Civil Procedure – Federal Courts Jurisdiction and Venue Clarification Act of 2011

Summary: On January 6 of this year, the Federal Courts Jurisdiction and Venue Clarification Act of 2011 was passed by unanimous consent of both Congressional chambers.  This Act contains revisions to 28. U.S.C. § 1441 (Removal of Civil Actions) and substantive changes to diversity jurisdiction rules.

Among the key changes and clarifications are: (1) removal of a case based on diversity of citizenship is allowed more than one year after commencement of the action if the district court finds that the plaintiff has acted in bad faith in order to prevent a defendant from removing the action; (2) in cases with multiple defendants, each defendant has 30 days after being served with a complaint to seek removal; (3) a federal judge hearing a case removed on federal question grounds has discretion to retain or remand “all matters in which State law predominates”; (4) when a judge is deciding a diversity jurisdiction question, resident aliens are not considered citizens, meaning the courts will not recognize diversity jurisdiction in a suit between two resident aliens domiciled in different states; (5) transfer of venue is permitted in “any district or division to which all parties have consented,” even if the case could not have originally been filed there; and (6) all corporations are considered to be citizens of their place of incorporation and principal place of business.

DiscussionOne of the key changes made by the Act is the inclusion of the bad-faith exception to the prior prohibition of removing a suit on diversity grounds more than one year after it is filed in state court.  Now, if there is suspicion that a plaintiff is purposefully withholding information that would have made the state complaint removable, the trial judge has discretion to transfer it to federal court, regardless whether the one-year window has passed.

ImplicationsThis means that defense lawyers will have incentive to take advantage of the discovery process to try and uncover any abuses and evidence of bad faith that may indicate that the plaintiff is trying to obviate federal subject matter jurisdiction, particularly in cases where plaintiff names a non-diverse defendant to avoid removal.  This may subdue the incentive for jurisdictional gamesmanship on the plaintiff’s part because the case can still be removed even if the one-year window has passed.

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