[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
FEDERAL COURTS JURISDICTION
CLARIFICATION ACT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
NOVEMBER 15, 2005
__________
Serial No. 109-67
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
______
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COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
LAMAR SMITH, Texas RICK BOUCHER, Virginia
ELTON GALLEGLY, California JERROLD NADLER, New York
BOB GOODLATTE, Virginia ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah MAXINE WATERS, California
SPENCER BACHUS, Alabama MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana ROBERT WEXLER, Florida
MARK GREEN, Wisconsin ANTHONY D. WEINER, New York
RIC KELLER, Florida ADAM B. SCHIFF, California
DARRELL ISSA, California LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona CHRIS VAN HOLLEN, Maryland
MIKE PENCE, Indiana DEBBIE WASSERMAN SCHULTZ, Florida
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
Philip G. Kiko, General Counsel-Chief of Staff
Perry H. Apelbaum, Minority Chief Counsel
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Subcommittee on Courts, the Internet, and Intellectual Property
LAMAR SMITH, Texas, Chairman
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
ELTON GALLEGLY, California JOHN CONYERS, Jr., Michigan
BOB GOODLATTE, Virginia RICK BOUCHER, Virginia
WILLIAM L. JENKINS, Tennessee ZOE LOFGREN, California
SPENCER BACHUS, Alabama MAXINE WATERS, California
BOB INGLIS, South Carolina MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida ROBERT WEXLER, Florida
DARRELL ISSA, California ANTHONY D. WEINER, New York
CHRIS CANNON, Utah ADAM B. SCHIFF, California
MIKE PENCE, Indiana LINDA T. SANCHEZ, California
J. RANDY FORBES, Virginia
Blaine Merritt, Chief Counsel
David Whitney, Counsel
Joe Keeley, Counsel
Ryan Visco, Counsel
Shanna Winters, Minority Counsel
C O N T E N T S
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NOVEMBER 15, 2005
OPENING STATEMENT
Page
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Subcommittee on Courts, the
Internet, and Intellectual Property............................ 1
The Honorable Howard L. Berman, a Representative in Congress from
the State of California, and Ranking Member, Subcommittee on
Courts, the Internet, and Intellectual Property................ 2
The Honorable Darrell Issa, a Representative in Congress from the
State of California, and Member, Subcommittee on Courts, the
Internet, and Intellectual Property............................ 3
WITNESSES
The Honorable Janet C. Hall, Judge, United States District Court
for the District of Connecticut, on behalf of the Judicial
Conference Committee on Federal-State Jurisdiction
Oral Testimony................................................. 4
Prepared Statement............................................. 6
Mr. Arthur D. Hellman, Professor, University of Pittsburgh School
of Law
Oral Testimony................................................. 15
Prepared Statement............................................. 18
Mr. Richard A. Samp, Chief Counsel, Washington Legal Foundation
Oral Testimony................................................. 50
Prepared Statement............................................. 52
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard L. Berman, a
Representative in Congress from the State of California, and
Ranking Member, Subcommittee on Courts, the Internet, and
Intellectual Property.......................................... 69
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Member, Subcommittee on Courts, the Internet, and Intellectual
Property....................................................... 69
Supplementary Prepared Statement of Arthur D. Hellman, Professor,
University of Pittsburgh School of Law......................... 70
Proposed Draft of the ``Federal Jurisdiction Clarification Act''
by the Administrative Office of the Courts..................... 72
FEDERAL COURTS JURISDICTION CLARIFICATION ACT
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TUESDAY, NOVEMBER 15, 2005
House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 4:12 p.m., in
Room 2141, Rayburn House Office Building, the Honorable Lamar
Smith (Chairman of the Subcommittee) presiding.
Mr. Smith. The Subcommittee on Courts, the Internet, and
Intellectual Property will come to order.
Looking out at the audience today, I have to comment, I've
never seen such a sparsely attended hearing. And before I get
to my prepared remarks, I want to acknowledge that that's not
to say we're not talking about substantive subjects; it's only
to say that we're talking about very arcane subjects that may
or may not be of interest to, or understandable by, the typical
person who might be in town visiting and wanting to sit in on
typical Judiciary or other Committee hearings. But that doesn't
mean we don't appreciate the attendance of our three witnesses
today and what advice they will give us in just a few minutes.
I'm going to recognize myself--oh, and I'm glad to see
another Member, the gentleman from California, here as well.
And that means there's as many Members as there are witnesses;
which is always a good sign. And I'm going to recognize myself
for an opening statement, and then the others.
In recent years, Congress has focused its attention on
Federal jurisdiction over major cases. For example, in 2002, at
the initiative of this Subcommittee, Congress passed the
Multiparty, Multiforum Trial Jurisdiction Act. Earlier this
year, Congress passed the Class Action Fairness Act.
In this hearing, we turn to some of the jurisdictional
problems raised by ordinary civil litigation. These cases may
not have the high profile of class action or airline disaster
litigation, which are more numerous. But the legislative
proposals we're considering today would have a wide impact on
ordinary private litigation in the Federal courts.
And it's not only Federal courts that would be affected.
Many of these proposals deal with the removal of cases to
Federal court from State courts. As lawyers know, removal is
one of the most contentious aspects of civil litigation.
Plaintiffs' lawyers try to keep cases in State court;
defendants counter with their own efforts to remove to Federal
court. Our job is not to favor plaintiffs or defendants, but to
make sure that the jurisdictional arrangements are both fair
and efficient for all litigants.
Some may view removal as an intrusion on State
prerogatives. But removal has been part of the Federal Judicial
Code since the first Judiciary Act. And under the Constitution,
Congress has broad authority to define the circumstances under
which a defendant should be able to claim the protection of a
neutral Federal forum.
The proposals we're considering here today run the gamut
from the very technical to those that aim at litigation tactics
that have been described as ``gamesmanship,'' such as using the
rigid 1-year rule for removal to run the clock on defendants
and deprive them of their opportunity to remove their case to
Federal court.
Now, we look forward to discussing these and other issues
with our panelists here today. And I'll now recognize the
gentleman from California, Mr. Berman, for his opening
statement.
Mr. Berman. Well, thank you very much, Mr. Chairman. The
topic here today is diversity jurisdiction and civil procedure.
As you pointed out, it's opaque, and any illumination will be
helpful; bring us back to the courses many, many years ago that
we used to have.
The only modification I make of your general principle is
plaintiffs who sue in State courts try to keep their cases in
State courts. The ones who sue in Federal court stay.
But the hearing today concerns the complexities of
diversity jurisdiction, the concept of federalism, which holds
an assurance of an impartial forum for parties in lawsuits
filed in courts in States other than their own, and facilitates
a continued open dialogue between the Federal and State
systems.
Some of the amendments in the Committee print appear to be
technical in nature; others address some of the core policy
considerations behind Federal diversity jurisdiction. Because
application of diversity jurisdiction is complicated and
greatly affects an already over-burdened Federal court, it is
important that we consider the impact of these provisions.
Reducing redundant or unnecessary litigation is a laudable
goal. We should clarify when Federal diversity jurisdiction
exists, and help those who appear before courts understand
where the bright lines of diversity jurisdiction exist.
Furthermore, it's my understanding that specific provisions
of the proposed legislation will achieve the original intention
of Congress when passing, I guess, the most recent diversity
jurisdiction legislation.
These witnesses who are here today will help outline how
this legislation will do that, and explain the advantages of
passing the proposed text in the Federal Courts Jurisdiction
Clarification Act. Thank you, Mr. Chairman. I yield back.
Mr. Smith. Thank you, Mr. Berman. The gentleman from
California, Mr. Issa, is recognized for an opening statement.
Mr. Issa. Thank you, Mr. Chairman. I would ask that my
entire opening statement be placed in the record.\1\
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\1\ The prepared statement of Mr. Issa was not available for
insertion in this hearing at the time it was submitted for publishing.
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Mr. Smith. Without objection, it will be.
Mr. Issa. And very briefly, Mr. Chairman, I want to thank
you for holding this hearing. And I know you said it's arcane,
but as somebody who has seen the gamesmanship lawyers play,
either to get something in or keep something from going into
Federal jurisdiction, depending upon their goals, I'm keenly
interested in hearing how current legislation, and potentially
even future legislation, can be catered to create what the
Chairman--rightfully so--has said should be a neutral
situation; one in which it is not we in Congress trying to
determine that something must go for an advantage to a
plaintiff or a defendant.
And your view, particularly, Your Honor, on what we've done
so far and what gamesmanship you see being played to get in--to
manipulate, to get into the Federal court for an advantage of
one side over the other, would be very insightful. Because
ultimately, we do not--well, I believe that this Committee in
its entirety does not want to be encouraging the Federal
Government to take on burdens that are inappropriate or
unnecessary; that the courts belong to the States, with rare
exceptions, and we should try to keep those as rare as
absolutely necessary.
So I look forward to the testimony. As Chairman, I think
you hit it right on, by saying that this is all about us not
favoring one side or the other, but providing an appropriate
path. And with that, I yield back.
Mr. Smith. Thank you, Mr. Issa. Before I introduce the
witnesses, I'd like to invite you to stand and be sworn in.
[Witnesses sworn.]
Mr. Smith. Our first witness is Judge Janet C. Hall, of the
United States District Court for the District of Connecticut.
She is here today on behalf of the Judicial Conference. Judge
Hall was appointed to the bench in 1997. She graduated from
Mount Holyoke College, magna cum laude, and also received her
JD from the New York University School of Law, where she was a
Ruth Tilden scholar.
Our next witness is Professor Arthur Hellman. Professor
Hellman is a professor of law at the University of Pittsburgh
Law School. His areas of specialization are civil procedure,
Federal courts, constitutional law. Professor Hellman received
a BA from Harvard, and a JD from Yale Law School.
Finally, our last witness is Mr. Richard Samp, Chief
Counsel from the Washington Legal Foundation, where the
majority of his practice focuses on Federal court litigation.
Mr. Samp is a graduate of Harvard College and the University of
Michigan Law School.
Welcome to you all. Without objection, your entire
statements will be made a part of the record. And we ask, of
course, that you all limit your comments to 5 minutes.
I suspect that Mr. Berman and I will have sort of extended
questions, and we'll be able to elicit further responses when
we get to that point.
Thank you all again for being here. And Judge Hall, we'll
begin with you.
TESTIMONY OF THE HONORABLE JANET C. HALL, JUDGE, UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT, ON BEHALF OF
THE JUDICIAL CONFERENCE COMMITTEE ON FEDERAL-STATE JURISDICTION
Judge Hall. Good afternoon, and thank you, Mr. Chairman,
Congressman Berman, and Congressman Issa. My name is Janet
Hall, and I'm a United States District Court Judge and a member
of the Judicial Conference Committee on Federal-State
Jurisdiction.
I'm pleased to testify here today on behalf of the Judicial
Conference--which is, of course, the policy-making body for the
Federal Judiciary--regarding the Federal Courts Jurisdiction
Clarification Act of 2005.
This bill was initiated by the Judicial Conference, and we
greatly appreciate your holding this hearing on it. We believe
that the proposals contained there in the act will clarify
jurisdictional issues that have arisen in Federal court
litigation, and thus help the parties avoid expense and delay.
The Federal Courts Jurisdiction Clarification Act is
intended to do exactly what its title says. It primarily
clarifies Federal statutes as to when claims may be asserted in
Federal court. It is not intended to change policies about who
can proceed in Federal court; but rather, to resolve some
interpretational issues with which courts have struggled.
Uncertainty is costly. If plaintiffs and defendants do not
know where they can pursue a claim or have it considered, then
judicial proceedings are wasted. Parties end up in needless
litigation over procedural issues, which only delays the
ultimate resolution of the case. We would like to bring more
certainty to the litigation process, and we believe that we
have submitted proposals to you which can do just that.
Provisions in the bill are primarily focused on diversity
of citizenship jurisdiction, which limits jurisdiction to cases
in which no plaintiff is from the same State as any defendant,
and the amount in controversy exceeds $75,000. I could just
briefly highlight a few of the provisions.
Section 2 resolves the problem created by the addition in
1988 of a sentence to the diversity jurisdiction statute that
was intended to prevent aliens residing in a State from suing a
U.S. citizen residing in the same State. This proviso, which
was written in a ``deems'' fashion, does deem an alien admitted
for permanent resident [sic] to be a citizen of the State in
which the alien is domiciled.
However, some litigants have sought to give it a more
expansive effect. And courts have disagreed on how to interpret
it. Section 2 will resolve this ambiguity by restoring what we
believe Congress intended when it initially enacted this
language, so as to preclude diversity jurisdiction when a
lawsuit is between a U.S. citizen and a permanent resident
alien who are both domiciled in the same State.
Section 3 updates and clarifies the definition of
citizenship for corporations as well as insurance companies
that are involved in direct action litigation, where those
entities have foreign business connections. In 1958, Congress
enacted a statute that provided for purposes of diversity of
citizenship jurisdiction that a corporation is deemed to have
two citizenships, in effect: of the State by which it's
incorporated, and of the State where its principle place of
business is.
Because of the use in the statute of a capital ``S'' in
``States,'' conflicting interpretations have arisen in the
courts over whether foreign states are included in the
definition. Section 3 seeks to resolve this ambiguity by adding
specific reference to foreign states, so that a company who is
incorporated abroad or who has its principal place of business
abroad would be deemed to be a citizen of those two places.
Section 4 solves several problems that have arisen with
removal and remand procedures. It first addresses the problem
created when State law claims that otherwise are not removable
are joined with a Federal case or claim and the removal is
sought. Courts have reached different conclusions as to whether
the statute permits them to hear these cases at all.
This proposal solves that problem by allowing removal,
requiring the district court to keep the Federal claim and to
hear it, but to remand the otherwise unrelated non-removable
State claim back to State court.
Section 4 also addresses timing of removal in multiple-
defendant situations. The proposed changes essentially solve
the problem created when defendants are served over an extended
period of time, and the latest-served defendant seeks to
remove. In these situations, because the statute currently is
written only in the singular, ``the defendant may remove,''
courts have disagreed on the right of the later-served
defendant to remove.
Section 5 of the Act would index the monetary threshold for
diversity jurisdiction. In '97, Congress increased the amount--
the threshold--from in excess of 50,000 to the current amount
of 75,000. But since the real value of any amount specified
would decrease over time and inflationary periods, this
proposal would seek to index the amount using a consumer price
index; allowing it to change, in effect, with the value of the
dollar, and thereby keeping the jurisdictional limit as a
meaningful threshold; without requiring review constantly by
Congress.
Lastly, I want to describe a new provision that the
Congress recently endorsed and transmitted to the House Monday,
to facilitate the use of declarations to specify the amount of
damages being sought. This proposal makes it easier for
litigants to indicate that they don't seek, and will not
accept, more than the $75,000 in damage; and in turn, will
enable a defendant to determine if removal would be a fruitless
step in the courts if it is removed to determine that diversity
jurisdiction doesn't exist.
Mr. Chairman, in closing, I want to thank you again for
holding this hearing, inviting the Judicial Conference to
testify on these proposals that we believe will help litigants
and the courts.
Again, uncertainty is costly and leads to delay. And the
judiciary believes it's identified several statutory changes
that will add certainty to the process and improve the
administration of justice. Thank you, sir.
[The prepared statement of Judge Hall follows:]
Prepared Statement of the Honorable Janet C. Hall
Mr. Chairman and Members of the Subcommittee, my name is Janet
Hall. I am a United States District Judge in the District of
Connecticut and a member of the Judicial Conference Committee on
Federal-State Jurisdiction. I have been asked to testify today on
behalf of the Judicial Conference of the United States regarding the
``Federal Courts Jurisdiction Clarification Act of 2005.'' We greatly
appreciate your holding a hearing on legislation that the Judicial
Conference has proposed. Thank you for the opportunity afforded the
federal judiciary to testify today, and I would ask that my statement
be included in the record.
For several years, the Judicial Conference of the United States has
been seeking to identify problems that litigants and judges have
repeatedly encountered in interpreting certain jurisdictional statutes
in title 28, United States Code. This effort, which has been carried
out by the Conference`s Committee on Federal-State Jurisdiction, has
been referred to as the ``jurisdictional improvements project.'' The
project provides a means by which the federal courts can identify
recurring problems and suggest clarifications to particular statutes.
The goal is simply to help both litigants and judges by eliminating
needless litigation and wasteful judicial proceedings.
Through the jurisdictional improvements project, the Judicial
Conference has approved several proposals to correct identified
problems. Each one has been the result of much study and consultation
with legal experts. This collection of proposals has now been folded
into one proposed legislative package called the ``Federal Courts
Jurisdiction Clarification Act of 2005.''
Much of this proposal focuses on diversity of citizenship
jurisdiction. The Constitution provides the basis for federal court
jurisdiction over disputes between citizens of different states
(diversity jurisdiction) and over disputes involving citizens of the
United States and citizens or subjects of foreign states (alienage
jurisdiction). As currently codified, diversity jurisdiction exists
whenever the matter in controversy exceeds $75,000 and is between
citizens of different states. See 28 U.S.C. Sec. 1332(a)(1). Under the
long-standing complete diversity requirement, no plaintiff can be from
the same state as any defendant for diversity jurisdiction to be
available. See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806).
The traditional reason given for providing for diversity jurisdiction
is ``a fear that state courts would be prejudiced against those
litigants from out of state.'' C. Wright & M. Kane, The Law of Federal
Courts 144 (6th ed. 2002).
RESIDENT ALIEN PROVISO (SEC. 2)
Although the Constitution permits the assertion of federal
jurisdiction over disputes involving aliens, established law bars the
assertion of jurisdiction over a dispute that involves only aliens.
Alienage jurisdiction exceeds the limits of Article III unless a
citizen of the United States also appears as a party. See Hodgson v.
Bowerbank, 9 U.S. (5 Cranch) 303 (1809). Cognizant of this long-
standing constitutional limitation, section 1332 allows for
jurisdiction over aliens in two situations, both of which involve U.S.
citizens. First, section 1332(a)(2) applies to disputes between
citizens of a state and citizens or subjects of a foreign state.
Second, section 1332(a)(3) applies to disputes between citizens of
different states and in which citizens or subjects of a foreign state
are additional parties. Jurisdiction based on section 1332(a)(2) or (3)
is still subject to the minimum amount-in-controversy requirement.
In general, the federal courts have taken a fairly narrow view of
the scope of section 1332(a)(2) jurisdiction, declining on statutory
grounds to assert jurisdiction over disputes in which aliens appear on
both sides of the litigation. See, e.g., Ed & Fred, Inc. v. Puritan
Marine Ins. Underwriters Corp., 506 F.2d 757 (5th Cir. 1975). Even
though U.S. citizens may appear on one side of the litigation, the
presence of aliens as opposing parties (even aliens from different
foreign countries) has proven fatal to the assertion of jurisdiction.
See generally Allendale Mutual Ins. Co. v. Bull Data Systems, Inc., 10
F.3d 425, 428 (7th Cir. 1993); 15 Moore's Federal Practice Sec. 102.77
(3d ed. 2001). In actions proceeding under section 1332(a)(3), this
rule has not been applied with the same rigor. More specifically, when
a claim between diverse U.S. citizens grounds the jurisdiction and
aliens appear as additional parties on both sides of the litigation,
jurisdiction has been upheld. See Transure, Inc. v. Marsh & McLennan,
Inc., 766 F.2d 1297, 1298-99 (9th Cir. 1985) (upholding jurisdiction
under section 1332(a)(3)); Dresser Industries, Inc. v. Underwriters at
Lloyds of London, 106 F.3d 494, 500 (3d Cir. 1997) (same).
In 1988, Congress added the ``resident alien proviso'' to section
1332(a) through enactment of the Judicial Improvements and Access to
Justice Act (Pub. L. No. 100-702). The proviso states 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.'' 28 U.S.C.
Sec. 1332(a). The purpose of that change was to preclude federal
alienage jurisdiction under section 1332(a)(2) in suits between a
citizen of a State and an alien permanently residing in the same state.
See, e.g., China Nuclear Energy Industry Corp. v. Anderson, LLP, 11 F.
Supp. 2d 1256, 1258 (D. Co. 1998). In such situations, the permanent
resident alien has appreciable connections to the state, and there was
perceived to be no need to provide for a federal forum to protect the
alien against possible bias in state court.
While the 1988 amendment curtailed alienage jurisdiction as
intended, the ``deeming'' feature created an arguable basis for
expansion of alienage jurisdiction in other settings--an
interpretational problem with which the courts have struggled. See,
e.g., Arai v. Tachibana, 778 F. Supp. 1535, 1538-40 (D. Haw. 1991), and
Saadeh v. Farouki, 107 F.3d 52, 57-61 (D.C. Cir. 1997). Under section
1332(a)(1), for example, two resident aliens from different states
might each be deemed to be a citizen only of his or her respective
state of domicile and claim access to federal diversity jurisdiction in
circumstances that would appear to violate the long-standing rule of
Hodgson v. Bowerbank (described supra). Under sections 1332(a)(2)-(3),
additional possibilities emerge for litigants involved in litigation
with resident aliens to seek to expand their access to federal court
beyond what was available before the deeming proviso took effect in
1988.
For example, in Singh v. Daimler-Benz AG, 9 F.3d 303 (3rd Cir.
1993), the court allowed a permanent resident alien in one state to
proceed against a U.S. citizen in another state and a non-resident
alien, even though the configuration of parties would have apparently
failed to support a finding of jurisdiction under either section
1332(a)(2) or (a)(3) in the absence of the deeming provision.
To correct the problem, section 2 of the proposed bill eliminates
the resident alien proviso and its deeming feature altogether, along
with its potential for jurisdictional expansion. By eliminating the
proviso, resident aliens would no longer be treated as U.S. citizens
for purposes of jurisdiction, thereby avoiding the possibly anomalous
results under section 1332(a)(1)-(3). In place of the proviso, section
2 would provide specifically that the district courts shall not have
diversity of citizenship jurisdiction under section 1332(a)(2) of a
claim between a citizen of a state and a citizen or subject of a
foreign state admitted to the United States for permanent residence and
domiciled in the same state. This provision expressly restricts the
exercise of jurisdiction over disputes between citizens of a state and
citizens or subjects of a foreign state admitted to the United States
for permanent residence and domiciled in the same state.
Section 2 would thus achieve the goal of modestly restricting
jurisdiction, which we believe Congress sought to accomplish when it
first enacted the resident alien proviso, and it would avoid the threat
of jurisdictional expansion now posed by the proviso. By attaching this
modest restriction only to section 1332(a)(2), the provision would
permit resident aliens to appear as additional parties to disputes
under section 1332(a)(3), without their status as deemed U.S. citizens
of their state of residence being treated as a basis for either
establishing or defeating the diversity of U.S. citizenship that
grounds jurisdiction under this provision.
CITIZENSHIP OF CORPORATIONS AND INSURANCE COMPANIES
WITH FOREIGN CONTACTS (SEC. 3)
Section 3 amends section 1332(c)(1) of title 28, United States
Code, to specify the treatment of citizenship in diversity actions
involving corporations, as well as insurance companies involved in
direct action litigation. The purpose is to clarify how foreign
business contacts should affect the determination of whether diversity
of citizenship is present for these entities when a case is filed in or
removed to federal court.
The changes made in this section also update the definition of
corporate citizenship to resemble that used by Congress in the
Multiparty, Multiforum Trial Jurisdiction Act of 2002 (Pub. L. No. 107-
273; see 28 U.S.C. Sec. 1369(c)(2).)
Actions involving corporations
When one of the parties to a civil action is a corporation, section
1332(c) deems that corporation to be a citizen of any ``State'' in
which it has been incorporated ``and of the State where it has its
principal place of business.'' The quoted phrase was added to section
1332(c)(1) in 1958 to give essentially multiple citizenship to
corporations. The intent was to preclude diversity jurisdiction over a
dispute between an in-state citizen and a corporation incorporated or
doing business primarily in the same state. In such situations, the
parties face no threat of bias if the action were to be resolved in
state court.
For example, today under section 1332(c), if a corporation
incorporated in Delaware has its principal place of business in
Florida, it is deemed to be a citizen of both Delaware and Florida. If
a Florida citizen or a Delaware citizen sues that corporation,
diversity jurisdiction would be defeated because both the plaintiff and
defendant would be treated as citizens from the same State (Florida or
Delaware).
When an action involves a U.S. corporation with foreign contacts or
foreign corporations that operate in the United States, federal courts
have struggled in applying this statute. See C. Wright & M. Kane,
supra, at 170. This difficulty occurs primarily because section
1332(c)(1) refers to a ``State'' and makes no reference to a
corporation with either of these two types of foreign contacts (country
of incorporation or principal place of doing business). Subsection (e)
of section 1332 defines ``States'' as including the Territories, the
District of Columbia, and the Commonwealth of Puerto Rico. Some courts
have noted that because the word ``States'' in the subsection begins
with a capital ``S,'' it applies only to the fifty states and the other
places specified in the definition and therefore does not apply to
citizens of foreign states (or countries). See, e.g., Torres v.
Southern Peru Copper Corp., 113 F. 3d 540, 543 (5th Cir. 1997);
Barrantes Calbaceta v. Standard Fruit Co., 883 F.2d 1553, 1559 (5th
Cir. 1989). Other courts applying section 1332(c)(1) have concluded
that the word ``States'' should mean foreign states, as well as States
of the Union. See, e.g., Nike, Inc. v. Comercial Iberica de Exclusivas
Deportivas, S.A., 20 F.3d 987, (9th Cir. 1994).
Following are examples of how the courts have reached different
conclusions in trying to apply the provision in the absence of specific
references to ``foreign states.'' The Fifth Circuit has treated a U.S.
corporation with its principal place of business abroad as a citizen
only of the state where it is incorporated. See, e.g., Barrantes, supra
(plaintiffs from Costa Rico (aliens) brought suit against Standard
Fruit Company, a Delaware corporation with its principal place of
business in Latin America); Torres, supra (alien plaintiffs brought
suit against Delaware corporation with principal place of business in
Peru). Such treatment of the corporations as citizens of Delaware while
ignoring their foreign contacts resulted in decisions upholding the
availability of federal alienage jurisdiction and allowing the actions
to proceed in federal court.
The Ninth Circuit, in contrast, has rejected any distinction
between foreign and domestic corporations; each would be deemed a
citizen of both its place of incorporation and its principal place of
business. See Nike, Inc., supra, at 990. Although technically dicta as
applied to U.S. corporations with business centers abroad, the Ninth
Circuit's approach has been applied to U.S. corporations in a number of
district court decisions. See note, David A. Greher, The Application
of 28 U.S.C. Sec. 1332(c)(1) to Alien Corporations: A Dual Citizenship
Analysis, 36 Va. J. Int'l L. 233, 251 n.92 (1995) (collecting some
cases). Such an approach would result in a denial of alienage
jurisdiction over suits brought by aliens against U.S. corporations
that have business centers abroad.
The provision in section 3(a) would resolve this division of
authority by implementing the dual-citizenship intent of this provision
with regard to corporations with foreign activities. It would insert
the words ``foreign state'' in two places in section 1332(c)(1) to make
it clear that all corporations, foreign and domestic, would be regarded
as citizens of both their place of incorporation and their principal
place of business. The provision would result in a denial of diversity
jurisdiction in two situations: (1) where 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) where a citizen of a foreign country
(alien) sues a U.S. corporation with its principal place of business
abroad. Such a change would bring a degree of clarity to an area of
jurisdictional law now characterized by the conflicting approaches of
the lower federal courts. By more clearly defining citizenship of
corporations with foreign ties, the legislation would deny access to a
federal court in a small range of cases for which a federal forum might
be available today.
For example, a company might have its principal place of business
in a Brazil and nonetheless choose to incorporate in Texas. It becomes
embroiled in a contract dispute with a citizen of Mexico residing in
California. The incorporation in Texas would make the corporation a
citizen of Texas. According to some lower courts, present law would
enable the corporation to claim access to a federal court through
diversity jurisdiction in a dispute with the Mexican living in
California. Section 3(a) of this proposed bill would alter the
jurisdictional analysis by deeming the corporation to be a citizen of
both Texas (where incorporated) and Brazil (where it has its principal
place of business). In this hypothetical, the case becomes one of an
alien (the Brazilian company) suing an alien (the Mexican citizen).
Federal jurisdiction presently precludes such disputes because suits
between two aliens do not satisfy the jurisdictional requirements of
section 1332(a). (It is noted that when such disputes arise from
allegedly tortious conduct in another country, the federal courts will
often assert jurisdiction only to dismiss the case under the doctrine
of forum non conveniens.)
The new provision would have no impact on the freedom of
corporations to incorporate where they see fit, to do business in
accordance with their own business plan, or to seek to utilize the
state courts as they might today. It would simply treat them as
citizens of their place of incorporation and principal place of
business on a basis consistent with the treatment of U.S. corporations.
Section 3(a) also revises the wording of section 1332(c)(1) so that
a corporation shall be deemed a citizen of ``every State and foreign
state by which it has been incorporated,'' instead of ``any State. . .
..'' (Emphasis added.) Although corporations can incorporate in more
than one state, the practice is rare. In applying the present wording
of the subsection, most courts have treated such multi-state
corporations as citizens of every state by which they have been
incorporated. Section 3 would codify the leading view as to
congressional intent and treat corporations as citizens of every state
of incorporation for diversity purposes. See C. Wright & M. Kane,
supra, at 167-68.
Direct actions against insurance companies
Subsection (b) of section 3 also amends section 1332(c)(1) to
extend parallel language to insurance companies in direct action
litigation. That subsection presently includes ``deeming'' language for
determining the citizenship of an insurance company involved in direct
action litigation, which was added by Congress in 1964 (Pub. L. 88-439,
78 Stat. 445). More specifically, the provision now reads as follows:
in any direct action against the insurer of a policy or
contract of liability insurance, whether incorporated or
unincorporated, to which action the insured is not joined as a
party-defendant, such insurer shall be deemed a citizen of the
State of which the insured is a citizen, as well as of any
State by which the insurer has been incorporated and of the
State where it has its principal place of business.
28 U.S.C. Sec. 1331(c)(1).
In a direct action case, the plaintiff sues the liability insurance
company directly without naming as a defendant the insured party whose
negligence or other wrongdoing gave rise to the claim. Section 1332(c)
presently seeks to prevent such direct actions from qualifying for
diversity jurisdiction by deeming the insurance company to be a citizen
of the state of which the insured is a citizen, as well as of every
state by which the insurer has been incorporated and of the state where
it has its principal place of business.
Congress enacted the provision primarily in response to a surge in
diversity case filings against insurance companies in Louisiana federal
court. Sen. Rep. No. 1308, 88th Cong., 2d Sess. (1964), reprinted in
1964 U.S. Code Cong. & Admin. News, p. 2778. That increase followed
adoption of a state statute there in 1959 allowing direct actions
against insurance companies. ``Because of the broad review of jury
verdicts that the Louisiana practice permits, lawyers for plaintiffs in
that state greatly preferred to be in federal court rather than in
state court. They were able to convert what otherwise would have been a
routine automobile-accident case between two Louisiana citizens into a
diversity action by taking advantage of the state statute permitting
suit directly against the insurer without joinder of the insured.'' C.
Wright & M. Kane, supra, at 171. Wisconsin also had enacted a state
statute permitting direct actions. Id.; see also Inman v. MFA Mutual
Ins. Co., 264 F. Supp. 727, 728 (E.D. Ark. 1967); Carvin v. Standard
Accident Ins. Co., 253 F. Supp. 232, 234 (E.D. Tenn. 1966). The
statutory provision added by Congress in 1964 was successful at
preventing such direct actions from proceeding in federal court under
diversity jurisdiction. Northbrook National Ins. Co., v. Brewer, 493
U.S. 6 (1989) (in applying the provision, the Supreme Court set forth
the legislative history).
Today, direct actions continue to exist in some states through
specific statutes (e.g., Louisiana, Wisconsin, and Puerto Rico) or
through examination of the nature of certain causes of action
authorized in that state (e.g., Texas, Florida, and North Carolina).
See, e.g., Hernandez v. Travelers Ins. 489 F.2d 721 (5th Cir. 1974)
(case from Texas), Shingleton v. Bussey, 223 So.2d 713 (Sup. Ct. Fla.
1969), and Corn v. Precision Contracting, Inc. 226 F. Supp. 2d 780
(W.D.N.C. 2002). Yet, for diversity purposes, the citizenship of the
insurer in such actions should be no different than that provided for
corporations in the rare instances when the insurance company has
foreign contacts. As stated in the 1964 Senate Judiciary Committee
Report accompanying passage of the earlier provision, the purpose was
to eliminate diversity jurisdiction in such direct actions brought
against a non-resident insurance carrier. Sen. Rep., supra. And at
least one court has held that the 1964 provision should be applied to
insurance companies incorporated abroad so as to carry out the intent
of the statute and deny diversity jurisdiction. See Newsom v. Zurich
Ins. Co., 397 F.2d 280, 282 (5th Cir. 1968).
Subsection (b) of section 3, therefore, amends section 1332(c)(1)
to provide the same definition of citizenship for an insurance company
engaged in direct action litigation as that proposed in subsection (a)
for corporations with foreign contacts. It inserts references to
``foreign states'' so as to address situations where insurance
companies are incorporated abroad or have their principal place of
business abroad. As a practical matter, this provision would only
affect the limited number of states where direct actions are permitted
under state law or such actions are determined to exist.
The American Law Institute also endorsed in 1969 the same
legislative solution to this problem as that now before this Congress
so as to allow courts and litigants to recognize foreign contacts in
determining diversity of citizenship for corporations, as well as
insurance companies involved in direct action litigation.
REMOVAL AND REMAND PROCEDURES (SEC. 4)
Section 4 amends title 28, United States Code, to accomplish the
following: (1) require district courts to retain a federal claim and
remand joined state claims or causes of action that would otherwise be
non-removable; (2) separate the removal provisions in section 1446 into
two statutes, with one governing civil proceedings and the other
criminal; (3) replace the specific reference to Rule 11 of the Federal
Rules of Civil Procedure with a generic reference to the rules
governing pleadings and motions in civil actions in federal court; (4)
address multiple-defendant situations in three ways--by codifying the
requirement that all defendants join in or consent to a notice of
removal, by giving each defendant 30 days in which to have the
opportunity to remove or consent to removal, and by permitting earlier-
served defendants, who did not remove within their own 30-day period,
to consent to a timely notice of removal by a later-served defendant;
(5) authorize district courts to permit removal of diversity
proceedings after the present one-year deadline when equitable
considerations justify it; and (6) commence the 30-day period for
removal when it becomes known, through responses to discovery or
information that enters the record of the state proceeding, that the
amount in controversy exceeds the statutory minimum figure, as well as
create an exception to the one-year removal deadline upon a showing of
plaintiff's deliberate non-disclosure of the amount in controversy.
This statement describes each provision more fully below.
Joinder of federal law claims and state law claims
Subsection (a) of section 4 amends section 1441(c) to clarify the
right of access to federal court upon removal for the adjudication of
separate federal law claims that are joined with (unrelated) state law
claims. Section 1441(c) presently authorizes a defendant to remove the
entire case whenever a ``separate and independent'' federal question
claim is joined with one or more non-removable claims. That subsection
also now states that, following removal, the district court may either
retain the whole case, or remand all matters in which state law
predominates.
Some federal district courts have declared the provision
unconstitutional or raised constitutional concerns because, on its
face, section 1441(c) purports to give courts authority to decide state
law claims for which the federal courts do not have original
jurisdiction. See, e.g., Salei v. Boardwalk Regency Corp., 913 F. Supp.
993, 1007 (E.D. Mich. 1996). Other courts have chosen simply to remand
the entire case to state court, thereby defeating access to federal
court. See, e.g., Moralez v. Meat Cutters Local 539, 778 F. Supp. 368,
371 (E.D. Mich. 1991). Many commentators have recognized the problem,
and a leading treatise on the subject declares that ``the present
statute is useless and ought to have been repealed.'' C. Wright & M.
Kane, supra, at 235.
Section 4(a) of this bill is intended to better serve the purpose
for which the statute was originally designed, namely to provide a
federal forum for the resolution of federal claims that fall within the
original jurisdiction of the federal courts. The change to section
1441(c) would permit the removal of the case but require that a
district court remand unrelated state law matters. This sever-and-
remand approach is intended to cure any constitutional problems while
preserving the defendant's right to removal in claims arising under
federal law.
Separating the removal statute into civil and criminal statutes
Sections 4(b)(1), (b)(2)(A), and (d) amend section 1446 to change
the section title and strike certain references to ``criminal
prosecutions'' so as to separate the removal provisions relating to
civil and criminal proceedings into two statutes. Section 1446
presently contains several subsections, some of which are applicable to
removal of both civil and criminal cases, some applicable only to civil
cases, and some pertaining only to criminal cases. Separating them into
two statutes would assist litigants in knowing which provisions were
applicable to their type of case.
To complete the implementation of this change, section 4(e)
codifies the new statute for criminal proceedings as section 1446a. The
statute for civil proceedings would continue to be section 1446. To
make conforming changes for this provision, current subsections (c)(1)-
(5) and (e) of section 1446 would be deleted and re-codified in the new
section 1446a. Also, current sections 1446(d) and (f) would be re-
designated as subsections (c) and (d), respectively.
Rule 11 reference
Section 4(b)(2)(B) amends section 1446(a) to replace the specific
reference to Rule 11 of the Federal Rules of Civil Procedure with a
generic reference to the rules governing pleadings and motions in civil
actions in federal court. The statute now requires that the notice of
removal be signed pursuant to Rule 11 of the Federal Rules of Civil
Procedure. Rule 11 applies to ``[e]very pleading, written motion, and
other paper'' filed in a civil action, but does not specifically refer
to a notice of removal. The intent is to make clear that the
requirements of Rule 11 (or other rules governing pleadings) apply to a
``notice of removal'' while avoiding any specific reference to that
rule. This will prevent any confusion should the Federal Rules of Civil
Procedure ever be revised or renumbered or additional rules applying to
pleadings be added.
Removal in multiple-defendant cases
Section 4(b)(3) begins by amending section 1446(b) by re-formatting
the subsection. It creates a new subsection (2) within section 1446(b)
that codifies the present rule of unanimity regarding consent by all
defendants to removal. See C. Wright & M. Kane, supra, at 244. It then
addresses the main objective of this new subsection, namely to
eliminate confusion surrounding the timing of removal when all of the
defendants are not served at the outset of the case.
Section 1446(b) currently specifies a 30-day period for ``the
defendant'' to remove the action, but it does not address situations
with multiple defendants, particularly where they are served over an
extended period of time during and after the expiration of the first-
served defendant's 30-day period for removal. In those situations,
federal courts have differed in determining the date on which the 30-
day period begins to run. Compare Marano Enterprises v. Z-Teca
Restaurants, LP, 254 F.3d 753, 756-57 (8th Cir. 2001) (holding that
each defendant has 30 days to effect removal, regardless of when or if
other defendants had sought to remove) and Brierly v. Alusuisse
Flexible Packaging, Inc., 184 F.3d 527, 532-33 (6th Cir. 1999) (holding
that time for removal in case involving multiple defendants runs from
the date of service on the last-served defendant, and permitting
defendant who failed to remove within own 30-day period to join the
timely removal petition of a later-served defendant) with Getty Oil
Corp., v. Ins. Co. of North America, 841 F.2d 1254, 1262-63 (5th Cir.
1988) (holding that the first-served defendant and all then-served
defendants must join in the notice of removal within 30 days after
service upon the first-served defendant); cf. McKinney v. Board of
Trustees of Mayland Community College, 955 F.2d 924, 925-28 (4th Cir.
1992) (holding that each defendant may have 30 days to file notice of
removal, and rejecting the Getty Oil argument that served defendants
must join a petition for removal within the time specified for the
first-served defendant).
Section 4(b)(3) of this proposed bill addresses the present
interpretational problem by affording a later-served defendant 30 days
from his or her own date of service (or receipt of initial pleading) to
seek removal. The change, which essentially embraces the Fourth
Circuit's view, would also allow earlier-served defendants to consent
to removal during the 30-day removal period of a later-served
defendant. 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. Such an
approach does not allow an indefinite period for removal; plaintiffs
could still choose to serve all defendants at the outset of the case,
thereby requiring all defendants to act within the initial 30-day
period.
In addition, the provision allows unserved defendants to join in a
removal initiated by a served defendant. This new subsection clarifies
the rule of timeliness and provides for equal treatment of all
defendants in their ability to obtain federal jurisdiction over the
case against them without undermining the federal interest in ensuring
that defendants act with reasonable promptness in invoking federal
jurisdiction.
Authorizing removal after one year
Section 4(b)(4) amends section 1446(b) to authorize district courts
to permit removal after the one-year period specified in current law
upon a finding that equitable considerations warrant removal. In 1988,
Congress amended this statute to prohibit the removal of diversity
cases more than one year after their commencement. This change
encouraged prompt determination of issues of removal in diversity
proceedings, and it sought to avoid the disruption of state court
proceedings that might occur when changes in the case made it subject
to removal. The change, however, led some plaintiffs to adopt removal-
defeating strategies designed to keep the case in state court until
after the one-year deadline passed. In those situations, some courts
have viewed the one-year time limit as ``jurisdictional'' and therefore
an absolute limit on the district court's jurisdiction. Other courts
have viewed the period as ``procedural'' and therefore subject to
equitable tolling. See, e.g., Tedford v. Warner-Lambert Co., 327 F.3d
423, 426 (5th Cir. 2003).
To resolve the conflict, section 4(b)(4) grants district court
judges discretion to allow removal upon a finding that equitable
considerations warrant it. In determining the equities, the district
court will presumably consider such factors as whether the plaintiff
had engaged in manipulative behavior, whether the defendant had acted
diligently in seeking to remove the action, and whether the case had
progressed in state court to a point where removal would be disruptive.
Amount in controversy and removal timing
Section 4(b)(5) amends section 1446(b) by inserting a new
subsection (4) to address issues relating to uncertainty of the amount
in controversy when removal is sought and state practice either does
not require or permit the plaintiff to assert a sum claimed or allows
the plaintiff to recover more than an amount asserted. While current
practice allows defendants to claim that the jurisdictional amount is
satisfied and remove, several issues complicate this practice.
First, the circuits have adopted differing standards governing the
burden of showing that the amount in controversy is satisfied. The
``sum claimed'' and ``legal certainty'' standards that govern the
amount-in-controversy requirement when a plaintiff originally files in
federal court have not translated well to removal, where the plaintiff
often may not be permitted to assert a sum claimed or, if asserted, may
not be bound by it. Second, many defendants faced with uncertainty
regarding the amount in controversy feel compelled to remove
immediately--rather than waiting until future developments provide
needed clarification--for fear that waiting and removing later will be
deemed untimely. In these cases, federal judges often have difficulty
ascertaining the true amount in controversy, particularly when removal
is sought before discovery occurs. As a result, judicial resources may
be wasted and the proceedings delayed when little or no objective
information accompanies the notice to remove.
Section 4(b)(5) responds by amending section 1446(b) to allow a
defendant to assert an amount in controversy different from that in the
initial pleading if the complaint seeks non-monetary relief or 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. The removal will succeed if the district court finds by a
preponderance of the evidence that the amount in controversy exceeds
the amount specified in 28 U.S.C. Sec. 1332(a), presently $75,000. If
the defendant lacks information with which to remove within the 30 days
after the commencement of the action, the defendant may take discovery
in the state court with a view toward ascertaining the amount in
controversy. If a statement appears in response to discovery or
information appears in the record of the state proceeding indicating
that the amount in controversy exceeds the threshold amount, then the
new subsection deems it to be an ``other paper'' within the meaning of
section 1446(b)(3), thereby triggering a 30-day period in which to
remove the action. The district court must still find by the
preponderance of the evidence that the jurisdictional threshold has
been met. However, if such an ``other paper'' appears in response to
discovery or as part of the record and trial is underway or is to begin
within 30 days, then the defendant must show, and the district court
must find, that the plaintiff deliberately sought to conceal the true
amount in controversy.
In addition, if the removal notice has been filed more than one
year after commencement of the action, such a finding is deemed to
satisfy the equitable considerations in section 1446(b)(3) so as to
permit removal.
INDEXING THE AMOUNT IN CONTROVERSY (SEC. 5)
Section 5 amends section 1332 to enable the minimum amount in
controversy for diversity of citizenship jurisdiction, which is
presently $75,000, to be adjusted periodically in keeping with the rate
of inflation. Such an automatic adjustment would avoid the need to
periodically revisit the underlying amount specified in the statute and
then to enact large increases. This change would also preserve the
monetary amount as a meaningful threshold for diversity jurisdiction.
Section 5(a) amends section 1332 to indicate that the present
minimum amount in controversy, $75,000, is subject to adjustment as
provided under a new subsection (f) of section 1332. Section 5(b) adds
subsection (f), which would set forth the formula for adjusting the
amount in controversy.
The formula specifies that effective on January 1 of each year
immediately following a year evenly divisible by 5, the jurisdictional
amount shall be adjusted according to a formula tied to the Consumer
Price Index for All Urban Consumers (CPI-U). The CPI-U, which measures
the average change in the prices paid by urban consumers for a
representative basket of goods and services, is the most widely used
gauge of price changes as a means of adjusting dollar values. Under
this section's formula, the Director of the Administrative Office of
the U.S. Courts would be required, before the end of each year that is
evenly divisible by five, to compute the percentage increase in the
CPI-U for September of such year in relation to the price index for
September of the fifth year preceding such year. The percentage
increase would be rounded up or down to the nearest $5,000 and then
added to the amount in controversy then in effect. The new figure, as
well as the percentage change and the resulting dollar amount, would be
submitted for publication in the Federal Register by November 15 of
the year in which it is computed. (It is anticipated that any new
minimum amounts in controversy would be published within the notes
following section 1332, after their publication in the Federal
Register.)
If this formula had been applicable beginning in 2000, the formula
would have operated as follows. The change in the CPI-U for September
2000 as compared to 1995 provided a cumulative CPI-U increase of 13%.
Applying that increase to the amount in controversy (13% x $75,000)
would yield $9,750, which figure, rounded to the nearest $5,000, would
become $10,000. The resulting figure would be added to the amount in
controversy ($75,000 + $10,000), resulting in a new amount in
controversy of $85,000, effective January 1 of 2001.
The next review if the formula had been in effect would have been
in 2005 (the next year evenly divisible by 5). The change in the CPI-U
for September 2005 as compared to 2000 would provide a cumulative CPI-U
increase of 12.33% (assuming a 3% CPI increase for 2005). Applying that
percentage to the amount in controversy ($85,000) would yield $10,480,
which, rounded to the nearest $5,000, would become $10,000. This figure
would be added to the amount in controversy ($85,000 + $10,000) to make
it $95,000, effective January 1 of 2006. (Note that the CPI-U as
applied to the amount in controversy must yield at least $2,500, which
would then be rounded to $5,000, so as to have any effect and generate
a new amount in controversy.)
Congress has previously enacted similar indexing provisions. For
example, in the Bankruptcy Reform Act of 1994, Congress authorized
adjustments every three years of certain dollar amounts applicable to
bankruptcy actions so as to keep pace with inflation as reflected by
changes in the CPI-U. See 11 U.S.C. Sec. 104(b); 66 Fed. Reg. 10910-02
(2001). In addition, in the Federal Civil Penalties Inflation
Adjustment Act of 1990, Congress authorized executive agencies to
adjust civil monetary penalties at least once every four years so as to
``allow for regular adjustment for inflation,'' which adjustment is
also based on the Consumer Price Index. Pub. L. No. 101-134 (codified
as a note under 28 U.S.C. Sec. 2461); see, e.g., FTC application at 16
C.F.R. Pt. 1.
The minimum amount in controversy for diversity jurisdiction was
last increased in 1997 when Congress raised the amount from $50,000 to
$75,000. (See Federal Courts Improvement Act of 1996, Pub. L. No. 104-
317.) Prior to that, the minimum amount in controversy had been $10,000
until Congress raised it to $50,000 in 1988 through enactment of the
Judicial Improvements and Access to Justice Act (Pub. L. No. 100-702).
However, the present $75,000 threshold amount has not been adjusted by
Congress in eight years, while the true value of that amount has
decreased significantly. This indexing provision will allow the dollar
figure for the amount in controversy to keep pace in the future with
inflation and to avoid the need for large increases after lengthy
intervals.
FACILITATING THE USE OF DECLARATIONS TO ASSERT DAMAGES IN CIVIL CASES
In September 2005, the Judicial Conference adopted another position
that would clarify federal jurisdiction, and therefore, is being
submitted for inclusion within the Federal Courts Jurisdiction
Clarification Act. This proposal facilitates the use of declarations as
to the dollar amount of damages being sought in a civil case. It amends
28 U.S.C. Sec. 1441(a) to prevent removal to federal court of state
cases in which plaintiffs declare that they will forgo recovery in
excess of the current monetary threshold ($75,000) for diversity of
citizenship jurisdiction. It also amends 28 U.S.C. Sec. 1447 to allow
plaintiffs in cases that have been removed to federal court to submit a
declaration indicating their willingness to forgo damages in excess of
$75,000 and seek remand. This two-part declaration-remand proposal is
intended to prevent cases in which the plaintiff agrees to forgo claims
in excess of the threshold amount in controversy from being removed
and, if removed, to allow federal judges to remand the action. In so
doing, it is intended to facilitate the resolution of cases where the
plaintiff is seeking an amount less than $75,000, and avoid needless
litigation over the proper forum for the case.
These provisions permit litigants to indicate, where possible, that
a state court forum is appropriate when the plaintiff is willing to
forgo damages in excess of $75,000. Some states do not require or allow
the plaintiff to include a specific amount of damages in the complaint.
Other states permit plaintiffs to allege a certain amount for the
purpose of ensuring that the case is directed to the appropriate state
trial court, without indicating the specific amount of damages being
sought. The reason for such restrictions appears to be to prevent
complaints from asserting figures that overstate the value of the case
and pose a potential threat to the defendant's reputation.
Nevertheless, even if a state prohibits a plaintiff from alleging a
specific damage amount, many states permit the use of a declaration or
statement of damages to allow the plaintiff to indicate that he or she
will not seek damages in excess of the threshold monetary amount that
permits the defendant to remove the case to federal court.
This proposal also responds to the limitation placed upon federal
courts in determining whether a diversity case may be remanded. In St.
Paul Mercury & Indemnity Co. v. Red Cab Co., 303 U.S. 283, 288-89
(1938), the Supreme Court held that events occurring after diversity
jurisdiction attaches that reduce the amount in controversy below the
statutory limit do not divest the federal court of subject-matter
jurisdiction. Thus, while a plaintiff may file a declaration in federal
court (that he or she is neither seeking nor will accept more than
$75,000 in relief) so as to obtain remand of the action, some courts
hold that they are precluded by the holding in Red Cab from allowing a
post-removal declaration to divest the federal court of jurisdiction.
As a result, some federal courts proceed to hear the diversity suits to
completion even though the plaintiffs would have waived recovery above
$75,000 in order to return to state court.
This proposal addresses these difficulties, with which judges and
litigants have struggled, through two, related provisions. The first
provision precludes removal of a case where the plaintiff has filed a
declaration in state court, if permitted by state practice, that he or
she will not seek or accept a recovery in excess of the $75,000 federal
jurisdictional threshold. More specifically, it provides that if the
plaintiff has filed a declaration in State court, as part of or in
addition to the initial pleading, to the effect that the plaintiff will
neither seek nor accept an award of damages or entry of other relief
exceeding the amount specified in section 1332(a) of this title, the
case shall not be removed based on diversity jurisdiction so long as
the plaintiff abides by the declaration and it remains binding under
state practice. Such a declaration would establish, so long as the
declaration would be treated as binding in accordance with state law,
that the claim does not satisfy the requirements for federal
jurisdiction. This provision is not intended to dictate or alter the
extent to which state procedure allows the use of declarations.
Instead, it is intended to clarify the legal implications of
declarations when they are submitted in an effort to remain in state
court.
The second provision vests federal district courts with discretion
to remand an action to state court on the basis of a declaration filed
within 30 days of removal. These post-removal declarations would not
deprive the district court of subject matter jurisdiction and thus
inflexibly require dismissal of the action or remand to state court.
Instead, the filing of a declaration would trigger a discretionary
authority under which the district judge could remand the action or
retain it ``in the interest of justice.'' Although most district courts
would likely order a remand upon the filing of an effective
declaration, the interest-of-justice standard would enable judges to
consider equitable factors that bear on the fairness of returning the
case to state court and allow the district court to retain it where
special factors would make the remand unfair or oppressive.
Following is an example of how this proposal might be applied. A
plaintiff in Idaho files a tort claim against a defendant in Kansas.
Idaho law provides that a plaintiff cannot assert in the complaint the
actual amount in damages being sought. The defendant later learns
during discovery that the case may be worth over $100,000 in damages.
Two scenarios could then unfold. The plaintiff could file a declaration
with the state trial court, if permitted, saying that she does not seek
and will forgo any damages in excess of $75,000. This declaration would
be intended to make the case non-removable, so long as the declaration
is not circumvented and remains binding. If the defendant nevertheless
were to file a notice of removal in federal court, the federal judge
could easily cite to the new sentence in section 1441(a) in ordering a
remand.
If the defendant instead removes the case to federal court before
the plaintiff can file the declaration in state court, the plaintiff
would have 30 days in which to file a declaration in the federal
district court indicating that she will not seek or accept an award of
damages above $75,000. If the plaintiff files such a declaration, the
federal district judge could then remand the action. If the plaintiff
returns to state court and learns of additional injuries and medical
bills resulting from the tort and indicates a desire to seek damages
for them, then the defendant might again remove the case. The federal
district court could then decide that, in the interest of justice, it
should keep the case (even though the declaration was filed earlier)
because the amount in controversy then appears to exceed $75,000.
CONCLUSION
In closing, I would like to say that, although much of this bill
appears to address nuances of jurisdictional law, they are nuances that
make a difference in the administration of justice. This package of
proposals put forth by the Judicial Conference will solve
interpretational problems surrounding certain statutes and will add
certainty to the legal process. As a result, we hope that the 109th
Congress will embrace these provisions and help us to avoid the
wasteful litigation that has occurred.
Thank you again, Mr. Chairman, for the opportunity to testify on
behalf of the Judicial Conference in support of this necessary
legislation. I would be pleased to answer any questions you or the
other members of the Subcommittee may have.
Mr. Smith. Thank you, Judge Hall.
Professor Hellman.
TESTIMONY OF ARTHUR D. HELLMAN, PROFESSOR, UNIVERSITY OF
PITTSBURGH SCHOOL OF LAW
Mr. Hellman. Thank you, Mr. Chairman. If there was ever a
case that belonged in Federal court on the basis of diversity,
it would seem to be the lawsuit that Carol Ernst brought
against Merck and Co., alleging that her husband's death was
caused by the drug Vioxx, which Merck manufactured.
The plaintiff was a grieving widow who was a citizen and
resident of the State in which the suit was brought, which
happened to be Texas. The defendant was not only a citizen of
another State, it had its headquarters in a different region of
the country.
It's not surprising that the plaintiff filed suit in State
court in her home State. But you would expect that the
defendant would remove the case to Federal court, because the
suit seemed to meet the requirements for diversity jurisdiction
removal: Mrs. Ernst was a citizen of Texas; Merck was
incorporated in New Jersey.
At the time the verdict was handed down, there were no
other defendants in the case, so the familiar rule of complete
diversity was satisfied. Obviously, the amount in controversy
was well over $75,000. And because Merck was a citizen of New
Jersey, the forum defendant rule had no applicability.
Why, then, did Merck did not remove this suit on the basis
of diversity? It did not because it could not. Although Merck
was the only defendant in the case at the time of the verdict,
that was not so at the time the plaintiff filed her suit in
State court. In the initial complaint, Mrs. Ernst named several
other defendants, all of whom were citizens of Texas. These
included the doctor who prescribed Vioxx, and a doctor and
research lab that took part in Vioxx experiments.
But I've already said that by the time the case got to
trial, there was only one defendant, and that was Merck. Why
couldn't Merck remove once the last Texas defendant had been
dropped from the case? After all, section 1446(b) provides that
if the case stated by an initial pleading is not removable, the
defendant may file a notice of removal within 30 days after the
case does become removable. That would seem to describe Merck's
situation precisely.
Well, the answer to that puzzle lies in the last clause of
section 1446(b), a provision that the Judicial Conference now
proposes to modify. Under that provision, which was added by
Congress only in 1988, a diversity case may not be removed more
than 1 year after the commencement of the action. By the time
the last Texas defendant had been dropped from the Ernst case,
more than 1 year had elapsed.
Well, that was no accident. Mrs. Ernst's lawyer wanted that
lawsuit to stay in the State court, so he kept the Texas
defendants--sometimes called the ``spoilers''--in the case for
more than a year, and Merck never even attempted to remove.
Well, the Ernst litigation is far from unique. Earlier this
year, a district judge summed up what he called the procedural
gamesmanship that the current law allows. And what he said was
this, and I'll quote it:
``As numerous courts have acknowledged, many plaintiffs'
attorneys include in diversity cases a non-diverse defendant
only to non-suit that very defendant after 1 year has passed in
order to avoid the Federal forum. The result is that diversity
jurisdiction--a concept important enough to be included in
article III of the Constitution, and given to courts by
Congress--has become nothing more than a game. Defendants are
deprived of the opportunity to exercise their right to removal
and litigate in Federal court, not by a genuine lack of
diversity in the case, but by means of clever pleading. No one
can pretend otherwise.''
That's the end of the quote.
Well, the Judicial Conference proposes to address this
procedural gamesmanship by amending the statute to provide that
the 1-year prohibition on diversity removal is subject to
equitable tolling. That would be a modest improvement on
current law, but I believe that it is unnecessarily grudging,
and that it does not adequately address the abuses generated by
existing law.
The better solution, I suggest, is to simply eliminate the
1-year rule and restore the law to what it was before 1988,
where it doesn't seem to have caused any real problems. That's
exactly what Congress has already done in the Class Action
Fairness Act, and there is every reason to extend that judgment
to all diversity cases.
Gamesmanship to prevent removal is not limited to naming
co-citizens as defendants. We also see it in the context of
disputes over the amount in controversy requirement of 1332. As
Judge Hall has mentioned, the Judicial Conference, in a recent
update, has proposed that the courts rely on stipulations--or
declarations, as they call them. That's an excellent idea;
although implementation will require careful drafting.
Well, my time is about up. In my statement, I've suggested
several other possible amendments to the Judicial Code. These
deal with appellate review of remand orders; the possibility of
removal based on minimal diversity in specified kinds of cases;
and the use of rulemaking to address technical aspects of
removal procedure that have divided the courts.
I hope we'll have a chance to discuss these later in the
hearing. And I appreciate the opportunity to share these views
with the Subcommittee. Thank you.
[The prepared statement of Mr. Hellman follows:]
Prepared Statement of Arthur D. Hellman
Mr. Smith. Okay. Professor Hellman, thank you. And thank
you for citing that Texas case.
Mr. Hellman. Not your district, though, I believe.
Mr. Smith. Very instructive.
Mr. Samp.
TESTIMONY OF RICHARD A. SAMP, CHIEF COUNSEL, WASHINGTON LEGAL
FOUNDATION
Mr. Samp. Mr. Chairman and Ranking Member Berman, thank you
for the opportunity to express my views at this hearing. I
strongly support the thrust of this excellent set of proposed
changes put together by the Judicial Conference. My testimony
raises for the Subcommittee's consideration several minor
revisions to the Judicial Conference's approach.
I approach this bill, and any effort to revise Federal
court jurisdiction, with three principal goals in mind. First,
statutes ought to be clear. When clearly-defined jurisdictional
limits are established, courts and litigants devote far less of
their resources to disputes over whether a case belongs in
Federal court.
Second, the statutes ought to honor the Founders'
commitment to diversity jurisdiction as an essential feature of
the Federal court system. Cases in which jurisdiction was based
on diversity of citizenship, including cases originally filed
in Federal court and those removed from State court to Federal
court by defendants, have been a major staple of Federal court
dockets since 1789. Indeed, for the first century of our
history, virtually all Federal cases were diversity
jurisdiction cases.
Third, the statutes ought not to be written so as to allow
one party to the litigation to manipulate the system to prevent
the other party from exercising his or her right to invoke the
Federal court's diversity jurisdiction. Plaintiffs that wish to
litigate their claims in the State court, as many do, often
take steps designed to thwart defendants' exercise of their
removal rights. Accordingly, if those rights are to be
protected, Congress needs to adopt statutes designed to prevent
plaintiffs from inappropriately interfering with removal
rights.
The proposed legislation does an excellent job of
addressing all three of those concerns. I wholeheartedly
support sections 2, 3, 4(a), 4(b)(1) and (2), 4(b)(3), and 4(e)
of the bill, having to do with such subjects as what to do when
a defendant seeks to remove a Federal law claim that is joined
with a separate and independent claim, and how to handle
removal petitions when there is more than one defendant. I
won't discuss those provisions further, except to say that in
my written testimony, I have proposed several minor changes in
wording.
I want to focus my testimony today on two provisions:
section 4(b)(4), which addresses removal more than 1 year after
commencement of the action; and section 4(b)(5), which
addresses how courts should determine whether the amount in
controversy exceeds the $75,000 minimum necessary to establish
jurisdiction in diversity cases.
Since 1988, Federal law has barred defendants from filing
removal petitions more than 1 year after commencement of the
action, even if the defendant had no way of ascertaining that
the case was removable until after that 1-year period has
expired. As the bill recognizes, this provision has led to
abuses by plaintiffs, who employ a variety of tactics to make
it impossible for defendants to remove cases during the 1-year
period.
The bill proposes to address that problem by allowing cases
to be removed even after the 1-year period, when ``equitable
considerations warrant removal.'' I respectfully suggest that
that provision will lead to innumerable fights over what
constitutes equitable considerations.
A better solution would be to abolish the 1-year time limit
altogether. In 1988, when it adopted the provision, Congress
was apparently concerned that late removals would disrupt
ongoing proceedings in which a State court judge had already
invested substantial resources. But even without the 1-year
limitation period, there are still substantial restrictions on
a defendant who seeks to remove a case that has been pending
for a considerable period of time. In particular, the defendant
may only remove within 30 days of the date on which the case's
removability was first ascertainable.
It will generally be the plaintiff's fault if information
permitting removal is not provided until more than a year
following commencement of the action, so he or she has little
cause to complain about a late removal.
If Congress does decide to adopt the Judicial Conference's
``equitable considerations'' language, I suggest that the bill
be amended to spell out as precisely as possible just what the
relevant considerations are.
With respect to section 4(b)(5), the provision addressing
the amount in controversy requirement, I support the Judicial
Conference's recognition of the need to allow removal petitions
to be filed where the complaint does not specify an amount in
controversy, or where the plaintiff has purposely low-balled
the damage figure in an effort to defeat removal, knowing that
State courts will not deem them bound at trial by that low
figure.
If removal is to be allowed in those instances based on the
defendant's independent estimate of the amount in controversy,
it is critical that the statutes include detailed provisions
regarding when the 30-day removal period begins to run.
Otherwise, the Federal courts can expect numerous battles over
whether defendants met the 30-day limitation period.
Plaintiffs will argue that the defendant should have known
immediately--based, for example, on the availability of
punitive damages--that the case was removable, and should not
have waited to obtain the plaintiffs' corroborating statement
before filing the removal petition.
I ask the Committee to consider one change in this area:
doing away with the jurisdictional amount requirements in those
diversity cases in which the amount of damages is inherently
unquantifiable.
Most tort cases fit that category, particularly if the
plaintiff claims to have suffered personal injury. In such
cases, the plaintiff can claim, in addition to any medical
expenses, lost income, and loss of bodily function, both pain
and suffering damages and punitive damages. Such damages are
taken into account in determining whether the minimum
jurisdictional amount has been reached.
I find it hard to believe that any district court judge,
after conducting a mini-trial in connection with a motion to
remand a personal injury case, could honestly determine by a
preponderance of the evidence that no reasonable jury could
award the plaintiff at least $75,000 in pain and suffering and
punitive damages. Because virtually all plaintiffs bringing
personal injury claims seek damages in excess of $75,000, the
elimination of the minimal jurisdictional amount for such
claims is unlikely to have any measurable effect on Federal
court case loads. Doing so would actually conserve judicial
resources by reducing the number of fights over whether the
jurisdictional amount has been met.
Thank you for the opportunity to testify today.
[The prepared statement of Mr. Samp follows:]
Prepared Statement of Richard A. Samp
Mr. Chairman, Ranking Member Berman, and Members of the
Subcommittee:
Thank you for the opportunity to express my views at this hearing
on the Federal Courts Jurisdiction Clarification Act of 2005, proposed
legislation to clarify and improve statutes governing the subject
matter jurisdiction of the federal courts. The Judicial Conference of
the United States is to be commended for having put together an
excellent set of proposed revisions that address many of the
jurisdictional issues that have caused difficulties for the federal
courts in recent years. I strongly support virtually all of the
proposed changes. My testimony raises for the Subcommittee's
consideration several minor revisions to the Judicial Conference's
proposed approach, but I can say unhesitatingly that the proposed
legislation as written represents a significant improvement over
current law.
MY BACKGROUND
Since 1989, I have served as Chief Counsel of the Washington Legal
Foundation, a non-profit public interest law firm located in
Washington, D.C. I am a graduate of Harvard College and the University
of Michigan Law School. My interest in issues concerning federal court
jurisdiction was piqued by the two years I spent as a clerk for a
federal judge and has continued during my 25 years as a litigating
attorney. Most of my practice focuses on federal court litigation, so I
am very familiar with current statutes governing federal court
jurisdiction and many of the issues that typically arise regarding the
proper scope of that jurisdiction.
The Washington Legal Foundation regularly participates in appellate
cases that address the circumstances under which parties sued in State
court should be permitted to remove the case to federal court. See,
e.g., Lincoln Property Co. v. Roche, No. 04-712 (U.S., dec. pending);
Collins v. American Home Products Corp., 343 F.3d 765 (5th Cir. 2003),
cert. denied, 125 S. Ct. 1823 (2005). WLF strongly believes that when
residents of a State are engaged in litigation with nonresidents of the
State, the right of the nonresidents to have their claims heard in a
federal court needs to be protected, in order to protect them from the
home-team biases sometimes displayed by State courts.
MAJOR OBJECTIVES THAT SHOULD DRIVE ANY REVISIONS
When one evaluates current statutes governing federal court
jurisdiction, three principal goals ought to be borne in mind. First,
the statutes ought to be clear. When clearly defined jurisdictional
limits are established, courts and litigants devote far less of their
resources to disputes over whether a case belongs in federal court.
When the federal circuit courts are divided over the meaning of a
jurisdictional statute, that is prima facie evidence that the statute
is not sufficiently clear, and that Congress should step in to clear up
the confusion--given that the Supreme Court lacks the docket space to
address more than a small fraction of circuit splits. When Congress
does step in, it is important that the new rule be both easy to
understand and easy to enforce; otherwise, parties inevitably will
devote considerable resources to contests over the meaning of any new
potential ambiguities.
Second, the statutes ought to honor the Founders' commitment to
diversity jurisdiction as an essential feature of the federal court
system. Both James Madison and Alexander Hamilton viewed diversity
jurisdiction as an important safeguard against local prejudices
directed at nonresident litigants. The Judiciary Act of 1789 granted
diversity jurisdiction to the federal courts; indeed, until the
creation of federal question jurisdiction a century later, diversity
jurisdiction cases were the prime staple of federal court dockets. The
rationale underlying diversity jurisdiction--protection against local
prejudice--also caused the drafters of the Judiciary Act of 1789 to
grant nonresident defendants the right to remove diversity cases from
State court to federal court. While limitations on resources
necessitate placing reasonable limits on federal court jurisdiction,
those limitations should not be invoked as justification for ignoring
the important role that diversity jurisdiction and removal jurisdiction
have played for the past 216 years in protecting nonresident litigants
from local prejudice.
Third, the statutes ought not to be written so as to allow one
party to litigation to manipulate the system to prevent the other party
from exercising his or her right to invoke the federal court's
diversity jurisdiction. When complete diversity of citizenship exists
among plaintiffs and defendants and the amount in controversy is
sufficiently large, plaintiffs are entitled to file their lawsuit in
federal court. If they choose instead to file their suit in a State's
court and the defendants are not citizens of that State, the Defendants
are entitled to remove the case to federal court, even if the suit does
not raise any issues of federal law. As Justice Story explained nearly
200 years ago, a plaintiff does not enjoy any preference when it comes
to choosing whether his suit is to be heard in a federal court or a
State court; rather, federal law traditionally has afforded a defendant
the same rights as a plaintiff to decide to litigate their case in the
federal courts. Martin v. Hunter's Lessee, 1 Wheat (14 U.S.) 304, 348
(1816). Nonetheless, plaintiffs that wish to litigate their clams in
State court (as many do) often take steps designed to thwart
defendants' exercise of their removal rights. Accordingly, if those
rights are to be protected, Congress needs to adopt statutes designed
to prevent plaintiffs from inappropriately interfering with removal
rights.
I address the provisions of the proposed legislation with each of
those three goals in mind.
SECTION 2. RESIDENT ALIEN PROVISION
Section 2 of the proposed legislation addresses ambiguities
regarding alienage jurisdiction created in 1988 when Congress amended
28 U.S.C. Sec. 1332(a) to provide that permanent resident aliens should
be deemed, for purposes of determining federal court jurisdiction, to
be citizens of the State in which they permanently reside. Section 2
eliminates those ambiguities while retaining the purpose of the 1988
amendment: to preclude jurisdiction under Sec. 1332(a)(2) over suits
between a citizen of a State and a permanent resident alien residing in
the same State. I fully support the proposed change.
SECTION 3. CITIZENSHIP OF CORPORATIONS AND INSURANCE COMPANIES
WITH FOREIGN CONTACTS
Section 3 addresses the issue of which States' citizenship(s) ought
to be attributed to a corporation that either: (1) is incorporated in
the United States but has a principal place of business overseas; or
(2) is incorporated abroad but has a principal place of business in the
United States. Federal courts have been badly split on this issue, in
light of ambiguities in the current version of 8 U.S.C.
Sec. 1332(c)(1). I support the proposed change because it provides a
clear rule of decision and because it does not deny federal court
access to corporations in situations in which they have reason to fear
local prejudice.
SECTION 4(A). JOINDER OF FEDERAL LAW CLAIMS WITH CLAIMS THAT WOULD NOT
BE REMOVABLE IF FILED SEPARATELY
The current version of 28 U.S.C. Sec. 1441(c) authorizes a State-
court defendant to remove the entire suit to federal court if at least
one of the claims raises a federal question, even if the suit also
contains other claims that are ``separate and independent'' from the
federal claim and could not otherwise be removed. This provision has
led to enormous difficulties, with some courts going so far as to
declare the provision unconstitutional--because it purports to grant
federal courts jurisdiction over matters outside their constitutionally
delegated original jurisdiction (e.g., State-law claims involving
citizens of a single State). Section 4(a) provides an admirable
solution: it would continue to permit removal of the entire case but
then require remand of the claims that are ``separate and independent''
of the federal claim(s). This solution eliminates all the difficulties
in the current law identified by federal courts but still retains a
federal forum for federal claims.
I have one minor editorial suggestion. Section 4(a) refers (in a
proposed 28 U.S.C. Sec. 1441(c)(i)(B)) to ``a non-removable claim that
is not part of the same case or controversy (within the meaning of
Article III of the Constitution) as the [federal] claim.'' I would
change the first part of that clause to read, ``a claim that could not
be removed if filed as a separate action and that is not part . . .'' I
fear that the word ``non-removable'' might be subject to
misinterpretation because it has a acquired a generally accepted
meaning in other contexts; it refers to causes of action that could
never be removed under any circumstances. See, e.g., 28 U.S.C.
Sec. 1445 (listing ``nonremovable actions'' that may never be removed
to federal court). I assume that the intent of Section 4(a) is to
operate more broadly than that. For example, if the ``separate and
independent claim'' is a State-law cause of action between citizens of
different States but seeks damages of less than $75,000, I assume that
Section 4(a) was intended to be applicable. But some courts might not
view such a claim as a ``non-removable claim,'' and thus might deem
proposed Sec. 1441(c)(i)(B) to be inapplicable. The alternative
language I have suggested might eliminate the potential confusion.
SECTIONS 4(B)(1), (B)(2)(A), & (E). SEPARATING THE REMOVAL STATUTE
INTO CIVIL AND CRIMINAL STATUTES
Sections 4(b) and 4(e) of the proposed legislation would divide the
rules governing removal of civil and criminal cases into separate
sections. Currently, both sets of rules are included in 28 U.S.C.
Sec. 1446. The proposed legislation would move the rules governing
removal of criminal cases into a new section, to be designated
Sec. 1446a. The Judicial Conference explains that its proposal is
designed to make the provisions more readily understandable. I have not
noticed that the current inclusion of both sets of rules in Sec. 1446
has led to any confusion, but I am certainly not opposed to the
proposal (which includes no changes in the substance of the rules).
SECTION 4(B)(3). REMOVAL IN MULTIPLE-DEFENDANT CASES
Most of the procedures for removing a civil case from State court
to federal court are set forth in 28 U.S.C. Sec. 1446(b). A major
deficiency in Sec. 1446(b) is that it speaks of removal by ``the
defendant'' and does not explicitly address what procedures should be
followed when (as often is true) there is more than one defendant in
the case. That deficiency has led to enormous confusion in the federal
courts when removal is sought in a multiple-defendant case. Section
4(b)(3) does an excellent job of clearing up that confusion. In
particular, it addresses when the 30-day removal period begins to run
when defendants are not served on the same day. The proposed rule
prevents plaintiffs from using scattered service dates to obstruct
removal, by providing: (1) each defendant is provided 30 days after it
has been served, to file or join in a removal petition; and (2) an
earlier-served defendant may consent to a subsequent removal during the
30-day period following service on a later-served defendant, even
though the earlier served defendant failed to file a timely removal
petition of its own. These provisions, which have already been adopted
by case law in a number of circuits, greatly facilitate coordination
among defendants and prevent a later-served defendant from being denied
access to a federal forum simply because an earlier-served defendant
may not have been sophisticated enough to have been aware of removal
rights.
I have one suggested edit. The first sentence in proposed
Sec. 1446(b)(2) reads, ``In actions involving two or more defendants,
all defendants must join in or consent to the removal of the action.''
I would add, following the words ``all defendants,'' the following
clause: ``who have been properly joined and served.'' The proposed
language is borrowed from 28 U.S.C. Sec. 1441(b) (which addresses which
defendants should be taken into account in determining whether any of
the defendants is a citizen of the forum state). Not infrequently, a
plaintiff will never serve one or more of the plaintiffs. Without the
proposed language, a plaintiff could argue that the failure of unserved
defendants (whose location may be unknown to the other defendants) to
join in or consent to the removal petition defeats removal. Defendants
should not be placed in the position of having to track down unserved
defendants to obtain their consent to removal and to complete the
search within a 30-day period, or else forfeit their right to a federal
forum. By adding the ``properly joined'' language, Congress would make
clear that, as federal courts have made clear for more than a century,
a fraudulently joined defendant need not be considered for purposes of
determining diversity of citizenship, nor consent to removal.
SECTION 4(B)(4). AUTHORIZING REMOVAL AFTER ONE YEAR.
It has long been true that a defendant seeking to remove a case to
federal court must do so within 30 days of service; or, if the case
stated by the initial pleading was not removable, within 30 days of the
date on which ``it may first be ascertained that the case is one which
is or has become removable.'' 28 U.S.C. Sec. 1446(b). In 1988, Congress
imposed a significant new limitation on the timing of removal
petitions: they may never be removed more than one year ``after
commencement of the action.'' That limitation applies even if the
defendant seeking removal was not served until well after the action
was commenced, and even if the case did not become removable until
after the one-year limitation period has expired.
The Judicial Conference correctly recognizes that the one-year
limitation period causes considerable hardship for defendants, and that
plaintiffs often seek to manipulate the rule to their advantage--by
waiting until after the period has expired either to: (1) dismiss a
defendant whose citizenship destroyed diversity and thereby prevented
removal, even though the plaintiff never had any intention of
proceeding to trial with that defendant; or (2) reveal for the first
time that he seeks damages in excess of the minimum jurisdictional
amount. The Judicial Conference proposes to address that concern by
amending Sec. 1446(b) to provide that the one-year limitation period is
inapplicable when ``equitable considerations warrant removal.''
I agree with the Judicial Conference that the one-year limitation
period has become a major problem, but I respectfully disagree with its
solution. I agree with Professor Heller that a better solution would be
to do away with the one-year limitation period altogether. In 1988 when
it adopted the provision, Congress was apparently concerned that late
removals would disrupt on-going proceedings in which a State court
judge had already invested substantial resources. But even without the
one-year limitation period, there are still substantial restraints on a
defendant who seeks to remove a case that has been pending for a
considerable period of time. In particular, the defendant may only
remove within 30 days of the date on which the case's removability was
first ascertainable. Proposed Sec. 1446(b)(5) does a good job of
spelling out when removability should be deemed first ascertainable
(``Information in the record of the state proceeding, or in response to
discovery, shall be treated as an ``'other paper'''); that provision
makes clear that a removal petition would be untimely if a defendant
failed to ascertain that a suit was removable because he was delinquent
in undertaking discovery. I note that before the one-year limitation
period was adopted in 1988, the federal courts were not flooded with
late-filed removal petitions, so deletion of the limitation period is
unlikely to have any significant impact on federal court case loads.
Moreover, the only way that it can ever take more than a year for
removability to become ascertainable is for a plaintiff to delay in
providing the pertinent information. It may be that the plaintiff
delayed in providing the information to gain a tactical advantage, or
it may simply be that the plaintiff only discovered the information (or
made a decision to switch litigation tactics) well after the suit was
filed. Either way, the plaintiff can rightly be held accountable for
any adverse consequences (caused by removal) brought about by his
inaction or change in tactics. Doing away with the one-year rule will
eliminate any incentive plaintiffs may have to employ strategies to
stall the case in hopes of delaying the ascertainment of facts that
would render the case removable.
A principal flaw in the proposed legislation is that it would
encourage endless litigation over what is meant by the phrase, ``unless
equitable considerations warrant removal.'' The proposed legislation is
virtually silent on that point. It should be a principal aim of
Congress when ``clarifying'' jurisdictional statutes to adopt
provisions that provide clarity, not ones that invite new litigation.
If the Committee decides to follow the basic approach of the
proposed legislation, I would amend proposed Sec. 1446(b)(3) to provide
as much detail as possible regarding what sort of ``equitable
considerations'' warrant removal after expiration of the one-year
limitation period. I would begin by moving the following language from
proposed Sec. 1446(b)(4) to proposed Sec. 1446(b)(3):
If the notice has been filed more than 1 year after
commencement of the action, such a finding [that the plaintiff
deliberately failed to disclose the actual amount in
controversy to prevent removal] shall be deemed to satisfy the
equitable considerations . . .\1\
---------------------------------------------------------------------------
\1\ This language seems out of place in proposed Sec. 1446(b)(4)
(which deals with jurisdictional amount issues) and much more naturally
fits within proposed Sec. 1446(b)(3) (which deals with timing issues).
I would also include the language that the Judicial Conference included
---------------------------------------------------------------------------
in its Section-by-Section analysis of the proposed legislation:
In determining the equities, the district court will . . .
consider such factors as whether the plaintiff had engaged in
manipulative behavior, whether the defendant had acted
diligently in seeking to remove the action, and whether the
case had progressed in state court to a point where removal
would be disruptive.
Another possible equitable consideration: whether the defendants
first contemplated seeking removal only after the State judge gave an
indication that he was likely to rule for the plaintiff. The more such
equitable considerations that are spelled out explicitly in
Sec. 1446(b)(3), the less likely it is that courts will reach
conflicting results regarding the relevant equitable factors and
regarding what quantum of equitable factors would ``warrant'' removal.
SECTION 4(B)(4). AMOUNT IN CONTROVERSY.
Current law bars the removal of diversity cases unless the amount
in controversy is at least $75,000. As the Judicial Conference notes,
the amount-in-controversy requirement can complicate removal issues
because frequently the complaint will not list damages sought, or the
plaintiff will purposely ``low ball'' the damage figure, knowing that
State courts will not deem him bound by that removal-defeating figure.
The proposed legislation would allow removal of virtually any
diversity case, regardless of the amount listed in the complaint.\2\ At
that point, the propriety of removal will depend on whether ``the
district court finds by the preponderance of the evidence that the
amount in controversy exceeds'' the jurisdictional amount. The proposed
change would unquestionably help to counteract the efforts of some
plaintiffs to obstruct removal by specifying a low-ball damage figure
or no damage figure at all. I have two concerns, however. First, if
Congress adopts this proposal, it will need to provide additional
guidance regarding when removability should first be deemed
ascertainable by defendants. This proposed provision suggests that a
defendant should be permitted to remove a case based on his independent
knowledge of the plaintiff's injuries, without regard to what the
plaintiff may have claimed. If that is so, one can expect that numerous
plaintiffs will challenge removal on the basis that the defendant fail
to meet the 30-day removal deadline; they will argue that the defendant
should have known immediately, based (for example) on the availability
of pain-and-suffering and punitive damages, that the case was
removable, and should not have waited to obtain the plaintiff's
corroborating statement before filing the removal petition. Second,
federal judges may be asked to conduct time-consuming mini-trials soon
after the removal petitions have been filed, in order to determine
whether the jurisdictional amount has been met; and, of course, the
parties' roles will be reversed at any such mini-trial, with the
plaintiff bad-mouthing his or her own claim.
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\2\ Proposed Sec. 1446(b)(5) allows the defendant to remove and
assert his own amount in controversy if:
[T]he initial pleading seeks (i) non-monetary 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.
My understanding of State court practices is that virtually all States
permit recovery of damages in excess of the amount demanded. Thus, the
proposed rule would permit removal of any diversity case, so long as
the defendant believes in good faith that the jurisdictional amount
exceeds $75,000.
I ask the Committee to consider an alternative: doing away with
jurisdictional amount requirements in those diversity cases in which
the amount of damages is inherently unquantifiable. Most tort cases fit
into that category, particularly if the plaintiff claims to have
suffered personal injury. In such cases, the plaintiff can claim--in
addition to any medical expenses, lost income, and loss of bodily
function--both pain-and-suffering damages and punitive damages. Such
damages are taken into account in determining whether the minimum
jurisdictional amount has been reached. See, e.g., Bell v. Preferred
Life Assurance Society, 320 U.S. 238 (1943). I find it hard to believe
that any district court judge, after conducting a mini-trial in
connection with a motion to remand a personal injury case, could
honestly determine by a preponderance of the evidence that no
reasonable jury could award the plaintiff at least $75,000 in pain-and-
suffering and punitive damages. Accordingly, I recommend that the
Committee consider amending 28 U.S.C. Sec. 1332 by eliminating the
minimum jurisdictional amount in all tort cases, or at least in some
significant subset of tort cases--such as personal injury claims. I
note that H.R. 420, recently adopted by the House of Representatives,
provides a definition of ``personal injury claims'' (for purposes of
defining the types of claims subject to an anti-``forum shopping''
provision). The Committee may want to adopt that same definition of
``personal injury claim'' here.
Because virtually all plaintiffs bringing personal injury claims
seek damages in excess of $75,000, the elimination of the minimum
jurisdictional amount for such claims is unlikely to have any
measurable effect on federal court case loads. Probably the only cases
that will be added to federal court dockets that are not there now will
be cases in which the defendant filed in state court with every
intention of recovering in excess of $75,000 and then successively
defeated removal by hiding for more than a year the full extent of
damages sought.
Indeed, there is little evidence that the minimum jurisdictional
amount requirement has any appreciable effect on federal court case
loads. It serves primarily as an additional weapon for parties seeking
to defeat federal court jurisdiction, with the result that federal
judges need to devote resources to refereeing such disputes. When I was
clerking for a federal judge in 1980-1982, the jurisdictional amount
for both diversity and federal question cases was $10,000. The
subsequent elimination of the jurisdictional amount in federal question
cases did not result in significant increases in the number of cases
filed in federal court, nor did the more-than-seven-fold increase in
the jurisdictional amount in diversity cases lead to a significant
decrease.
SECTION 5. INDEXING THE AMOUNT IN CONTROVERSY.
The proposed legislation would amend 28 U.S.C. Sec. 1332(a) to
require the indexing of the minimum jurisdictional amount requirement
in diversity cases, so that the amount would keep pace with inflation.
In general, Congress over the past century has been increasing the
jurisdictional amount in diversity cases far faster than the rate of
inflation. The Judicial Conference's rationale is that an indexing
provision would save Congress the trouble of having to tinker
periodically with the jurisdictional amount.
I do not feel strongly one way or the other about this proposal,
but in general I oppose it. Changing the jurisdictional amount every
eight to ten years has not proven particularly burdensome to Congress.
To the contrary, I think it is a good thing to provide Congress on a
periodic basis with a good rationale to revisit jurisdictional amount
issues. Indeed, over the years Congress has regularly engaged in major
revisions of its philosophy on minimum jurisdictional amount
requirements. They did not exist at all for most of the 19th century, a
time when federal question jurisdiction did not exist and most of the
federal court docket consisted of cases based on diversity
jurisdiction. Over the next 100 years, jurisdictional amounts were
gradually increased in lock-step for both diversity and federal
question cases. Later, the jurisdictional amount was eliminated
entirely in federal question cases, while Congress continued the
gradual increase in the jurisdictional amount for diversity cases. The
attitude of future Congresses may change as the size of federal court
dockets change and as preserving diversity jurisdiction in federal
court is deemed either more or less important by Congress. I see little
reason to lock in today the size of future increases in the
jurisdictional amount.
SEPT. 2005 PROPOSAL--FACILITATING USE OF DECLARATIONS TO SPECIFY
DAMAGES
In September 2005, the Judicial Conference proposed an additional
amendment to 28 U.S.C. Sec. 1441(a) and 1447, to ``facilitate use of
declarations to specify damages.'' The idea behind the legislation is
to allow plaintiffs to keep their cases out of federal court if they
agree to be bound by a declaration that they will forgo any damages in
excess of the jurisdictional amount in diversity cases (currently
$75,000). In general, I support the use of such declarations, as a way
to minimize fights over the amount in controversy. A defendant has
little basis for complaint if there is no possibility that they could
be held liable in State court for more than $75,000. Federal court is
not intended to serve as a small claims court; and while out-of-state
defendants may face prejudice in State courts even in small cases, at
least their potential exposure is much smaller.
My only reservation is that any legislation needs to have numerous
protections to ensure that a plaintiff will remain bound by any
declaration of intent to forgo damages in excess of $75,000. Those
protections should include a provision that will allow the defendant to
return to federal court (or go there for the first time) if the
defendant reneges on his promise. Federal courts would likely be much
more willing to enforce this federal provision than would State courts.
The provision should also be made explicitly inapplicable to class
actions.
Mr. Smith. Thank you, Mr. Samp. You are really warming to
the subject matter, and it's nice to see.
What I did was to come up with a chart that breaks down the
legislation to the nine components, just to see where there is
general agreement and to see where there might be some
disagreement.
I think three sections, there is agreement across the
board. These would be section 2, resident alien provision;
section 3, citizenship for corporations and insurance
companies; and section 2005, Judicial Conference proposal use
of declaration to specify damages.
You all support those provisions. There's four other
provisions that there are just minor disagreement; and there's
two provisions where I think there's more significant
disagreement. And let me get to those as quickly as we can. But
I would like to, as much as possible, come to some kind of an
understanding or agreement today, so that we can produce a good
work product and move it along.
On section 4(a), the joinder of Federal law claims with
claims that would not be removable if filed separately, the
only suggestion there was by Mr. Samp, who said--and I was
going to ask Judge Hall and Professor Hellman if you all see
any problems with this--would strike the word ``non-removable''
in the draft, and change it to ``a claim that could not be
removed.'' He believes the word ``non-removable'' may be
subject to misinterpretation. Might be no problem there,
particularly.
Judge Hall. I would certainly like to work with the
Committee.
Mr. Smith. Okay. So that is resolvable in any case, I
think. Okay.
Section 4(b)(1), separating the removal statute into civil
and criminal penalties, Professor Hellman there--and I'd like
to ask Judge Hall and Mr. Samp if they agree--supports; but
believes that the current draft will cause confusion. He
believes a better solution is to add a new section, numbered
1444 and 1445, instead of the draft's suggestion of using 1446
and 1446(a). That's no problem, I don't think. Okay, these are
maybe--these are even technical within the technical.
Judge Hall. I think so.
Mr. Smith. So I'm going to check those off. I think we're
okay on those.
Let's see, one other one would be section 5, indexing the
amount. You've got a little bit, Mr. Samp just--you all support
the indexing. Mr. Samp, you say, probably should not do
indexing, but let Congress retain the authority to revisit; and
if we don't index, then we have an excuse to go back and take a
look at it periodically.
I have to confess to you, I think you have more faith in
Congress than we do. And for that reason, I'd probably favor
the indexing. And then otherwise, we may get behind the ball
and it may never--may not be revisited as often as you and I
would like. So I probably will go with the indexing on that.
That leaves three other issues. Let's go to section
4(b)(3), removal in multi-defendant cases. Judge Hall,
Professor Hellman, support it as it is. Okay, Mr. Samp, here
you say, support but would suggest--and I was going to ask the
other witnesses what they think--that the draft be changed to
state ``who have been properly joined and served.''
He believes the draft as currently written would allow a
plaintiff to argue that the failure of unserved defendants to
join in or consent to the removal petition defeats removal.
Defendants should be placed in the position of having to--
should not be placed in the position of having to track down
unserved defendants to obtain consent for removal.
Judge Hall. If I have the right section, this is a comment
by Mr. Samp----
Mr. Smith. Yes.
Judge Hall [continuing]. On the rule of unanimity
codification. Is that correct? And I think that his suggestion
certainly deserves looking at. I think it's a positive
suggestion that would be helpful.
Mr. Smith. Okay. Very good. ``Deserves looking at,'' and
``positive.'' Does that mean you're signing off on it, or not
quite yet?
Judge Hall. I don't know if I have authority for the
Judicial Conference.
Mr. Smith. Oh, okay.
Judge Hall. But I think that it certainly is consistent
with what we're attempting to do in our proposal.
Mr. Smith. Okay. Get back to us. Just know that this is the
direction we're going in, unless we hear otherwise.
Judge Hall. I understand. Okay.
Mr. Smith. Okay. Now we're down to two sections left,
section 4(b)(4), the 1-year rule for removal, and section
4(b)(4), the amount in controversy.
On the 1-year rule for removal, Judge Hall supports keeping
the 1-year rule, but allowing limited exceptions. And then
both, as I recall, Professor Hellman and Mr. Samp, you want
complete elimination of the 1-year rule.
I don't know that there is any reconciliation of that, but
Judge Hall, tell us why you feel strongly about that, and why
you feel the way you do.
Judge Hall. Certainly. Thank you, Mr. Chairman. The
Judicial Conference came at this from the point of view that
there had been an amendment in 1988 which was enacted by
Congress to address a problem I believe they saw; which is the
sort of slow removal and the last-minute pre-trial--or in the
middle of trial--attempts to remove that were very disruptive
and costly. So it enacted this section that we're talking about
amending in 1988.
I think, unfortunately, no one anticipated that the rule
would be used by plaintiffs as a means to seek to prevent
removal where in fact a defendant was entitled to remove.
As I said at the beginning, our goal in making these
proposals was to amend or to correct current law, to clarify,
and to improve certainty among parties so they would know where
jurisdiction lies. I think that our proposal of allowing
equitable considerations to toll the 1 year, in effect, or to
allow removal after the 1 year, will address the problems that
have arisen, but will keep in place, in my view, what was a
good idea of Congress; which is the idea that we ought to have
timely removal, and not have removal when the case is well
underway and it would be disruptive.
The proposal to do away with the year completely, in my
mind, raises more problems, or some other problems, perhaps.
For example, a defendant in one of the Texas cases--it was a
tobacco case. There was a joinder of a defendant who was really
a non-party, but they added the convenience store seller of the
cigarettes. It destroyed diversity. So the tobacco company was
kept in State court.
Now, I don't know in Texas if you have a lot of summary
judgments, but in Connecticut we don't in State court. So that
case would go to trial. And at the end of the plaintiff's case,
the defendant would stand up and say, ``I move to dismiss,
direct the verdict, because you don't have a cause of action
against the seller of the tobacco product.'' And the judge
would grant that, under the newly developed Texas law that came
out in some of these cases.
At that point, under the removal of the 1-year limit, the
defendant could stand up and say, ``All right, I'm going to
remove to Federal court,'' because there would be no limit, and
the event of diversity jurisdiction just arose.
Now, I mean, I'm all for giving every defendant who's
entitled to their diversity jurisdiction and the right to
remove the right to remove, but I'm not in favor of that
happening, say, after the plaintiff has put their whole case on
and rested.
And so I guess I can understand the reasons articulated by
the other speakers, but my view is that what the Congress did
in '88 was a good policy, and that our proposed amendment deals
with the problems that have arisen, the manipulation of that
idea, and takes that away so that it can't be manipulated any
more. And obviously, if it's not going to be manipulated, and I
assume in most cases--in fact, I would dare say, close to every
case--service will be made, the diversity issue will arise, and
there will be removal in less than the 1 year.
Mr. Smith. Okay. Professor Hellman and Mr. Samp, real
briefly, now that you've heard Judge Hall's explanation, are
you ready to reconsider your position? Or do you still feel it
ought to be eliminated?
Mr. Hellman. Well, first, I think there are other middle
grounds. But I do think it's important generally to look at
rules, as economists would say, ex ante: what sort of
incentives do they create? And if you eliminate the 1-year
rule, or narrow it to a very, very limited class of
circumstances, you reinforce the incentives that already exist
for a plaintiff to do what he can to move his case along. And I
think we do want to do this and, of course, we do want to know
at the earliest possible time.
My problem with the Judicial Conference proposal is that
when you recognize an equitable exception, whichever party has
the burden of persuasion, you're providing the occasion for
satellite litigation. And for every one or two cases like the
one that Judge Hall describes that gets a more just result, you
may have litigation in ten or 20. I entirely agree with Mr.
Samp, that in the jurisdictional threshold issues there's as
value on having bright-line rules.
Now, in my statement, I do suggest a much more limited
exception to the 1-year rule that would say if, after 1 year
and after the trial has begun, or within 30 days of the
scheduled trial, then there's no removal. That's a bright-line
rule, and it avoids the kind of situation that Judge Hall has
described.
So I think something like that would address Judge Hall's
concerns, but would also avoid the kind of manipulation.
Mr. Smith. Okay. Mr. Samp, real quickly, what do you think
of that idea?
Mr. Samp. I think that having a bright line somewhere near
trial would certainly be very reasonable. But I definitely
support the idea of bright lines. And I'm just afraid that
saying equitable considerations can be considered is going to
lead to an awful lot of litigation, and I would therefore--and
there are obviously lots of constraints already on the
defendant because of the 30-day rule, so that, except in the
case of the last-minute dismissal of a plaintiff, he's never
going to be able to remove in any event.
Mr. Smith. Okay. Thank you all. I'm going to have one more
question after Mr. Berman asks his questions on 4(b)(4), the
amount in controversy. I want to get to that. But Mr. Berman is
recognized for his questions.
Mr. Berman. Mr. Samp, if you were told you had two choices,
the 1-year rule or an ability of a judge to look at equitable
concerns, which one would you take?
Mr. Samp. There's no question that the rule proposed here
is a big improvement over the current rule, so I would take----
Mr. Berman. So a rule that promotes Federal litigation is
okay in situations where it helps corporate defendants?
Mr. Samp. No, any sort of defendants. A rule that allows
the jurisdiction, diversity jurisdiction, that we've
historically had not to be defeated would be a good thing. I
don't believe it's an ideal solution.
Mr. Berman. Well, I think eliminating the 1 year for some
of the same reasons that Judge Hall mentioned allows defendants
who want to be spoilers, people who perhaps aren't sure where
they want that case tried--they have one interest, and that is
avoiding losing; and are playing the system as long as they
can, until they conclude that, ``Let's get it out of State
court; now it makes sense to get into the Federal court,''
because that will result in further delays.
So the 30 days before trial--they do it on the 31st day
before trial. They do it after all the depositions. They do it
after that State judge ruled against them on a bunch of
preliminary motions. They do it after the depositions are
revealed. They do it because they think, if they can delay
longer, a key witness for the plaintiff will die.
In other words, I can create as many hypothetical
manipulative reasons for defendants to game the system as
plaintiffs. And that's why there seems to me a little bit of
logic in this ``equitable considerations'' sort of out to the
flat 1-year bar.
But anyway, I have a few more questions. I want to talk
about 1441(c), on removal. As I understand now--well, two
questions. First, a person who files in Federal court, he has
Federal causes of action, and there are also attendant with the
right--it's been a very long time----
Judge Hall. Well, it's supplemental jurisdiction over
States----
Mr. Berman. There's State----
Judge Hall. That are related.
Mr. Berman. Yes. The district judge has the ability to hear
them all, or to abstain and defer--hold onto jurisdiction, but
defer the State claims to a State court action. Isn't that
right?
Judge Hall. Under certain circumstances, if the Federal
claim goes away. Is that what you mean?
Mr. Berman. No, I'd rather have--let's say the Federal
claim is a constitutional claim. I'd like to see this issue--
see if it can be decided without reaching the constitutional
questions. I'm going to abstain and essentially remand, in
effect, or tell a party to litigate the State case issues
first; I'll hold onto jurisdiction of the constitutional case
till we see what happens. Maybe the issue goes away. Isn't
that--I mean, I know that's done in Federal court because--he
did it.
Mr. Samp. Yes, if there are separate cases, you are
permitted, if you are the Federal judge, to slow down the
Federal case to allow the State case to go forward. I don't
think that's an issue of removal, though, generally.
Mr. Berman. Right. But I guess what I'm saying is, what's
the basis for saying that a Federal judge should not have the
authority, once a case is removed----
Judge Hall. Oh, okay.
Mr. Berman [continuing]. Then to force him to sever and
remand, rather than give him the discretion to.
Judge Hall. The ``shall remand'' language, you're talking
about?
Mr. Berman. Yes.
Judge Hall. That's because what's being described there is
a situation where what's been removed is a Federal cause of
action. And with it, in the same case in State court, is an
unrelated State cause of action; doesn't rely on the same set
of facts; doesn't really arise out of the same controversy. So
I could give you----
Mr. Berman. Well, what if it does.
Judge Hall. If it does, then we would keep the
jurisdiction. We would not remand the State claim. The only
time is when there is a State claim that's unrelated which
would not have Federal jurisdiction even as a supplement to a
Federal question jurisdiction.
There was--I'm trying to think of an example for you. There
is a case in which a defendant removed a lawsuit against it by
a plaintiff who claimed a violation of the Fair Debt Collection
Act practices--clearly, Federal jurisdiction; clear right to
remove by that defendant.
However, the plaintiff had also sued that same defendant
for contempt of court; a cause of action that arose under a
State statute having to do with the collection action. The
facts to support the contempt of court cause of action were
entirely unrelated to the fair debt collection violation.
That's an unrelated case that doesn't have Federal
jurisdiction. And that's why this proposal would send that
piece of the legislation back. They're really two separate
cases. It's that situation.
Mr. Berman. This says ``and remand--'' ``--mandates
remanding of non-removable claims.''
Judge Hall. Correct.
Mr. Berman. But it could be about the same----
Judge Hall. No, then it would be removable, and it wouldn't
be remanded.
Mr. Berman. Well----
Judge Hall. A situation where I sue someone for antitrust
violation as well as a violation of the State unfair trade
practices law, because of how they conducted their business, a
defendant would remove that under Federal question
jurisdiction, and would keep the State claim.
Mr. Berman. Well, I could give you a real case----
Judge Hall. Okay.
Mr. Berman [continuing]. That I was very interested in,
that I followed very closely, to raise this issue. But let me
ask a question that I did want to ask you. Under existing
removal statute, if a plaintiff pleads only a State law claim,
and defendant asserts a counterclaim for patent or copyright
infringement, the case cannot be removed to Federal court.
Judge Hall. Under current law.
Mr. Berman. Yes. In June of this year, legislation was
introduced, the Intellectual Property Jurisdiction
Clarification Act, which provided a removal statute specific to
patents, plant variety protection, and copyrights. You could
call this the IP removal statute.
Judge Hall. Uh-huh.
Mr. Berman. Here, unlike the existing law on removal, a
patent or a copyright counterclaim is grounds for removal of
jurisdiction to Federal district court. What if we pass that,
so we have this removal statute and we have that? Do we need to
change that in some way, or will that prevail in those
situations?
Judge Hall. I believe that will prevail. But that's a good
example of what our proposal is trying to address. In that
situation, let's say that the ``ABC'' company sued the ``D''
company for a breach of contract, failure to deliver goods. And
the ``D'' company counterclaims and said, ``Oh, by the way,
you've also violated my patent. Here's my counterclaim against
you.'' It's got nothing to do with the contract that the
original suit is on.
Under that proposed legislation, that could be removed to
Federal court, because the patent case belongs in Federal
court; at least Congress makes that judgment. But once it got
here, this proposal would then have the court look at whether
that original contract claim really belongs in Federal court or
not. But it wouldn't affect the removal of the patent case, and
the patent case would stay in Federal court. Our proposal would
have no effect on that.
Mr. Smith. Okay. Thank you, Mr. Berman. The gentleman from
California, Mr. Issa, is recognized for his questions.
Mr. Issa. Thank you, Mr. Chairman. And I'd like to follow
right on. Mr. Berman is insightful beyond all possible mortal
capabilities, because he hit on the area that I'm concerned
about.
Mr. Smith. Did the gentleman from California say what I
thought he said? [Laughter.]
Mr. Berman. If I said something that he liked.
Mr. Issa. Howard, you said something I like.
But, no, Mr. Berman really did hit on something, Your
Honor. This language says ``shall.'' And you know, we love
saying ``shall''; and you love hearing ``may.'' And oddly
enough, you're now coming to us with ``shall,'' and we're--Mr.
Berman and I, I think, are questioning why it shouldn't be
``may.''
The discretion of whether something is related normally--
correct me if I'm wrong--goes beyond a question of: is it
actually a Federal issue? For example, if the patent case were
to go away, does the other case go away? Or does it become so
de minimis that parties will probably settle? That's a decision
that is a ``may'' decision of a district court all the time.
Additionally, by serendipity or something, to my particular
copy of today, I had a Senate bill that, of all things, tried
to clarify our famous old vessel hull design protection
amendments, which is the old plug mold. And being a
Californian, we know about the plug mold cases.
There are lots of State cases in which you can allege
unfair competition. Now, your understanding, I think, is that
that would be related.
Judge Hall. Yes, I would think so, if it's related to the
same conduct that underlies the antitrust claim, yes.
Mr. Issa. Okay. But when we put in ``shall'' language,
don't we take away your ability not to have to fight for what
is related-unrelated? You become somebody who, because we've
said ``shall,'' then whether your ``shall'' applies becomes an
obligation for which they can go over your head to, in my case,
the Ninth/Twelfth Circuit.
To me, it would seem like having language which makes it
something we believe should be done, but at the same time
making it a ``may.'' And a decision clearly within the purview
of the district judge seems to be in your best interests. Why
would it not be?
Judge Hall. Because I believe it may raise some
constitutional issues. There is a case which really is one of
the reasons the Judicial Conference began to address this
question and makes this proposal to you. It's called the
Morales case. I think it's out of Michigan. And in that case,
an employee sued his employer under the collective bargaining
agreement--Federal question; should have been removable by the
employer. He also sued a co-worker for hitting him--assault and
battery.
Mr. Issa. You can make a Federal issue out of anything;
can't you?
Judge Hall. Well, in that case, the Morales court said,
``We don't have jurisdiction over this case, because we don't
have jurisdiction over the assault and battery,'' and sent it
all back to State court; in our view, frustrating the right of
the defendant to remove the labor question to the Federal
court.
Now, to get to your question, the use of the word ``shall''
depends upon--only if implemented--if the court has determined
it's not a related case under the article III case----
Mr. Issa. Okay, but let's go back to the original question
just a little further back.
Judge Hall. Yes.
Mr. Issa. Today, you have a lot more ability to include all
the counterclaims. If you are sitting there through the
discovery process, hopefully, settlement conferences and the
like, you have the ability to hold onto these. And by holding
onto them, often you can save the State court.
Judge Hall. That's correct.
Mr. Issa. So if we give you the ``may'' send all or part
that are not Federal questions back to the State courts--which
I think is an appropriate power--but we don't force you to take
it back--even if it's unrelated and yet, for example, de
minimis--isn't that a power that is in your best interests;
since your job is not just to try the Federal issue; your job,
I believe, is not to send frivolous subparts back to the State?
Now, having said that, I understand you would choose to
bifurcate the case. You would choose to say, ``Look, we're not
going to try--''
Judge Hall. The assault and battery.
Mr. Issa. ``--the assault. On the other hand, unless the
plaintiff wants to move to split that case and send that part
back, we're going to let it just sit there.'' Now, presently, I
think you have that authority. Why would you want to lose it?
Judge Hall. I hate to disagree with a Congressman who wants
to give me discretion. I find myself in a really awkward
situation.
Mr. Issa. It's shocking. It's shocking here.
Judge Hall. I always think discretion is a fine thing for
judges. But in this instance, I think it's problematic. Because
I think, were we to have discretion, that infers we have the
power to keep it. And the situations we're trying to address
with this legislative fix, in effect, are situations where we
don't believe the court has the power to hear that case.
In other words, it's not that--we're not sending back any
related case controversy, or anything that's a part of a case
in a controversy that's wrapped up in the Federal piece of the
case. All we're talking about is situations where a completely
unrelated claim--lots of State courts allow you to pull
together all kinds of unrelated controversies into one action.
And so when those kinds of cases get removed, we have no
authority, we would suggest, effectively under the
Constitution; that there's no basis in jurisdiction to hear
that.
Mr. Issa. If I could, Mr. Chairman, I think I have one more
comment here.
Go ahead.
Mr. Hellman. Oh, thank you. Yes, just to supplement what
Judge Hall has said, there are two statutes that govern the
presentation of claims joined to Federal claims. The other
statute, which we really haven't talked about very much here,
is section 1367. That makes clear that the district court, that
Judge Hall, would have the authority to keep and decide all
related claims.
So the proposed 1441(c) deals only with those statutes that
are not only outside original grants of jurisdiction, like 1332
or 1331, but are also outside supplemental. And the
supplemental jurisdiction statute, I think it's important to
emphasize, does grant precisely the kind of discretion, in
section 1367(c), that you describe.
So 1367(c) gives that discretion; does it for all the cases
that are within the scope of judicial power; 1441(c) addresses
those that are outside the scope of the judicial power. Thank
you.
Mr. Issa. So essentially, as long as our report language
makes clear that ``C'' still applies, you don't see a conflict
in putting ``shall''?
Mr. Hellman. That's right. It's only the cases that are
outside judicial power altogether.
Mr. Issa. Thank you, Mr. Chairman.
Mr. Smith. All right, thank you, Mr. Issa. The gentleman
from California, Mr. Schiff, is recognized for his questions,
with a caveat that he has a high standard to meet. Mr. Issa
referred a few minutes ago to Mr. Berman as being inspired
beyond mere mortals--or something along those lines. And I just
hope you can rise to the challenge and try to equal that
standard.
Mr. Schiff. I don't think I can. But in fairness, the
reason that my colleague, Mr. Issa, made that observation was
because Mr. Berman was in agreement with him. Which might in
his view mean that Mr. Berman is brilliant. In my view, it
calls into serious question Mr. Berman's judgment. [Laughter.]
Mr. Berman. Would the gentleman yield?
Mr. Schiff. I would be happy to yield.
Mr. Berman. There are other issues where Mr. Issa has said
I have been sort of below mortals. [Laughter.]
Mr. Smith. Mr. Berman told me a while ago that I should
hear what you had to say, Mr. Issa, about him when you disagree
with him.
The gentleman from California, Mr. Schiff, is recognized.
Mr. Schiff. Thank you, Mr. Chairman. I just have a couple
of questions. And I apologize if you already covered this
before I had a chance to get here.
In looking at the amount that would be now indexed to
inflation of 75,000, Judge, I wanted to ask you, I see from
your analysis that had this formula been applicable beginning
in 2000, you'd already be at 95,000. And I guess if this
formula had been applicable back in 1997 or 1998, when you last
adjusted the amount, you'd probably be at 100,000.
And I guess the question is, the proposal suggests that we
start at 75 and now index going forward. Has thought been given
to raising the amount to 100,000, and indexing it forward? And
what would your thoughts be on that?
Judge Hall. My thoughts are that's for Congress to address,
as to whether the threshold is still a meaningful one, in light
of inflation. Our proposal is really designed, as most of the
others are, to carry forward Congress' intention. In
establishing 75,000, that was meant to be a meaningful
threshold for diversity jurisdiction. And unfortunately, in our
inflationary economy, that becomes eroded over time.
So the idea of indexing is to at least keep pace with the
value of the dollar, vis-a-vis that threshold amount. And
Congress is, of course, always free to revisit whether that
base amount--now 75,000, or whatever it might become if
indexed--continues to be the appropriate level of, shall we
say, entry into diversity jurisdiction.
I mean, the levels have been--I think, as Mr. Samp points
out in his testimony, they've been sort of all over the place
historically. But I think, as I say, our goal is here both to
clarify and in this instance to give meaning to that threshold.
And should Congress wish to address and consider and take up
the question of changing the base amount, that's, I guess I'd
say, for you to decide.
Mr. Schiff. Well, would, you know, the other two witnesses
think this was inappropriate or inequitable, to begin at
100,000 and index to inflation?
Mr. Hellman. Well, I agree it's a policy judgment. I'm not
sure that the difference between 75,000 and 100,000 these days
is huge. But if you're going to move it up at all, that
probably makes some sense.
Mr. Samp. I agree that it probably doesn't make a whole lot
of difference what amount you choose. One of the things that I
mentioned earlier was that, at least in personal injury cases
where you can sue for punitive damages and pain and suffering,
the plaintiff can choose to call their claim for more than
100,000 if they want, or less than 100,000. So that my
suggestion is, if you're really trying to cut down on Federal
court caseloads, that the jurisdictional amount is probably not
a major issue one way or the other.
Mr. Schiff. Okay. Under one of the sections, the proposal
would allow the latest-served defendant in a multiple-defendant
case 30 days after service to file a removal petition in order
to be fair to late-served defendants. How would this, though,
affect the trial date, if a defendant were purposely evading
service? And how do you deal with those circumstances?
Judge Hall. Well, the current legislation of course has the
1-year limit. But working back from that, I'm not sure there's
many cases that get to trial in less than 1 year. Certainly, a
defendant who's brought in very late always is in a good
position to suggest trial ought not to proceed immediately,
because they haven't had the benefit of discovery.
I think that one thing that we should remember about this
particular section or proposal is not just that it gives
fairness to the last-served defendant, but the plaintiff can
control this in many respects. They can choose to serve
everyone right away, and then there will be just a very short
period for removal.
This provision is designed when, as you say, someone is
deliberately not served, to not take away from them their right
to remove.
Mr. Schiff. Is there any ground in between the kind of
broad discretion and potential satellite legislation that
equitable consideration would give, and a bright line on the
other hand? Is there any--Judge, any contours you could define
a little more narrowly than ``equitable discretion''?
Judge Hall. Well, ``equitable considerations'' has meaning
in the case law. It's sort of the concept used in tolling
situations when statutes of limitations are suspended.
Mr. Schiff. Is that less than ``good cause''?
Judge Hall. It's different than ``good cause.'' Because
``good cause'' only really looks at one side of the equation.
The ``equitable considerations'' is looking at both parties'
conduct, I think. That's how I would view the different
standards.
The danger I see in trying to codify or legislate the
particular things that would be considered, one, I don't have
the same confidence that the others have that this would
minimize litigation. There's often a lot of litigation over
iterations of considerations. What do they mean? Do they mean
others can't be considered? You know, the old ``one thing is
included; others are excluded'' doctrine. So I'm not sure it
would minimize litigation.
And second, unfortunately, as humans, I think we're limited
in our capacity to imagine all of the factors that would be
appropriate to consider.
Mr. Schiff. But some of us are not human. We are beyond the
comprehension of mere mortals--like Mr. Berman. [Laughter.]
So we're not limited in those ways that most people are.
Judge Hall. Well, then perhaps that person could write the
list of what you should say. [Laughter.]
Mr. Schiff. Well, Mr. Chairman, on that, I'll yield back.
Mr. Smith. Thank you, Mr. Schiff.
That concludes our questions. Thank you all for your expert
testimony today. It's much appreciated. And oftentimes--or it's
not that often, I should say, that witnesses testify and soon
thereafter see the result of their testimony reflected in
legislation that we'll be drafting and, hopefully, marking up.
But this is one of those rare instances, if that is a source of
some satisfaction to you all.
Judge Hall. It is. Thank you very much.
Mr. Smith. So thank you again for being here. And we will
look forward to proceeding on the legislation.
Judge Hall. Thank you, Mr. Chairman.
Mr. Hellman. Thank you.
Mr. Samp. Thank you.
[Whereupon, at 5:12 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard L. Berman, a Representative
in Congress from the State of California, and Ranking Member,
Subcommittee on Courts, the Internet, and Intellectual Property
Mr. Chairman, thank you for scheduling this hearing on a committee
print designed to clarify elements of federal court jurisdiction. The
topic of diversity jurisdiction and civil procedure is opaque and any
illumination is helpful. Therefore, I am looking forward to our
witnesses' testimony.
This hearing concerns the complexities of diversity jurisdiction,
and the concept of federalism, which holds an assurance of an impartial
forum for parties in lawsuits filed in courts in states other than
their own, and facilitates a continued open dialogue between the
federal and state systems. Some of the amendments in the committee
print appear to be technical in nature, while others address some of
the core policy considerations behind federal diversity jurisdiction.
Because application of diversity jurisdiction is complicated, and
greatly affects an already overburdened federal court, it is important
that we consider the impact of these provisions.
Reducing redundant or unnecessary litigation is a laudable goal. We
should clarify when federal diversity jurisdiction exists and help
those who appear before courts understand where the bright lines of
diversity jurisdiction exist. Furthermore, it is my understanding that
specific provisions of the proposed legislation will achieve the
original intention of Congress when passing the underlying legislation.
These witnesses who are here today will help outline how this
legislation will do that, and explain the advantages of passing the
proposed text in the Federal Courts Jurisdiction Clarification Act.
Thank you Mr. Chairman. I yield back the balance of my time.
__________
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, and Member, Committee on the
Judiciary
I am pleased that we are considering a largely non-controversial
bill that clarifies the jurisdiction of the federal courts. There are,
however, minor issues that I hope to resolve with the Chairman and
Ranking Member as we move forward.
Section two first clarifies that a citizen of a state and a lawful
permanent resident alien living in that state do not have diversity
jurisdiction for purposes of federal law.
Section three of the legislation states that corporations would be
citizens of the states where they are incorporated and where they have
their principal place of business. The purpose is to remove federal
court jurisdiction in situations where a foreign corporation is sued by
a citizen of a state where it has its principal place of business and
where a citizen of a foreign country sues a U.S. corporation that has
an overseas location as its principal place of business.
Finally, the bill suggests changes to the federal removal and
remand statutes. For instance, it would permit an extension of the one-
year removal deadline for later-served defendants, who would not have
time to prepare the necessary filings. At the same time, we must ensure
that defendants who avoid service cannot game the system. Plaintiffs
who make reasonable but unsuccessful efforts to serve defendants should
be able to rely on the deadline.
This section also seems to imply that injunctive relief would need
to be converted into damages to determine whether the ``amount in
controversy'' threshold is met for federal court. This would require
careful consideration prior to passage.
Supplementary Prepared Statement of Arthur D. Hellman, Professor,
University of Pittsburgh School of Law
Proposed Draft of the ``Federal Jurisdiction Clarification Act'' by the
Administrative Office of the Courts