Subject Matter Jurisdiction: Diversity–Time to Cross Your "T's" and Dot Your "I's"

Nothing draws the ire of a federal court judge more than sloppy, or worse, improper pleading of subject matter jurisdiction when originally filing, or removing a lawsuit under 28 U.S.C. §1332, the jurisdictional statute based on “diversity” of the parties. Section 1332 requires that for an action based on diversity of citizenship, the parties must be completely diverse and the amount in controversy must exceed $75,000.

Recently, in Wilkins v. Stapleton, Case No. 6:17-cv-1342-Orl-37GJK (M.D. Fla. Aug. 1, 2017), the Honorable Roy B. Dalton Jr. issued an order chastising counsel, as well as the bar more generally, regarding the widespread failure by parties to properly allege subject matter jurisdiction. In doing so, Judge Dalton expressed his frustration—likely felt by many other busy federal judges—over what he perceives as a recurrent problem. He noted that he has personally dismissed, remanded, or issued show cause orders in 42 civil cases in the first seven months of 2017 based on a party’s failure to plead or to properly plead subject matter jurisdiction.

Indeed, it has been this writer’s experience that many attorneys overlook the nuances of diversity jurisdiction. Critically, as an objection to subject matter jurisdiction can be raised at any time—even if for the first time on appeal—a lack of subject matter jurisdiction may result in the parties engaging in expensive litigation in district court—for years in some cases—only to have a circuit court vacate or overturn the district court’s judgment for lack of subject matter jurisdiction. See, e.g., Thermoset Corp. v. Building Materials Corp of Am., 849 F.3d 1313, 1315 (11th Cir. 2017) (vacating summary judgment for the plaintiff where trial court lacked subject matter jurisdiction due to the presence of a non-diverse defendant); Peninsula Asset Mgmt. (Cayman) Ltd. v. Hankook Tire Co., 509 F.3d 271, 272 (6th Cir. 2007) (finding there was a lack of diversity and reversing summary judgment for defendant).

Judge Dalton’s order provides a concise outline of the fundamentals of pleading diversity jurisdiction and is a sharp reminder to the bar to carefully plead subject matter jurisdiction. First, for purposes of diversity jurisdiction, the plaintiff, or the defendant if removing the case from state court, must allege the citizenship of the parties. It is not appropriate to allege the “residence” of the parties, allege that citizenship is unknown, or allege citizenship based on “upon information and belief” (i.e., lawyer-speak for “I don’t know”).

Careful attention should be paid when dealing with entities, rather than individuals. The citizenship of a corporation is determined by the entity’s state of incorporation as well as the state where the corporation has its principal place of business. 28 U.S.C. §1332(c)(1). Unlike a corporation, however, the citizenship of unincorporated entities, including limited liability companies (LLCs) and partnerships is determined by the citizenship of its member owners. Rolling Greens MHP, L.P. v. Comcast SCH Holdings L.L.C., 374 F.3d 1020, 1022 (11th Cir. 2004) (“To sufficiently allege the citizenships of these unincorporated business entities, a party must list the citizenships of all the members of the limited liability company and all the partners of the limited partnership”). 

As Judge Dalton further explains, naming fictitious parties in a civil case originally filed in district court generally destroys diversity jurisdiction. Similarly, where a defendant is removing a lawsuit under §1332, the alleged citizenship of fictitious parties may be ignored for purposes of determining whether there is complete diversity. 28 U.S.C. §1141(b)(2).

Further complexities arise when dealing with foreign or “alien” parties. For example, the presence of an alien on both sides of an action renders diversity incomplete. See, e.g., Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 580, 119 S. Ct. 1563, 1568, 143 L. Ed. 2d 760 (1999) ([t]he foreign citizenship of defendant Ruhrgas, a German corporation, and plaintiff Norge, a Norwegian corporation, rendered diversity incomplete”).

While §1332 is clear that the amount in controversy must exceed $75,000, questions often arise as to what constitutes sufficient proof, particularly when the defendant removes the case from state court and the plaintiff’s complaint alleges only the minimum amount for subject matter jurisdiction in state court—usually less than $75,000. In cases where it is not “facially apparent” (i.e., a “fair reading” of the complaint) that the amount in controversy exceeds $75,000, the defendant has the burden to submit evidence that the amount in controversy is satisfied. Williams v. Best Buy Co., 269 F.3d 1316, 1321 (11th Cir. 2001).

Finally, a party should allege the basis for subject matter jurisdiction for every claim. The existence of one diverse claim with the presence of other non-diverse claims is not sufficient for purposes of diversity jurisdiction. See, e.g., Baker v. J. C. Penney Co., 496 F. Supp. 922, 924 (N.D. Ga. 1980) (although complete diversity did not exist as to all claims, court had jurisdiction of non-diverse civil right claims under federal question jurisdiction). See also Palmer v. Hosp. Auth. of Randolph Cty., 22 F.3d 1559, 1564 (11th Cir. 1994) (court may ignore the citizenship of a plaintiff which has an independent basis of original federal jurisdiction against the defendant).

While this article briefly addresses some of the common issues relating to subject matter jurisdiction based on diversity of citizenship, parties should pay careful attention to pleading subject matter jurisdiction, lest they be the target of an “educational” order by a federal court judge.