Article III section 2 of the Constitution allows the federal courts to hear cases between citizens of different states. The reason for this was to remove bias from state courts, hoping a federal court would be less biased between state issues (i.e. minimize the home field advantage). However, there are a lot of questions that are presented as to how to define this phrase. How do we determine who is a citizen of what state? What if someone moves to the same state during a case? Can the federal courts hear all cases where there is diversity between citizens? etc.
Diversity Jurisdiction is outlined in 28 USC § 1332.
The Domicile Test: Citizenship
Gordon v. Steele
376 F. Supp. 575 (W.D. Pa. 1974).
Gordon is the plaintiff. Defendant moved to dismiss for lack of diversity.
Question
Was there diversity? Was the plaintiff domiciled in Pennsylvania or Idaho?
Rule
Domicile is determined by:
- Residency
- Intent to remain indefinitely.
Domicile is not determined by an intent to remain permanently.
Holding
Plaintiff is a citizen of Idaho for purpose of diversity. Motion to dismiss is denied.
Facts
This is a medical malpractice suit where the plaintiff was improperly diagnosed in Pennsylvania and suffered extensive wrist injuries. Defendants were from Pennsylvania.
Essential facts:
- Injury occurred February 1972.
- Resident of Pennsylvania before August 9, 1972.
- On August 9, 1972, plaintiff enrolled in and moved to Ricks College in Idaho.
- Action was brought in April 1973.
Analysis
The citizenship at the time of filing is what matters. Was she a citizen of Idaho or Pennsylvania? The courts said that she was a citizen of Idaho. Although she still had ties to Pennsylvania (went back for medical purposes, had a Pennsylvania Driver’s License, etc.) she had expressed an intent not to return to Pennsylvania. She did not know where she would end up but would let the work of her husband lead her to whichever place she went.
In citing other cases, the plaintiff has the burden to show only that they intend to remain in a place indefinitely. They could remain in the state, but don’t need to. Also, they must not have the intention to return back to their previous state. Based on the facts of this case, she is a citizen of Idaho.
Takeaway
Intent to remain indefinitely, not permanently. This just means that the person intends to make home in the new state and does not have a present intention to go elsewhere.
Hertz Corp. v. Friend
559 U.S. 77 (2010).
Friend sued Hertz in state court. Removed to federal court.
Question
How do we interpret “Principle place of business?”
Rule
Principle place of business means the “nerve center” typically the headquarters where all business communication and direction comes from.
Holding
Principle place of business is New Jersey, not California because New Jersey is the company headquarters where all communication may be derived from.
Facts
The plaintiff sued in a California state court for state law wage and hour claims. Hertz removed to federal court saying that they were incorporated in Delaware and New Jersey was their principle place of business, therefore they were not diverse. They argued that New Jersey was their principle place of business because it was the company headquarters.
On the other hand, the plaintiffs argued that California was the principle place of business because that is where Hertz’s primary revenue, employment, and work was conducted.
Analysis
The court has to pick between two potential theories for the principle place of business. First, there is the “nerve center” theory. Second, there is the “business activities” theory. The business activities approach can be difficult to apply, especially when it comes to large corporations. So, the Supreme Court adopts the nerve center theory for the following reasons.
First, the statute language supports the approach. Meaning, we are looking for a singular prominent place where the work is conducted. The headquarters are often fitting this description.
Second, this approach simplifies the jurisdictional process. It removes questions and is easier to apply (comparatively speaking).
Third, legislative history supports this theory. Meaning, the legislative intent was to keep this benchmark as simple as possible.
Although there are complications and exceptions, this theory is easy to adopt so the courts adopt it and apply it to the case at hand.
Takeaway
Principle place of business is typically going to be the headquarters, assuming now fraud was used to manipulate jurisdiction (i.e. communication only goes to an empty building for the sake of looking like a headquarters).
Additional Notes
Once again, note the difference of general personal jurisdiction and diversity jurisdiction when it comes to corporations.
For general personal jurisdiction, we need to look at the state of incorporation, principle place of business, and essentially “at-home”. Any of those things can be used to find domicile of the corporation.
For diversity jurisdiction purposes, we do not have any information about “at-home” per §1332. A plaintiff needs to be diverse to both the state of incorporation and the principle place of business. So instead, we want to know how to define the principle place of business.
Hertz
- California Plaintiffs
- Delaware, New Jersey defendants
- Filed in state court
- Defendants want to remove to federal court
Remove 28 USC § 1441 et seq. If the plaintiff could have filed in federal court but chose to file in state court, the defendant could “remove” the case to the federal court.
The dispute here is whether the principle place of business is New Jersey or California. The plaintiffs argue that California should be the principle place of business because that is where the majority of the sales are. The defendants argue that it should be the headquarters.
The court says that the principle place of business is the headquarters, where directing information comes to other directions. This is called the “nerve center test”. This is often a single place.
Carden v. Arkoma Assocs.
494 U.S. 185 (1990).
Arkoma is the plaintiff.
Question
Whether the citizenship of the partners in a limited partnership corporation need to be considered to establish diversity.
Rule
Overarching Rule: A diversity claim under § 1332 requires complete diversity. That is, all parties being sued must be completely diverse.
Issue Rule Partnership: Limited Partnership is not a citizen for jurisdictional purposes, even if the state considers it a citizen through creation. Therefore, look to the citizenship of the partners.
Issue Rule General vs. Limited Partners: Examine the citizenship of all the partnerships, not just some.
Holding
A limited partnership is not considered a citizen of the state that created it. A federal court must look to all of the partners, not just some. Reversed and remanded
Facts
Arkoma Associates is a partnership organized in Arizona. They sued on a contract dispute with the defendants who are from Louisiana. The defendant’s filed a motion to dismiss because one of Arkoma’s partners is also from Louisiana. Therefore, they argue that there is no diversity.
Analysis
The Supreme Court says that the trial court got it wrong (there was complete diversity) unless a limited partnership is considered a citizen of the state, or if the federal court only needs to look at the general but not the limited parters.
For the first issue, the court says that a limited partnership is not a citizen and must therefore look to the citizenship of the members. This is because all the past cases that have found citizenship for businesses have been for corporations. Additionally, statute has looked towards the citizenship of corporations. All other entities therefore, need to examine the citizenship of its members. For this case, Arkoma is not a citizen because of it’s filing status and we need to examine where all of the partners are citizens.
For the second issue, the court says that all the previous precedent has led them to consider the citizenship of all the members of the partnership, not just the general ones. Therefore, the partner in Louisiana cannot be overlooked and his citizenship needs to be accounted for. Because he is a citizen of Louisiana, there is not complete diversity.
Takeaway
The question here is a difference between minimal and complete diversity. §1332 requires complete diversity. Here, there was only minimal diversity because some of the parties were diverse from the defendant.
Additional Notes
Looking at the case: Arizona plaintiffs, Louisiana plaintiff v. Louisiana defendant.
The issue here is that the plaintiff is a Limited Partnership. Not a corporation. If it was a corporation, we would have only looked at the owners and what was their principle place of business or their place of incorporation. Instead, because this is a limited partnership, we need to look at all the parties involved in the partnership.
This “destroys” complete diversity.
Redner v. Sanders
2000 WL 1161080 (S.D.N.Y. 2000).
Plaintiff lost and appealed.
Question
Can a US resident domiciled abroad bring a diversity claim against a defendant?
Rule
A US resident domiciled abroad cannot claim diversity jurisdiction under §1332.
Holding
Domiciled in France. Affirmed
Facts
The plaintiff was a US Citizen residing in France and sued New York plaintiffs. After losing, the plaintiff
Analysis
There is nothing in §1332 that allows a court to hear a case of a US citizen residing in a foreign nation. Therefore, the first claim is dropped (arguing that because the domicile was France and the defendants were in New York, there was diversity). Instead, the plaintiff would have to argue that they were domiciled in California. However, because there is lack of information concerning the residence in France, the court has no choice but to say that the plaintiff was domiciled in France.
Takeaway
There is a difference between residence and citizenship.
Additional Notes
Because there is nothing in §1332 about US citizens residing abroad, the courts are not allowed to hear those cases. The absence of express authorization to hear a case means that they cannot hear it at all.
§ 1332(a)(2) foreign diversity – Will be on the exam.
When we are talking about US citizens domiciled abroad, that is the only time the terms “domicile” and “citizen” are not going to be used interchangeably. Instead, we will us the term “resident” to reference those domiciled abroad.
However, foreign nationals who have presence in the United States, will be considered a citizen of that state (even though they are not a US citizen) for purposes of domicile.
The issue here is that the plaintiff did not have any definite plans to return to California. Therefore, he has not changed his domicile and the case will be dismissed on grounds 12(b)(1). However, the plaintiff could still sue in state court.
Additional Notes
A lot of students confuse Diversity Jurisdiction with Personal Jurisdiction. That is because both of these jurisdictions have an element of domicile. Thus, there is overlap. However, they are two separate things (Diversity falls under Subject Matter Jurisdiction). Additionally, for personal jurisdiction (general) we only care about the domicile of the defendant. For diversity, we need to look at the domicile of both parties.
Majority test for domicile
Use this test primarily for all intent and purposes.
Domicile = 1) Physical presence + 2) Intent to remain indefinitely
Minority test for domicile
The 7th circuit uses this test occasionally and it was probably intended to be the same as the majority test.
Domicile = 1) Physical presence + 2) Intend to make that place his home for the time at least.
§ 1332
To find a claim under diversity jurisdiction there needs to be:
- Domicile of different states between parties
- Amount in Controversy
What is the difference between §1332 and Article III of the Constitution. Article III establishes minimal diversity whereas §1332 establishes complete diversity
Minimal Diversity (Domicile)
There is some diversity between a few of the parties. (i.e. A Wisconsin plaintiff and a Minnesota plaintiff v. a Minnesota defendant). This is permissible under the Constitution but not under §1332.
Complete Diversity (Domicile)
All the parties on either side of the “v.” are on from different states (A Wisconsin plaintiff and an Iowa plaintiff v. a Minnesota defendant.) All the plaintiffs need to be from different states than all the defendants. This meets §1332 requirements. This rule is set up in Carden.
The issue of minimal diversity and complete diversity is a part of domicile.
As long as there is complete diversity at the time of filing then the lawsuit can carry on, even if there is no diversity once the trial begins.
A US citizen who is domiciled abroad, there is no diversity.
Amount in Controversy
Currently, in §1332, the claim needs to have at least $75,000 in dispute. The purpose of doing so reduces the claims with a lower dollar amount to minimize the burden on district courts.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
