Volume 11 of the Encyclopedia of American Law (180-Volume)
VOLUME 11: SUBJECT MATTER JURISDICTION – DIVERSITY, FEDERAL QUESTION, SUPPLEMENTAL JURISDICTION
The Power of Federal Courts to Hear a Case
Introduction to Volume 11
Subject matter jurisdiction is the power of a court to hear a particular type of case. A federal court cannot hear a case simply because the parties want to be there. The Constitution and federal statutes limit the federal courts to certain categories of cases.
The two main categories are diversity jurisdiction and federal question jurisdiction. Diversity jurisdiction requires that the parties be citizens of different states and that the amount in controversy exceed $75,000. Federal question jurisdiction requires that the case arise under the Constitution, laws, or treaties of the United States.
The Constitution also allows federal courts to hear other types of cases: admiralty, cases affecting ambassadors, cases where the United States is a party, and cases between states. But diversity and federal question are the workhorses.
This volume covers the constitutional and statutory foundations of subject matter jurisdiction. Part One covers diversity jurisdiction: the requirement of complete diversity, the rules for determining citizenship of individuals, corporations, and unincorporated associations, the amount in controversy requirement, the well‑pleaded complaint rule for federal question jurisdiction, and the special rule for class actions. Part Three covers supplemental jurisdiction: when a federal court may hear state law claims that are related to the federal claims in the same case. Part Four covers removal jurisdiction: when a defendant may move a case from state court to federal court.
The rules are technical. The stakes are high. A federal court that lacks subject matter jurisdiction must dismiss the case, even if the parties do not raise the issue. The court has an independent obligation to assure itself of its own jurisdiction.
PART ONE: DIVERSITY JURISDICTION
Chapter 1: The Constitutional and Statutory Foundations
Article III, Section 2 of the Constitution extends the judicial power to “Controversies between Citizens of different States.” The purpose was to prevent state court bias against out‑of‑state litigants. A citizen of New York suing a citizen of Georgia might fear that a Georgia state court would favor the home‑state defendant. Diversity jurisdiction gave the out‑of‑state plaintiff a neutral federal forum.
The current statute is 28 U.S.C. § 1332. It gives federal district courts jurisdiction over civil actions where the amount in controversy exceeds $75,000, exclusive of interest and costs, and where the parties are citizens of different states.
The statute has been amended several times. The amount in controversy requirement has increased from $500 in 1811 to $10,000 in 1911 to $50,000 in 1988 to $75,000 in 1996.
Chapter 2: Complete Diversity
The rule is complete diversity: no plaintiff may be a citizen of the same state as any defendant. In Strawbridge v. Curtiss (1806) , Chief Justice Marshall announced the rule. The case involved citizens of Massachusetts, New York, and Vermont. Marshall held that diversity jurisdiction required that all parties on one side be different from all parties on the other. A single plaintiff sharing citizenship with a single defendant destroys diversity.
Complete diversity is a statutory requirement, not constitutional. Congress could lower the bar to minimal diversity (any plaintiff diverse from any defendant). But Congress has not done so.
The complete diversity rule applies to original jurisdiction. It does not apply to removal jurisdiction, where the rule is that no defendant may be a citizen of the forum state.
Chapter 3: Citizenship of Individuals
For diversity purposes, a person is a citizen of the state where she is domiciled. Domicile is not the same as residence. A person may reside in a state without being domiciled there. Domicile requires both (1) physical presence and (2) an intent to remain indefinitely.
In Texas v. Florida (1939) , the Court considered the domicile of a wealthy man who lived in multiple states. Justice Stone wrote: “Domicile is the place where a person has his true, fixed, permanent home and principal establishment, and to which he has the intention of returning whenever he is absent.”
A person may have only one domicile at a time. Acquiring a new domicile requires (1) physical presence in the new state and (2) an intent to make that state the new permanent home. The intent may be proved by evidence of registering to vote, buying a home, obtaining a driver’s license, paying taxes, and other factors.
A person continues to be domiciled in the old state until the new domicile is established. The burden of proving a change of domicile is on the party asserting it.
Corporations are citizens of two places: the state of incorporation and the state where they have their principal place of business. 28 U.S.C. § 1332(c)(1). The “principal place of business” is usually the nerve center—where the officers direct the corporation’s activities. In Hertz Corp. v. Friend (2010) , the Court held that the principal place of business is the “place where a corporation’s officers direct, control, and coordinate the corporation’s activities.” That is usually the corporate headquarters, not the state where the corporation does the most business.
Unincorporated associations (partnerships, limited liability companies, labor unions) are treated differently. A partnership is a citizen of every state where any partner is a citizen. An LLC is a citizen of every state where any member is a citizen. This rule often destroys diversity in cases involving large partnerships or LLCs with members scattered across many states.
PART TWO: FEDERAL QUESTION JURISDICTION
Chapter 4: The Constitutional and Statutory Foundations
Article III, Section 2 extends the judicial power to “all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made.”
The current statute is 28 U.S.C. § 1331: “The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.”
Unlike diversity jurisdiction, there is no amount in controversy requirement for federal question jurisdiction. A federal question case may seek any amount of damages, including zero.
The core question is: when does a case “arise under” federal law? The answer is found in the well‑pleaded complaint rule.
Chapter 5: The Well‑Pleaded Complaint Rule
A case arises under federal law only if the federal question appears on the face of the plaintiff’s well‑pleaded complaint. The rule was established in Louisville & Nashville Railroad Co. v. Mottley (1908) .
The Mottleys were injured in a railroad accident. They settled with the railroad for free passes. Later, Congress passed a law forbidding railroads to give free passes. The railroad stopped honoring the passes. The Mottleys sued, alleging breach of contract. The railroad argued that the federal law made the passes void. The Supreme Court held that there was no federal question. The plaintiff’s claim was breach of contract, a state law claim. The federal law only appeared in the defense.
A plaintiff cannot create federal question jurisdiction by anticipating a federal defense. The federal question must be part of the plaintiff’s own cause of action.
The well‑pleaded complaint rule has exceptions. In Smith v. Kansas City Title & Trust Co. (1921) , the plaintiff sued a bank for investing in bonds issued under a federal law that the plaintiff claimed was unconstitutional. The Court held that the case arose under federal law because the plaintiff’s claim depended on the validity of the federal statute.
In Franchise Tax Board v. Construction Laborers Vacation Trust (1983) , the Court said that federal question jurisdiction exists when the plaintiff’s claim “arises under” federal law. The test is whether the plaintiff’s right to relief depends on the construction or application of federal law.
Chapter 6: Federal Question as an Element of a State Law Claim
Sometimes a state law claim incorporates a federal standard. A negligence claim might require proof that the defendant violated a federal safety regulation. A defamation claim might require proof that the plaintiff is a public figure, a question of federal constitutional law.
In Merrell Dow Pharmaceuticals Inc. v. Thompson (1986) , the plaintiffs alleged that a drug had caused birth defects. They claimed that the drug violated federal labeling requirements. The Court held that federal question jurisdiction did not exist. The federal standard was an element of the state law claim, but that alone was not enough. Congress had not created a federal private right of action for violations of the labeling law. The absence of a federal remedy was significant.
In Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing (2005) , the plaintiff claimed that a property sale violated federal tax law. The Court held that federal question jurisdiction existed. The case involved an important federal interest, and there was no alternative federal forum.
The test: Does the state law claim necessarily raise a contested federal issue that is actually disputed and substantial, and that a federal forum may entertain without disturbing the balance of state and federal jurisdiction?
Chapter 7: Federal Question and the Declaratory Judgment Act
The Declaratory Judgment Act, 28 U.S.C. § 2201, allows a party to seek a declaration of rights before anyone has been injured. It does not create subject matter jurisdiction. The underlying dispute must independently satisfy diversity or federal question jurisdiction.
In Skelly Oil Co. v. Phillips Petroleum Co. (1950) , the Court applied the well‑pleaded complaint rule to declaratory judgment actions. The question is whether the plaintiff would have had a federal claim if he had waited to be sued. If the natural suit by the declaratory judgment defendant would arise under state law, the declaratory judgment action does not arise under federal law.
Chapter 8: Federal Question and Claimjoinder
A plaintiff may join federal and state claims in the same case if they arise from the same transaction or occurrence. The federal court has supplemental jurisdiction over the state claims (see Part Three). But the plaintiff must have at least one federal question claim to get into federal court.
If the complaint contains both federal and state claims, but the federal claim is dismissed before trial, the court may still exercise supplemental jurisdiction over the remaining state claims. The court has discretion to keep the case or dismiss it.
PART THREE: SUPPLEMENTAL JURISDICTION
Chapter 9: The Doctrine Before 1990
Before 1990, the doctrine was called pendent or ancillary jurisdiction. The court had discretion to hear state law claims that were sufficiently related to the federal claim.
United Mine Workers v. Gibbs (1966) stated the standard. A federal court may hear a state law claim if it arises from the “same case or controversy” as the federal claim. The claims must derive from a common nucleus of operative fact. The court also has discretion to decline jurisdiction if the state law claims predominate, if the federal claim is dismissed early, or if there are other compelling reasons.
The Gibbs test was flexible. Courts considered judicial economy, convenience, and fairness to the parties.
Chapter 10: The Supplemental Jurisdiction Statute (1990)
Congress codified the doctrine in 28 U.S.C. § 1367, the supplemental jurisdiction statute. Section 1367(a) gives district courts supplemental jurisdiction over all claims that are “so related to claims in the action within such original jurisdiction that they form part of the same case or controversy.”
The statute uses the Gibbs language. Congress intended to codify existing case law.
Section 1367(b) contains an exception for diversity cases. In a diversity action, the court may not exercise supplemental jurisdiction over claims by plaintiffs against parties joined under Rule 14 (impleader), Rule 19 (compulsory joinder), Rule 20 (permissive joinder), or Rule 24 (intervention) if the exercise of jurisdiction would be inconsistent with the diversity requirements. The purpose is to prevent plaintiffs from circumventing the complete diversity rule by adding non‑diverse parties.
Section 1367(c) lists the circumstances in which the court may decline to exercise supplemental jurisdiction:
- The claim raises a novel or complex issue of state law.
- The claim substantially predominates over the federal claim.
- The federal claim is dismissed.
- There are other compelling reasons for declining jurisdiction.
Chapter 11: The Section 1367(b) Diversity Exception
In diversity cases, the plaintiff may not use supplemental jurisdiction to bring in additional parties that would destroy complete diversity. If the plaintiff sues a diverse defendant, the plaintiff may not implead a non‑diverse third‑party defendant. The third‑party claim would be part of the same case or controversy, but Section 1367(b) forbids it.
The Supreme Court applied this rule in Owen Equipment & Erection Co. v. Kroger (1978) , a pre‑statute case that Section 1367(b) codified. The plaintiff sued a utility company for negligence. The utility impleaded a contractor. The plaintiff then amended the complaint to sue the contractor directly. The contractor was a citizen of the same state as the plaintiff. The Court held that the court could not exercise jurisdiction over the claim against the contractor.
The rule does not apply to claims by the defendant against third parties. A defendant may implead a non‑diverse third‑party defendant without destroying diversity because the plaintiff did not choose to sue that party.
Chapter 12: The Section 1367(c) Discretion
The court’s discretion to decline supplemental jurisdiction is broad. In Carnegie‑Mellon University v. Cohill (1988) , the Court held that if the federal claims are dismissed before trial, the court should ordinarily dismiss the state claims. The balance of judicial economy, convenience, and fairness will usually favor dismissal.
The court may retain jurisdiction if the state claims have been fully litigated, if the federal claims were dismissed after trial, or if the statute of limitations has run on the state claims and the plaintiff would be barred from refiling in state court.
PART FOUR: REMOVAL JURISDICTION
Chapter 13: The Removal Statute
A defendant may remove a case from state court to federal court if the case could have been filed originally in federal court. The removal statute is 28 U.S.C. § 1441.
Removal is available for diversity cases and federal question cases. For diversity cases, the rule is that no defendant may be a citizen of the state where the action was filed. This prevents a home‑state defendant from removing a case to federal court.
The amount in controversy requirement for diversity cases must be satisfied at the time of removal. The notice of removal must state the amount in controversy.
All defendants who have been served must join in the removal. The rule is called unanimity. If one defendant does not consent, the case may not be removed. This rule prevents a defendant from removing against the wishes of a co‑defendant.
Chapter 14: Procedure for Removal
The notice of removal must be filed within 30 days of the defendant’s receipt of the initial pleading. 28 U.S.C. § 1446(b). If the case is not removable at the outset (because the amount in controversy is unclear, for example), the defendant may remove within 30 days of the receipt of a document from which removability can be determined.
The notice of removal is filed in the federal district court. The defendant must also file a copy in the state court. Removal automatically stays the state court proceedings.
The plaintiff may move to remand the case to state court. The motion must be filed within 30 days of removal. The court may also remand sua sponte if it lacks subject matter jurisdiction.
A remand order based on a defect in the removal procedure is not reviewable on appeal. A remand order based on lack of subject matter jurisdiction is reviewable.
Chapter 15: Removal of Federal Question Cases
Federal question cases are removable even if a defendant is a citizen of the forum state. The rule against home‑state defendant removal applies only to diversity cases.
The well‑pleaded complaint rule applies to removal as well as original jurisdiction. A defendant may not remove based on a federal defense. The federal question must appear on the face of the plaintiff’s complaint.
Chapter 16: Removal and the Forum Defendant Rule
In diversity cases, 28 U.S.C. § 1441(b)(2) provides: “A civil action otherwise removable solely on the basis of the jurisdiction under section 1332(a) of this title may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.”
This is the forum defendant rule. A defendant who is sued in his home state may not remove a diversity case to federal court. The rule prevents a defendant from using diversity jurisdiction to escape his home state court.
If there are multiple defendants, and one defendant is a citizen of the forum state, the case may not be removed. The forum defendant rule applies even if the other defendants are diverse.
Chapter 17: Removal Amount in Controversy
The amount in controversy for diversity cases must exceed $75,000. The defendant may remove if the complaint alleges damages exceeding $75,000. If the complaint alleges damages less than $75,000, the defendant may still remove if the defendant can show that the plaintiff’s claim actually exceeds $75,000.
In Dart Cherokee Basin Operating Co. v. Owens (2015) , the Court held that the notice of removal need only contain a plausible allegation that the amount in controversy is satisfied. The plaintiff may challenge the allegation. The court must then decide, by a preponderance of the evidence, whether the amount in controversy exceeds $75,000.
Chapter 18: Removal of Class Actions
Class actions may be removed under the Class Action Fairness Act of 2005 (CAFA). CAFA gives federal courts jurisdiction over class actions where the amount in controversy exceeds $5 million, the class has at least 100 members, and any member of the class is a citizen of a different state from any defendant.
CAFA relaxes the diversity requirements. Minimal diversity is enough. The forum defendant rule does not apply. The amount in controversy is aggregated across the entire class.
The class action may be removed by any defendant without the consent of other defendants. The notice of removal must be filed within 30 days of the defendant’s receipt of the initial pleading.
APPENDIX 1: GLOSSARY
Amount in controversy – The jurisdictional minimum for diversity cases. Currently $75,000.
Ancillary jurisdiction – The pre‑1990 term for supplemental jurisdiction over claims by defendants or third parties.
CAFA – Class Action Fairness Act of 2005. Gives federal courts jurisdiction over large class actions with minimal diversity.
Complete diversity – The rule that no plaintiff may be a citizen of the same state as any defendant.
Declaratory Judgment Act – Allows parties to seek a declaration of rights. Does not create subject matter jurisdiction.
Diversity jurisdiction – Federal jurisdiction based on parties being citizens of different states and the amount in controversy exceeding $75,000.
Domicile – The place where a person has a fixed, permanent home and intends to remain. The standard for citizenship for diversity purposes.
Federal question jurisdiction – Federal jurisdiction based on the case arising under the Constitution, laws, or treaties of the United States.
Forum defendant rule – A defendant sued in his home state may not remove a diversity case to federal court.
Minimal diversity – Any plaintiff diverse from any defendant. The standard for CAFA and for some constitutional purposes. Not the rule for general diversity jurisdiction.
Pendent jurisdiction – The pre‑1990 term for supplemental jurisdiction over claims by plaintiffs.
Principal place of business – For diversity purposes, the nerve center where the corporation’s officers direct, control, and coordinate activities.
Removal – The transfer of a case from state court to federal court by the defendant.
Supplemental jurisdiction – Federal jurisdiction over state law claims that are part of the same case or controversy as a federal claim.
Unanimity rule – All defendants who have been served must join in a removal notice.
Well‑pleaded complaint rule – Federal question jurisdiction exists only if the federal question appears on the face of the plaintiff’s complaint, not in the defense.
APPENDIX 2: SELECT BIBLIOGRAPHY
Chemerinsky, Erwin. Federal Jurisdiction. 8th ed. Wolters Kluwer, 2021.
Currie, David P. Federal Jurisdiction in a Nutshell. 6th ed. West Academic, 2019.
Doernberg, Donald L. The Supreme Court and Supplemental Jurisdiction. West Legal Studies, 2000.
Fallon, Richard H., Jr., John F. Manning, Daniel J. Meltzer, and David L. Shapiro. Hart and Wechsler’s The Federal Courts and the Federal System. 7th ed. Foundation Press, 2015.
Glicksman, Robert L. “Supplemental Jurisdiction After Section 1367.” Boston College Law Review 33 (1992): 115.
Lee, Thomas H. “The Well‑Pleaded Complaint Rule and the Constitution.” Notre Dame Law Review 92 (2016): 519.
Mullenix, Linda S., Martin H. Redish, and Georgene M. Vairo. Understanding Federal Courts and Jurisdiction. LexisNexis, 2015.
Pfander, James E. One Supreme Court: Supremacy, Inferiority, and the Judicial Department of the United States. Oxford University Press, 2009.
Redish, Martin H. “A Principled Approach to Federal Question Jurisdiction.” University of Chicago Law Review 46 (1979): 741.
Rowe, Thomas D., Jr. “Abstention and the Supplemental Jurisdiction Statute.” University of Pittsburgh Law Review 60 (1999): 727.
Scott, Robert E. “The Case for a Federal Question Jurisdiction Statute.” Yale Law Journal 90 (1980): 1.
Tushnet, Mark. “The Constitution of the United States of America: A Contextual Analysis.” Hart Publishing, 2015.
Wright, Charles Alan, Arthur R. Miller, and Mary Kay Kane. Federal Practice and Procedure. West Academic (multiple volumes).
Volume 12: Personal Jurisdiction and Venue
