Jurisdiction over the Subject Matter of the Action (Subject Matter Jurisdiction)

Terms:

Subject matter jurisdiction:
Subject matter jurisdiction means that the court has the authority to hear the type of case or controversy initiated in its court.

Federal question jurisdiction:
Federal courts have original subject matter jurisdiction over cases involving a question or issue of federal law.

Diversity jurisdiction:
Federal courts have original subject matter jurisdiction over cases in which the parties have diverse citizenships (i.e., no plaintiff and defendant are citizens of the same state) and in which the amount in controversy exceeds $75,000.

Citizenship:
For purposes of diversity jurisdiction, a person’s citizenship is determined by the person’s domicile, not by the person’s residence.

Domicile:
A person is domiciled in the state in which he has his current dwelling place in which he intends to be domiciled indefinitely.

Aggregation:
The amount in controversy must be above $75,000 for diversity jurisdiction to apply.
Aggregation allows jurisdiction where a plaintiff has brought multiple causes of action, which individually seek damages below $75,000, but can be combined so that the total amount in controversy exceeds the $75,000 required.

This subchapter examines the court’s jurisdiction over the subject matter of an action. Most trial courts in the state judicial systems are courts of general jurisdiction. That is, they can hear all types of cases. The chapter on the U.S. Judicial System discusses the difference between courts of general jurisdiction and courts of limited jurisdiction. An understanding of subject matter jurisdiction is transferable between the federal and state judicial systems, even though the systems and rules do vary.

Because the federal courts are courts of limited jurisdiction, i.e., Congress has placed limitations on what types of actions the federal courts can entertain, it is important to acquire an understanding of the subject matter jurisdiction of the federal district courts. Therefore, this subchapter will primarily focus on subject matter jurisdiction in the federal judicial system.

To have complete jurisdiction over a case, a federal trial court must have both jurisdiction over the parties or things (personal jurisdiction) and jurisdiction over the subject matter. This rule applies to every cause of action and every party in a case. For example, if the court has the requisite jurisdiction for counts one through seven of a complaint, counterclaim, crossclaim or impleader, but is lacking subject matter jurisdiction over count eight, the court may not hear count eight.

In most instances, except for where supplemental jurisdiction applies (discussed in the next subchapter), a federal trial court may not hear cases based on state law where the parties are citizens of the same state. Even if the court would have personal jurisdiction over the parties, if the court lacks subject matter jurisdiction over the entire case, the entire case will be dismissed from federal court. See FRCP 12(b)(1). See Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908).

Consent of the parties cannot allow subject matter jurisdiction to a court. Unlike personal jurisdiction, which the court can obtain upon a party’s consent or failure to object, lack of subject matter jurisdiction is never waivable; either the court has it, or it cannot assert it. Agreements between the parties to confer subject matter jurisdiction upon a particular court are invalid. Furthermore, a party can raise lack of subject matter jurisdiction at any time; there are no time restraints on when such an objection can be raised (again, as opposed to personal jurisdiction, which must be raised at a very early stage in the proceedings). FRCP 12(h)(3) provides: “Whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action.” This rule has been interpreted to mean that courts can raise lack of subject matter jurisdiction sua sponte, that is, on their own, without any suggestion by a party.

So, over what subject matter do the federal district courts have jurisdiction? One type of case is where a federal question is raised. 28 U.S.C. § 1331 provides: “The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.” Jurisdiction under § 1331 is sometimes referred to as "federal question jurisdiction."

Congress has extended the federal trial courts’ jurisdiction to other matters, including cases involving: admiralty, 28 U.S.C. § 1333; federal bankruptcy cases, 28 U.S.C. § 1334; federal commerce and antitrust, 28 U.S.C. § 1337; federal patents, copyrights and trademarks, 28 U.S.C. § 1338; and where the United States is a plaintiff, 28 U.S.C. § 1345. Keep in mind that this is not an exhaustive list. It is essential to read the text of each statute and any cases that analyze the statute to determine whether the federal trial courts have jurisdiction over the type of claim. In some cases (such as bankruptcy and maritime cases) the federal courts will have exclusive jurisdiction, which means that only the federal trial courts may hear such claims, not the state courts. For example:

Andy brings a cause of action in admiralty law against Mark in a state trial court in Maine. Mark moves to dismiss the case on the ground that the state court has no subject matter jurisdiction over the case. Because, according to 28 U.S.C. § 1333, federal district courts “have original jurisdiction, exclusive of the courts of the States, of . . . [a]ny civil case of admiralty or maritime jurisdiction,” the case will be dismissed for lack of subject matter jurisdiction.

It is important to note that subject matter jurisdiction is achieved based on the allegations contained in the complaint. Even if the defendant raises a question of federal law, for example, in its answer, if such a question is not raised in the complaint, the court does not gain subject matter jurisdiction on the basis of the defendant’s answer. It is the plaintiff (or counterclaimant, as the case may be) who has the burden of alleging facts in the complaint that will establish the court’s subject matter jurisdiction.

It is also important to note that even if a plaintiff attempts to avoid federal jurisdiction by failing to allege a question of federal law in the complaint and only pleading state law in a claim filed in state court, where the claim under state law is completely trumped by federal law, the federal courts will retain subject matter jurisdiction over the case. See Avco Corp. v. Aero Lodge No. 735, 390 U.S. 557, 88 S.Ct. 1235, 20 L.Ed.2d 126 (1968). In such a situation, the case can be removed to federal court by the defendant. If it is not removed, it will remain in state court, unless the federal court has exclusive jurisdiction over the case.

Unlike diversity of citizenship jurisdiction, which we will discuss next, for federal question jurisdiction, there is no minimum for the amount in controversy, nor must the parties be citizens of different states.

Diversity jurisdiction is another type of subject matter jurisdiction. It is governed by 28 U.S.C. § 1332. No question of federal law is required, and jurisdiction is concurrent with that of the state courts, which means that if the requirements for federal diversity jurisdiction are satisfied, the plaintiff can file the action in either federal or state court. The two requirements for federal courts to exercise diversity jurisdiction are: (1) the plaintiff and defendant must be citizens of different states; and (2) the amount in controversy must be greater than $75,000, exclusive of interest and costs.

28 U.S.C. § 1332 provides, in relevant part:

(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 . . . as plaintiff and citizens of a State or of different States.

Citizenship is not determined by residence, but rather by domicile. As the Fifth Circuit has held, “a person’s domicile is the place of ‘his true, fixed, and permanent home and principal establishment, and to which he has the intention of returning whenever he is absent therefrom . . . .’ A change of domicile may be effected only by a combination of two elements: (a) a taking up residence in a different domicile with (b) the intention to remain there.” Mas v. Perry, 489 F.2d 1396 (5th Cir. 1974). For example:

Jack and Jill were married in Mississippi at Jill’s home. At the time of their marriage, Jack was a citizen of France. Before marrying, Jack and Jill were graduate students and teaching assistants at a university in Louisiana. Following the wedding, the couple returned to school and work in Louisiana. Two years later, they moved to Illinois. Jack and Jill always intended to move back to Louisiana so that Jack could complete his degree, but they did not intend to live in Louisiana permanently. The couple rented an apartment from Paul when they returned to Louisiana after the wedding. Paul was a citizen of Louisiana. After finding out that Paul had installed “two way” mirrors in the couples apartment and had been watching them, Jack and Jill brought an action against Paul in federal district court in Louisiana. After a trial, Paul moved to dismiss the case for lack of jurisdiction on the basis that Jack and Jill failed to prove diversity of citizenship among the parties. The motion to dismiss will be denied. Jill’s citizenship never changed despite her various residences because she never had the intention to remain permanently in any of those residences. Because she never effectively changed her domicile, she remained a domiciliary of Mississippi. Therefore, the court had proper jurisdiction over her claim under 28 U.S.C. § 1332(a)(1). Jack retained his status as a French citizen. Therefore, the court had proper jurisdiction over his claim under 28 U.S.C. § 1332(a)(2).

Determining an individual’s citizenship can be easier than determining the citizenship of a corporate entity. 28 U.S.C. § 1332(c)(1) provides: “ a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business, except that in any direct action against the insurer of a policy or contract of liability insurance, whether incorporated or unincorporated, to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of the State of which the insured is a citizen, as well as of any State by which the insurer has been incorporated and of the State where it has its principal place of business.” Therefore, one corporation can be a citizen of two different states. For example:

ABC Corporation is incorporated in Delaware and has its principal place of business in Michigan. It does not insure anything. Under 28 U.S.C. § 1332(c)(1), ABC Corporation is a citizen of both Delaware and Michigan. See Union Pacific Railroad Co. v. 174 Acres of Land Located in Crittenden County, 193 F.3d 944, 946 (8th Cir. 1999); Freeman v. Northwest Acceptance Corp., 754 F.2d 553, 558 (5th Cir. 1985).

A state can only have one principal place of business. But how does one determine where a corporation’s principal place of business is located? Courts usually consider two factors: where the corporation’s headquarters are located (sometimes referred to as the "nerve center" of the corporation) and where the majority of the corporation’s assets are located (sometimes referred to as the "muscle center" of the corporation) .

The location of the corporation’s headquarters is referred to as the “nerve center” test. Under this test, "the locus of corporate decision-making authority and overall control constitutes a corporation’s principal place of business for diversity purposes.” White v. Halstead Industries, Inc., 750 F.Supp. 395, 397 (E.D.Ark. 1990).

The other test is often called the “corporate activities” or “operating assets” test. “Greater weight is attached to the location of a corporation’s production or service activities in determining the principal place of business under this test.” White v. Halstead Industries, Inc., supra, 750 F.Supp. at 397.

Some courts find it more satisfactory to use a hybrid of both tests, called the “total activity” test. This test “considers all the circumstances surrounding a corporation’s business to discern its principal place of business. ‘The “total activity” test provides a realistic, flexible and nonformalistic approach to determining a corporation’s principal place of business through a balancing of all relevant factors.” White v. Halstead Industries, Inc., supra, 750 F.Supp. at 397.

A business that is not incorporated does not have, of course, a place of incorporation. A partnership is an example of an unincorporated association. To determine the citizenship of an unincorporated association for diversity jurisdiction purposes, one must determine the citizenship of every member of the association. The association adopts the citizenship of every member. For example:

XYZ Partnership is comprised of the following partners: Xavier, who is domiciled in Missouri; Yael, who is domiciled in Minnesota; and Zora, who is domiciled in Montana. XYZ’s domicile is all three states: Missouri, Minnesota and Montana.

It should be noted that for the purposes of diversity of citizenship, “[t]he word ‘States’ . . . includes the Territories, the District of Columbia, and the Commonwealth of Puerto Rico.” 28 U.S.C. § 1332(d).

The next question to be answered is when diversity must exist for purposes of determining whether there is diversity jurisdiction. The rule here is that diversity of citizenship must exist at the time that the suit is filed, not before and not after. For example:

Chris and Matt are involved in a motor vehicle collision in which Chris sustained injuries. At the time of the collision, Chris and Matt were both citizens of Rhode Island. Assume for the purposes of this question that Chris’s cause of action arose at the time of the collision. A few months after the collision, Matt moves to Massachusetts with the intention of residing there permanently. Six months after the collision, Chris brings an action against Matt in federal court. Even though Chris and Matt were citizens of the same state, Rhode Island, at the time the cause of action arose, because Matt changed his domicile and was a citizen of Massachusetts at the time Chris filed suit, diversity of citizenship exists. If, during the course of the lawsuit, Matt changes his domicile back to Rhode Island, diversity is not defeated.

In a case where there is more than one plaintiff or more than one defendant, diversity of citizenship does not mean that one plaintiff must be a citizen of a different state than one defendant. All of the plaintiffs’ citizenships must be different from all of the defendants’ citizenships. Although, the plaintiffs do not have to have different citizenship from each other, and the defendants do not have to have different citizenship from each other. For example:

1) Mary, Joe, and Charles, all citizens of Indiana, bring an action in federal court against Todd, Beth, and Larry, all citizens of Iowa. Diversity of citizenship exists.

2) Mary, Joe, and Charles, all citizens of Indiana, bring an action in federal court against Todd, Beth, and Larry. Todd and Beth are citizens of Iowa; Charles is a citizen of Indiana. Diversity of citizenship does not exist.

3) Mary, Joe, and Charles bring an action in federal court against Todd, Beth, and Larry. Mary, Joe, and Charles are citizens of Indiana, Illinois, and Pennsylvania, respectively. Todd, Beth and Larry are citizens of Iowa, Florida and Georgia, respectively. Diversity of citizenship exists.

4) Mary, Joe, and Charles bring an action in federal court against Todd, Beth, and Larry. Mary, Joe, and Charles are citizens of Indiana, Illinois, and Pennsylvania, respectively. Todd, Beth and Larry are citizens of Iowa, Florida and Illinois, respectively. Diversity of citizenship does not exist.

To conceptualize this rule, you can draw a vertical line in the middle of a piece of paper. On the left-hand side, list all of the plaintiffs’ citizenships. On the right-hand side, list all of the defendants’ citizenships. If any jurisdiction appears on both sides of the line, there is no diversity of citizenship and jurisdiction under 28 U.S.C.§ 1332 is unavailable.

28 U.S.C. § 1332(c)(2) governs the diversity of citizenship rules for decedents, infants (minors) and incompetents. It provides: “[T]he legal representative of the estate of a decedent shall be deemed to be a citizen only of the same State as the decedent, and the legal representative of an infant or incompetent shall be deemed to be a citizen only of the same State as the infant or incompetent.” Therefore, one cannot create diversity by appointing a representative who, in other circumstances, would have a different citizenship than their decedent or infant or incompetent.

In addition to 28 U.S.C. § 1332(c)(2), Congress has enacted 28 U.S.C. § 1359, which prohibits a party from creating diversity among the parties simply to impose federal jurisdiction over the case. The statute provides: “A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court.” Even if the assignment is legal under state law, if it is done only to create diversity of jurisdiction, such a legal assignment will not allow federal jurisdiction.

As required by 28 U.S.C. § 1332(a), in addition to diversity of citizenship, the amount in controversy must exceed $75,000, exclusive of interest and costs. As with the rule regarding when diversity of citizenship must exist, the amount in controversy must exceed $75,000 at the time the suit is filed. Just as a change in a party’s citizenship after the suit is filed will not defeat jurisdiction, a decrease in the amount in controversy will not defeat jurisdiction if the decrease occurs after the suit is filed.

The plaintiff need not actually prove the amount in controversy. All that is required is a showing that there is some possibility that the amount in controversy exceeds $75,000. However, clearly frivolous prayers for relief will not be tolerated and will be excluded from the total amount in controversy. It should also be noted that a verdict for the plaintiff for less than $75,000 does not retroactively defeat diversity jurisdiction. As long as the claim was, at the time of the filing, potentially worth more than $75,000, the court has jurisdiction to hear the case.

Keep in mind that the court has discretion to deny costs to the plaintiff if he or she is adjudged to be entitled to recover less than $75,000. See 28 U.S.C. § 1332(b). Under the same provision, the court may even impose costs on the plaintiff if the suit was clearly never worth $75,000.

People can differ as to the worth of a claim, and courts are no different. Most courts hold that it is from the plaintiff’s point of view that the amount in controversy is calculated.

A case law rule has developed that allows a plaintiff to aggregate claims against a single defendant, even if the claims are completely different. A plaintiff would need to use this rule if each claim against the same defendant does not exceed $75,000. For example:

John, a citizen of Massachusetts, files a complaint against Matt, a citizen of Maine, in federal court. John is seeking damages in the following amounts: breach of contract in the amount of $50,000; and negligence in the amount of $40,000. In such a situation, the claims can be aggregated so that the $75,000 minimum requirement is met.

Courts have also addressed aggregation of claims during cases in which there is more than one plaintiff. Aggregation can occur in such cases as long as the claims are joint claims. For example:

John and Amy, citizens of Alabama, bring suit against Adam, a citizen of Georgia, in federal court, alleging that Adam set fire to the house that John and Amy owned jointly. The house, worth $100,000, burned to the ground. In such a situation, John’s claim for $50,000 and Amy’s claim for $50,000 can be aggregated so that the minimum amount in controversy is met.

However, for this rule to apply, the plaintiffs must seek recovery collectively (together; for one injury).

If, in the above case, John and Amy brought claims against Adam for physical injuries that each of them incurred when they both slipped on an icy sidewalk outside Adam’s home, the court is likely not to aggregate the claims, as John and Amy are seeking recovery for their losses individually and for separate injuries.

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