Filing Suit in Federal Court
Brien Roche
Filing suit in US District Court, also known as federal court, requires that the court have what is called subject matter jurisdiction. This is based on either diversity of citizenship or what is called a federal question. The former means that the suit is between citizens of two different states. If one defendant is a citizen of the same state as the plaintiff then there is no diversity. If a defendant lives in the state where suit is pending then the case cannot be removed to federal court based on diversity.
A corporate entity is a citizen of the state where it was formed and where it has its principle place of business. A limited liability company (LLC) is a citizen of each state where its members (owners) are citizens. In addition the amount at issue must exceed $75,000 aside from costs, interest and legal fees. A federal question arises from a U.S. constitutional question or from a U.S. statute.
Filing Suit in District Court Has To Be Weighed
For most lawyers there may also be practical factors to review. For instance in the northern Virginia area the US Court is not viewed as a friendly forum for a plaintiff in a tort claim. As a result most of the actions that I file are in state court. A defendant does have the right to remove a state court action to district court. However it must be done in a timely fashion and the above requirements must be met. Call, or contact us for a free consult.
The federal court in Northern Virginia is known as being a court that moves its cases very quickly and allows no delay. In addition, in state court in Virginia the plaintiff has an absolute right to dismiss their suit and refile it within six months. That right does not always exist in U.S. court. That right is a big plus for the plaintiff. It gives the lawyer for the plaintiff a great deal of control over the suit. The rules that govern U.S. courts are not the same as the rules that govern state courts. There is good and bad in both sets of rules for a plaintiff. Which set of rules favors the plaintiff more is a close call. As a result in some cases this may be one factor in favor of filing in federal court.
Disclosure
In December of 2022, the disclosure requirements were amended requiring that each party including the plaintiff file a disclosure stating citizenship. This means that if an LLC or a partnership is a party, then you must identify all members/partners and members of members. This has to be done when you file the Complaint.
Snap removals
Some large corporations monitor filings in state court in order to promptly remove cases to federal court. This may be done in cases where there is a defendant that has been joined who is a citizen of the state where the suit was filed. The presence of this defendant destroys federal diversity and defeats federal jurisdiction. Therefore if you have filed in state court, have joined a defendant who is a citizen of that state and want to keep the case in state court you need to serve that defendant quickly. That is you may need to employ “snap” service. This means effecting service before any removal. Failure to do so may result in “snap removal” to the US Court.
An excellent trial court decision on why snap removals should not be allowed where a defendant files a Notice of Removal before the plaintiff has a reasonable opportunity to effectuate service and the forum defendants were not added to prevent removal is found at Teamsters v. Friedman, 2019 WL 5423727.
Phantom Removals
Phantom removal is a new legal strategy employed by some defendants to remove the case before it technically has been filed. That is possible because some defendants monitor new filings through a product known as “case portal” which alerts them as soon as certain defendants are named in a federal lawsuit. That type of removal occurs where the Complaint has been electronically filed but has not yet been accepted by the clerk. If that is the case, your objections to such removal are first that there is no civil action pending since the Complaint has not yet been accepted. The second objection is that removal can only occur when there is an initial pleading. In this instance there is no initial pleading. Finally, 28 U.S.C. § 1446 (a) requires that the notice of removal include a copy of all process served on such defendant. In this case nothing has been served. In some jurisdictions the case is not considered to be “commenced” until the summons is issued. In this instance no summons has been issued.
Removal With Non-Diverse Parties
One way to keep a case out of federal court is to join a party who is a citizen of the state where suit is filed. However the defense may try to overcome this. They do that by showing there is no chance of recovery against that party. In effect they are claiming the party has been joined just to keep the case out of federal court. To prove this they have a lofty burden.
The burden rests on the defendants to prove that the joinder of this individual defendant is fraudulent. To prove that, they must show that based solely upon the pleadings that there is no way that individual defendant could be liable. Most often that arises in a premises liability case. An employee who injures a third person is liable to that person only if the employee committed what is called “misfeasance”. Simple nonfeasance is not a basis for liability. Harris v. Morrison, 32 Va. Cir. 298 (1993); Hall v. Walters, 2013 WL 3458256 (2013); Freeman v. Curtis Bay Medical Waste Services, 2019 WL 210396 (2019)
Limited to Pleadings
The court in making this jurisdictional determination will look only at the pleadings. The defendant has to prove outright fraud in the plaintiff’s pleading or that there is no possibility that the plaintiff would be able to establish a claim against that in-state defendant. Hartley v. CSX Transport, Inc., 187 F.3d 422, 424 (4th Cir. 1999). Permitting extensive litigation of this jurisdictional issue thwarts the whole purpose of the jurisdictional rule. Hartley at 425.
During the course of the suit it may be in your interest to dismiss that party that defeats diversity. If that dismissal comes within one year of the commencement of the suit, then the defendant can remove. See U.S. 28, U.S.C. 1446. Within section 1446(c) there is a bad faith exception. That is, the defendant may argue that even though the dismissal came more than a year after the filing of the suit, keeping the defendant in the case for no reason other than to destroy diversity is evidence of bad faith.
Calling that individual defendant as an adverse witness at trial and then dismissing that person may be a way to avoid any claim of bad faith. That is, it is good trial practice to be able to call the person as an adverse witness. That way the rules of cross-examination apply. Then dismissing that person probably defeats any claim of bad faith.
The mere filing of the petition for removal deprives the state court of jurisdiction.
Discovery on Personal Jurisdiction
Where a defendant challenges personal jurisdiction, discovery on that issue may be allowed. Sunview Condominium Ass’n v. Flexel Intern., Ltd., 116 F.3d 962, 964, 38 Fed. R. Serv. 3d 431 (1st Cir. 1997) (plaintiff who makes colorable case for existence of in personam jurisdiction may be entitled to “modicum of jurisdictional discovery if defendant interposes jurisdictional defense);Enplanar, Inc. v. Marsh, 11 F.3d 1284, 1291, (5th Cir. 1994) Fitzgerald v. Texaco, Inc., 521 F.2d 448, 451 n.3, 1975 A.M.C. 1267, (2d Cir. 1975) (motion to dismiss for forum non conveniens pending)
The same is true in state court. Geddes v. London Equipment, 20 Va. Cir. 97 (1990); Norfolk Shenandoah, Inc. v. Bunning, 7 Va. Cir. 327 (1986)
Realignment of Parties
Sometimes a defendant may seek to realign parties. In other words, a party that is joined as a defendant may be treated as a plaintiff. For instance in a declaratory judgment action involving coverage brought by a claimant, that may occur. The injured claimant sues the property owner and their insurer because the insurer has denied coverage. The injured claimant is a party with standing because they are an intended third party beneficiary. The carrier may argue that the correct alignment of the parties is that the plaintiff and the insured/property owner should be treated as the plaintiff and the carrier who is adverse to them, both on the issue of coverage, should be treated as the defendant. That may give the federal court jurisdiction.
Declaratory Judgments Involve Discretionary Jurisdiction
In Trustgard Insurance Company v. Collins, 942 F.3d 195 (2019), the 4th Circuit stated that the trial court should have abstained from asserting discretionary jurisdiction due to the factual uncertainties in the record, the likelihood of entanglement with the state court lawsuit and the general prohibition that the federal courts should abstain from rendering advisory opinions.
Heightened Pleading Requirements in US District Court
U.S. Courts have heightened the pleading rules for filing a lawsuit in U.S. Court. The mandate now is that the Complaint, which is the set of suit papers first filed, must set forth enough facts to state a claim. That claim on its face must have enough facts to allow the Court to conclude that the defendant is liable for the conduct claimed. In other words the pleading must include facts that support every element of every claim in the Complaint.
There may be cases where that threshold pleading level cannot be complied with. In those cases it may be proper to consider some early discovery. This will allow the plaintiff to obtain the facts called for.
The long and short of this is that there may be pluses for filing in District Court in some cases. However in this area most plaintiffs fare better in state court.
LLCs or Partnerships as Defendants
Subject matter jurisdiction in federal court is determined as of the date of filing of the suit. Connolly v. Taylor, 27 U.S. 556, 565 (1829).
Where a defendant is either an LLC or partnership, then you must look at all of the members/partners to determine citizenship. Central West Virginia Energy Co., Inc. v. Mountain State Carbon, LLC, 636 F.3d 101, 103 (4th Cir. 2011). The citizenship of a limited liability company is determined by the citizenship of all of its members. The same is true as to a partnership. This is true as to members and also members of members.
What that means is that you first need to identify who the stated members are. If those members are partnerships or LLCs, then you need to determine the citizenship of all of those downline members. Gen. Tech. Applications, Inc. v. Exro Ltda, 388 F. 3d 114, 121 (4th Cir. 2004)
In a case decided in November of 2022, the 4th Circuit reiterated that same principle. Capps v. Newmark Southern Region, LLC, et al., 2022 WL 16954346
Call, or contact us for a free consult.
For more information on federal courts see the pages on Wikipedia. For more information on personal injury see the pages on this site.