Diversity jurisdiction problem set: explanations

About: Here are some hypos used in class, or variants thereof. Unless otherwise indicated, assume that all matters take place in federal court.

Instructions: Don’t look at the explanations until you have answered all the questions.

Question 1: Scope of Constitutional and statutory diversity.

P (citizen of Florida), sues D1 (citizen of Georgia) and D2 (citizen of Florida) for negligence for $500. Defendants argue that the Constitution and the diversity statute, 28 U.S.C. § 1332(a), both bar subject-matter jurisdiction over the suit. Are they correct?

Discussion: No, not completely. The scope of diversity jurisdiction under the Constitution is broader than it is under 1332(a). The Constitution does not mandate an amount in controversy requirement. Nor does it require complete diversity; instead, “minimal” diversity is sufficient (which exists here because there is at least one diverse party on each side of the suit). But even though the Constitution is not violated here, subject-matter jurisdiction is lacking because the diversity statute is not met for two reasons. First, the parties are not completely diverse. Even though D1 is diverse (Georgia), there are citizens of Florida on both sides of the suit. Second, the amount in controversy does not exceed $75,000, exclusive of interest and costs. Note that the “complete diversity” requirement is a judicial interpretation of the diversity statute; it’s also known as the Strawbridge rule. (Note that for class actions, the diversity statute may permit subject-matter jurisdiction in certain cases where there is minimal diversity and where the amount in controversy exceeds $5 million. See 1332(d).)

Question 2: Establishing citizenship.

Paul, a citizen of Massachusetts, accepts a wonderful new job in Miami, Florida and decides to move to Ft. Lauderdale. While driving down to Florida, he gets into a car accident in Georgia with Debbie, a citizen of Florida. While stuck in the hospital in Georgia, Paul sues Debbie in Florida federal court for $100,000. Debbie moves to dismiss for lack of subject-matter jurisdiction, arguing that Paul should be treated as a citizen of Florida. Will Debbie succeed?

Discussion: No. Generally speaking, citizenship of individuals for purposes of subject matter jurisdiction is measured by looking to the domicile. See Mas v. Perry. For domicile to change, two things must occur: 1) you must take up residence in a different domicile; and 2) you must have the intention to remain there (typically an intent to remain “indefinitely,” but as the book indicates, some courts look for a “permanent” intent, and others for an intent to stay “for the time at least”). Here, Paul had the intention to make Florida his new home, but he didn’t get there yet. Thus, Paul retained his Massachusetts citizenship and diversity jurisdiction is proper.

Question 3: Timing of diversity.

Same facts as # 2, but Paul files suit after he moves to Florida. Debbie moves to dismiss for lack of subject-matter jurisdiction. Will Debbie succeed?

Discussion: Yes. This hypo raises the question of the time at which the relevant citizenship is measured. The relevant time is the time that the complaint is filed. Here, Paul filed suit after moving to Florida. As he moved to Florida and had the intent of staying there, his domicile changed. Both parties are citizens of Florida and complete diversity is lacking.

Question 4: Multiple residences.

Paul has lived in Massachusetts his entire life and has a home there. In 2005, he bought a vacation home in Miami Beach that he stays in during the summers but otherwise still lives in Massachusetts. Can he sue Debbie (a Florida citizen) in federal court on a state-law negligence claim?

Discussion: Yes. Although the statute could have been read differently, it has been read to permit only one domicile at a time. Since Paul never moved to Florida with the intention of remaining there, he is still a Massachusetts citizen. He can invoke diversity jurisdiction so long as the amount in controversy is also satisfied.

Question 5: Representative diversity.

Patrick (citizen of Florida) gets into a bar fight with Danny (citizen of Georgia). Patrick later dies due to an unrelated medical condition. His brother, Eddie (citizen of Georgia) serves as executor and files suit against Danny on behalf of Patrick’s estate. Danny moves to dismiss for lack of diversity jurisdiction. Will he succeed?

Discussion: No, because the relevant citizenship is that of Patrick and not of Eddie. Section 1332(c)(2) indicates that “the legal representative of the estate of a decedent shall be deemed to be a citizen only of the same State as the decedent, and the legal representative of an infant or incompetent shall be deemed to be a citizen only of the same State as the infant or incompetent.”

Question 6: Foreign litigants I.

Pamela (citizen of Florida) gets into a bar fight in Miami with Caroline (citizen or subject of France). Pamela files suit against Caroline in the Southern District of Florida for $100,000. Is there subject-matter jurisdiction?

Discussion: Yes. Even though the litigants are not citizens of “different states,” the diversity statute permits suits between “citizens of a State and citizens or subjects of a foreign state.” 28 U.S.C. § 1332(a)(2).

Question 7: Foreign litigants II.

Same facts as question 6, but assume that Caroline has moved to Miami, and although still having French citizenship, has obtained lawful permanent resident status in the United States. Is subject-matter jurisdiction appropriate?

Discussion: No. Even though 1332(a)(2) permits a suit between a citizen of Florida and a citizen of France, Caroline’s status as a lawful permanent resident (“LPR”) domiciled in Florida destroys diversity. Section 1332(a)(2) says “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.” Variation: what if Caroline was an LPR domiciled in Texas instead?

Question 8. Foreign litigants III.

Pierre (citizen of France) gets into a bar fight in Miami with Hans (citizen of Germany). Pierre sues Hans in the Southern District of Florida for battery seeking $100,000. Both men are lawful permanent residents of the United States. Peter lives in Florida and Hans lives in New York. Is subject-matter jurisdiction appropriate under the 2011 revisions to Section 1332? Is subject-matter jurisdiction appropriate under the former version of Section 1332?

Discussion: Under the 2011 revisions, subject-matter jurisdiction is inappropriate. Go through the listings in 1332(a) and you will see that none of them permit a suit between two aliens in the absence of citizens of different States. This comports with the Constitution, which also does not appear to provide federal courts with jurisdiction over state-law claims between aliens. See Article III. Compare the pre-2011 version of 1332(a), which categorically stated at the bottom of 1332(a)(1)-(4) that “an alien admitted to the United States for permanent residence shall be deemed a citizen of the State in which such alien is domiciled.” The former version was intended only to divest jurisdiction, preventing a suit between a citizen of a state and an LPR domiciled in the same state. (Example: citizen of Florida versus LPR domiciled in Florida.) Apparently, nobody contemplated that the former language might create diversity in a suit between an LPR domiciled in state A and an LPR domiciled in state B. Thus, on its face, the former language would treat Pierre as a citizen of Florida, and Hans a citizen of New York, thus satisfying 1332(a)(1). This is troubling: under these facts, the former statute may well have been unconstitutional because nothing in Article III appears to permit a state-law suit in federal court between aliens. This is why 1332 was amended in 2011, to cure the apparent unconstitutionality of 1332 as applied to such facts.

Question 9. Foreign litigants IV.

Same facts as question 8, but imagine that it was a four-person fight. Now Pierre (France) and Betty (Florida) sue Hans (Germany) and Veronica (New York). Subject-matter jurisdiction?

Discussion: Yes. Section 1332(a)(3) permits subject-matter jurisdiction when the suit is between “citizens of different States and in which citizens or subjects of a foreign state are additional parties.” The suit is now between citizens of two States (Betty and Veronica) in which citizens of one or more foreign countries are additional parties (Pierre and Hans). Variation: what if Veronica was not in the suit? Answer: diversity will be lacking over the Pierre v. Hans portion of the suit. Why?

Question 10. Corporate diversity I.

Peter (citizen of Arkansas) enters into a contract with Mall-Mart, Inc. a Delaware corporation with its principal place of business in Arkansas. May Peter sue Mall-Mart in federal court for breach of contract?

Discussion: No. Section 1332(c)(1) indicates in relevant part that “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.” Note the use of “every State” where the corporation is incorporated, in contrast to the language “the State” of principal place of business. That means the corporation is a citizen of all states where it is incorporated (usually just one state though it could be more than one), but that the principal place of business (“PPOB”) can only be one state.

Question 11. Corporate diversity II.

Pamela (citizen of Florida) enters into a contract with Bisney, Inc. a Delaware corporation with theme parks in Florida and California. The Florida theme park is 20% of the company’s business, and the California theme park is 25%. Movies distributed throughout the country constitute 30% of the company’s business. The remaining 25% of the company’s business is spread around the country. The company’s headquarters are located in Orlando, Florida. Can Pamela invoke diversity jurisdiction?

Discussion: No. Prior to the Supreme Court’s decision in Hertz Corp. v. Friend, lower courts split over which test to apply in determining a corporation’s principal place of business. Some used a “business activity” or “muscle” test, which is very fact-intensive. Others used a “nerve center” test, which looks to where a corporation makes decisions, usually its headquarters. In Hertz, the Supreme Court chose the nerve center test. Since Bisney is run out of Orlando, its principal place of business is Florida, thus defeating diversity.

Question 12. Citizenship of partnerships and unincorporated associations.

Paul (Florida) wants to sue Dewey, Cheatem, and Howe, a general law partnership operating out of Atlanta, Georgia. Its three partners are citizens of Georgia, Louisiana, and Florida. May Paul invoke diversity jurisdiction?

Discussion: No. Section 1332(c) appears to be irrelevant here because the law partnership is not a corporation, it’s a general partnership. Generally, courts have not used 1332(c) in determining the citizenship of general partnerships, limited partnerships, limited liability partnerships, and limited liability companies. The same goes for labor unions. Instead, the citizenship of partnerships and other unincorporated associations is generally determined by looking at the citizenship of all the members. As one of the partners here is a citizen of Florida, diversity of citizenship would appear to be lacking. This conclusion is reinforced by the Supreme Court’s 2016 opinion in Americold Realty Trust v. Conagra Foods, Inc. which held that the citizenship of a real estate investment trust established by Maryland law should be measured by looking to the citizenship of the individual shareholders.

Question 13. Amount in controversy I.

Paul (citizen of Florida) sues Debbie (citizen of Georgia) for negligence, seeking in good faith $80,000 for his medical bills, pain and suffering, and lost wages. At trial, he was only awarded $70,000 because the jury found that Paul’s pain and suffering was somewhat less than he argued. As subject-matter jurisdiction may be raised at any time, was diversity of citizenship lacking?

Discussion: Almost certainly not. See Mas. The amount in controversy alleged controls if the claim is apparently made in good faith, and dismissal for an insufficient amount in controversy is appropriate only if it appears to a legal certainty that the claim is really for less than the jurisdictional amount. Here, Paul sought $80,000 in good faith and nothing suggests to a legal certainty that he was not entitled to more than $75,000. Note, however, that the court may deny costs to Paul (or even impose costs on him!) pursuant to Section 1332(b), which states “[e]xcept when express provision therefor is otherwise made in a statute of the United States, where the plaintiff who files the case originally in the Federal courts is finally adjudged to be entitled to recover less than the sum or value of $75,000, computed without regard to any setoff or counterclaim to which the defendant may be adjudged to be entitled, and exclusive of interest and costs, the district court may deny costs to the plaintiff and, in addition, may impose costs on the plaintiff.”

Question 14. Amount in controversy II.

Paul (citizen of Florida) sues Dialco, Inc. (Delaware corporation with principal place of business in California) in Florida court seeking recovery under a state “unsolicited instant messaging” statute that prohibits unsolicited instant messages. The statute limits recovery to $1000 statutory damages per unsolicited instant message, and prohibits any other sort of remedy (including but not limited to injunction, actual or consequential damages, punitive damages, or attorneys fees). Paul alleges that he has received 10 unsolicited instant messages and seeks $100,000 in damages. Is the amount in controversy satisfied?

Discussion: No. Pursuant to the express terms of the statute, Paul cannot recover more than $10,000 to a legal certainty.

Question 15. Amount in controversy III.

Western Legal Publishing Co., Inc. (citizen of Florida and Delaware) sues a brand-new law book company, West Legal Publishing Co. (citizen of Nevada and California) in federal court under state law for trademark infringement. Western seeks an injunction. Western hasn’t yet suffered any harm (because West Legal hadn’t yet started operations), so the value of an injunction at this time to plaintiff is minimal. The cost to West Legal, however, will be in the hundreds of thousands of dollars. Is the amount in controversy met?

Discussion: Perhaps. Per classroom discussion, in diversity cases seeking injunctive relief, courts are split on whether the amount in controversy should be measured from the perspective of the plaintiff or defendant. If measured from the plaintiff’s perspective, then the amount in controversy is not met. From the defendant’s perspective, it is met. One possible approach is that the amount in controversy would be met if either the value to P or cost to D would exceed the amount in controversy.

Question 16. Aggregation I.

Paul (citizen of Florida) sues Debbie (citizen of Georgia) for negligence ($50,000), and an unrelated breach of contract ($50,000). Is the amount in controversy met?

Discussion: Yes it is. Any one claimant (here, Paul) can add together (i.e., aggregate) any separate claims against a single opposing defendant to satisfy the AIC. Here, the Paul’s twp claims are unrelated as indicated in the fact pattern. The aggregated AIC is $100,000, exceeding $75,000.

Question 17. Aggregation II.

Paul and Penny are hurt in a car accident., Paul (citizen of Florida) sues Debbie (citizen of Georgia) for negligence ($50,000). In the same suit, Penny (citizen of Florida) joins a claim against Debbie for negligence ($50,000). Is the amount in controversy met?

Discussion: No. The aggregation rule permits any single claimant to aggregate separate claims against any single defending party. Here, Paul and Penny are separate litigants with separate damages. Even if each is suing for $50,000 for broken legs, their damages are still separate (Paul’s legs and Penny’s legs). There is a rare exception to this rule noted in the book regarding separate claimants who have a “joint and undivided interest.” For example, suppose that Paul and Debbie are joint owners of a house worth $100,000 and Debbie burns it down. If Paul and Debbie sue Debbie for $100,000, they satisfy the AIC because they have a joint interest in the house, which is worth $100,000. You’l learn more about joint interests when you study property law later in law school.

Question 18. Aggregation III.

Paul (Florida) sues Car Dealer (Georgia) because the $50,000 Furrari car he bought from Car Dealer turned out to be a lemon. Paul’s complaint alleges three Counts: I) Breach of Warranty for $50,000; II) Negligent Misrepresentation for $50,000; and III) Fraud for $50,000. Is the amount in controversy met?

Discussion: No. Remember that the aggregation rule allows adding together of separate claims. Here, Paul’s car was worth $50,000. His three counts are merely three differing legal theories that could entitle him to get $50,000. Put differently, if Paul wins on one count, he can get $50,000. However, if he wins on several (say Counts I and II), he cannot get more than $50,000. Analogy: Joe calls you and invites you to a party. You say: 1) I can’t come because I have homework; 2) I also can’t come because I don’t feel well; 3) I also can’t come because my car is in the shop. Any of those three reasons would lead to the same result — you’re not going to Joe’s party. Similarly, the three Counts in the hypo are simply three different legal theories that might entitle Paul to relief. The AIC is only $50,000.

Last revised Aug. 22, 2016 (adding Q #16-18)