This is Part 3 of an 8-part series which covers:
- Part 1 – Federal Question Jurisdiction;
- Part 2 – Supplemental Jurisdiction;
- Part 3 – Diversity Jurisdiction: Complete Diversity;
- Part 4 – Diversity Jurisdiction: Amount in Controversy;
- Part 5 – Diversity Jurisdiction: Resident Defendants;
- Part 6 – Timing of Removal;
- Part 7 – Checklist for Removal;
- Part 8 – Remand
Part 3 – Diversity Jurisdiction: Complete Diversity
In Part 1 and Part 2 of this Removal series, we discussed removal based on federal question jurisdiction and supplemental jurisdiction. A state court action can also be removed to federal court based on diversity jurisdiction. Diversity jurisdiction concerns three important factors: (1) complete diversity among the parties; (2) a sufficient amount in controversy; and (3) absence of resident defendants. This article explores the complete diversity requirement.
Determining the Citizenship of Parties
Put simply, complete diversity means that none of the defendants in the action are citizens of the same state as any of the plaintiffs in the action. 28 U.S.C. § 1332(a). Therefore, in order to determine if complete diversity exists in a case, you must determine the citizenship of each of the parties.
Individuals: The citizenship of individuals is based on their primary place of residence. If a party splits his or her time between two different states, then citizenship will typically be governed by where he or she lives for the majority of the year or where he or she is employed. If the party is retired and splits his or her time equally between two states, then you may need to examine where the party’s bank accounts are located, where the party pays income taxes, and where the party’s car is registered.
Corporations: A corporation is deemed to be a citizen of every state in which it has been incorporated as well as the state in which its principal place of business is located. 28 U.S.C. § 1332(c)(1).
Partnerships and Limited Liability Companies: The citizenship of a partnership or a limited liability company is based on the citizenship of the owners, partners, or members of the business entity. Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). If the partners or members are individuals, the entity will be a citizen of every state in which the partners or members reside. If the partners or members are corporate entities, then the entity will be a citizen of every state in which the partners or members have been incorporated as well as every state in which their principal place of business is located.
Legal Representatives: For a legal representative of an estate of a decedent, citizenship is determined by the citizenship of the decedent — not the citizenship of the legal representative. Similarly, for legal representatives for minors or persons adjudged to be incompetent, citizenship is based on the citizenship of the minor or incompetent person — not the legal representative. 28 U.S.C. § 1332(c)(2).
DOE and ROE Defendants: The citizenship of fictitious defendants, like DOE or ROE defendants, is disregarded for the purpose of diversity jurisdiction. 28 U.S.C. § 1441(b).
Let’s say that Tom, who lives in Las Vegas, is meeting up with several friends for dinner at the Spend Your Money Casino. While Tom is walking to the restaurant, he slips and falls in a puddle of water in the lobby of the casino. Tom wants to sue the casino and learns that it is incorporated in Delaware, and its principal place of business is New York. Tom also wants to sue the janitor that mopped the floors shortly before he fell. While Tom assumes that the janitor resides in Las Vegas, he does not yet know the janitor’s identity and names him as a DOE defendant in the complaint. Can the casino remove this action to federal court based on complete diversity?
Yes! As a DOE defendant, the janitor’s probable citizenship in Nevada is disregarded. Therefore, diversity jurisdiction is based solely on the citizenship of Tom and Spend Your Money casino. Because Tom is a citizen of Nevada, and the casino is a citizen of Delaware and New York, complete diversity exists.
Does Timing Play a Role in Determining Complete Diversity?
Because the citizenship of most parties is determined by their place of residence, there is an inherent risk that parties could attempt to change their residence to either create or prevent diversity jurisdiction. Thus, complete diversity must exist at the time the complaint is filed and at the time of removal. Mansfield, Coldwater & Lake Mi. Ry. Co. v. Swan, 111 U.S. 379, 381-83 (1884). This helps prevent parties from changing their residence right after a complaint has been filed in order to manipulate the complete diversity analysis.
There is one exception to this rule. If no diversity exists when the complaint was filed, a defendant can still remove the action if the plaintiff subsequently creates complete diversity by either voluntarily dismissing any non-diverse defendant or by amending the complaint. Simpson v. Alaska State Comm’n for Human Rights, 608 F.2d 1171, 1173 (9th Cir. 1979).
Suppose that John is injured while skateboarding after two of the wheels popped right off his board. John, a Nevada citizen, sues the manufacturer of the board, a California corporation with its principal place of business in California. John also sues the manufacturer’s parent company (a Delaware corporation with its principal place of business in Nevada) and Ed, the president of the manufacturer (a Nevada citizen). At the time of the filing of the complaint, complete diversity would not exist, as John, Ed, and the parent company are all Nevada citizens.
Shortly after filing the complaint, John comes to the realization that he cannot prove liability for the parent company and he dismisses it from the case. However, this dismissal does not create complete diversity because Ed and John are still both Nevada citizens.
Two months later, Ed moves to California. Unfortunately, this change in citizenship still does not permit the defendants to remove the action. While complete diversity was created upon Ed’s move, it did not exist when the complaint was filed, and complete diversity must exist at both points in time. A defendant’s actions after the filing of a complaint cannot create diversity.
However, if John decides to dismiss Ed from the action because he cannot prove Ed’s liability, now complete diversity would exist. The only remaining parties, John and the manufacturer, are citizens of different states. Although diversity jurisdiction did not exist when the complaint was filed, the plaintiff’s subsequent actions have created diversity.
Stay tuned for Part 4 in this series, posted here, in which I will discuss the second requirement for diversity jurisdiction — a sufficient amount in controversy.
Please email me if you would like a copy of this series.
About Sarah Harmon:
Sarah E. Harmon is a partner at Bailey Kennedy and has over 18 years of experience in the areas of appellate advocacy and civil/business litigation, including breach of contract, fraud, legal malpractice, products liability, complex civil litigation, and many other types of business disputes. Her experience with appellate advocacy includes appeals from adverse judgments and orders as well as petitions for extraordinary writ relief. Ms. Harmon can assist clients with obtaining settlements and judgments before going to trial, avoiding errors at trial, and properly preserving issues for an appeal.
If you have any questions about appeals or civil/business litigation, please call or email Sarah Harmon at 702-562-8820 or firstname.lastname@example.org. Additional resources can also be found at www.baileykennedy.com/category/articles/ or linkedin.com/in/sarahharmonbk/.
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