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Bar News - April 13, 2012

Important Changes to Federal Court Jurisdiction and Venue


The Federal Courts Jurisdiction and Venue Clarification Act of 2011 seeks to resolve many procedural issues in the previous jurisdiction and removal statutes, 28 U.S.C. §§1332, 1441, and 1446 et seq., and applies to all cases filed after January 6, 2012. The Act was motivated by complaints from judges that they spent too much time addressing jurisdictional issues rather than the underlying merits. Attorneys practicing in state and federal courts must be aware of and understand these significant alterations to federal practice and procedure. This article summarizes the most significant changes.

Jurisdictional Improvements

Removal Procedures Timing.
The Act clarifies the time period within which state court actions must be removed to federal court. Previously, the statute provided 30 days for removal after receipt of the initial pleading. 28 U.S.C. §1446(b). Where cases involved multiple defendants served on different dates, courts reached different conclusions as to when the 30-day period began to run for later-served defendants. The Act resolves this discrepancy, providing that each defendant has 30 days from its own date of service to seek removal of the action. §1446(b)(2)(B). The Act also allows a defendant served earlier to join in or consent to removal by a defendant served later, even if the first defendant’s 30 days has passed. §1446(b)(2)(C). This effectively lengthens the time in which a case involving multiple defendants may be removed.

Unrelated State Law Claims. The Act requires the federal court to sever and remand any state law claims over which it has no original or supplemental jurisdiction. 28 U.S.C. §1441(c). This clarifies prior law, which appeared to require the Federal court to take jurisdiction of "the entire case." §1441(c). This means that you may find yourself litigating cases against the same party in federal and state court at the same time, or possibly attempting to stay one case in favor of the other. It would seem prudent for a claimant to file all claims, including claims that seem likely to be remanded to state court under this statute, in order to obtain an order from the federal court that those claims must be dismissed. That would seem to be the best hedge against a potential res judicata claim in the event the claimant later pursues the remanded claims in state court. These considerations require careful analysis.

Amount in Controversy. The Act provides new procedures for establishing the amount in controversy for diversity jurisdiction purposes. The sum demanded in good faith in the initial pleading shall be deemed the amount in controversy, except that a defendant’s notice of removal may assert the amount in controversy if the "initial pleading seeks (i) nonmonetary relief; or (ii) a money judgment, but the state practice either does not permit demand for a specific sum or permits recovery of damages in excess of the amount demanded." §1446(c)(2). The Act also establishes that information received during state-court discovery may be used to support removal, even if removal was not appropriate based on the initial pleading, §1446(c)(3)(A), and provided the removal occurs within one year from the commencement of the action. §1446(c)(1). If such information is received, the defendant has 30 days from receipt of the information to remove the action. Accordingly, a defendant can use discovery in state court to determine the amount in controversy where it is not established by the initial pleading, and may remove a case well after it is underway.

Removal of Diversity Actions. The Act retains the prohibition against removal of diversity actions more than one year after commencement of the action, but provides for a new limited exception to that rule: where the court finds that plaintiff has acted in bad faith to prevent a defendant from removing the action by, for example, deliberately failing to disclose the actual amount in controversy to avoid removal. §1446(c)(1). Thus, if practitioners act in bad faith to prevent removal they will have to spend the rest of the case looking over their shoulders for a removal notice.

Unanimity. The Act codifies the "unanimity rule" which requires all properly joined and served defendants to consent to removal of a case. §1446(b)(2)(A).

Citizenship of Parties for Purposes of Diversity Jurisdiction

Resident Aliens. While federal courts retain jurisdiction over state-law claims between a citizen of a state and citizens of a foreign state, the Act clarifies that federal courts cannot exercise jurisdiction over such claims if they are asserted between a citizen of a state and "citizens or subjects of a foreign state who are lawfully admitted for permanent resident in the United States and are domiciled in the same State." §1332(a)(2). This makes clear that resident aliens are not deemed "citizens" for diversity jurisdiction purposes, so that two resident aliens in suit against one another who are domiciled in different states cannot invoke federal court diversity jurisdiction.

Citizenship of Corporations with Foreign Contacts. The Act clarifies that foreign and domestic corporations are citizens of their place of incorporation and their principal place of business, and denies diversity jurisdiction where: (1) a foreign corporation with its principal place of business in a state sues or is sued by a citizen of that same state; and (2) a citizen of a foreign country sues a US corporation with its principal place of business abroad. §1332(c)(1). The Act also clarifies that in direct actions against insurance companies, the insurer is deemed a citizen of every state and foreign state in which its insured is a citizen for diversity purposes, in addition to the insurer’s place of incorporation and principal place of business, making it more difficult to assert diversity jurisdiction in such actions.

Venue and Transfer Improvements

New Venue Provisions. The Act amends §1391, but does not significantly alter the general venue requirements. Under §1391, as amended, venue for any civil action is proper in "(1) a judicial district in which any defendant resides, if all defendants are residents of the state in which the district is located; (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated; or (3) if there is no district in which an action may otherwise be brought as provided [above], any judicial district in which a defendant is subject to the court’s personal jurisdiction with respect to such action." The Act also defines residency for (1) natural persons; (2) entities, whether or not incorporated; and (3) defendants who do not reside in the United States. These changes largely clarify existing law.

New Transfer Provision. The Act includes a new procedure for transferring venue to a forum to which the parties consent. The Act amends §1404 to allow for transfer "to any district or division to which all parties have consented." This allows for transfer to a chosen district, even if venue would not otherwise be proper in that district.

Attorneys handling cases that may be subject to removal must carefully examine these changes to the removal and venue rules.

Laurie Bishop is a member of the Employment and Professional Liability Practice Groups at Nelson Kinder & Mosseau. Chris Hawkins is a member of the Professional Liability and Construction Practice Groups at Nelson Kinder & Mosseau.

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