The Federal Courts Jurisdiction and Venue Clarification Act

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The Federal Courts Jurisdiction and Venue Clarification Act

The Federal Courts Jurisdiction and Venue Clarification Act of 2011, which took effect in January, revised law pertaining to the removal of cases to federal court and venue. The Act also clarified some jurisdictional questions. The following addresses some, but not all, of those changes.

            With respect to jurisdiction, the Act clarifies corporate and insurer jurisdiction. While some courts have interpreted the definition of “state” as applied to the place of incorporation and principal place of business (corporations are citizens in both places if these are different states) as the 50 United States, others interpreted “state” to include foreign nations. The Act provides that a corporation will be treated as a citizen of every U.S. state or every foreign state in which it is incorporated and every U.S. state or foreign state in which it has its principal place of business. In direct actions against insurers, where the insured is not a named party, the amendment clarifies that an insurer is deemed a resident of any U.S. state or foreign state in which (1) the insured is a citizen, (2) the insurer is incorporated, or (3) where it has its principal place of business.

            In addition, substantive changes to removal were made in the Act. 28 USC § 1441 has controlled removal of both civil and criminal cases, but now removal of criminal cases is governed solely by 28 USC § 1454. § 1441(b) and (c) were also changed to distinguish between cases removed on the basis of diversity and federal question jurisdiction. The predominant change is to federal question jurisdiction – when cases contain claims removable under 28 USC § 1331 (the general federal question jurisdictional statute) and those do not arise under federal law, purely state law claims. Courts now are permitted to remove the entire case if a portion presents a federal question, but the district court must sever the claims outside its jurisdiction and remand the severed claims to state court, instead of simply remanding and depriving a defendant of the right to litigate a federal question in a federal court.

            The Act codifies the “rule of unanimity,” which means all defendants properly joined and served must join in or consent to removal under 28 USC § 1446(b)(2)(A). 1446(b)(2)(B) provides each defendant the opportunity to remove within 30 days of receipt of service. 1446(b)(2)(C) adds any earlier served defendant may consent to a latter-served defendant’s removal, even if they did not remove in the first place. 1446(c) allows the pre-existing one year removal based on diversity citizenship within one year to be extended by the court if it finds the plaintiff has acted in “bad faith in order to prevent a defendant from removing the action.” 1446(c)(2) has new rules pertaining to the jurisdictional amount (currently $75,000 must be in dispute to remove a diversity action). A good faith demand in the complaint for an amount will be deemed the amount in controversy. If injunctive or other nonmonetary relief is sought, or state law prohibits the demand of a certain amount, an amount in controversy can be asserted in the notice of removal. Removal is deemed proper when the court finds, by a preponderance of the evidence, the amount exceeds the minimum set forth in 28 USC § 1332. If removal cannot occur initially because not enough money is in controversy, 1446(c)(3)(A) provides the amount in controversy in the state case record or obtained in state court discovery sufficiently permits removal based on “other paper” after the expiration of the 30-day removal period. A deliberate failure to disclose the actual amount in controversy to defeat removal is bad faith which permits removal more than a year after commencement, under the previously described 1446(c)(1).

            The most significant changes pertain to federal venue statues, including the general definition at 28 USC § 1390(a), distinguishing the geographic specification of the appropriate forum (venue) from other federal law provisions which restrict subject-matter jurisdiction. Subject-matter jurisdiction restrictions include geographic terms, but the subject-matter restrictions cannot be waived by the parties.

            The change also abolish the distinction in venue between “local” and “transitory” actions. The local action rule had limited certain kinds of actions involving real property to the district where the property was located, creating problems in disputes over property suits because a court could not exercise personal jurisdiction over the defendant in the place where the property was located. Changes to 1391(a)(2) clarify that only subject-matter and personal jurisdiction restrictions apply to such actions and repeals 28 USC § 1392.

Revisions are also intended to eliminate the distinction between diversity and federal question action venue to a “unitary” approach. It establishes that, regardless of how subject-matter jurisdiction is obtained, § 1391 is the general venue statute, and venues is based on residence of the defendant(s), where the loss/event occurred giving rise to the action, and fallback venue can be used if there is no other district in which the case may be brought. The new fallback provision directs that venue for both diversity and federal question matters fall on the district “in which any defendant is subject to the court’s personal jurisdiction with respect to such action.” The new subsection of 1391(c)(1) also clarifies that “resides” should have the same meaning as domicile, and a natural person is deemed to reside in the judicial district where they are domiciled (some courts had read the term broadly enough to include other places where the defendant may have a home or spend time).

Venue treatment for unincorporated associations like partnerships and unions is now the same as for corporations, under newly codified § 1391(c)(2). The association is now a resident in any judicial district where subject to the court’s personal jurisdiction and, if the plaintiff, only in the district where it maintains its principal place of business.

Further, the Act allows for transfer of venue to any district, with the consent of all parties. 28 USC § 1404(a) had previously only permitted transfer to a venue where the action could be brought, now those transfers are possible when all parties agree and the court determines it is for the convenience of the parties and witnesses and in the interest of justice.

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