Federal Court Jurisdiction, Venue, And Removal

Originally published in For the Defense March 2012.

Changes are afoot for attorneys practicing in the United States federal courts. Effective with all state and federal lawsuits commenced on or after January 6, 2012, the Federal Courts Jurisdiction and Venue Clarification Act of 2011, H.R. 394, P.L. 112-63, makes changes to the federal statutory provisions on diversity jurisdiction, 28 U.S.C. §1332, venue, 28 U.S.C. §§1390–92, 1404, and removal, 28 U.S.C. §§1441, 1446, 1454. House of Representatives Report 112-10, submitted by the on the Judiciary, which accompanied the house bill, explains at length the purposes and effects of this legislation. This article provides a synopsis of the key changes and the implications for day-to-day practice.

Resident Alien Treatment for Diversity Purposes

The Federal Courts Jurisdiction and Venue Clarification Act (the "Act") changes the treatment of resident aliens, meaning aliens "admitted to the United States for permanent residence," for diversity jurisdiction purposes, effectively closing the federal courthouse doors to disputes between aliens whether permanent residents or not. According to House Report 112-10, these changes constitute a "modest[ ]" jurisdictional restriction while leaving state courts available to resolve disputes between such parties. H.R. Rep. No. 112-10, at 7 (2011).

Diversity jurisdiction exists when a matter in controversy exceeds $75,000 and is between citizens of different states. The federal courts have long required "complete diversity" between the parties: no plaintiff and no defendant can have citizenship in the same state. Under the revisions to section 1332(a)(2), federal district courts do not have jurisdiction of an action "between citizens of a State and citizens or subjects of a foreign state who are lawfully admitted for permanent residence in the United States and are domiciled in the same State." Formerly, the federal courts did not have jurisdiction over a dispute that involved only aliens. See H.R. Rep. No. 112-10, at 6 (2011) ("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)). But the closing paragraph of section 1332(a) formerly contained "deeming" language specifying 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." H.R. Rep. No. 112-10, at 6 (2011). This language, added in 1988 by the Judicial Improvements and Access to Justice Act, Pub. L. No. 100-702, precluded federal jurisdiction in lawsuits between a citizen of a state and an alien who permanently resided in the same state. House Report No. 112-10 recognizes that the 1988 amendment "curtailed alienage jurisdiction in one setting" but "created an arguable basis for expansion of alienage jurisdiction in other settings." H.R. Rep. No. 112-10, at 7 (2011). Namely, two resident aliens domiciled in different states each could be "deemed" a resident of the state of domicile thus claiming access to federal courts in violation of the rule in Hodgson v. Bowerbank.

The Act removes the resident alien provision and the deeming language. Instead, section 101 of the Act, codified at §1332(a) (2), now creates an exception to diversity of citizenship jurisdiction and accomplishes "the goal of modestly restricting jurisdiction, which Congress sought to accomplish when it first enacted the resident alien proviso" in 1988. H.R. Rep. No. 112- 10, at 7 (2011). The report further notes that "[s]tate court forums would remain available to aliens if Federal court forums were foreclosed." Id.

Notably, the Act adds this restriction only to section 1332(a)(2). Section 1332(a) (3) remains unchanged. Thus, citizens or subjects of a foreign state may continue to appear as additional parties to disputes between citizens of different states.

Citizenship of Corporations and Insurance Companies

The Act, by broadening the deemed citizenship of corporations and, in direct actions, insurance companies, probably will slightly reduce the frequency with which these entities will appear before federal courts in diversity jurisdiction cases. Section 102 of the Act changes the way that courts will treat corporations and insurance companies in direct actions in diversity jurisdiction cases under 28 U.S.C. §1332(c)(1). According to...