The Federal Class Action Practice Manual
Chapter 5: Jurisdiction and Venue in Class Action Litigation
[§26] Jurisdiction of Federal District Courts in Class Action Litigation
The jurisdiction of district courts in class actions is neither enhanced nor limited by Rule 23. See generally, Rules Enabling Act 28 U.S.C. § 2072. The jurisdiction of the federal courts is defined by the United States Constitution and federal statutes. Federal courts are courts of limited jurisdiction and the burden is on the plaintiff to demonstrate jurisdiction. Litigants cannot, by their own act or admission, invoke the jurisdiction of a federal court where there is no "case or controversy." Memphis Light, Gas & Water Division v Craft, 436, U.S. 1, 7-8, 98 S.Ct 1554, 56 L.Ed 2d 30 (1978); Brady v Thurston Motor Lines, 726 F.2d 136, 146 (4th Cir. 1984).
Title 28 U.S.C. § 1332 provides the basis for federal court jurisdiction based on diversity of citizenship. It is provided in § 1332(a) as follows:
(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between--
(1) citizens of different States;
(2) citizens of a State and citizens or subjects of a foreign state;
(3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and
(4) a foreign state, defined in section 1603(a) of this title, as plaintiff and citizens of a State or of different States.
For the purposes of this section, section 1335, and section 1441, an alien admitted to the United States for permanent residence shall be deemed a citizen of the State in which such alien is domiciled.Back to Top
[§27] Diversity of Citizenship
In a class action proceeding, the citizenship of each named plaintiff must be diverse from the citizenship of each named defendant. The citizenship of absent class members need not be diverse. See Snyder v Harris, 394 U.S. 332, 340, 89 S.Ct 1053, 22 L.Ed 2d 319 (1969); Central Wesleyan College v. W. R. Grace & Co., 6 F.3d 177, 186 n.3 (4th cir. 1993).
In a diversity action, a federal court must apply state law to the substantive issues before it. Erie Railroad Co. v Tompkins, 304 U.S. 64, 58 S.Ct 817, 82 L 3d 1188 (1938); Rules of Decision Act, 28 U.S.C. § 1652 If the named class representatives domicile is diverse from the citizenship of the defendants, this jurisdictional prerequisite is established. See Supreme Tribe of Ben-Hur v Cauble, 255 U.S. 356, 41 S.Ct 338, 65 L.Ed 673 (1921). Although absent class members must meet the amount in controversy requirements, their domiciliary is simply irrelevant in determining whether diversity jurisdiction is established.
[§27.1] The Amount in Controversy Requirement Diversity Class Actions
The amount in controversy in a federal court class action is based upon the good faith pleadings of plaintiff. See Mercury Indemn. Co. v Red Cab Co., 303 U.S. 283, 288, 58 S.Ct 586, 82 L.Ed 845 (1938). A class complaint involving good faith pleadings will be dismissed for failure to meet the amount in controversy only when it appears to a legal certainty the jurisdictional amount is not at stake. See In re A.H. Robbins Co., Inc., 880 F.2d 709, 723 (4th Cir. 1989).
Zahn v International Paper Co., 414 U.S. 291, 94 S.Ct 505, 38 L.Ed 2d 511 (1973) requires that each member of a class must meet the federal jurisdictional amount in controversy for the court to have jurisdiction. In federal court that amount is $75,000, exclusive of interest and costs. 28 U.S.C.. § 1332. It is well settled that members of a diversity-based class action may not generally aggregate their claims to reach the amount in controversy. See Snyder v Harris, 394 U.S. 332, 89 S.Ct 1053, 22 L.Ed 2d 319 (1969).
In Gilman v. BHC Securities, Docket No. 95-9290 (2d Cir. January 17, 1997) explained in detail the circumstances under which class claims could, and could not, be aggregated to reach the jurisdictional amount:
In Snyder v. Harris, 394 U.S. 332 (1969), the Supreme Court considered whether, in light of the 1966 amendments to Rule 23 of the Federal Rules of Civil Procedure, the separate and distinct claims of class action plaintiffs could be aggregated to satisfy the amount in controversy for federal jurisdiction. The Court held that such aggregation was impermissible, 394 U.S. at 335-36, thereby reaffirming "the well-established rule that each of several plaintiffs asserting separate and distinct claims must satisfy the jurisdictional-amount requirement if his claim is to survive a motion to dismiss." Zahn v. International Paper, 414 U.S. at 300. This rule against aggregating separate and distinct claims "plainly mandates . . . that the entire case must be dismissed where none of the plaintiffs claims more than [the jurisdictional minimum.]" Id.
Federal courts have applied the "non-aggregation" rule consistently in a variety of contexts. See, e.g., Asociacion Nacional de Pescadores a Pequena Escala o Artesanales de Colombia (ANPAC) v. Dow Quimica de Colombia, S.A., 988 F.2d 559, 563 (5th Cir. 1993) (claims by fishermen for lost income and personal injuries arising from chemical spill were "individual" and not aggregable for jurisdictional purposes because "one plaintiff's recovery is neither dependent upon, nor necessarily reduced by, another's"); Griffith v. Sealtite Corp., 903 F.2d 495, 498 (7th Cir. 1990) (workers' claims for wages due under a single employment contract "were separate and distinct" and could not be "aggregate[d] . . . to satisfy the jurisdictional amount"); Sellers v. O'Connell, 701 F.2d 575, 579 (6th Cir. 1983) (class claims for pension benefits held in union trust fund could not be aggregated because "each plaintiff s[ought] to receive a fixed sum under the terms of the trust instrument," and thus "the class plaintiffs d[id] not possess a common and undivided interest in the relief sought"); United States v. Southern Pac. Transp. Co., 543 F.2d 676, 683 (9th Cir. 1976) (trespass claims against railroad by class of land allottees could not be aggregated for purposes of satisfying the jurisdictional amount because the allottees' "rights to exclude trespassers [were] not held in any group status" but arose instead "only from the status of each [allottee] as [an] individual") (internal quotations omitted); Lonnquist v. J.C. Penney Co., 421 F.2d 597, 599-600 (10th Cir. 1970) (claims that department stores owed class plaintiffs refunds for allegedly usurious interest charges were "separate and distinct").
An equally well-established principle is that "when several plaintiffs unite to enforce a single title or right, in which they have a common and undivided interest, it is enough if their interests collectively equal the jurisdictional amount." Troy Bank of Troy, Indiana v. G.A. Whitehead & Co., 222 U.S. 39, 40-41 (1911). This "common fund" exception to the rule against aggregating claims dates back at least to Shields v. Thomas, 58 U.S. (17 How.) 3, 4-5 (1854), in which the Court held that joint claims filed against the administrator of an estate by the estate's distributees satisfied the "sum in controversy" when the claims were considered "collectively." The Shields Court reasoned that the distributees "all claimed under one and the same title" to the estate proceeds, and "had a common and undivided interest in the claim." Id. at 5. The Court specifically distinguished Oliver v. Alexander, 31 U.S. (6 Pet.) 143 (1832), in which seamen's joint claims for wages were held not to be aggregable, on the ground that each seaman in that case did not "recover a portion of a common fund to be distributed among the claimants, but the amount due to himself on his own separate contract." 58U.S. at 5. Shields emphasized that "it was perfectly immaterial to the [defendant], how [the proceeds] w[ere] to be shared among [the claimants]. . . . [I]f there was any difficulty as to the proportions in which they were to share, the dispute was among themselves, and not with [the defendant]." .Id
Courts apply the common fund doctrine, and permit aggregation of claims to satisfy the jurisdictional amount, "only when several parties have a common, undivided interest and a single title or right is involved." 14A Charles A. Wright et al., Federal Practice and Procedure § 3704, at 83 (2d ed. 1985). For example, aggregation of claims has been allowed in the following instances: the distributees' action in Shields; a wrongful death action asserted under a statute "creat[ing] a single liability on the part of the defendant" and permitting "but one action for the sole and exclusive benefit" of all surviving beneficiaries, see Texas & P. Ry. Co. v. Gentry, 163 U.S. 353, 360-61 (1896); an action by the assignees of two promissory notes to enforce their "common and undivided interest" in a vendors' lien that served as the "common security for the payment of both notes," see Troy Bank, 222 U.S. at 41; an action by members of an Indian tribe to quiet title to what was "essentially a single tract of land . . . adjoining [their] Reservation" but which was held by several individual defendants, see Skokomish Indian Tribe v. France, 269 F.2d 555, 558-59 (9th Cir. 1959); an action on a fire insurance policy, filed jointly by a debtor and the nine creditors to whom he had partially assigned his claims to the insurance proceeds, see Phoenix Ins. Co. v. Woosley, 287 F.2d 531, 533 (10th Cir. 1961); an action by several members of the same family to secure family social services in which they shared a "common and undivided" interest, see Black v. Beame, 550 F.2d 815, 818 (2d Cir. 1977); and an action against a majority shareholder for breach of fiduciary duty, brought by minority shareholders who held a "common and undivided interest" in the corporation's assets, see Eagle v. American Telephone & Telegraph Co., 769 F.2d 541, 546-47 (9th Cir. 1985). See also 14A Wright et al., § 3704, at 83-85 (collecting cases).
As one court expressed the principle, the "paradigm cases" allowing aggregation of claims "are those which involve a single indivisible res, such as an estate, a piece of property (the classic example), or an insurance policy. These are matters that cannot be adjudicated without implicating the rights of everyone involved with the res." Bishop v. General Motors Corp., 925 F. Supp. 294, 298 (D.N.J. 1996).
The overwhelming majority of courts presented with the issue have also declined to hold that Judicial Improvements Act 28 U.S.C. § 1367 overruled Zahn v International Paper Co., 414 U.S. 291, 94 S.Ct 505, 38 L.Ed 2d 511 (1973). However, the Fifth Circuit has ruled that § 1367 authorizes federal courts to exercise supplemental jurisdiction over members of a class who do not meet the amount in controversy requirement for diversity jurisdiction. In re Abbott Laboratories, 51 F3d 524 (5th Cir. 1995). At least one court in the Fourth Circuit has declined to follow the reasoning of Abbott. See Ratliff v Sears, Roebuck & Co., 911 F. Supp 177 (EDNC 1995).
There are very limited exceptions where aggregation is permitted. The Supreme Court has permitted aggregation of claims in a single suit to enforce a jointly held lien. Thus, in Troy Bank of Troy, Indiana v G.A. Whitehead & Co., 222 U.S. 39, 40-41, 32 S.Ct 9, 56 L.Ed 81 (1911), the court held:
When two or more plaintiffs, having separate and distinct demands, unite for convenience and economy in a single suit, it is essential that the demand of each be of the requisite jurisdictional amount; but when several plaintiffs unite to enforce a single title or right, in which they have a common and undivided interest, it is enough if their interests collectively equal the jurisdictional amount.Under Troy and subsequent decisions, aggregation of claims to satisfy the jurisdictional requirements of § 1332(a) is permitted "[o]nly (1) in a case in which a single plaintiff seeks to aggregate two or more of his own claims against a single defendant and (2) in a case in which two or more plaintiffs unite to enforce a single title or right in which they have a common and undivided interest." Snyder v Harris, 394 U.S. 332, 335, 89 S.Ct 1053, 22 L.Ed 319 (1969). Thus, when plaintiffs have a common, undivided interest in property such as presented by joint tenants in common, aggregation of their respective claims may be permitted. Id.
Another narrow exception to the rule against aggregation may be available in some jurisdictions. Although not uniformly accepted, there is a narrow line of authority that has developed for the proposition that where multiple plaintiffs file a joint claim for punitive damages, the total sum claimed should be attributed to each individual plaintiff in determining whether each has satisfied the jurisdictional minimum. See, e.g., Allen v. R & H Oil & Gas Co., 63 F.3d 1326, 1335 (5th Cir. 1995); Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1359 (11th Cir. 1996).Back to Top
[§27.2] Fraudulent Joinder Doctrine
A civil case filed in state court may be removed by the defendant to federal court if the case could have been brought originally in federal court. 28 U.S.C. § 1441(a). Federal courts have diversity jurisdiction over all civil actions where the amount in controversy exceeds $75,000 exclusive of interest and costs, and the action is between citizens of different states. 28 U.S.C. § 1332. Diversity jurisdiction requires complete diversity; every plaintiff must be diverse from every defendant. Tapscott v. MS Dealer Service Corp., 77 F.3d 1353 (11th Cir. 1996).
In a class action proceeding, the citizenship of each named plaintiff must be diverse from the citizenship of each named defendant. The citizenship of absent class members need not be diverse. See Snyder v Harris, 394 U.S. 332, 340, 89 S.Ct 1053, 22 L.Ed 2d 319 (1969). In order to defeat federal court jurisdiction, it is improper but possible for a complaint to be filed in state court naming a non-diverse defendant "fraudulently," i.e., naming a defendant against whom a good faith claim could not be asserted solely for the purpose of defeating federal court jurisdiction. An action wherein "fraudulent joinder" has occurred may nonetheless be removed. Fraudulent joinder is a judicially created exception to the requirement of complete diversity. Triggs v. John Crump Toyota, Inc., 154 F.3d 1284 (11th Cir. 1998).
Joinder has been deemed fraudulent generally in two situations. The first is when there is no possibility that the plaintiff can prove a cause of action against the resident (non-diverse) defendant. Coker v. Armco Oil Co., 709 F.2d 1433, 1440 (11th Cir. 1983), superceded on other grounds as stated in Georgetown Manor, Inc. v. Ethan Allen, Inc., 991 F.2d 1533 (11th Cir. 1993). The second is when there is outright fraud in the plaintiff's pleading of jurisdictional facts. Coker at 1440. In Tapscott v. MS Dealer Service Corp., 77 F.3d at 1353, a third situation was identified, i.e., where a diverse defendant is joined with a nondiverse defendant as to whom there is no joint, several or alternative liability and where the claim against the diverse defendant has no real connection to the claim against the nondiverse defendant.
If a case is removed, and there is even a possibility that a state court would find that the complaint states a cause of action against any one of the resident defendants, the federal court must find that the joinder was proper and remand the case back to the state court. See Triggs v. John Crump Toyota, Inc., 154 F.3d 1284 (11th Cir. 1998). The plaintiff need not have a winning case against the allegedly fraudulent defendant; he need only have a possibility of stating a valid cause of action in order for the joinder to be legitimate. The question whether joinder is fraudulent focuses on the claims of the named plaintiff only and not the absent class members. Thus, even if a named plaintiff has a claim against a non-diverse defendant joined in the action that ninety-eight percent of the absent class members would not have, as long as the claim is asserted in good faith, joinder of the resident defendant is not fraudulent. Id.Back to Top
[§28] Effect of Failure to Meet Jurisdictional Requirements
"Any party . . . at any stage of the proceedings, may raise the question of whether the court has subject matter jurisdiction." United Food & Commercial Workers Union, Local 919 v. Centermark Properties Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994) (quoting Manway Constr. Co. v. Housing Auth. of Hartford, 711 F.2d 501, 503 (2d Cir. 1983)) (internal quotations omitted). A federal court can not validly enter a decree in a matter over which it lacks jurisdiction.
Rule 23 does not create jurisdiction. If an action fails to satisfy the jurisdictional amount of § 1332(a) by each individual claim, by the class claims or by both, the complaint may be dismissed. Herlihy v Ply-Gem Indus., Inc., 752 F. Supp 1282, 1289 (D Md 1990). However, counsel should examine the question of supplemental jurisdiction as there is now some authority providing such jurisdiction may be exercised over class members who individually do not meet the amount in controversy. See In re Abbott Laboratories, 51 F3d 524, 527 (5th Cir. 1995).
Alternatively, in the event certain absent class members do not meet the amount in controversy requirement to support individual diversity jurisdiction, rather than dismiss the class, the court should dismiss the members affected. Central Wesleyan College v W.R. Grace & Co., 6 F3d 177, 186(3) (4th Cir. 1993); see also Zahn v Intl. Paper Co., 414 U.S. 291, 94 S.Ct 505, 38 L.Ed 511 (1973). Also, in the event all class members cannot meet the jurisdictional amount in the class as defined, it is within the inherent power of the court to permit the class definition to be changed so as to include only those members over which the court has jurisdiction.Back to Top
[§29] Federal Question Jurisdiction
In a "federal question" case within the scope of § 1331, there is by definition substantive federal law that governs some aspect of the case from the outset. A.I. Trade Finance, Inc. v Petra Intl. Banking Corp., 62 F3d 1454, 1459 (DC Cir. 1995). The question of federal law must appear on the face of a well pleaded complaint. Louisville & Nashville Railway Co. v Mottley, 211 U.S. 149, 29 S.Ct 42, 53 L.Ed 126 (1908).
[§29.1] Federal Removal Jurisdiction
Federal district courts may exercise removal jurisdiction only where theywould have had original jurisdiction had the suit initially been filed in federal court. See 28 U.S.C. § 1441(b). Removal based on federal question jurisdiction is generally governed by the "well-pleaded complaint" rule, which provides that federal jurisdiction exists only where a federal question is presented on the face of the plaintiff's properly pleaded complaint. See Magee v. Exxon Corp., 135 F.3d 599, 601 (8th Cir. 1998). A narrow exception to this general rule, however, is the doctrine of "complete preemption," under which the preemptive force of certain federal statutes is deemed so "extraordinary" as to convert complaints purportedly based on the preempted state law into complaints stating federal claims from their inception. See Caterpillar Inc. v. Williams, 482 U.S. 386, 393, 96 L. Ed. 2d 318, 107 S. Ct. 2425 (1987). For instance, courts have held that sections 85 and 86 of the National Bank Act completely preempt state law claims of usury brought against a national bank. See M. Nahas & Co., Inc. v. First Nat. Bank of Hot Springs, 930 F.2d 608, 611 (8th Cir. 1991).Back to Top
[§30] Personal Jurisdiction
Phillips Petroleum Co. v Shutts, 472 U.S. 797, 105 S.Ct 2965, 86 L.Ed 2d 628 (1985) addresses what process is due absent class members in an action where they are bound to the proceedings by principles of res judicata. As to the defendants, the valid exercise of in personam jurisdiction by a federal district court over nonresidents depends upon proper service of process and upon defendants amenability to suit in the forum state. Terry v Raymond International, Inc., 658 F.2d 398, 401 (5th Cir. 1981), cert denied 456 U.S. 928, 102 S.Ct 1975, 72 L.Ed 2d 443 (1982); See Allied Towing v Great Eastern Petroleum Corp., 642 F. Supp 1339, 1353 (ED Va 1986); see also International Shoe v Washington, 326 U.S. 310, 66 S.Ct 154, 90 L.Ed 95 (1945);Worldwide Volkswagen Corp. v Woodson, 444 U.S. 286, 291-92, 100 S.Ct 559, 62 L.Ed 2d 490 (1980).
There is a distinction between the due process to which absent plaintiff class members are entitled in litigation versus the process due to defendants. When a defendant is hailed into litigation, the defendant may be subject to coercive remedies, as well as monetary and exemplary damages. Thus, before being put to the expense and inconvenience of litigation, a defendant must be a citizen of the forum, or have sufficient "minimum contacts" with the forum, before being subject to suit. World-Wide Volkswagen Corp. v Woodson, 444 U.S. 286, 291, 100 S.Ct 559, 62 L.Ed 2d 490 (1980). However, the situation is dramatically different for absent plaintiff members; "minimum contacts" are not required for the court to exercise jurisdiction over such absent class members.
Phillips Petroleum Co. v Shutts, 472 U.S. 797, 808-814, 105 S.Ct 2965, 86 L.Ed 2d 628 (1985) holds that if such absent class members are adequately represented in an action where the primary relief sought is money damages, they need only be given notice of the litigation and an opportunity to exclude themselves should they choose not to participate. Thus, by not "opting-out," they voluntarily acquiesce in the district courts exercise of personal jurisdiction over them.Back to Top
[§31] Venue Determination
The same venue principles govern class actions as any other federal litigation. Only the named plaintiffs must satisfy venue requirements of the forum where suit is filed. Research Corp. v Pfister Associated Growers, Inc., 301 F. Supp 497 (ND Ill 1969). If venue is based on residence, at least one defendant must reside in the district where suit is filed. It is provided in 28 U.S.C. § 1391, in pertinent part, as follows:
(a) A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendants is subject to personal jurisdiction at the time the action is commenced, if there is no district in which the action may otherwise be brought.
(b) A civil action wherein jurisdiction is not founded solely on diversity of citizenship may, except as otherwise provided by law, be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant may be found, if there is no district in which the action may otherwise be brought.
(c) For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced. In a State which has more than one judicial district and in which a defendant that is a corporation is subject to personal jurisdiction at the time an action is commenced, such corporation shall be deemed to reside in any district in that State within which its contacts would be sufficient to subject it to personal jurisdiction if that district were a separate State, and if there is no such district, the corporation shall be deemed to reside in the district within which it has the most significant contacts.
(d) An alien may be sued in any district.
(e) A civil action in which a defendant is an officer or employee of the United States or any agency thereof acting in his official capacity or under color of the legal authority, or any agency of the United States, or the United States, may except as otherwise provided by law, be brought in any judicial district in which (1) a defendant in the action resides, (2) a substantial part of he events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) the plaintiff resides if no real property is involved in the action. Additional persons may be joined as parties to any such action in accordance with the Federal Rules of Civil Procedure and with such other venue requirements as would be applicable if he United States or one of its officers, employees, or agencies were not a party.
The summons and complaint in such an action shall be served as provided in the Federal Rules of Civil Procedure except that the delivery of the summons and complaint to the officer or agency as required by the rules may be made by certified mail beyond the territorial limits of the district in which the action is brought.
(f) A civil action against a foreign state as defined in section 1603(a) of this title may be brought - -
(1) in any judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is subject of the suit is situated;
(2) in any judicial district in which the vessel or cargo of a foreign state is situated. If the claim is asserted under section 1605(b) of this title;
(3) in any judicial district in which the agency or instrumentality is licensed to do business or is doing business, if the action is brought against an agency or instrumentality of a foreign state as defined in section 1603(b) of this title; or
(4) in the United States District Court for the District of Columbia if he action is brought against a foreign state or political subdivision thereof.
Additional statutory bases for venue are set forth in the United States Code. See 28 U.S.C. §§ 1394-1410.