Original Subject Matter Jurisdiction in Practice

Welcome to the Civil Procedure Podcast. I am your host, Thomas Main, and this episode is about original subject matter jurisdiction. This is just one of several episodes devoted to the topic of federal subject matter jurisdiction. It is a fundamental constitutional principle that federal courts have a limited subject matter jurisdiction. In that context, the word "limited" is in contrast to the word "general." Unlike federal courts, which have limited subject matter jurisdiction, state courts are courts of general jurisdiction. A court of general jurisdiction has subject matter jurisdiction over a controversy unless a showing is made to the contrary. So the presumption in a court of general jurisdiction is that the court has subject matter jurisdiction. That's a rebuttable presumption. And so the idea is that a court of general jurisdiction has subject matter jurisdiction unless a showing is made to the contrary. Let me add an important aside here about terminology. That reference to general jurisdiction has absolutely nothing to do with the term general jurisdiction that we use when we're talking about personal jurisdiction. This is a completely separate concept with no overlap whatsoever in meaning, which is why we can say that federal courts are not courts of general jurisdiction. They can hear only those cases that are both within the scope of the judicial power, the capital "P" power, as defined in the Constitution. Shout out to Article 3 of our U.S. Constitution. And that have been allocated to them by a jurisdictional grant from Congress. So although we can assume that state courts can hear a controversy unless something is shown to the contrary in federal courts, we assume that federal courts cannot hear the claim unless it is demonstrated that subject matter jurisdiction exists. Some consequences flow from this doctrine, including that parties cannot wave lack of subject matter jurisdiction by consent, by conduct, or even by a stop-all. It can't be waived. It also means that lack of subject matter jurisdiction can be raised at any time and can be raised suesponte, meaning by the judge herself. The priority of subject matter jurisdiction also means that a court must resolve this issue before it, say, dismisses under a 12(b)(6) for failure to state a claim. There are two principle bases for original subject matter jurisdiction in federal court. So let's deal with those first. The first is federal question jurisdiction. After we deal with federal question jurisdiction, I'll deal with the second basis, which is diversity jurisdiction. So federal question. Earlier I said that the federal court can hear only those cases that are both within the scope of the judicial capital P-power, as defined in the Constitution, and that have been allocated to them by a jurisdictional grant from Congress. So let's address both pieces of that. Well, the Constitution provides that federal courts may be given jurisdiction over "cases in law and equity arising under this Constitution, the laws of the United States and treaties made or which shall be made under their authority." So that's the constitutional grant. Here comes the latter part, the congressional grant, since 1875. Congress has allocated to the district courts original jurisdiction over these cases in almost identical language. Section 1331 of Title 28 of the U.S. Code says that, quote, the district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States. We call this class of cases over which the federal courts have subject matter jurisdiction, federal question cases, and the basic idea is that subject matter jurisdiction in federal courts makes sense because federal courts may have or should have expertise in these matters of U.S. constitutional law, federal statutory law, and treaties. The key phrase in the scope of federal question jurisdiction is the "arising under" language. Section 1331 confers jurisdiction over actions arising under federal law. The scope of claims that arise under federal law is narrowed substantially by the longstanding rule that the federal question must appear on the face of the complaint. Because of this focus on the complaint, it means that there is not jurisdiction merely because the answer raises or might raise a federal question. Your intuition can easily lead you astray here because to the extent that you think federal jurisdiction is appropriate in cases where expertise in federal law could be important, well, that intuition is going to lead you to a place where you say, "Well, it should follow, then, that federal courts are going to have jurisdiction whenever we can tell from the complaint or the answer that this case is going to turn on some issue of federal law." Yet that intuition is wrong because the answer cannot create original subject matter jurisdiction, not with an affirmative defense, nor even with a counterclaim. Nor is there federal question jurisdiction if the complaint anticipates or references a federal defense. Some allusions to federal law might appear on the face of the complaint, yet that doesn't necessarily establish federal question jurisdiction. Right here is where you're likely to run into the term, well-pleaded complaint. Don't get confused by the poorly named well-pleaded complaint rule. The well-pleaded complaint rule has nothing to do with how well or poorly the complaint is drafted. The term well-pleaded complaint rule refers to someone's conception of the fact that complaints should only contain a claim, not excess facts, not argument, and certainly not the anticipation of any defense or counterclaim that the defendant might raise. A well-pleaded complaint just means the plaintiff's claim, the plaintiff's cause or causes of action. So, what we are saying is that the plaintiff's claim, their cause of action, must arise under federal law, the plaintiff's claim. Now, if you want a heuristic that will get you the right answer, most of the time and quickly, here it is. Look at the plaintiff's cause of action and ask, "Who created that cause of action?" If the cause of action arises under Title VII, the Employment Discrimination Law passed by Congress, then that's a federal question because Congress created that cause of action. You would cite 1331 and say that the federal court has subject matter jurisdiction over that cause of action under 1331. If the cause of action is instead something that is a product of the common law or statutory law of some state like Ohio, well, then that's not a federal question and 1331 cannot help you. So, to a first approximation, all you need to do is to analyze what gave rise to the cause of action. Federal law equals 1331, otherwise, out of luck. With this approach, you'll be right at least 95% of the time and you'll be in very good company because this is what Justice Holmes wanted. He said, "A suit arises under the law that creates the action." Ah, the virtue of simplicity. But what if I want to get the right answer 100% of the time? What is that other 5%? Well, most of the 5% are claims that technically are creations of state law. So, on our previous test that gets us the right answer 95% of the time, you'd see that this is a cause of action that arises under state law. But some state law causes of action are different and therefore fall within this 5% or so because they have what are called embedded federal issues. Now, don't overuse this category. Not every state law claim that merely implicates some federal issue is going to fall within this 5%. For example, imagine a state law products liability claim that asserts negligence per se on the basis that defendants violated a federal law. This, however, does not create a federal question. That's not in the 5%. That is in our general rule that works 95% of the time. You'd say state law products liability claim equals no 1331 jurisdiction. So, let's look a little more closely at these state law claims that have embedded federal issues. What is in that 5%? A state created claim will invoke 1331 only when all four of the following circumstances are present. First, the case necessarily raises a federal issue. Second, that federal issue is actually disputed. Three, the federal issue is substantial. And fourth, the exercise of federal jurisdiction will not disturb any congressionally approved balance of federal and state judicial responsibilities. This four-part test, all of which must be satisfied, comes from a case called Grable. And so you might refer to these as the Grable factors. The first factor ensures that the resolution of the federal issue is truly necessary to the plaintiff's claim. So if you're trying to satisfy the test, you'd want the federal issue to be something that was important to, ideally, an element of the plaintiff's cause of action. The federal issue really is something that is going to be decided in this case. If the first factor is satisfied, then the second question is, are the parties actually disputing what that federal issue is? So here, if the parties aren't calling for some clarification about the federal law, if they're not disagreeing about what the content of that federal law is, well, then this second factor wouldn't be satisfied. And you should stop right here because there would be no embedded federal issue. If the second factor here is satisfied, what you're concluding is, yeah, the parties are actually fighting about the content of this federal issue. It is, in fact, in dispute. So if the state claim will require the court to interpret a disputed issue about some federal law, then the next question, the third question, is whether this disputed federal issue has some significance beyond this case. That's what we mean by that word "substantial." If you're trying to satisfy the test, you'd want the federal issue about which the parties are disputing to be something that could really create some chaos when the state court decided it. The idea then is that, well, if the state court decides this because they're not experts in federal law, if they got it wrong, that could really create this cascade of consequences. You need that cascade of consequences to satisfy this third element. There's no cascade of consequences to satisfy this third element if the consequences of any error would be quarantined to this particular case. There aren't any externalities for us to worry about. Next, if the first three factors are satisfied, the fourth factor is sometimes referred to as the veto. Because even if the state claim necessarily raises a federal issue that is disputed and is substantial, federal courts are not inclined to interfere with state courts. So in this fourth factor, the court is asked to make sure that the exercise of federal jurisdiction over this state-created claim is not going to disturb any congressionally approved balance of federal and state judicial responsibilities. So ask and discuss what this case is about. Is it about regulating lawyers? Is it about ensuring safety? Is it about protecting civil rights? If this general area of the law is something where states generally run the show, then the exercise of federal subject matter jurisdiction because of an embedded federal issue would be less likely. The federal judge can just veto the subject matter jurisdiction exercise here and say, "Yeah, it satisfies the first three grable factors, but we're not inclined to interfere with this area of law that is generally the domain of states." So that's an introduction to federal question jurisdiction under 1331. Now let's look at the other principle basis for original subject matter jurisdiction in federal courts, and that is diversity jurisdiction. Now these cases don't involve federal questions. So this is not about federal court's expertise over federal issues. Diversity jurisdiction is instead about the federal courts providing a neutral forum. The desirability of a neutral forum is present because the plaintiffs and the defendants are from different jurisdictions. That's what we mean here by diverse. So the federal court becomes a neutral forum, an alternative to an action proceeding instead in either the state court of the plaintiff or the state court of the defendant. And article three of the Constitution, contemplated federal court jurisdiction over such matters and Congress has acted too. Here we're going to focus on 28 USC section 1332, but I am not going to address jurisdiction over class actions, which is the subject of paragraph D of section 1332. We're going to focus on the much more typical diversity actions and ordinary typical diversity jurisdiction has two basic requirements. One, complete diversity, and two, an amount in controversy in excess of $75,000. When we say complete diversity, the qualifier complete serves a very important purpose. So be sure to follow this. We have already alluded to the fact that diversity refers to the fact that plaintiffs and defendants are from different jurisdictions. So imagine a couple of plaintiffs are from South Dakota and a couple of defendants are from Michigan. There is complete diversity in that hypothetical because no state appears on both sides of the V, the V, which stands for versus. Now in that hypothetical, there's no problem that there are two South Dakotans on the plaintiff's side of the V, and there's no problem that there are two Michiganders on the defendant side of the V. What we are looking for is whether the same state shows up on both sides of the V. When we require complete diversity, we are not going to tolerate any situation where the same state shows up on both sides of the V. Complete diversity is to be distinguished from minimal diversity. There are other less common bases for federal subject matter jurisdiction that require only minimal diversity. Minimal diversity requires only some diversity across the V. For example, if two South Dakota plaintiffs sue three defendants, a Michigander, an Ohioan, and a South Dakotan, there is minimal diversity because at least one of the plaintiffs is from a different state than at least one of the defendants. That's minimal diversity. Diversity under 1332, however, requires complete diversity, so no state can appear on both sides of the V. If there is any overlap between any plaintiff and any defendant, you lack complete diversity and 1332 won't be satisfied. 1332a outlines four different species of diversity jurisdiction. The first is an action between citizens of different states. There is some subtlety buried in the reference to citizens of different states. One of the items of subtlety is that the reference to citizens refers to American citizens. Another component of the subtlety is that reference to citizens of different states, state is capitalized there in section 1332. And the capital "S" refers to one of the United States. So imagine complete diversity across the V there between American citizens of different states. South Dakota versus Michigan. Assuming that the South Dakota and the Michigan are American citizens, that is an action between citizens of different capital "S" states. The second category in 1332 is citizens of a capital "S" state and citizens or subjects of a foreign state. No capital "S" on foreign state. So again the second category, citizens of a capital "S" state and citizens or subjects of a foreign state. This extends the scope of diversity jurisdiction to an action between a South Dakotan and a South Korean. That is an action between a citizen of a capital "S" state and a citizen or subject of a foreign state. Some additional language in that provision emphasizes that foreign citizens who are permanent residents of the United States will be deemed a citizen of the capital "S" state, in which they are domiciled. So if that South Korean is a permanent resident of the United States, so it's a South Korean citizen who has a permanent resident status under immigration law in the United States, if that South Korean who is a permanent resident is domiciled in South Dakota, no complete diversity there, because this second provision in 1332 says that that South Korean shall be deemed a citizen of the state in which they're domiciled. The third provision in 1332 is a combination of the first two. The third provision says that there is diversity jurisdiction in an action between citizens of different capital "S" states, even if citizens or subjects of a foreign state are additional parties. You need this provision to address a situation where two South Dakotans are suing a Michigander, an Ohioan, and a South Korean. We need this third provision because that is neither an action between citizens of different capital "S" states. I don't know because there's a foreign citizen in there. And it's not the second provision either because this isn't an action between citizens of a capital "S" state and citizens or subjects of a foreign state. No, it's a combination of the two, which is reflected in this third provision. An action between citizens of different capital "S" states where citizens or subjects of a foreign state are additional parties. Finally, the fourth provision in section 1332 addresses situations where a foreign state is a plaintiff and citizens of a capital "S" state or of different capital "S" states are defendants, a foreign state. A foreign state is what it sounds like, a foreign government, so that's pretty straightforward. But notice, by the way, that this fourth provision is the only one that describes who needs to appear on which side of the "V." In this fourth provision, the foreign state needs to be a plaintiff. In the other provisions, we didn't care, for example, whether the citizen or subject of a foreign state was on the plaintiff side of the "V" or on the defendant side of the "V." One little aside here, section 1332 doesn't contemplate cases involving American citizens who are domiciled abroad. Well, let's run through those four provisions and see why they're left out. The first provision contemplated cases between citizens of different capital "S" states, which means American citizens who are domiciled in one of the United States, an American citizen in Colorado. And the other provisions of 1332 contemplate citizens or subjects of a foreign state, so that captures the French citizen in Paris, but an American citizen who is domiciled in Paris, is neither of those. And in fact, courts have said there is no diversity jurisdiction in cases involving these so-called "stateless" citizens. That American citizen domiciled in Paris is not domiciled in a capital "S" state. And 1332 doesn't contemplate it. And because federal courts are courts of limited subject matter jurisdiction, you need to be able to point to a statute to authorize the jurisdiction, and it's not there. So the first of our two requirements for diversity jurisdiction is complete diversity. Now, in order to do that complete diversity analysis, we need to know whether somebody is a Coloradan, or that they're domiciled in France. And what if one of the defendants or plaintiffs is a corporation? How do I do the complete diversity analysis for entities like that? For individuals, we use the individual's domicile. And as we've seen in multiple contexts in civil procedure, to determine domicile, we need to know the last place that somebody was both present and intending to remain indefinitely. For a lot of people, that's where they're living right now. They live in Illinois, and they intend to remain there indefinitely. They have no plans to leave. But of course, other fact patterns aren't quite so easy. Imagine students who attend university in another state or country. Imagine professional athletes. Imagine people in the military. There are folks who live somewhere, but they only intend to remain there for two years, three years, six months. That's not an intent to remain indefinitely. For such a person, then, we would have to just rewind their life, go in reverse chronological order to the place that they lived previously, and ask again. Well, while living in that place, did they ever intend to remain indefinitely when they lived there? If not, go to the place prior. Alternatively, you could work forward chronologically through someone's life. This tends to take a lot more time for the obvious reason. But domicile is a term of art. You start with your parents' domicile. You keep that domicile until you are both present and intending to remain indefinitely somewhere else. At that point, you would abandon your previous domicile and adopt the new domicile. Everyone always has one, and only one, domicile. You keep your domicile until you establish a new one. Now, that can be tricky because, of course, someone might leave the state of Indiana and proclaim vociferously that they never intend to return to that terrible state, and they might mean it. And they may not have been there for six years, or sixteen years. But if at no point in that sixteen years, were they both present somewhere and intending to remain in that somewhere indefinitely, they are still an Indiana domiciliary. So to complete your diversity analysis on any particular fact pattern, you might need to determine the domicile of the person. Now, if you're told that they're an Illinois citizen, then it's probably fair to assume that they are domicile in Illinois. But if instead, you're told that they reside in Illinois, your curiosity should be peaked because residents doesn't necessarily mean domicile. Residents would constitute presence, but are they also intending to remain indefinitely in Illinois? That's how you would determine their domicile. How about corporations? If I'm told that Walmart is the plaintiff, or that Amazon is the defendant, how do I do my complete diversity analysis? Answer, a corporation is a citizen of both the state or country of its incorporation, and also the state or country of its principal place of business, meaning corporate headquarters. So, if in a fact pattern you read that McDonald's is a Delaware corporation with a principal place of business in Illinois, if McDonald's is the plaintiff, you would put on the plaintiff side of the V for purposes of your complete diversity analysis, the states of Delaware and Illinois. Then, if you're told that the defendant is a domiciliary of Missouri, you would see, oh, there is complete diversity. No state appears on both sides of the V. If, however, that McDonald's was suing a Illinois defendant, there would not be complete diversity. We would say diversity was destroyed because Illinois shows up on both sides of the V. So, that's the analysis that we could be asked to do as a prerequisite of our complete diversity analysis to determine the domiciles and citizenship of the respective parties in the diversity action. The second requirement is the amount in controversy. The amount in controversy needs to exceed $75,000. First, the silly little detail. Notice that it's exceeds $75,000. If the plaintiff pleads $75,000, technically that is not enough. But let's move beyond the trivia. The amount in controversy threshold is relatively low, and that's important. If the amount in controversy were, say, $250,000, we could imagine a fair amount of litigation, a fair amount of fighting, about whether this case really involves the amount in controversy stated by the plaintiff. But because the threshold is so low, because $75,000 is relatively low, we actually don't see much litigation about it. And courts generally take plaintiff at their word. If the plaintiff says they're claiming some amount in excess of $75,000, that's generally good enough. And of course, this isn't about the merits of anything. So, even a dubious claim, dubious on the merits, can still satisfy the amount in controversy, which in turn helps satisfy the diversity jurisdiction requirement. Now, heightened pleading standards could reveal to courts some instances where the amount in controversy looks exaggerated. Notice pleading would have disguised a lot of that, and heightened pleading might unmask some claims where the amount in controversy is being exaggerated. But the reality is judges just seem to have very little appetite to tackle this on 12B1 motions. So, unless you have something really obvious, really extreme, take plaintiff at their word and do not waste time pressing the amount in controversy. But there are two things about the amount in controversy that appear frequently on exams. And the first is handling the amount in controversy requirement when there are multiple claims. So, let's unpack that. So, of course, the amount in controversy must exceed $75,000. But imagine on the exam, the plaintiff has two causes of action against the defendant. So, one plaintiff against one defendant, but there are two causes of action. One cause of action claims $45,000 in damages, and the second cause of action claims $50,000 of damages. Our question here that we need to get clarity about is whether the plaintiff can aggregate, combine those claims to meet the amount in controversy threshold. And the answer is yes, you can combine the $45,000 and the $50,000 to meet the $75,000 threshold provided that those two causes of action are not alternative bases for recovery. So, the claims would be alternative bases if the plaintiff could recover on one or the other, but not on both. But other than the situation where there are alternative theories of recovery, then yes, aggregation is permitted. This is true even if the claims are completely unrelated to each other. So, if you sue me for $45,000 for injuries caused by my speeding that triggered an automobile accident, that's one count. And if you have a second count for some completely unrelated breach of contract where the amount in damages is $50,000, you can combine those two claims to satisfy the amount in controversy threshold. Now, very importantly, that aggregation that we just described involved one plaintiff and one defendant combining those two claims to meet the amount in controversy requirement. Now, a variation can two plaintiffs, one plaintiff with a $45,000 claim and a second plaintiff with a $50,000 claim. Can those two plaintiffs join to reach the amount in controversy requirement? Absolutely not. That is not the kind of aggregation that we would tolerate. Similarly, can one plaintiff sue two defendants where the claim against defendant number one is a $45,000 claim and the claim against defendant two is a $50,000 claim. Can that one plaintiff join those two claims against those two defendants to meet the amount in controversy requirement? Again, absolutely not. Here's our clarifying principle. Here's what you want to remember. You cannot join parties to reach the amount in controversy requirement. You can aggregate claims, but you cannot aggregate parties to satisfy the amount in controversy. This tends to get tested frequently on exams because it's something for which there are right and wrong answers, which of course, as you know, all too well is something of a rarity and a sea of it depends. A second issue about the amount in controversy requirement that can show up on an exam is a case where the plaintiff seeks only equitable relief. What is the amount in controversy if you're suing to get reinstated into the job from which you are wrongfully terminated? That's the only relief I seek. I want to be reinstated. What is the amount in controversy if you're enjoining the defendant from selling a product because it infringes your intellectual property rights? What's the amount in controversy? Or what's the amount in controversy if you're seeking property to be conveyed? So how do we value equitable relief? Let's answer that question. It wouldn't make sense to close the federal courts to cases where plaintiffs sought only equitable relief. First, because it would deprive plaintiffs with a lot of important cases from getting relief in federal courts. And second, if plaintiffs needed damages claims in order to satisfy the amount in controversy, well, then that would just create an incentive for plaintiffs to add claims for damages. That doesn't seem like very good policy. So courts take several approaches here. But again, because the amount in controversy is such a low number, most any approach will get you to the $75,000 threshold. The basic approach is to quantify the value of the equitable relief. The quickest way to do this is to look at it first from the perspective of the plaintiff and then second from the perspective of the defendant. If either perspective suggests the value exceeds $75,000, then that's good enough. From the plaintiff's perspective, you can analyze, well, what is it worth to them? What would their damages be in lieu of this equitable relief sought? How valuable is this relief to this plaintiff? Then flip it around and consider it from the defendant's perspective too. How much is it worth to them? How much will it cost them to comply with this equitable order? And/or what might they pay to avoid complying with the equitable relief? The amount in controversy is a place where plaintiffs really get the benefit of the doubt. If they seem to be acting in good faith, judges just don't push back here. So let's wrap up this lecture. There are two bases for original subject matter jurisdiction, 1331 and 1332. I like to emphasize those numbers because with 1331, there's really just one thing to remember and that is does the cause of action arise under federal law. That's it. That's the one thing. For 1332, there are two things that we remember. One, complete diversity and number two, the amount in controversy. Last point, of course, the subject matter jurisdiction objection is just one of our challenges. Just because there is subject matter jurisdiction doesn't mean there's personal jurisdiction. Just because there's personal jurisdiction doesn't mean there's subject matter jurisdiction. Just because there's venue doesn't mean there's subject matter jurisdiction. All of these objections are independent. It can get complicated when the facts overlap because notice that we're using concepts like domicile in these multiple contexts. But each of these doctrines poses an independent constraint. Plaintiff is walking the gauntlet here in litigation. They must survive the 12b1 and the 12b2 and the 12b3 and so on. I want to make one last very important point. Our focus here has been on original subject matter jurisdiction. This means the case that opens the docket, the case that opens the file, the action filed by the plaintiff that starts the action. We've just plumbed 1331 and 1332. We know what those original bases for subject matter jurisdiction look like. Because federal courts have limited subject matter jurisdiction, we are going to need a subject matter jurisdictional basis for every single cause of action that shows up in a case. Every cause of action in every counterclaim, every cause of action in every crossclaim, each and every cause of action in every third party claim. The point I'm emphasizing is that when a case is in federal court, there is a subject matter jurisdiction question for every single cause of action that appears anywhere in that litigation. Beginning at the outset of course, but also continuing for every single cause of action on every single subsequent claim that gets asserted by anyone. Now, some of those crossclaims and counterclaims and third party claims and additional causes of action, some of those will not be supported by 1331 or 1332. And that's why we have the next episode, which is about supplemental jurisdiction, which will allow the court to exercise jurisdiction over some of those causes of action. But an important takeaway for you here is that these bases for original subject matter jurisdiction, namely 1331 and 1332, can be used to authorize subject matter jurisdiction when those terms are met by the crossclaim, the counterclaim, the third party claim. So, for example, if a third party plaintiff brings an impleader against a third party defendant, the subject matter jurisdictional basis for that claim could be 1332. If the third party plaintiff is a Washingtonian and the third party defendant is a Oregonian and the amount in controversy is $250,000, well then section 1332 would be the subject matter jurisdictional basis for that claim. Similarly, if defendant one in some fact pattern has a crossclaim against defendant two, well if that crossclaim arises under federal law, well then there's your basis for the court to exercise subject matter jurisdiction over that crossclaim. You need a subject matter jurisdictional basis for each and every cause of action against each and every defendant. So, while this episode has focused on using 1331 and 1332 to initiate the action, literally the origination of a suit, I want you to remember also that 1331 and 1332 can be the subject matter jurisdictional basis for any of those crossclaims, counterclaims, third party claims. Those can also be heard in federal courts when they satisfy 1331 or 1332. So, be ready to wield those sections in those other contexts as well. Now, if there is some crossclaim, counterclaim, third party claim that doesn't satisfy 1331 and or 1332, well then you need some other basis, but that's a separate episode. And it's called supplemental jurisdiction because supplemental jurisdiction is going to supplement, expand, stretch the subject matter jurisdiction of courts to hear some causes of action that don't or wouldn't fall within the scope of its original subject matter jurisdiction. So, that's a wrap on this episode about original subject matter jurisdiction. Thank you for your attention and have a good day.