Monday, December 7, 2009

Commentary on The Federal Courts Jurisdiction and Venue Clarification Act of 2009 (H.R. 4113, now in Congress)

Now pending before Congress is H.R. 4113, a.k.a. The Federal Courts Jurisdiction and Venue Clarification Act. The Act could certainly use a workup by the House Acronym Committee (maybe I have soccer on the brain after Friday's World Cup draw, but “FC JAVCA” sounds like it could be a mid-tier European football club). All kidding aside, the Act makes a number of commendable improvements, many of which were recommended by a recent project of the American Law Institute (ALI).

For more information on the bill, see the Library of Congress's website here. The full text of the bill is available here (.xml format) or here (.pdf format). Earlier coverage of the bill is here. Among other things, the Act would amend Title 28 with respect to removal and remand procedure, venue, and actions involving permanent resident aliens and foreign corporations and insurers. This post summarizes (and flags some potential concerns with) the Act's provisions dealing with the amount in controversy required for diversity jurisdiction. Under current law, the amount in controversy must exceed $75,000.

First, the Act would index the amount-in-controversy threshold to automatically adjust for inflation. [Act, § 103.] Beginning in 2011, the $75,000 threshold would be adjusted every five years according to the percentage change in the Consumer Price Index. If you’re worried about the amount in controversy becoming $83,516.44, have no fear; the amount will be rounded to the nearest multiple of $5,000.

Second, the Act has a number of provisions dealing with a plaintiff's ability to preclude diversity jurisdiction by declaring that it will neither seek nor accept a judgment in excess of the amount in controversy threshold. [Act, § 104.] Making such a declaration in state court will prevent removal to federal court "as long as the plaintiff abides by the declaration and the declaration is binding under the laws and practice of the State." If the plaintiff fails to abide by this declaration, the case can be removed within 30 days after the defendant receives "an amended pleading, motion, order or other paper from which it may first be ascertained" that the plaintiff seeks or is willing to accept a judgment in excess of the threshold for diversity jurisdiction. The Act also provides that a removed case may be remanded to state court if the plaintiff makes a similar declaration in federal court within 30 days of removal. In that situation, "the district court shall remand the action to State court unless equitable circumstances warrant retaining the case."

One possible concern with these provisions is that they do not allow "re-removal" if the plaintiff who makes the declaration in federal court then reneges on the declaration after getting back to state court. The new language that would allow removal after a plaintiff reneges applies only "[i]f the plaintiff has filed such a declaration in state court but thereafter fails to abide by that declaration." (emphasis added)

Third, the Act codifies the general rule that "the sum demanded in good faith in the initial pleading [the state court complaint] shall be deemed to be the amount in controversy." [Act, § 105(b), to be codified at 28 U.S.C. § 1446(b)(4).] It then provides that the notice of removal may assert the amount in controversy required for diversity jurisdiction where either (a) nonmonetary relief is sought, or (b) "State practice either does not permit demand for a specific sum or permits recovery of damages in excess of the amount demanded." The defendant must then establish to the federal court by the preponderance of the evidence that the amount-in-controversy threshold is met.

One concern with this provision is that it does not authorize the notice of removal to assert the amount in controversy if state practice does permit demand for a specific sum but the initial pleading just fails to make one. Arguably the notice of removal should be able to assert the amount in controversy in that situation as well. 

I'm hoping to blog on other provisions in the Act in the near future. In the meantime, feel free to use the comments to share your own thoughts.

--A

(Cross-posted on Concurring Opinions)

http://lawprofessors.typepad.com/civpro/2009/12/commentary-on-the-federal-courts-jurisdiction-and-venue-clarification-act-of-2009-hr-4113-now-in-con.html

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Comments

I am curious why you regard indexing the amount in controversy requirement as "commendable." It struck me as technocratic tinkering without any real policy purpose. As I read the section-by-section analysis of the bill, the main purpose of this provision (and others in Title I) is to trim diversity on the margins. And it would seem to be the far margins: how many cases will really be affected by raising the requirement from 75K to 85K?

Thanks.

--Perry.

Posted by: Perry Bechky | Dec 10, 2009 12:01:33 AM

The second reform relates, in part, to the widespread use of the civil cover sheet concept. At issue is whether a civil cover sheet counts to determine the amount in controversy, since it is a bureacratic tool rather than a typical Rule 11 pleading like a Complaint. The new rule would defer to state law treatment of civil cover sheets.

Posted by: ohwilleke | Dec 14, 2009 7:59:42 PM

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