Diversity of Citizenship Jurisdiction

Question 1

Diversity among the parties

Answer 1

• complete diversity required when action is commenced

- amount in controversy must exceed $75k

Question 2

Complete diversity

Answer 2

No P may be a citizen of the same state as any D
*Note: rule of complete diversity does not require that every party be of diverse citizenship from every other party, only requires that no P be a co-citizen with any D (i.e., two Ps of State A may invoke diversity of citizenship jdx against three Ds of State B)

Question 3

“alienage” jurisdiction

Answer 3

Involves a dispute between a citizen of a US state and a citizen or subject of a foreign country

• Note: does not provide federal jdx over cases by an alien against an alien; there must be a citizen of a US state on one side of the suit to qualify for alienage jdx
• Note: disregard foreign parties for jdx determinations if foreign citizens are additional parties

Question 4

Diversity when action is commenced

Answer 4

Diversity of citizenship (or alienage) must exist at the time the suit is instituted, not at the time the action arose
*Not defeated if a party becomes a citizen of the same state as opponent after action commenced

Question 5

State citizenship of an individual - domicile

Answer 5

The state of citizenship of a natural person depends on the permanent home to which person intends to return (same as domicile for PJ purposes)
*Note: to establish new state citizenship, must 1) be physically present in new place, and 2) have intention to remain there

Question 6

Citizenship of a corporation - possible multiple citizenships

Answer 6

For diversity purposes, a corp. is deemed to be a citizen of EVERY state and foreign country in which it is incorporated and the one state or foreign country in which it has its principal place of business

PPB: state from which the corp.’s high level officers direct, control, and coordinate corp.’s activities; “nerve center”
*Note: if an opposing party is a citizen of ANY of corp.’s states of citizenship, NO DIVERSITY

Question 7

Special rule for direct actions (citizenship of a corporation for diversity purposes)

Answer 7

In direct actions against an insurer, when a P sues an insurer on a policy or contract of liability insurance, and does not also join the insured, the insurer (where incorporated or not) is treated as a citizen of all of the following:

1) the state or country in which the insurer is incorporated
2) the state or country in which the insurer has its PPB
3) the state or country of which the INSURED is a citizen

Question 8

Incorporation or PPB of business in foreign country (citizenship of a corp. for diversity purposes)

Answer 8

A corporation might simultaneously be an alien and a citizen of a US state. If so, no alienage jdx between that corp. and another alien, even though the corp. may also have US state citizenship

Question 9

Unincorporated associations (citizenship for diversity purposes)

Answer 9

1. Capacity -> unincorporated associations (i.e., partnerships) are considered entities that may sue or be sued in federal question cases; in diversity jdx cases, may sue or be sued if local state law permits
2. Citizenship -> that of each and every one of its members
3. Class action -> if large, class action possible; relevant citizenship is that of named members of the association
4. Partnerships -> citizenship of partnership, general or limited, is that of each and every partner
5. LLC -> citizen is that of each and every member

Question 10

Legal representatives (citizenship for diversity purposes)

Answer 10

A legal rep of an infant, an incompetent, or an estate of a decedent is deemed to be a citizen of the same state as the infant, incompetent, or decedent
*Rep effectively takes on citizenship of person representing

Question 11

Class actions (citizenship for diversity purposes)

Answer 11

Diversity is determined by citizenship of the named members of the class suing

Question 12

Nonresident US citizens (citizenship for diversity purposes)

Answer 12

A US citizen DOMICILED ABROAD is not a citizen of any state and also is not an alien (alien status depends on nationality, not domicile)

Question 13

Collusion and devices to create or defeat diversity

Answer 13

Diversity jdx cannot be created by improperly or collusively assigning a claim or joining a party merely to create diversity jdx

Question 14

assignment of claims (diversity jurisdiction)

Answer 14

The assignment of a claim to another party for COLLECTION ONLY would be ignored in determining whether diversity exists
*Note: there is no collusion if an absolute agreement of a claim is made, and the assignor retains no interest in the assigned claim

Question 15

Class actions (creation or defeat of diversity)

Answer 15

It is NOT improper to select the named members of a class action to ensure diversity, even if unnamed members of the class are co-citizens of D and naming them would prevent jdx

Question 16

Voluntary change of state citizenship (creation or defeat of diversity)

Answer 16

P can create diversity by changing state citizenship after the cause of action accrued but BEFORE suit is COMMENCED, but the change must be genuine; a true change of citizenship can create or destroy diversity
*Note: party’s MOTIVE for changing citizenship is IRRELEVANT

Question 17

Realignment according to interest

Answer 17

• Court looks beyond nominal designation of parties in determining whether diversity exists, and realignment may create or destroy diversity
• In a shareholder derivative action, a shareholder brings action on behalf of corp. because the corp. has failed to enforce a perceived claim against a third party
• -> corp. typically is named as P in case even if against shareholder’s claim
• -> BUT corp. is treated as D for purposes of determining diversity jdx
• -> Example: Shareholder from State A alleges corp. officer from State B converted company assets. Company is from State B. Complete diversity because company is considered D.

Question 18

Supplemental jdx over additional claims

Answer 18

Supplemental claim may be joined if claim arises from a common nucleus of operative fact as the claim that invoked original (diversity or FQ) federal SMJ

Question 19

Joinder or subsequent addition of parties

Answer 19

Numerous methods by which multiple claims or parties may be joined or added to the case; If no diversity or FQ SMJ, but arises from a common nucleus of operative facts, party asserting claim may invoke supplemental jdx

Question 20

Restriction on the use of supplemental jdx in diversity cases

Answer 20

For cases that are in federal court based SOLELY on diversity, supplemental jdx may not be used to support:

1) claims by P against persons made parties under impleader, compulsory joinder, permissive joinder, or intervention;
2) Claims by persons proposed to be joined as Ps under compulsory joinder; and
3) Claims by persons seeking to intervene as Ps.
* also may not be used when exercise of supplemental jdx would be inconsistent with the requirements for diversity jdx

Question 21

Intervention of right

Answer 21

Must be allowed when:

1) intervenor claims an interest relating to the property or transaction that is subject of action;
2) disposition of the action may adversely affect that interest; AND
3) current parties do not adequately represent the intervenor’s rights

Question 22

Permissive Intervention

Answer 22

May be permitted in court’s discretion when intervenor’s action and the main action have a claim or defense involving a common question of law or fact
*Note: claim by a permissive intervenor must invoke either diversity of citizenship or FQ jdx

Question 23

Substitution of parties

Answer 23

Involves changes in parties to a lawsuit necessitated by death, incompetency, etc., of an original party after an action has been commenced

• Citizenship of the subbed party is disregarded, that of the original party controls
• Substitution is distinguished from an amendment that allows “replacement” of an original party by the party in whom or against whom the action PROPERLY lies

Example:
A v B. A dies and admin of estate subs as P. No destroy jdx even though B and admin are co-citizens
However, if A sues B and then discovers C not B is proper D, an amendment to complaint by which B is replaced by C must meet reqs for diversity between A and C

Question 24

Third-party practice - Impleader

Answer 24

A third-party claim is the joinder by D in the original action of another person not originally a party to the action

• The impleader claim asserts that the third-party D is or may be liable to D for all or part of P’s claim against D+
• Third-party D may assert a claim against P in pending case if claim arises from same transaction or occurrence as underlying suit
• Third-party D may have claim asserted against it by P if it arises from same transaction or occurrence as underlying suit

Question 25

Impleader - Subject matter jdx required

Answer 25

Every claim asserted in federal court must have a basis for SMJ

Question 26

Diversity jdx and supplemental jdx

Answer 26

In diversity of citizenship cases, supplemental jdx cannot be used to override complete diversity rule (when asserted by P)

Question 27

Cross-claims

Answer 27

A party may assert a claim in a pending case against a CO-PARTY, but only if the claim arises from the same transaction or occurrence as the underlying dispute

*SMJ required

Question 28

Diversity jdx - jurisdictional amount in controversy

Answer 28

Must EXCEED $75k exclusive of interest and costs

• Determined by what is claimed in the complaint, disregarding potential defenses or counterclaims
• Generally, only need a good faith allegation that the amount in controversy exceeds $75k
• -> Good faith means that there must be a legally tenable possibility that recovery will exceed jurisdictional amount

Question 29

“Amount in controversy”

Answer 29

• Collateral effects of a judgment may NOT be considered
• Excludes interest and costs
• However, attorneys’ fees that are recoverable by K or by statute are considered part of the matter in controversy rather than as costs
• Similarly, interest that constitutes a part of the claim itself, as distinguished from interest payable by virtue of a delay in payment, is part of the jurisdictional amount
• Equitable relief -> look from D or P viewpoint at value of harm caused or cost to comply w/ injunction
• Punitive damages if permitted under state substantive law

Question 30

Aggregation of Separate Claims - One P against one D

Answer 30

P may aggregate all P’s claims against a single D, regardless of whether the claims are legally or factually related to each other

Question 31

Aggregation of Separate Claims - One P against several D

Answer 31

A P who has an action against several D cannot aggregate claims based on SEPARATE liabilities.
- No aggregation problem if P asserts a JOINT claim against multiple D because courts look at it as one claim

Question 32

Aggregation of Separate Claims - Several P against one D

Answer 32

Several P can aggregate their claims only where they are seeking “to enforce a single title or right in which they have a common or undivided interest”

• If claims are separate and distinct, aggregation may not be used
• -> i.e., a driver is in a collision with a city owned bus. Two Ps were injured. One P claim of $50K and other P claim of $30k; claims are separate and distinct from one another, so aggregation is not allowed to satisfy amount in controversy

Question 33

Aggregation of Claims - Significance in class actions

Answer 33

Claims of the class members cannot be aggregated if their rights are "separate" rather than "joint" or "common." 
- One class rep's claim must exceed $75k, and court will have supp jdx over claims that do not exceed &75k

Question 34

Supplemental jdx over claims not exceeding $75k in diversity cases

Answer 34

A claim by a joined P that does not meet the amount in controversy requirement for diversity jdx may use supp jdx if claim arises from a common nucleus of operative fact as the claim that invoked diversity of citizenship
*In this case, supp jdx cannot be used to override complete diversity rule as between co-P and Ds

Question 35

Counterclaim - amount in controversy

Answer 35

D’s counterclaim cannot be combined with P’s claim to reach jurisdictional amount

Question 36

Compulsory counterclaim need not meet jurisdictional amount

Answer 36

A compulsory counterclaim (arising out of same transaction or occurrence) does not need to meet the jurisdictional amount requirement
- Court has ancillary jdx over such a counterclaim, similar to third-party impleader claims

Question 37

Permissive counterclaim MUST meet jurisdictional amount

Answer 37

D’s permissive counterclaim (arising out of a COMPLETELY UNRELATED transaction) must have an independent jurisdictional basis
- must meet the jurisdictional amount because common nucleus test is not satisfied

Question 38

No removal to federal court based on counterclaim

Answer 38

If P brings a case in state court that could have been brought in federal court, D typically has right to remove case to federal court

• HOWEVER, P may not remove to federal court even if amount of counterclaim exceeds $75k, because removal is permitted only for D
• If P does not meet jurisdictional amount, D may not remove action even though compulsory counterclaim in excess of amount and complete diversity
• *Trend allowing removal

Question 39

Erie Doctrine

Answer 39

A federal court, in the exercise of its diversity jdx, is required to apply the substantive law of the state in which it is sitting, including the state’s conflict of law rules.
* However, federal courts apply federal procedural law

Question 40

Federal statutes or FRCP (Erie doctrine)

Answer 40

• whether there is a federal law on point? If yes, federal statute or federal rule will apply, if valid
• If no, is the issue substantive or procedural?
• -> if a matter of substance, federal judge must follow state law in a diversity case
• -> if procedural, may ignore state law

Question 41

Substantive v procedural issue - applicable law

Answer 41

• Clearly established characterizations:
• -> Statutes of limitations and rules for tolling statutes of limitations are SUBSTANTIVE for Erie purposes
• -> Choice of law rules are SUBSTANTIVE for Erie purposes
• -> Elements of a claim or defense are SUBSTANTIVE
• Unclear situations
• -> Outcome determination test for substantive
• -> balance of interests test for substantive
• -> forum shopping deterrence for substantive

Question 42

Exceptions to diversity jdx

Answer 42

1. domestic relations (decrees)

2. Probate proceedings