[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
                                 ------                                

    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

                              ----------                              

                           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

                              ----------                              


                       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\
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Issa was not available for 
insertion in this hearing at the time it was submitted for publishing.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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



                                 
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