal Courts
U.S. Constitution, Article III, § 2
The judicial power shall extend to all cases, in law and equity, arising under this Constitution, the laws of the United States, and treaties made, or which shall be made, under their authority;–to all cases affecting ambassadors, other public ministers and consuls;–to all cases of admiralty and maritime jurisdiction;–to controversies to which the United States shall be a party;–to controversies between two or more states;–between a state and citizens of another state;–between citizens of different states;–between citizens of the same state claiming lands under grants of different states, and between a state, or the citizens thereof, and foreign states, citizens or subjects.
The Constitution defines the outer limits of federal court jurisdiction. It is up to Congress to decide how much of that jurisdiction the federal courts may actually exercise. Statutory grants of jurisdiction may by narrower than what the Constitution permits.
Constitutional & Statutory Basis
Article III, § 2
- Diversity: “between Citizens of different states”
- Alienage: U.S. state/citizen v. foreign state/citizen
28 USC § 1332
- “between citizens of different states”
- “matter in controversy exceeds the sum or value of $75,000”
Citizenship is determined at the time of filing.
- Subsequent changes in citizenship don’t matter
- Statutory requirement for jurisdiction under § 1332
- The statute doesn’t actually say this, but the Supreme Court has interpreted it that way. Strawbridge v. Curtiss, 7 U.S. 267 (1806)
- Minimal diversity (i.e. at least one plaintiff and one defendant must be citizens of different states)
- Special rules for class actions.
- If the total amount in controversy exceeds $5 million, diversity jurisdiction requires only that at least one member (named or unnamed) of the plaintiff class is a citizen of a different state from at least one defendant. § 1332(d)(2)(B) (“Class Action Fairness Act”).
- In other class actions, only the citizenship of the named plaintiffs counts.
Determining state of citizenship
- Residence + intent to remain/return indefinitely
- Indefinitely doesn’t mean forever, just no present intent to leave and remain somewhere else
- Once domicile is established, it remains unchanged, even if person changes their mind about intending to remain, until the person actually moves elsewhere with an intent to remain
- exercise of civil & political rights
- payment of taxes
- ownership of real & personal property
- possession of driver’s and other licenses
- maintenance of bank accounts
- membership in clubs, churches, etc.
- maintenance of home
- Party’s statement of intent is relevant, but gets little weight against contrary objective facts
- State of incorporation and principal place of business
- Principal place of business=“nerve center”. Hertz Corp. v. Friend (US 2010)
- Every state where members are citizens
- Unincorporated associations include businesses organized as partnerships, labor unions, and other membership organizations that are not incorporated.
Mas v. Perry, 489 F.2d 1396 (5th Cir. 1974)
- Defendant was citizen of Louisiana
- Plaintiffs were married couple
- Husband was French citizen
- At time of case, § 1332 did not include current provision treating lawful permanent residents as citizens of state of domicile
- Wife was US citizen, originally from Mississippi
- Couple lived in Louisiana while students
- Moved to Illinois
- Stated intent to return to Louisiana while husband finished degree
- No definite intent where to go after that
Holding & Analysis
- Wife is citizen of Mississippi
- Court rejects notion that wife share’s husband’s domicile
- If her domicile was in France, but she remained a US citizen, she would be neither a citizen of a state nor a citizen of a foreign state, and therefore could not sue in federal court based on diversity or alienage
- Court finds wife did not establish domicile in Louisiana, where she lived as a student without establishing the requisite intent to remain
Friedrich v. Davis, 989 F. Supp. 2d 440 (E.D. Pa. 2013)
- Plaintiff sued under state law for injury allegedly caused by defendant
- Plaintiff brought suit in federal court, based on diversity of citizenship
- Plaintiff asserted she was citizen of Ohio and defendant was citizen of Pennsylvania
- Whether defendant, a U.S. citizen living in Germany, was a citizen of Pennsylvania for purposes of diversity jurisdiction
- Court lacks diversity jurisdiction, where defendant is domiciled in Germany, not Pennsylvania, and therefore not a citizen of any state for diversity purposes
- Court reviewed evidence bearing on defendant’s intent, and concluded that, on balance, it indicated intent to remain in Germany
- A U.S. citizen domiciled abroad has no state of citizenship for diversity purposes. Consequently, suit is not “between citizens of different states”
- Also not a suit between a citizen of a state and a citizen of a foreign state, because defendant is a U.S. citizen, not a German citizen
- Coury v. Prot (5th Cir. 1996) (holding diversity jurisdiction proper in case between US citizen domiciled in CA & dual US/French citizen domiciled in Texas; consensus is to consider only US citizenship for dual citizen)
Business incorporated in US but with principal place of business outside US
- MAS Capital v. Biodelivery Svcs Int’l (7th Cir 2008) (Ignore foreign HQ)
Involuntary change in domicile
- Children under guardianship
Assignment of interest
- D-MA owes debt to P-MA. P-MA assigns interest to A-NJ.
- Does it matter if the assignment is bona fide for value
- What if P-MA retains interest in A-NJ’s recovery?
Amount in Controversy
Greater than $75k
- Determined at outset of lawsuit, from face of the complaint
- Doesn’t matter if plaintiff ultimately recovers less
- The amount must be legally recoverable
- Punitive and other special damages may count
- if law provides for recovery
- if amount would not be so excessive as to be subject to certain reduction under Due Process clause
- Attorney fees may count
- if statute or contract provides for recovery
- Interest and costs are normally excluded
- Some special exceptions (not important for this course)
Single P v. Single D
- Amount in controversy is based on the total amount of D’s potential liability to P
- P sues D and asserts three claims:
- Breach of contract for $30,000
- Personal injury for $30,000
- Damage to property for $30,000
- The amount in controversy between P & D is $90,000
- It doesn’t matter whether P’s claims arise from the same or distinct transactions or occurrences
Multiple Ps v. Single D
No aggregation of separate plaintiffs’ claims:
- Example: P1 & P2 sue D in the same action, and each plaintiff seeks $50,000 in damages
- The amount in controversy requirement is not satisfied
- At least one P must individually satisfy the amount
- Court may then exercise supplemental jurisdiction over claims by additional Ps whose claims against P arise out of the same transaction or occurrence, without regard to amount. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546 (2005)
- Where multiple plaintiffs claim a joint interest in the same property, the full value of the property applies to each plaintiff for purposes of the amount in controversy
- Example: A & B sue C to recover a painting that A & B jointly own. The painting is worth $100,000.
- Each plaintiff satisfies the amount in controversy.
- Example: A & B bring a quiet title action against C, regarding a parcel of real estate valued at $100,000.
- Each plaintiff satisfies the amount in controversy.
Single P v. Multiple Ds
No aggregation of claims against multiple defendants.
- Amount in controversy is based on each defendant’s own liability to plaintiff
- This will depend on whether the substantive law (e.g. tort, contract, etc.) imposes liability on defendants separately, alternatively, or jointly & severally:
Separate Liability: Each D is liable only for their individual obligations to P
- Example: P hires D1 (carpenter) & D2 (roofer) to build a house. P sues D1 and D2 (in the same action), alleging that each of them failed to complete their work as specified in their contracts with P.
- P seeks $50,000 in damages against D1 and $30,000 in damages against D2 (alleging that these are the amounts it will cost to fix the deficient work of each defendant).
- The amount in controversy requirement is not satisfied at all.
- Example: Same as above, but P seeks $76,000 in damages against D1 and $30,000 against D2
- The amount in controversy requirement is satisfied for D1, but not for D2
- It’s unclear whether the court may exercise supplemental jurisdiction over the claim against D2 (assuming the “same case or controversy”/CNOF requirement is satisfied)
- Where the sole basis for federal jurisdiction over any claim is diversity, § 1367(b) prohibits supplemental jurisdiction over a claim by a plaintiff against a person joined as a co-defendant under Rule 20, if doing so would be inconsistent with the jurisdictional requirements of § 1332.
- A strict reading of the statute would suggest that this means the claim against the Rule 20 co-defendant must satisfy both complete diversity and the amount in controversy requirement.
- But that reading would make the last clause of § 1367(b) superfluous (i.e. because if both requirements of § 1332 are satisfied, then there would be no need for supplemental jurisdiction anyway).
- The Supreme Court has not addressed this question.
Alternative Liability: P alleges that either D1 or D2 is liable.
- Example: Summers, Tice, and Simonson are hunting. Tice & Simonson both fire their guns at the same time, and a pellet hits Summers in the eye. Summers isn’t sure whose gun the pellet came from, so he sues both Tice & Simonson, alleging that one of them was at fault. He seeks a $80,000 in damages.
- The amount in controversy requirement is satisfied for both defendants, because either of them may be liable for the full $80,000
Joint/Joint & Several Liability: Each defendant is liable for the same obligation and P may collect the full amount from any one of them.
- Example: P sues D1 (manufacturer) and D2 (retailer) for injuries resulting from defective product, seeking total of $80,000 in damages.
- If the applicable state law imposes joint & several liability, then the amount in controversy requirement is satisfied for both defendants.
- Example: P lends $100,000 to D1 and D2 guarantees repayment. After D1 defaults and D2 refuses to pay, P sues D1 & D2.
- The amount in controversy requirement is satisfied for both defendants, because each is liable for the full $100,000
Harshey v. Advanced Bionics Corp. (S.D. Ind. 2009)
- After defendants removed suit to federal court based on diversity, plaintiffs filed stipulations stating that none of them sought recovery exceeding $75,000
- Defendants, as parties asserting diversity jurisdiction, have burden of showing jurisdiction is proper
- Court says defendants failed to produce sufficient evidence to show that any plaintiff’s claims were worth more than $75,000
Carroll v. Stryker Corp., 658 F.3d 675 (7th Cir. 2011)
- Plaintiff sued in state court asserting statutory and equitable claims for unpaid wages
- Defendant removed to federal court and moved for summary judgment, which trial court granted
- Court of Appeals questioned whether amount in controversy exceeded $75,000
- Court raised issue sua sponte
- Court found, based on evidence of Plaintiff’s demands and settlement offers, that plaintiff sought more than $75,000 in lost salary/commissions
Federal Question Jurisdiction
Article III, § 2
… all Cases … arising under this Constitution, the Laws of the United States, and Treaties made … under their Authority
Osborn v. Bank of the United States (US 1824)
Facts & Procedural History:
- Congress established the Second Bank of the United States by statute
- State of Ohio passed a law imposing a tax on Bank.
- After state auditor seized money from a branch of Bank, Bank sued in federal Circuit Court (then the lowest level of federal court, equivalent to U.S. District Court today), seeking return of the money.
- Trial court ruled in favor of Bank, holding that state’s imposition of tax on federally-chartered Bank was unconstitutional.
- Whether the statute establishing Bank granted federal courts jurisdiction over any case in which Bank was a party
- If so, whether statutory grant of jurisdiction was valid under Art. III, § 2
Analysis & Holding
- Statutory provision authorizing Bank “to sue and be sued … in any Circuit Court of the United States” was intended as a grant of jurisdiction
- N.B. At this time, Congress had not enacted a general “federal question” statute
- Statutory grant is valid only if within scope of Art. III, § 2
- Constitution authorizes jurisdiction over any case “arising under” federal law
- N.B. Constitutional jurisdiction over cases in which “the United States” is a party did not apply, because Bank was not “the United States”, but a private corporation chartered by federal statute
- Since Bank is created under federal statute, its capacity to sue and be sued, to enter into contracts, etc. is inherently “an original ingredient in every cause” to which the Bank is a party.
- It doesn’t matter how that issue arises or even whether it is actually disputed in the case
- The fact that a case involves a mix of state and federal questions does not deprive federal courts of jurisdiction under Art. III, § 2
- As long as there is some federal “ingredient”, Art. III, § 2 permits federal courts to take jurisdiction over the whole case
Federal Question Statute
28 USC § 1331
The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.
Louisville & Nashville RR v. Mottley (US 1908)
- When does a case “arise under” federal law for purposes of § 1331 (not Art. III, § 2)?
Facts & Procedural History
- Mottleys (citizens of KY) were injured while riding a train operated by the L&N (citizen of KY). To settle their personal injury claim, the RR gave them lifetime passes for free travel.
- Congress subsequently passed a law prohibiting RRs from giving free passage (anti-corruption measure)
- RR then refused to honor the Mottleys passes, saying they were prohibited from honoring them under federal law.
- Mottleys sued in federal court for breach of contract
Analysis and Holding
- Breach of contract claim arose under Kentucky law
- No diversity of citizenship between the parties (both KY)
- Breach of contract claim under KY law did not entail any issue of federal law (e.g. validity of the passes).
- Validity of passes arose only as a defense by L&N.
- That’s not sufficient to satisfy statutory requirement that the case “arise under” federal law
- Jurisdiction under § 1331 must be determined solely with reference to the face of a “well-pleaded complaint”
- Court relies on rules of Pleading & Defenses (code pleading)
- Complaint should be limited to alleging the necessary elements (and supporting facts) of plaintiffs’ claims
- These are controlled by the law giving rise to the cause of action, in this case, state contract law
- Defendant then answers the complaint
- May deny elements of plaintiffs’ prima facie case
- May assert affirmative defenses
- Affirmative defenses say “even if plaintiff proves their prima facie case, I’m not liable for some other reason”
- Example: Illegality of a contract
- Defendant has burden as to affirmative defenses
- Governing substantive law determines whether to allocate burden to plaintiff, as element of claim, or to defendant, as affirmative defense
- What if applicable state law required plaintiff, in breach of contract case, to plead and prove legality of the contract as an element of the claim?
- See “essential federal element” cases, below.
Following the Supreme Court’s decision, the Mottleys filed a new suit in Kentucky state court, which ruled in favor of the Mottleys and ordered the Railroad to continue honoring the free passes. The Kentucky Court of Appeals (at that time the state’s highest court), concluding that the 1906 federal statute did not nullify the existing contract between the Mottleys and the Railroad, affirmed the judgment. Louisville & Nashville R. Co. v. Mottley, 133 Ky. 652 (1909).
The Railroad again appealed to the U.S. Supreme Court. The issue on appeal was whether the Kentucky court erred in holding that the 1906 federal statute did not apply to the contract. Louisville & Nashville R. Co. v. Mottley, 219 US 467 (1911). The case thus fell within the Court’s appellate jurisdiction over cases involving the interpretation or validity of federal law. Unlike the original jurisdiction of the U.S. District Court’s under § 1331, the Supreme Court’s appellate jurisdiction over cases involving a federal question does not depend on whether that issue arose as part of the plaintiff’s claim or as part of a defense.
This time, the Court held that the 1906 statute did apply to the Mottleys’ free passes. Because the Kentucky court’s judgment—which ordered specific performance of the contractual promise of free transportation—conflicted with federal law, the Court reversed. The Court raised the possibility that on remand the Mottleys might still obtain some remedy from the state court:
Whether, without enforcing the contract in suit, the defendants in error may, by some form of proceeding against the railroad company, recover or restore the rights they had when the railroad collision occurred is a question not before us, and we express no opinion on it.
219 U.S. at 272. It is not clear what, if anything, happened next.
Effect of Mottley
- Term “arising under” has narrower meaning in sec. 1331 than in Art. III, § 2
- Key Principles:
- Plaintiff is “master of the complaint”
- Federal question must appear on face of “well-pleaded complaint”
- Well-pleaded = sufficient to state a claim under applicable pleading standards and substantive law
- i.e. contains sufficient allegations to make out prima facie case given elements of claim
- Ignore anything that is not part of prima facie claim
Federal Pre-emption and Exclusive Jurisdiction
- Under the Supremacy Clause, U.S. Const. art. VI., § 2, a (constitutionally valid) federal law will displace a conflicting state law
- In some areas of strong federal power, federal law may completely pre-empt any state law even where there is no direct conflict.
- Example: The National Labor Rrelations Act (NLRA), enacted pursuant to the federal power to regulate interstate commerce, completely pre-empts all state laws governing labor-management relations (except for state “right-to-work” laws expressly permitted under Taft-Hartley). A plaintiff suing over an alleged violation of a collective bargaining agreement must sue under NLRA sec. 301, not a state-law breach of contract claim.
- A state-law claim that is pre-empted by federal law will not be “well-pleaded” and should be dismissed (usually with leave to file an amended complaint, or a new suit, asserting the appropriate federal claim).
- There is some disagreement over whether such a claim filed in state court may be removed to federal court, on the grounds that it really states a federal claim.
Exclusive federal jurisdiction
- In some instances, federal courts have exclusive original jurisdiction over federal law claims.
- If such claims are filed in state court, they must be dismissed for lack of subject matter jurisdiction. Dismissal is typically without prejudice, allowing the plaintiff to refile the federal claim in federal court, or to file an amended complaint asserting (non-preempted) state law claim.
- Example: Federal antitrust and patent claims.
- Exclusivity and complete pre-emption sometimes go hand in hand, but not always
- Example: Federal patent law completely preempts state law, and federal courts have exclusive jurisdiction over federal patent claims.
- Example: Federal antitrust law does not completely preempt state antitrust law, but federal courts have exclusive jurisdiction over federal antitrust claims
- Counterclaims to be covered as part of joinder
- Compulsory counterclaim: Any claim that the defendant has against plaintiff, arising out of the same transaction or occurrence as the plaintiff’s original claim
- Counterclaim arising under federal law does not make case removable based on federal question, if plaintiff’s original claim was not removable. Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc. (US 2002)
- Note that in Holmes Group, the counterclaim arose under the federal patent statute, over which federal courts have exclusive original jurisdiction (i.e. claims may not be brought in state court).
- To resolve that anomoly, Congress enacted a statute to clarify that patent claims (also plant variety & copyright claims) are removable, regardless of the posture in which they are asserted. 28 U.S.C. § 1454. But Holmes Group rule still applies to other federal law claims asserted as counterclaims (and crossclaims, etc.).
Essential Federal Element in a State-Law Claim
Smith v. Kansas City Title & Trust Co. (US 1921)
- Shareholder sues to enjoin Trust from investing in federal bonds, issued pursuant to the federal Farm Loan Act
- MO law prohibits trust from investing in unauthorized securities
- Invalidity of securities is an element of plaintiff’s claim
- Smith contended that the Farm Loan Act was unconstitutional, and the bonds therefore invalid
- Even though cause of action is created by MO law, the claim entails a necessary federal issue—constitutionality of the statute authorizing issuance of the bonds – that must be resolved to decide the claim
- Plaintiff’s “right to relief depends upon the construction or application of the Constitution or laws of the United States”
- Test should ask which law creates the cause of action
- Advantage: simpler to apply
Merrell Dow Pharm., Inc. v. Thompson (US 1986)
- Plaintiffs asserted state tort claims (strict liability, negligence, etc.) against Merrell Dow for birth defects allegedly caused by benedictin.
- Negligence claims alleged that Merrell Dow was negligent in failing to warn of the risk
- Plaintiffs alleged drug was mislabeled in violation of FDA regulations
- Under state law, violation of legal health or safety requirement is treated as negligence per se
- No federal question, based on state law incorporation of federal regulatory standard, where federal law does not provide for a private right of action, and where federal interest is insufficiently “substantial”
- Exercise of federal jurisdiction would undermine the express statutory scheme, providing for exclusive enforcement by FDA
- Federal interest in uniform interpretation of FDCA would not be adversely affected by inconsistent interpretations in the context of state tort claims
- Extending federal jurisdiction to such claims would effectively federalize a vast number of state product liability suits, disrupting the balance between the state and federal judicial systems
- Plaintiffs were merely using federal regulatory standard as evidence of what the standard of care under state law should be
- Plaintiffs were not themselves asserting any rights, nor seeking any remedy, under federal law itself.
- In this sense, federal law was not essential to their claim
Grable & Sons v. Darue Engineering (US 2005)
- IRS seized Grable’s property to satisfy a tax delinquency
- Grable had actual notice of the seizure and sale, but did not receive notice in the form specified under federal statute
- Grable brought state quiet title action against Darue, which bought the property in the IRS tax sale.
- Under state law, Grable was required to specify “the facts establishing the superiority of [its] claim” to the property
- Grable contended that the seizure and sale of his property were invalid, because IRS did not provide notice in the form specified by federal statute.
- The alleged invalidity of the seizure and sale was the sole basis for Grable’s claim that it was still the rightful owner of the property.
- Federal court has jurisdiction under sec. 1331 where state law claim “necessarily raise[s] a stated federal issue, actually disputed and substantial” and where exercise of federal jurisdiction will not “disturb[ ] any congressionally approved balance of federal and state judicial responsibilities”
- Is the meaning of federal statute an essential element of the state law claim?
- Is the meaning of the federal statute actually in dispute
- Is the meaning of the federal statute “an important issue of federal law that sensibly belongs in federal court” – i.e. strong federal government interest
- Merrell Dow distinguished:
- There, concern was opening the door to large number of routine state product liability claims based on violation of federal standard.
- Few quiet title claims will turn on a federal law issue, so permitting a federal forum for those rare claims won’t disturb the state-federal balance.
- Grable was relying on federal law to establish its rights to the property. Interpretation of federal law was essential to Grable’s claim, not merely an evidentiary reference point.
- Absence of private right of action under federal statute may be relevant to strength of federal interest, but it is not conclusive.
- Here, there’s a strong federal interest in uniform interpretation of the statute, which would be directly implicated by a decision in this case.
Empire Healthchoice Assurance v. McVeigh (US 2006)
- Federal statute authorized federal government employers to enter into contracts for employee health insurance coverage.
- Under the terms of the contract with Empire, the company was required to seek reimbursement from employees if they received payment from a third party for any covered injury.
- Employees are notified of this requirement, and are bound by it as beneficiaries to the insurance contract.
- Empire covered McVeigh’s medical expenses resulting from an injury.
- McVeigh brought a personal injury suit in state court, and eventually settled with the defendant.
- Empire sued McVeigh to recoup the amount it had paid for McVeigh’s medical expenses
- No federal question jurisdiction over Empire’s recoupment claim against covered employee.
- The federal statute authorized government employers to enter into insurance contracts, and provided for federal jurisdiction over any claims against the U.S. government arising from such contracts.
- But the statute did not say anything about carriers’ subrogation rights, and did not provide for federal jurisdiction in claims by carrier against covered employees.
- The reimbursement claim arose out of a private settlement of McVeigh’s state court personal injury suit, not from any government action.
Gunn v. Minton (US 2013)
Facts & Procedural History:
- Minton sued Gunn in Texas state court, asserting attorney malpractice claim based on Gunn’s handling of a patent infringement suit.
- Under state law, Minton had to plead and prove that Gunn’s conduct was negligent, and that Minton would have prevailed in the underlying patent suit, but for Gunn’s negligence.
- The court must conduct a “mini-trial” on the underlying patent issue
- Minton contended that Gunn negligently failed to raise an “experimental use” argument, and that Minton would have won if Gunn had not waived the argument.
- After losing in state court, Minton sought to get a do-over, by arguing that the state court lacked subject-matter jurisdiction, because federal courts have exclusive jurisdiction over patent infringement claims.
- If that’s correct, the state court judgment would be void, and plaintiff could refile in federal court
- N.B. This raises the matter of claim preclusion, which we will cover later in the course.
- Whether the federal court had exclusive original jurisdiction over the malpractice claim, based on the underlying patent issue.
Holding & Analysis
- No federal question jurisdiction, where federal issue arises only as part of the “mini trial” in an attorney malpractice claim
- Court applies the analysis in Grable
- Resolution of the underlying patent issue was necessary to resolution of the malpractice claim, and disputed by the parties.
- But the federal patent issue was not “substantial” in relation to the malpractice claim.
- “Substantial” refers to “importance of the issue to the federal system as a whole”
- Would allowing the state court to decide the patent issue here offend important interests of the federal system?
- In the malpractice case, the state court was not resolving an actual controversy under federal patent law (i.e. wasn’t determining the respective rights and liabilities of the parties to the patent dispute). Federal law arose only in a hypothetical sense (i.e. What if Gunn had raised the issue of experimental use?).
- While the patent issue was important to the parties in this case, it was not “substantial” from the perspective of the federal system as a whole, because no rights under federal patent law were actually at stake.
- “Balance of federal and state judicial responsibilities” tilts in favor of state court where the primary issue is attorney malpractice, a matter of traditional state concern.
28 USC § 1367
(a) Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.
(b) In any civil action of which the district courts have original jurisdiction founded solely on section 1332 of this title, the district courts shall not have supplemental jurisdiction under subsection (a) over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or over claims by persons proposed to be joined as plaintiffs under Rule 19 of such rules, or seeking to intervene as plaintiffs under Rule 24 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.
(c) The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if—
(1) the claim raises a novel or complex issue of State law,
(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has original jurisdiction, or
(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction
- A federal court must have subject matter jurisdiction over each claim in a suit.
- Where a suit includes both jurisdictional and non-jurisdictional claims, supplemental jurisdiction may allow a federal court to hear the entire suit.
Requirements: § 1367(a)
- Codifies the Gibbs test (“same case or controversy”)
- Congress adopted the statute to address the problem identified in Aldinger and Finley
- Permits exercise of supplemental jurisdiction, as long as there is some independent basis for original jurisdiction over the case
- Treats “pendant” and “ancillary” jurisdiction the same
- Permits supplemental jurisdiction over claims involving joinder of additional parties
- Supplemental jurisdictional claim(s) must be factually related to a jurisdictional claim.
- Example: Employee sues employer, alleging she was fired without cause, in violation of her employment contract, and on account of her religion, in violation of federal civil rights law. Employee and employer are citizens of the same state.
- A federal court would have federal question jurisdiction over the federal civil rights claim, but would have neither federal question nor diversity jurisdiction over the state-law contract claim on its own.
- The court may exercise supplemental jurisdiction over the contract claim, because it arises from the same set of facts (the firing) as the federal civil rights claim.
Limitations: § 1367(b)
- Restricts use of supplemental jurisdiction where diversity is the sole basis for federal subject matter jurisdiction.
- Prevent parties from using supplemental jurisdiction to evade the complete diversity requirement under § 1332 through clever joinder.
Application of § 1367(b)
- Applies only if diversity jurisdiction is the sole basis for the court’s original jurisdiction, and
- Applies only to claims by/against parties joined under certain rules (“yellow flag” claims):
- Claims by a plaintiff (i.e. someone who was initially named as a plaintiff in the original complaint) against persons joined under Rule 14, 19, 20, or 24
- Claims by persons joined as plaintiffs (i.e. after the original complaint) under Rule 19 or intervening as plaintiffs under Rule 24
- Court may not exercise Supplemental jurisdiction over such claims if doing so “would be inconsistent with the jurisdictional requirements of section 1332”
Supplemental Jurisdiction Over Counterclaims, Crossclaims, & Third-Party Claims
- Supplemental jurisdiction is always allowed over compulsory counterclaims and over crossclaims between co-defendants.
- Compulsory counterclaims and crossclaims arise from the same T/O as an existing claim against the claimant. See Rule 13(a) & (g).
- The federal courts are unanimous in agreeing that claims arising from the same T/O for joinder purposes also satisfy the “same case or controversy” requirement under § 1367(a).
- Even if diversity is the sole basis for SMJ over the original claim, the limitation on supplemental jurisdiction under § 1367(b) don’t apply to claims by defendants.
Crossclaims between co-plaintiffs (“claims by plaintiffs against persons made parties under Rule … 20”) are subject to the limitation under § 1367(b). So, where diversity is the sole basis for SMJ over the original claim, supplemental jurisdiction will be allowed only if the co-plaintiffs are citizens of different states.
There is some disagreement among the federal courts as to whether supplemental jurisdiction is ever allowed over permissive counterclaims.
- Some courts have taken the view that at least some permissive counterclaims may have a sufficient factual relationship to satisfy the “same case or controversy” requirement under § 1367(a).
- See Global NAPS, Inc. v. Verizon New England Inc., 603 F.3d 71, 87 (1st Cir. 2010); Jones v. Ford Motor Credit Co., 358 F.3d 205 (2d Cir. 2004); Channell v. Citicorp Nat. Servs., Inc., 89 F.3d 379 (7th Cir. 1996); Bates v. American Credit Acceptance, No. 16-12239 (E.D. Mich. 2016); Hunt v. 21st Mortg. Corp., No. 2:12–CV–381–RDP (N.D. Ala. 2012); Bakewell v. Federal Financial Group, Inc., No. 1:04-CV-3538-JOF (N.D. Ga. 2006); Campos v. Western Dental Services, Inc., 404 F.Supp.2d 1164 (N.D. Cal. 2005)
- Even under this view, a court might decline to exercise supplemental jurisdiction, based on the factors in § 1367(c).
- Other courts have adhered to the view that supplemental jurisdiction is never allowed over permissive counterclaims, in effect treating “same case or controversy” under § 1367(b) and “same T/O” under Rule 13(a).
- See Ginwright v. Exeter Finance Corp., No. TDC-16-0565 (D. Md. 2016)
The question really comes down to how close of a factual connection is required for claims to arise from the same T/O for joinder purposes.
- Supplemental jurisdiction is always permitted over a defendant’s claim against a third-party defendant under Rule 14(a)(1)
A claim for indemnification or contribution, by definition, arises from the same T/O as the underlying claim against the defendant, which also satisfies the same case or controversy requirement under § 1367(a). Even if diversity is the sole basis for SMJ over the underlying claim against the defendant, the limitation on supplemental jurisdiction under § 1367(b) does not apply to claims by a defendant.
For the same reason, supplemental jurisdiction is also always permitted over these claims involving third-party defendants:
- Compulsory counterclaims by a third-party defendant against the defendant/third-party plaintiff, under Rule 14(a)(2)(B),
- Claims by a third-party defendant against a plaintiff, under Rule 14(a)(2)(D), and
- Compulsory counterclaims by a third-party defendant against a plaintiff, under Rule 14(a)(3).
- Supplemental jurisdiction is not always allowed over claims by a plaintiff against a third-party defendant under Rule 14(a)(3)
These claims must arise from the same T/O as the plaintiff’s underlying claim against the original defendant (a.k.a. third-party plaintiff). But the limitation on supplemental jurisdiction under § 1367(b) applies to “claims by plaintiffs against persons made parties under Rule 14”. If diversity is the sole underlying basis for SMJ, supplemental jurisdiction is not allowed if the plaintiff and third-party defendant are citizens of the same state.
Note the lack of symmetry here:
- § 1367(b) doesn’t apply to claims by a third-party defendant against a plaintiff (or against anyone else), but does apply to claims by a plaintiff against a third-party defendant.
- This might seem to put the plaintiff at a disadvantage, forcing them (but not the third-party defendant) to bring a separate action.
- The rationale is that § 1367(b) is intended to prevent plaintiffs from evading the complete diversity requirement through creative joinder (i.e. suing one defendant in the expectation that the defendant will implead an additional defendant whose initial joinder by the plaintiff under Rule 20 would have destroyed diversity).
- Claims by defendants and third-party defendants don’t raise this same concern, and requiring them to bring their claims in separate actions would be unfair (since they didn’t choose the forum initially) and inefficient.
Guaranteed Systems, Inc. v. American Nat. Can Co. (MDNC 1994)
- Guaranteed (NC) sued National Can (DE) in NC state court for breach of contract (failure to pay for construction work) and National Can removed to federal court on basis of diversity.
- After removal, National Can asserted counterclaim against Guaranteed for negligence in performance of construction job.
- Guaranteed sought to implead its sub-contractor, HydroVac. Svcs. (NC), under Rule 14(b).
- Whether plaintiff may join a non-diverse third-party defendant in response to defendant’s counterclaim.
- Rule 14 itself allows such joinder.
- But the court must have SMJ over the third-party claim.
- Guaranteed & HydroVac are both citizens of NC, so no diversity jurisdiction.
- Guaranteed relies on § 1367
- Indemnification & contribution claim against 3rd-party defendant satisfies § 1367(a)
Holding & Analysis
- § 1367(b) precludes the exercise of supplemental jurisdiction over a claim by a plaintiff against a non-diverse third-party defendant in response to defendant’s counterclaim.
- Restriction under § 1367(b) explicitly applies to “claims by plaintiffs against persons made parties under Rule 14”
- Court explains that it might be reasonable to treat Guaranteed as a “defendant” with respect to the counterclaim, for purposes of supplemental jurisdiction
- Allowing plaintiff to do so in this posture would not run afoul of the policy concern behind § 1367 (i.e. that plaintiffs might use supplemental jurisdiction to assert claims against non-diverse defendants, evading the complete diversity requirement under § 1332).
- Guaranteed sued in state court, and the case got to federal court on removal.
- Guaranteed had no reason to assert any claim against HydroVac until National Can asserted its counterclaim
- Disallowing joinder leaves Guaranteed in an unfair position, and is counter to efficiency and judicial economy
- Court cites Owen Equip. v. Kroger (US 1978) in support of that analysis
- But “plain terms of the statute” preclude that outcome: “claims by a plaintiff” means “a party who was named as a plaintiff in the initial complaint”.
- For purposes of § 1367(b), a party’s initial designation as a “plaintiff” doesn’t change just because another party asserts a counterclaim or crossclaim against them.
- By the same reasoning, a party’s initial designation as a “defendant” doesn’t change just because they assert a counterclaim or crossclaim against another party.
- Is the court right in construing § 1367 to preclude joinder of the third-party defendant here?
- It’s merely fortuitous that Guaranteed brought its claim first; had National Can sued first, there’s no question that Guaranteed could have impleaded HydroVac. Should this accident of timing really matter under § 1367(b)?
- Does it matter that the counterclaim here is compulsory, rather than permissive?
- i.e. if the counterclaim were merely permissive, might the court be on firmer ground in treating the original plaintiff as a “defendant” for purposes of § 1367(b)?
Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546 (2005)
- Beatriz Blanco-Ortega (9 years old) was seriously injured by a sharp edge on a can of tuna fish manufactured and sold by StarKist. She sued (represented by her parents as legal guardians) in federal court, seeking more than $75,000 in damages.
- The parents also joined as co-plaintiffs under Rule 20, asserting claims on behalf of themselves and other family members (all domiciled in Puerto Rico) for emotional distress and medical expenses, seeking less than $75,000 in damages.
- There was complete diversity of citizenship betsween the plaintiffs (all domiciled in Puerto Rico) and StarKist (Delaware corp. with HQ in Pennsylvania).
- The amount in controversy on the child’s claims exceeded $75,000 but the amount in controversy on the family’s claims did not.
- Whether the federal court could exercise supplemental jurisdiction over the family’s claims, where their joinder did not destroy complete diversity but the amount in controversy on their claims did not exceed $75,000.
Holding & Analysis
- The family’s claims and the child’s claims all arose from the same operative facts, i.e. the child’s injury, satisfying the requirement for supplemental jurisdiction under sec. 1367(a).
- The sole basis for original jurisdiction over the child’s claims was diversity, but the limitations on supplemental jurisdiction under sec. 1367(b) do not apply to claims by co-plaintiffs joined under Rule 20.
- Joinder of the family as co-plaintiffs did not destroy complete diversity.
- Under these circumstances, as long as one plaintiff, on their own, satisfies the amount in controversy requirement for diversity jurisdiction, the court may exercise supplemental jurisdiction over the additional plaintiffs’ claims, without regard to the amount in controversy.
- Unlike incomplete diversity, the amount in controversy on the co-plaintiffs’ claims does not affect the court’s original jurisdiction over the “anchor” plaintiff’s claims.
What about claims by a plaintiff against co-defendants joined under Rule 20?
- § 1367(b) applies to such claims (assuming diversity is the only basis for federal jurisdiction to begin with).
- If joinder of a co-defendant destroys complete diversity, supplemental jurisdiction is certainly not allowed (because this would deprive the court of diversity jurisdiction over the “anchor” plaintiff’s claim).
- But where complete diversity is unaffected, it’s unclear whether the claims identified in § 1367(b) must also satisfy the amount in controversy requirement.
- This wouldn’t make sense, because if these claims independently satisfy both the complete diversity and amount in controversy requirements, the court would have diversity jurisdiction over them and there would be no need for supplemental jurisdition at all.
- But the final clause implies that supplemental jurisdiction over such claims is allowed, as long as it isn’t “inconsistent with the jurisdictional requirements of section 1332.”
- The seeming paradox is resolved if § 1367(b) is understood to mean that a court may not exercise supplemental jurisdiction over “yellow flag” claims if doing to would be inconsistent with the court’s underlying diversity jurisdiction over the “anchor” claim.
- The court has original jurisdiction over the claim by Parsons against DeLeon, based on diversity of citizenship.
- If Parsons joins Flynn as a co-defendant, there is still complete diversity of citizenship.
- The exercise of supplemental jurisdiction over the claim against Flynn would not be inconsistent with the requirements of diversity jurisdiction over the claim against DeLeon (which is unaffected by the amount in controversy between Parsons and Flynn).
- If that’s what the last clause of § 1367(b) means, then supplemental jurisdiction should be allowed in this case.
- The Supreme Court hasn’t addressed this issue.
- The plaintiff has the initial choice of forum
- Normally, even where a federal court would have subject matter jurisdiction, a plaintiff may still sue in state court if they prefer
- Exception: Federal courts have exclusive jurisdiction over suits under certain federal statutes (e.g. patents, trademarks, and copyrights; antitrust; securities and banking regulation; bankruptcy)
- Removal allows a defendant to over-ride the plaintiff’s choice of state court, where the case could have been brought in federal court to begin with.
- One-way street: If plaintiff brings suit in federal court, and federal court has jurisdiction, defendant may not “remove” to state court
- Remand is the procedure for returning a case to state court where it was improperly removed to federal court
- But where the plaintiff brings suit in federal court, and there is no federal subject matter jurisdiction, the federal court cannot “remand” to state court, because the case didn’t originate there.
- The federal court will dismiss for lack of jurisdiction, typically without prejudice to plaintiff’s ability to refile in state court.
Requirements for Removal
28 U.S.C. § 1441(a)
- There must be federal subject matter jurisdiction over the complaint (i.e. the plaintiff could have filed the suit in federal court, but chose to file in state court)
- A defendant may not remove based on a federal-law defense.
- Example: The Mottleys sue the L&NRR for breach of contract (a state-law claim) in Kentucky state court. Both parties are citizens of Kentucky.
- The RR may not remove based on its defense that federal law makes the contract unenforceable.
- A defendant may not remove based on a federal-aw counterclaim
- A counterclaim is a claim that a defendant asserts back against a plaintiff (to be covered under Removal)
- Example: Creditor sues debtor under state law to collect on delinquent loan payments. Both parties are citizens of the same state.
- Debtor may not remove based on a counterclaim against Creditor for unfair debt collection practices under federal law.
Limit on Removal
28 U.S.C. § 1441(b)
“Forum defendant rule”
- Where diversity is the only basis for federal subject matter jurisdiction, removal is improper if any defendant is a citizen of the state in which the suit was filed.
- Example 1: P (Ohio) sues D1 (Pennsylvania) and D2 (Delaware & North Carolina) in Ohio state court, asserting claims under state law for more than $75,000.
- Defendants may remove, because the requirements for diversity jurisdiction are satisfied, and neither defendant is a citizen of Ohio.
- Example 2: P (Ohio) sues D1 (Pennsylvania) and D2 (Delaware & Pennsylvania) in Pennsylvania state court, seeking more than $75,000 for her injury.
- Defendants may not remove, even though the requirements for diversity jurisdiction are satisfied, because one defendant is a citizen of Pennsylvania.
- Example 3: P (Ohio) sues D1 (Pennsylvania) and D2 (Delaware & Pennsylvania) in Pennsylvania state court, asserting claims under both state and federal law.
- Defendants may remove, based on federal question jurisdiction, without regard to the citizenship of the parties or amount in controversy. (The federal court will have supplemental jurisdiction over the state-law claims, assuming they arise out of the same incident.)
Procedure for Removal & Remand
28 U.S.C. § 1446
Notice of Removal
- The defendant files a Notice of Removal in the appropriate federal district court
- The notice must explain the basis for removal
- If there are multiple defendants, they must all consent to removal
Timing of Notice
- Notice of removal must be filed within 30 days after defendant’s receipt of the complaint
Effect of Notice
- The suit is automatically removed from state to federal court upon filing of the notice.
28 U.S.C. § 1447(c)
- Procedure for returning a case to state court where it was improperly removed
- If removal was improper because there is no federal subject matter jurisdiction:
- The federal court must remand, even if the plaintiff does not object to removal
- There is no time limit on remand for lack of subject matter jurisdiction
- If there is federal subject matter jurisdiction, but remand was improper for some other reason (e.g. forum defendant rule; lack of consent from all defendants; untimely notice of removal):
- Plaintiff may file a motion for remand
- Motion must be filed within 30 days after the notice of removal was filed
- If plaintiff does not make a timely motion for remand, the objection to removal is waived and the case will remain in federal court (because there is subject matter jurisdiction, and the other defects are merely procedural).