Presentation on theme: "The Act is designed to accomplish two things: 1) Facilitate the identification of the proper State or Federal Court in which the action should be brought;"— Presentation transcript:
The Act is designed to accomplish two things: 1) Facilitate the identification of the proper State or Federal Court in which the action should be brought; and 2) Promote judicial efficiency by allowing judges to focus on the merits of the lawsuit rather than forcing them to “waste time” in determining jurisdiction.
“Jurisdictional Improvements” Amendments to: § 1332, §1441, §1446, and §1453 “Venue Improvements” Amendments to: §1390, §1391, §1392, and §1404 Removal of Criminal Prosecutions: New Provision: 28 U.S.C. §1454
Diversity Jurisdiction requires: Complete diversity of citizenship and An amount in controversy that exceeds $75,000.
28 U.S.C. § 1332 – Diversity of Citizenship: Former §1332(a): The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interests and costs, and is between – (1) Citizens of different States; **(2) citizens of a State and citizens or subjects of a foreign state**; (3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and (4) a foreign state, defined in section 1603(a) of this title, as plaintiff and citizens of a State or of different States.
28 U.S.C. § 1332 – Diversity of Citizenship: Amended §1332(a): The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interests and cots, and is between – *** (2) citizens of a State and citizens or subjects of a foreign state, except that the district courts shall not have original jurisdiction under this subsection of an action between citizens of a State and citizens or subjects of a foreign state who are lawfully admitted for permanent residence in the United States and are domiciled in the same State;
Significance of Change to Section 1332(a)(2): Federal Courts had taken a fairly narrow view of Section 1332 (a)(2) – frequently declining to assert jurisdiction over disputes in which resident aliens appeared on both sides of the litigation. The Amendment aims to clarify: Federal courts do not have jurisdiction over a claim between a citizen of a State and a resident alien domiciled in the same State as his or her adversary.
Significance of Change to Section 1332(a)(2): Amendment also confirms resident aliens may appear as additional parties in a federal action without having to establish that their residency preserves complete diversity. Example, Illinois plaintiff sues Wisconsin defendant in federal court for an amount in controversy that exceeds $75,000. A resident alien domiciled in the State of Illinois may be added as a party to that action without depriving the federal court of jurisdiction pursuant to §1332.
§1332 also amends (slightly) the citizenship of corporations: Former §1332(c) provided: “A corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business.”
§1332 also amends (slightly) the citizenship of corporations: Amended §1332(c) provides: “A corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business.”
Purpose of this Amendment: Congress hoped to address the increasing prevalence of foreign corporations gaining access to federal courts. This Amendment purports to eliminate diversity jurisdiction in two situations: (1) Where a foreign corporation with its principal place of business in a foreign state sues or is sued by a citizen of that same state. (2) Where an alien sues a U.S. corporation with its principal place of business in a foreign state.
Significance of this amendment to §1332(c): Under the old rules, a corporation with its principal place of business outside of the U.S. might choose to incorporate in a State. Pursuant to the old language, the entity’s incorporation would make it a citizen of that State only, and enable it to claim access to a federal court in a dispute with another foreign national.
Significance of this amendment to §1332(c): Under the amended rules, that foreign corporation would be deemed to be a citizen of its State of incorporation AND of the foreign state. Accordingly, that corporation would not have access to the federal courts because disputes between two aliens does not satisfy the requirements for diversity jurisdiction.
Significance of this amendment to §1332(c): Congress DID NOT ALTER the citizenship of other entities – namely, limited liability companies. For purposes of diversity jurisdiction, the citizenship of an LLC depends on the citizenship of each member of the LLC. See Belleville Catering Co. v. Champaign Mkt. Place, LLC, 350 F.3d 691, 692 (7 th Cir. 2003).
Treatment of LLC’s for Diversity Purposes: Likely to destroy diversity. Members of an LLC may also be LLC’s, corporations, partnerships, or individuals. Must know with certainty the citizenship of each and every member. “Affidavits alleging citizenship based on ‘the best of my knowledge and belief’ are, by themselves, insufficient to show citizenship in a diversity case.” See America’s Best Inns, Inc. v. Best Inns of Abilene, L.P., 980 F2d 1072, 1074 (7 th Cir. 1992)
Citizenship of Insurance Companies in “Direct Actions”: In jurisdictions that allow direct actions against insurers, an insurance company is now deemed to be the citizen of: Every state and foreign state of which the insured is a citizen; Every state and foreign state by which the insurer has been incorporated; and The State or foreign state where the insurer has its principal place of business. This provision aims to prevent such “direct actions” against insurance companies from qualifying for diversity jurisdiction.
The Act also amended 28 USC §1441 governing Removal Procedures. Severed the criminal removal procedures from this section of the Code. Congress found that this was necessary to assist litigants in knowing which provisions were applicable to civil cases as opposed to criminal cases.
Changes to Removal Procedure in 28 USC §1446: Time to Remove Initially Consent Required Standard for Determining the “Amount in Controversy” Pre-Removal Discovery Deadlines to Remove Supplemental Jurisdiction
TIME TO REMOVE: A removing defendant still has 30 days after receiving the initial pleading to file its notice of removal. That 30 day period begins running when defendant receives the initial pleading – whether through “service or otherwise.”
Multiple Defendants – Time to Remove: The Act is designed to clarify the deadline to remove when there are multiple defendants, each of whom receives the initial pleading at a different time. Split in the Circuits regarding the former language of Section 1446 governing the deadline for removal when multiple defendants were served at different times.
Section 1446(a)(2)(B) now provides that: each defendant shall have 30 days after receiving the initial pleading or summons to file the notice of removal. As noted in the Act’s commentary: “Fairness to later-served defendants, whether they are brought in by the initial complaint or an amended complaint, necessitates that they be given their own opportunity to remove, even if the earlier-served defendants chose not to remove initially.”
Multiple Defendants – Consent The Act also clarifies what happens when an earlier- served defendant chooses not to remove but a later- served defendant files a notice of removal: The earlier-served defendant has two options: Consent to the removal, thereby allowing federal jurisdiction to vest; or Oppose the removal (actively or passively), thereby destroying federal jurisdiction. Under the Act, all defendants who have been served must consent to the removal for it to be valid.
Satisfying the Requisite “Amount in Controversy” At what time period does the “amount in controversy” matter for removal purposes? What elements of damages can be included as part of the “amount in controversy” calculation?
Evidentiary Standard for Identifying the “Amount in Controversy” in the Notice of Removal Federal Circuits had adopted differing standards governing the burden of showing that the requisite amount in controversy is satisfied: “Sum claimed” “Legal certainty” “Competent proof” “Preponderance of the evidence” Congress believed that these “differing standards” led to practical complications.
Evidentiary Standard for Identifying the “Amount in Controversy” in the Notice of Removal To rectify the conflict among the Circuits, the Court adopted the “preponderance of the evidence” standard for satisfying the amount in controversy. Adopted reasoning of the Seventh Circuit in Meridian Security Insurance v. Sadowski, 441 F.3d 536 (7 th Cir. 2006).
How can a removing defendant meet this preponderance standard? The Act helps clarify this – the “sum demanded in good faith” in the initial pleading shall be deemed to be the amount in controversy.
But what happens when the plaintiff is: Seeking equitable relief? Prohibited from pleading the full extent of its damages? Attempting to avoid federal jurisdiction?
Complaint for Equitable Relief: In this instance, the Act allows the Defendant’s Notice of Removal to establish the “amount in controversy.” 28 USC 1446(c). In the Seventh Circuit, the amount in controversy in actions seeking declaratory or injunctive relief is measured by “the value of the object of the litigation.” America’s Money Line v. Colemani, 360 F.3d 782 (7 th Cir. 2004). This means that the amount in controversy is the pecuniary result that would flow to the plaintiff (or from the defendant) if the injunctive, declaratory, or other equitable relief is granted by the Court.
Complaint where plaintiff is unable to allege its total amount of damages in the Complaint: Defendant may: Provide a good faith estimate of the amount in controversy in the Notice of Removal; or **Issue discovery requests to the plaintiff in the state-court action.**
Pre-Removal Discovery: This represents a significant change in the Removal Statute. Where a plaintiff cannot demand a specific sum in the Complaint, the 30-day removal deadline is extended until the plaintiff clarifies the amount in controversy through state-court discovery. If the plaintiff’s response to discovery indicates that the amount in controversy exceeds $75,000, the defendant is then provided with 30 days to remove the action to federal court.
At least one District Court has commented that propounding “amount in controversy” discovery in state court is now the preferred method for removing a case: “Indeed, recent amendments to the removal statute make it clear that the defendants should pursue state-court discovery before removal. These amendments give defendants a new thirty-day window to remove a case if they receive discovery from the plaintiff in state court showing that the jurisdictional minimum is satisfied.” Ramsey v. Kearns, 2012 U.S. Dist. LEXIS (E.D. Ky. 2012).
Complaint where plaintiff is intentionally attempting to avoid removal by pleading an indefinite “amount in controversy.” What happens when: Defendant cannot provide a good faith estimate of the amount in controversy based upon the Complaint; and State-court discovery failed to disclose an amount in controversy that exceeded $75,000?
The Act maintains a one-year deadline for removing an action to federal court based upon diversity jurisdiction: “A case may not be removed…on the basis of [diversity jurisdiction] more than 1 year after commencement of the action.” 28 USC § 1446(c)(1). See also Loellke v. Moore, 2012 U.S. Dist. LEXIS 2709 (S.D. Ill. 2012).
However, the Act allows a defendant to avoid the one- year bar by demonstrating that the plaintiff acted in bad faith to prevent a defendant from removing the action. The Act specifically provides that a plaintiff’s deliberate failure to disclose the actual amount in controversy constitutes “bad faith.” Thus, where a plaintiff refuses to provide sufficient information concerning the amount in controversy, the one-year limitations on removal likely will not apply.
Supplemental Jurisdiction - §1441(c): Where plaintiff’s cause of action combines federal- question and state-law claims, the federal court may exercise jurisdiction over the entire action so long as the claims arise from a “common nucleus of operative fact.” Under the former language of the statute, the district court was vested with discretion to: Determine all of the claims at issue (including state-court claims); or Remand those matters on which state law “predominated”
Supplemental Jurisdiction - §1441(c): As Amended, the district courts no longer have discretion and must sever-and-remand “separate and independent” state law claims. Consequently, the district court may still determine state law claims that form part of the same “case or controversy” as the federal claims pursuant to its supplemental jurisdiction. However, where there is a pure issue of state law unrelated to the federal question, the district court must sever that claim from the federal question and remand it to state court.
The Amendments to the federal venue statutes are aimed to clarify rather than change existing law. The “Venue Improvements” purport to accomplish three goals: Define “venue” under federal law; Distinguish venue from subject matter jurisdiction; and Provide a consistent method for defining a party’s “residency” for venue purposes.
Venue Defined - §1390: The Act includes a new section which defines venue: “The term venue refers to a geographic specification of the proper court or courts for the litigation of a civil action that is within the subject matter jurisdiction of the district courts in general, and does not refer to any grant or restriction of subject-matter jurisdiction providing for a civil action to be adjudicated only by the district court for a particular district or districts.”
Proper Venue - §1391: A civil action may be brought in any one of the following judicial districts: A judicial district in which any defendant resides, if all defendants are resident of the State in which the district is located. A judicial district in which a substantial part of the events or omissions giving rise to plaintiff’s claim occurred, or a substantial part of property that is the subject of the action is situated; or If there is no district in which an action may otherwise be brought as provided in this section, any judicial district in which any defendant is subject to the court’s personal jurisdiction with respect to such action.
A district court lacks power to enter judgment against a defendant as to whom venue is improper. If venue is improper, defendant must raise that defense at the first available opportunity or it is deemed waived. See Fed. R. Civ. P. 12 (b)(3) and 12(h)(1).
Where does the party reside? §1391(c): Natural persons: only the district in which they are domiciled. Entities (whether incorporated or not): any judicial district in which the entity is subject to the court’s personal jurisdiction. Foreign parties (natural persons or entities): every judicial district and the joinder of such defendants does not impact the propriety of a particular venue.
Transferring Venue -- §1404: The Act does not alter traditional rules concerning transfer of venue; however, §1404 now allows for transfer to “any district or division to which all parties have consented.” This allows the district courts to transfer a civil action to a district chosen by the parties – even if that venue would not otherwise be “proper” pursuant to §1391.
For Defendants hoping to remove on diversity jurisdiction: As 735 ILCS 5/2-604 prohibits plaintiffs from seeking damages in excess of $75,000 in their personal injury complaints, a removing defendant is now allowed to proceed in two ways.
First, assuming complete diversity is established, the defendant may: Remove the case immediately within 30 days of service; Provide a good faith estimate of the amount in controversy; and Hope that the district court agrees that the amount in controversy exceeds the jurisdictional threshold. OR…
Upon receiving the Complaint, the Defendant may also: Issue discovery (interrogatories or request to admit) to plaintiff; Establish conclusively that the amount in controversy exceeds $75,000; and Remove within 30 days of receiving the discovery confirming that plaintiff is seeking more than $75,000 in damages.
If you’re a personal injury plaintiff hoping to keep your case in state court, there are a few things you can do: You can affirmatively disclaim damages in excess of $75,000. However, this disclaimer cannot appear on the face of the Complaint – federal courts do not limit plaintiffs to the amount of damages requested or disclaimed in the Complaint. Rather, the plaintiff must file a binding stipulation, with the Complaint, demonstrating that the amount in controversy will not exceed $75,000. Oshana v. Coca- Cola, 472 F.3d at 512.
For plaintiffs hoping to remain in state court (while pursuing damages in excess of $75,000), the better practice may be to preemptively destroy diversity by naming a non-diverse defendant. Assuming that the non-diverse defendant played some role in the events at issue, that defendant will be a proper party to the action.
However, plaintiffs should be mindful of the fraudulent joinder doctrine: This doctrine aims to prevent plaintiffs from arbitrarily naming non-diverse defendants merely to destroy diversity jurisdiction. If the district court determines that plaintiff’s purported claim against the non-diverse defendant is “utterly groundless,” the district court may disregard that defendant’s citizenship, assume jurisdiction over the matter, and dismiss the plaintiff’s claim against the non- diverse defendant.
The Federal Courts Jurisdiction and Venue Clarification Act of 2011 does not represent a drastic change to the traditional rules of federal procedure. However, we can expect that federal judges – will demand strict compliance with the Act’s nuances in order to perfect jurisdiction and venue in federal court.
At this point, the Act’s most significant amendments likely will impact the procedures for removing a civil action pursuant to a federal court’s diversity jurisdiction. Attorneys specializing in personal injury and general tort litigation should be mindful of the Act’s influence when attempting to gain – or to prevent – access to the federal court system.