Federal jurisdiction and venue: New Legislation Takes Effect

On December 7, 2011, the President signed into law the Federal Courts Jurisdiction and Venue Clarification Act. 112 P.L. 63. The Act is applicable to all actions filed on or after January 6, 2012. This new law makes small but important changes to the procedure for removal to federal court and clarifies the scope of diversity jurisdiction. It also expands federal courts' authority to grant a transfer of venue for the convenience of parties and witnesses.

With respect to removal, the Act clarifies a confusing issue that arises when a plaintiff sues multiple defendants, and different defendants are served with the complaint at different times. Under the new statute, each defendant has thirty days after being served with the complaint to file a notice of removal. 28 USCS sec. 1446(b)(2)(B)-(C). Previously, however, the federal Circuits were split. Some Circuits adopted the rule that is now mandated by the Act. See Bailey v. Janssen Pharmaceutica, Inc., 536 F.3d 1202 (11th Cir. 2008). Others, including the 4th Circuit and the D.C. Circuit, held that a notice of removal cannot be filed more than thirty days after the first defendant is served with the complaint. Barbour v. Int'l Union, 594 F.3d 315 (4th Cir. 2010); Princeton Running Co. v. Williams, 2006 U.S. Dist. LEXIS 62622 (D.D.C. 2006); Phillips v. Corr. Corp. of Am., 407 F. Supp. 2d 18 (D.D.C. 2005). Thus, in cases where the second defendant was served more than thirty days after the first defendant, the second defendant would have no opportunity to remove the case to federal court. Recognizing the unfairness of this approach, the new law gives each defendant the same amount of time for removal.

In addition, the Act curtails removal jurisdiction in cases involving both state and federal claims. The statute now provides that when the claims under state law are unrelated to the federal claims - that is, when they do not arise from a common nucleus of operative fact - the court must sever the state law claims and remand them to state court. 28 USCS sec. 1441(c)(2). The previous version of the statute gave federal courts discretion to either decide the state law claims in federal court or to remand. However, the constitutionality of this rule had been called into question. See Salei v. Boardwalk Regency Corp., 913 F. Supp. 993 (E.D. Mich. 1996).

The new law also makes several changes to removal jurisdiction in diversity cases. The Act provides that the amount in controversy is legislatively deemed to be the amount demanded in the complaint. 28 USCS sec. 1446(c)(2). If the amount in controversy is not clear from the face of the complaint, then the defendant seeking removal must prove by a preponderance of the evidence that the amount in controversy exceeds $75,000. The same rule applies if the complaint demands less than $75,000, but state law permits recovery in excess of the amount demanded.

If the plaintiff's discovery responses indicate that the amount in controversy requirement has been met, the deadline for filing a notice of removal is extended until thirty days after receipt of the discovery responses. Sec. 1446(c)(3). However, the extended deadline cannot be more than one year after the complaint is filed, unless the plaintiff deliberately failed to disclose the amount in controversy in order to prevent removal or otherwise acted in bad faith.

Additionally, the Act addresses the status of resident aliens and foreign corporations for diversity jurisdiction purposes. Id., sec. 1332(a)(2), (c). These provisions are designed to limit the ability of foreign citizens and corporations to invoke diversity jurisdiction in order to sue each other in federal court.

Finally, the new law contains a number of provisions relating to federal court venue. The Act permits federal courts to grant a change of venue to almost any federal district or division if all parties consent. Id., sec. 1404(a). The previous version of the statute would not permit a case to be transferred to a venue in which it could not have originally been brought. The Act also eliminates the distinction between diversity and federal question jurisdiction for venue purposes. Id., sec. 1391(b).

The changes mandated by the Act are technical but highly significant. One commentator has called them "the most far-reaching package of revisions to the Judicial Code since the Judicial Improvements Act of 1990." Although they are plainly an attempt to clarify the complex rules governing federal jurisdiction and venue, they will almost certainly raise their own complexities, requiring further revisions of the Judicial Code. And while none of these provisions have been tested or interpreted by the courts, they will be the rules of the road for the foreseeable future.