Thursday, December 11, 2014
Mulligan on Preis on the Relationship Between Federal Causes of Action, Rights, Remedies, and Jurisdiction
Now available on the Courts Law section of JOTWELL is an essay by Lou Mulligan entitled Federal Causes of Action and Everything that Follows.
Lou reviews a recent article by Jack Preis, How Federal Causes of Action Relate to Rights, Remedies and Jurisdiction, which is forthcoming in the Florida Law Review.
Friday, December 5, 2014
A couple of interesting posts this week about standing issues in some high-profile pending and perhaps-soon-to-be-once-again-pending Supreme Court cases:
- Richard Re, Is Fisher v. University of Texas a Precedent on Jurisdiction? (Re’s Judicata)
- Will Baude, The standing problem in Zivotofsky, revisited (Volokh Conspiracy)
Tuesday, October 14, 2014
The Supreme Court of Ohio issued an interesting decision last week involving standing, subject matter jurisdiction, and whether they can be challenged via Ohio Rule 60(b) after the opportunity for a direct appeal has passed. The case is Bank of America, N.A. v. Kutcha.
Marianna Bettman has an analysis of the opinion, calling it a “Field Day for Civil Procedure Geeks.”
Thursday, October 9, 2014
We've been following the diversity-jurisdiction saga of a GlaxoSmithKline holding company ("GSK"). Last year in Johnson v. SmithKline Beecham Corp., No. 12-2561 (3d Cir. June 7, 2013), the Third Circuit ruled that GSK's ten-by-ten foot subleased office in Delaware makes Delaware its principal place of business and thus a Delaware citizen for diversity purposes.
Since then, GSK has tried to use its newfound Delaware citizenship to forum-shop in several other diversity cases. Before Johnson, GSK had removed one of these cases, A.S. v. SmithKlineBeecham Corp. d/b/a GlaxoSmithKline, a personal injury case alleging that GSK's drug Paxil caused birth defects, from Pennsylvania state court. The district court remanded the case in 2012, holding that GSK was a Pennsylvania citizen. After Johnson held in 2013 that GSK was a Delaware citizen, GSK removed the case a second time. This time, the district court denied plaintiffs' motion to remand.
On an interlocutory appeal by permission, the Third Circuit reversed and remanded with instructions to remand to Pennsylvania state court. The court held that the second removal was untimely under 28 U.S.C. §1446(b), both because it was filed more than 30 days after GSK's receipt of the complaint, and because in a diversity case, removal may not occur more than one year after the commencement of the action. The court rejected both equitable tolling of the time period and the notion that the second notice of removal "related back" to the first notice of removal. A.S. v. SmithKline Beecham Corp. d/b/a GlaxoSmithKline, No. 14-1229 (3d Cir. Oct. 9, 2014).
Hat tip: Howard Bashman of the How Appealing blog, who argued the successful appeal for the plaintiffs.
Thursday, September 11, 2014
We've been following GlaxoSmithKline's re-removal, more than 12 months after filing, of several personal injury cases after the Third Circuit held that a ten-by-ten foot subleased office made Delaware the principal place of business of a GlaxoSmithKline holding company. (See here and here.)
Hat tip: Howard Bashman
Saturday, August 2, 2014
From the summary prepared by court staff of the Ninth Circuit:
Reversing the district court’s denial of a motion for a remand to state court, the panel held that neither the federal question statute nor the Class Action Fairness Act provided the district court with subject matter jurisdiction over the Hawaii Attorney General’s complaints against six credit card providers, alleging that each violated state law by deceptively marketing and improperly enrolling cardholders in add-on credit card products.
Joining the Fifth Circuit, the panel held that the Attorney General’s claims were not preempted by National Bank Act provisions completely preempting state law claims challenging interest rates charged by national banks. . . . [T]he complaints’ state law claims were not preempted because they did not challenge the “rate of interest” that the card providers charged. Instead, . . . the complaints’ unfair and deceptive practice claims targeted alleged marketing misrepresentations, and their unjust enrichment claims arose from the purported failure to obtain consent before enrolling consumers in debt protection products.
Agreeing with the Second, Third, and Fourth Circuits, the panel held that CAFA did not provide an alternate basis for jurisdiction because the Attorney General brought civil enforcement actions or common law parens patriae suits, rather than class actions, and the complaints specifically disclaimed class status.
State of Hawaii ex rel. Louie v. HSBC Bank Nevada, N.A., No. 1:12-cv-00266-LEKKSC (Aug. 1, 2014).
Wednesday, July 23, 2014
By now most folks have seen yesterday’s conflicting rulings over whether the Affordable Care Act authorizes subsidies for individuals who purchase insurance on a federal exchange (as opposed to exchanges run by the states). The D.C. Circuit found that such subsidies were not statutorily authorized (the Halbig case). And an hour later, the Fourth Circuit found that the subsidies were statutorily authorized (the King case).
The merits of these decisions, as a practical matter and in terms of statutory interpretation, have received tremendous attention. But Article III standing was also an issue in both Halbig and King. Who, after all, suffers the constitutionally required “injury in fact” by virtue of receiving a subsidy? The answer: People who would be subject to the individual mandate if they are entitled to the subsidy but would not be subject to the individual mandate (on income grounds) without the subsidy. Here’s how the Halbig majority explained it with respect to one of the plaintiffs in that case, David Klemencic:
Klemencic resides in West Virginia, a state that did not establish its own Exchange, and expects to earn approximately $20,000 this year. He avers that he does not wish to purchase health insurance and that, but for federal credits, he would be exempt from the individual mandate because the unsubsidized cost of coverage would exceed eight percent of his income. The availability of credits on West Virginia’s federal Exchange therefore confronts Klemencic with a choice he’d rather avoid: purchase health insurance at a subsidized cost of less than $21 per year or pay a somewhat greater tax penalty.
The D.C. Circuit found that this was sufficient for purposes of Article III standing, and the Fourth Circuit reached the same conclusion. From the Halbig majority opinion (footnote omitted):
The government characterizes Klemencic’s injury as purely ideological and hence neither concrete nor particularized. But, although Klemencic admits to being at least partly motivated by opposition to “government handouts,” he has established that, by making subsidies available in West Virginia, the IRS Rule will have quantifiable economic consequences particular to him. See Clapper v. Amnesty Int’l USA, 133 S. Ct. 1138, 1147 (2013) (explaining that a “threatened injury” that is “certainly impending” may “constitute injury in fact” (emphasis and internal quotation marks omitted)). Those consequences may be small, but even an “‘identifiable trifle’” of harm may establish standing. Chevron Natural Gas v. FERC, 199 F. App’x 2, 4 (D.C. Cir. 2006) (quoting United States v. Students Challenging Regulatory Agency Procedures, 412 U.S. 669, 689 n.14 (1973)); see Bob Jones Univ. v. United States, 461 U.S. 574, 581-82 (1983) (noting that Bob Jones University sued for a tax refund of $21.00). Klemencic thus satisfies the requirement of establishing an injury in fact, and because that injury is traceable to the IRS Rule and redressable through a judicial decision invalidating the rule, we find that he has standing to challenge the rule.
And from the King opinion:
We agree that this represents a concrete economic injury that is directly traceable to the IRS Rule. The IRS Rule forces the plaintiffs to purchase a product they otherwise would not, at an expense to them, or to pay the tax penalty for failing to comply with the individual mandate, also subjecting them to some financial cost. Although it is counterintuitive, the tax credits, working in tandem with the Act’s individual mandate, impose a financial burden on the plaintiffs.
The defendants’ argument against standing is premised on the claim that the plaintiffs want to purchase “catastrophic” insurance coverage, which in some cases is more expensive than subsidized comprehensive coverage required by the Act. The defendants thus claim that the plaintiffs have acknowledged they would actually expend more money on a separate policy even if they were eligible for the credits. Regardless of the viability of this argument, it rests on an incorrect premise. The defendants misread the plaintiffs’ complaint, which, while mentioning the possibility that several of the plaintiffs wish to purchase catastrophic coverage, also clearly alleges that each plaintiff does not want to buy comprehensive, ACA-compliant coverage and is harmed by having to do so or pay a penalty. The harm in this case is having to choose between ACA-compliant coverage and the penalty, both of which represent a financial cost to the plaintiffs. That harm is actual or imminent, and is directly traceable to the IRS Rule.
Tuesday, July 1, 2014
The opinion by Judge Keenan in Al Shimari v. CACI Premier Technology, Inc., No. 13-1937 (4th Cir. June 30, 2014) sums it up:
In this appeal, we consider whether a federal district court has subject matter jurisdiction to consider certain civil claims seeking damages against an American corporation for the torture and mistreatment of foreign nationals at the Abu Ghraib prison in Iraq. The primary issue on appeal concerns whether the Alien Tort Statute, 28 U.S.C. § 1350, as interpreted by the Supreme Court in Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013), provides a jurisdictional basis for the plaintiffs’ alleged violations of international law, despite the presumption against extraterritorial application of acts of Congress. We also address the defendants’ contention that the case presents a “political question” that is inappropriate for judicial resolution under our decision in Taylor v. Kellogg Brown & Root Services, Inc., 658 F.3d 402 (4th Cir. 2011).
We conclude that the Supreme Court’s decision in Kiobel does not foreclose the plaintiffs’ claims under the Alien Tort Statute, and that the district court erred in reaching a contrary conclusion. Upon applying the fact-based inquiry articulated by the Supreme Court in Kiobel, we hold that the plaintiffs’ claims “touch and concern” the territory of the United States with sufficient force to displace the presumption against extraterritorial application of the Alien Tort Statute. See Kiobel, 133 S. Ct. at 1669. However, we are unable to determine from the present record whether the claims before us present nonjusticiable political questions. Therefore, we do not reach the additional issue of the district court’s dismissal of the plaintiffs’ common law claims, and we vacate the district court’s judgment with respect to all the plaintiffs’ claims and remand the case to the district court. We direct that the district court undertake factual development of the record and analyze its subject matter jurisdiction in light of our decision in Taylor and the principles expressed in this opinion.
Congratulations to Civil Procedure Professors Erwin Chemerinsky, Helen Hershkoff, Allan Paul Ides, Stephen I. Vladeck, and Howard M. Wasserman, who submitted an amicus brief on behalf of the plaintiffs-appellants.
Tuesday, June 3, 2014
Some people really, really want to be in federal court instead of state court. In Arnold Crossroads v. Gander Mountain, No. 13-2020 (8th Cir. Jun. 2, 2014), defendant Gander tried and failed to remove the case three times. Plaintiff filed this breach-of-lease case on February 24, 2009 in Missouri state court, seeking one month's damages of $40,000. Defendant's first attempt at removal on the basis of diversity failed for lack of the amount-in-controversy requirement. Defendant then filed a declaratory judgment action in federal court, which was dismissed on abstention grounds in light of the pending state case.
Plaintiff eventually amended its complaint to seek millions of dollars in damages for breach of the lease's entire 15-year period, and defendant attempted to remove again, but this time failed because the effort to remove was untimely under 28 U.S.C. §1446 (one year for diversity actions).
A year later, the City where the lease was to have operated intervened as a plaintiff, seeking $750,000 from defendant. Defendant attempted a third time to remove, purporting to remove only the City. The federal district court once again remanded, and defendant appealed.
The Eighth Circuit dismissed the appeal for lack of appellate jurisdiction under 28 U.S.C. §1447(d) (an order remanding a case to the state court from which it has been removed "is not reviewable on appeal or otherwise"), because the district court's remand order was based on the "§1447(c) procedural flaw of untimely removal." Judge Smith dissented: "I would reach the primary issue in this case and hold that Gander can remove the City's claim because that civil action involved a new party who asserted a new and original claim."
Monday, April 7, 2014
Today the Supreme Court granted certiorari in Dart Cherokee Basin Operating Co. v. Owens (No. 13-719). Here is the question presented that appears in the cert. petition (like many cert. petitions these days, it includes a few paragraphs of prologue before the “question” is “presented”)…
A defendant seeking removal of a case to federal court must file a notice of removal containing “a short and plain statement of the grounds for removal” and attach only the state court filings served on such defendant. 28 U.S.C. § 1446(a). Consistent with that statutory pleading requirement, the First, Fourth, Fifth, Seventh, Eighth, Ninth, and Eleventh Circuits require only that a notice of removal contain allegations of the jurisdictional facts supporting removal; those courts do not require the defendant to attach evidence supporting federal jurisdiction to the notice of removal. District courts in those Circuits may consider evidence supporting removal even if it comes later in response to a motion to remand.
Here, in a clean break from Section 1446(a)’s language and its sister Circuits’ decisions, the Tenth Circuit let stand an order remanding a class action to state court based upon the district court’s refusal to consider evidence establishing federal jurisdiction under the Class Action Fairness Act (CAFA) because that evidence was not attached to the notice of removal. (That evidence, which was not disputed, came later in response to the motion to remand.)
The question presented is:
Whether a defendant seeking removal to federal court is required to include evidence supporting federal jurisdiction in the notice of removal, or is alleging the required “short and plain statement of the grounds for removal” enough?
More information about the case is available at SCOTUSblog.
Saturday, February 22, 2014
Supplemental Jurisdiction Over State-Law Claim Proper Despite Plaintiff's Statement in Brief of "Dismissal" of Federal Claims
Plaintiff Thomas, a union member and an employee of U.S. Steel, was a team leader at a facility in Minnesota. He had an altercation with one of the employees under his supervision, and that employee reported the incident as harassment. At a fact-finding meeting held to determine what happened, the union representative attending the meeting made several allegedly defamatory comments about plaintiff, such as “[Thomas] has been verbally abusive to others for the past five years,” and plaintiff was thereafter removed from his position as team leader.
In his second amended complaint against the union and the union representative, plaintiff asserted federal labor-law claims and a state-law claim of defamation. The defendants moved for summary judgment on all of the claims. In his memorandum in opposition to the motion, plaintiff stated “the [Collective Bargaining Agreement] is not implicated in any of Plaintiff’s claims and as such [he is] dismissing all claims except the defamation claim . . .” The district court granted summary judgment.
On appeal, the Eighth Circuit sua sponte raised the question of whether the district court maintained subject matter jurisdiction to decide the defamation claim, after plaintiff stated he was dismissing the federal claims. The court held that the district court had jurisdiction: "we are not persuaded that an attempt to dismiss federal claims in a memorandum in opposition to a motion for summary judgment is the equivalent of filing an amended complaint because such act does not satisfy the requirements of Federal Rule of Civil Procedure 15. We therefore hold that because Thomas failed to follow Rule 15’s procedures and nothing in the district court’s order or the record suggests that leave to amend the complaint was granted, the federal claims were not withdrawn from the second amended complaint and remained before the district court until those claims were dismissed by the court in its order. . . . [T]the claims were merely abandoned for purposes of argument, not removed from the second amended complaint."
Having determined that the district court had subject matter jurisdiction, the court further concluded that the district court properly exercised supplemental jurisdiction over Thomas’s state-law defamation claim, “[g]iven the substantial amount of time and judicial resources expended in this case and the well-settled principles of state law concerning defamation."
On the merits of Thomas’s defamation claim, the court reversed the grant of summary judgment, finding genuine issues of material fact. Thomas v. United Steelworkers Local 1938, No. 12-3625 (8th Cir. Feb. 20, 2014).
Saturday, January 25, 2014
Another update in the ongoing jurisdictional battles involving GlaxoSmithKline. Howard Bashman of How Appealing reports that the Third Circuit has allowed plaintiffs to appeal the lawfulness of GSK's diversity re-removals of state court Paxil personal injury cases more than one year after the cases were filed in state court.
Wednesday, January 22, 2014
In Medtronic, Inc. v. Mirowski Family Ventures, LLC, Mirowski licensed its patents relating to implantable heart stimulators to Medtronic, which makes medical devices. Later, Mirowski notified Medtronic that it believed some of Medtronic's new products infringed Mirowski's patents.
Medtronic brought a declaratory judgment action in federal court in Delaware, claiming that its products did not infringe Mirowski's patents and that the patents were invalid. The district court held that Mirowski, as patentee, bore the burden of proving infringement, even though it was the defendant, and Mirowski lost after a bench trial.
The Federal Circuit reversed, holding that Medtronic, the declaratory judgment plaintiff, bore the burden of proving infringement.
The Supreme Court, in a unanimous opinion by Justice Breyer, reversed. First the Court addressed federal jurisdiction. An amicus argued that in a DJA, in order to determine whether the action arose under patent law under Section 1338(a), the court must look to the action that the DJ defendant (the patentee, Mirowski) could have brought in the absence of a DJA. That action, argued the amicus, would be a state-law claim for breach of the license agreement.
The Court agreed that when determining declaratory judgment jurisdiction, courts look to the "character of the threatened action" to see whether it would necessarily present a federal question. However, the Court held that the threatened action would arise under federal patent law, because if Medtronic stopped paying royalties, Mirowski could terminate the license agreement and sue for patent infringement.
Turning to the burden of proof issue, the Court reversed the Federal Circuit:
It is well established that the burden of proving infringement generally rests upon the patentee. . . . We have long considered "the operation of the Declaratory Judgment Act" to be only "procedural." . . . And we have held that "the burden of proof" is a "'substantive' aspect of a claim." . . .
Taken together these three legal propositions indicate that, in a licensee's declaratory judgment action, the burden of proving infringement should remain with the patentee.
Thanks to Professor Ira Nathenson for bringing this case (which perhaps only a Civil Procedure professor could love) to my attention.
Tuesday, January 14, 2014
The Supreme Court has issued Mississippi ex rel. Hood v. AU Optronics Corp.
Justice Sotomayor wrote the opinion for a unanimous Court.
From the reporter's syllabus:
Petitioner Mississippi sued respondent liquid crystal display (LCD) manufacturers in state court,alleging violations of state law and seeking, inter alia, restitution for LCD purchases made by itself and its citizens. Respondents sought to remove the case to federal court. The District Court held that the suit qualified as a mass action under §1332(d)(11)(B)(i), but remanded the suit to state court on the ground that it fell within CAFA’s“general public” exception, §1332(d)(11)(B)(ii)(III). The Fifth Circuit reversed, agreeing with the District Court that the suit was a massaction but finding the general public exception inapplicable.
Held: Because Mississippi is the only named plaintiff, this suit does not constitute a mass action under CAFA.
Wednesday, January 8, 2014
Flurry of Legal Wrangling Follows Third Circuit's Holding that GSK is Delaware Citizen for Diversity Purposes
Back in June, we reported that the Third Circuit held that a ten-by-ten foot subleased office made Delaware the principal place of business of a GlaxoSmithKline holding company, and thus upheld diversity jurisdiction over a personal injury action. GSK removed several other cases following the ruling. Howard Bashman, who writes the "How Appealing" blog, says that the Third Circuit's ruling "resulted in an intra-circuit split among district judges in diversity cases that GSK has sought to re-remove outside of the one-year limit found in the 2011 version of 28 U.S.C. 1446(b)." Mr. Bashman's coverage of the follow-up legal battles is reported here and here.
Friday, September 6, 2013
Plaintiffs filed suit in Pennsylvania state court asserting state-law claims arising from a plane crash. Defendants removed the case to federal district court, asserting diversity jurisdiction. Plaintiffs moved to remand the case, asserting that one of the defendants was a citizen of Pennsylvania, and therefore not diverse from all plaintiffs. The district court granted plaintiffs' motion and ordered the case remanded to state court. One of the defendants moved for reconsideration. The district court also denied the motion for reconsideration. Defendants appealed.
The Third Circuit dismissed the appeal for lack of appellate jurisdiction. 28 U.S.C. 1447(d) provides that "[a]n order remanding a case to the State court from which it was removed is not reviewble on appeal or otherwise . . ." The court noted that the purpose of this provision "is to prevent a party to a state lawsuit from using federal removal provisions and appeals as a tool to introduce substantial delay into a state action." Allowing an appeal from a denial of a motion to reconsider an order to remand would circumvent this purpose.
The district court itself had jurisdiction to consider the motion to reconsider, however, because "at the time when the District Court considered the motion for reconsideration, a certified copy of the remand order had not yet been mailed from the District Court Clerk to the state court." Agostini v. Piper Aircraft Corp., No. 12-2098 (3d Cir. Sept. 5, 2013).
Thursday, August 22, 2013
Alan Trammell (Brooklyn Law School) has posted Jurisdictional Sequencing to SSRN.
This Article offers a critical re-assessment of subject matter jurisdiction, arguably the most fundamental constraint on federal courts. The project examines the nature and purposes of subject matter jurisdiction through the lens of jurisdictional sequencing, a practice that allows a federal court to decide certain issues — and even dismiss cases — before it has verified subject matter jurisdiction.
Despite many scholars’ antipathy toward jurisdictional sequencing, it is a legitimate practice that reveals a nuanced understanding of jurisdiction’s unique structural role in protecting federalism and separation of powers. Specifically, elected institutions have principal responsibility for crafting conduct rules that regulate people’s primary activities. Federal courts may interpret and apply conduct rules — and thus in a meaningful sense “make law” — only when they have verified their subject matter jurisdiction. By contrast, federal adjudication does not implicate the structural concerns at the heart of subject matter jurisdiction when courts dismiss cases based on other rules (what I term allocative rules). Re-imagining the precise role of subject matter jurisdiction reveals how federal courts can decide cases more efficiently and also respect essential constraints on the allocation of powers.
Saturday, July 13, 2013
Nineteen plaintiff families filed a single complaint against Pfizer and other pharmaceutical companies in state court in West Virginia, alleging that Zoloft caused birth defects to children born of women ingesting it. Only one of the plaintiff families was nondiverse from the defendants. A West Virginia state rule required each family to be docketed separately and to pay a separate filing fee, but did not required them to fiile separate complaints.
The pharmaceutical companies removed eighteen of the nineteen families to federal court, alleging diversity jurisdiction. The district court remanded, holding that the action was really one civil action lacking complete diversity, and that the one nondiverse family was not fraudulently joined.
The Fourth Circuit held that the remand order was within the scope of 28 U.S.C. 1447(c) because it was based on the district court's lack of subject matter jurisdiction. Therefore, the remand order was not reviewable on appeal under 28 U.S.C. 1447(d).
Retired Justice Sandra Day O'Connor, sitting by designation, joined the opinion. E.D. v. Pfizer, No. 12-2188 (4th Cir. July 12, 2013).
Friday, June 28, 2013
This week the Supreme Court issued its much-anticipated decisions in Windsor v. United States (on the federal Defense of Marriage Act) and Hollingsworth v. Perry (on California’s Prop. 8). Both cases presented significant questions with respect to Article III jurisdiction and standing, which were excellently summarized earlier this year by Marty Lederman’s seven-part series for SCOTUSblog.
In Windsor, a five-Justice majority opinion authored by Justice Kennedy (joined by Ginsburg, Breyer, Sotomayor, and Kagan) found that Article III jurisdiction was proper and that the Court should not invoke prudential grounds to refrain from exercising jurisdiction; the majority then concluded that DOMA was unconstitutional.
In Perry, a five-Justice majority opinion authored by Chief Justice Roberts concluded that the intervenors who supported Proposition 8 lacked Article III standing to challenge the district court’s order declaring Prop. 8 unconstitutional and enjoining California officials from enforcing it. Perry was a particularly interesting 5-4 split: The Chief was joined by Scalia, Ginsburg, Breyer, and Kagan. Justice Kennedy dissented, joined by Thomas, Alito, and Sotomayor.
From a jurisdictional standpoint, one crucial difference was that in Windsor, the federal government enforced DOMA (by denying Windsor the requested refund) and then proceeded to seek review of both the district court and appellate court rulings that DOMA was unconstitutional. As Kennedy puts it: “It would be a different case if the Executive had taken the further step of paying Windsor the refund to which she was entitled under the District Court’s ruling.” In Perry, on the other hand, the California government did not appeal the district court’s order and injunction. Perhaps the standing inquiry in Perry would have come out differently if the California government had adopted a litigation strategy similar to the one the U.S. government took in Windsor.
For anyone counting heads, here’s how each Justice came down on the Article III issues in both cases:
- Kennedy, Alito and Sotomayor supported exercising jurisdiction in both Windsor and Perry. (Alito is somewhat unique as to Windsor, because he argued that the U.S. government “clearly is not a proper petitioner” given its position that DOMA was unconstitutional; he argued instead that jurisdiction was proper because the House of Representatives’ Bipartisan Legal Advisory Group had standing as intervenors.)
- Roberts and Scalia opposed exercising jurisdiction in both Windsor and Perry.
- Ginsburg, Breyer and Kagan supported jurisdiction in Windsor and opposed jurisdiction in Perry.
- Thomas supported jurisdiction in Perry and opposed jurisdiction in Windsor.
Saturday, June 8, 2013
In an absurdly lengthy opinion, which I must admit to only skimming, the Third Circuit has held that a ten-by-ten foot subleased office makes Delaware the principal place of business of a GlaxoSmithKline holding company, and thus upheld diversity jurisdiction over a personal injury action involving thalilomide. (Yes, thalilomide, the anti-nausea-in-pregnancy drug from the late 50's and early 60's that caused birth defects.) Plaintiffs claim to have discovered new evidence showing that defendants were aware of the drug's defects while marketing it. Johnson v. SmithKline Beecham Corp., No. 12-2561 (3d Cir. June 7, 2013.)
The plaintiffs are Pennsylvania citizens and they claimed that four defendants were also Pennsylvania citizens. So when defendants removed the action from Pennsylvania state court, plaintiffs moved to remand. That motion was denied and the issue certified for interlocutory appeal. Apparently the issue of these companies' citizenship for diversity purposes has come up in several other cases and the district court rulings have conflicted.
As a naive law student, I concluded that any corporate structure that I could not understand was up to no good, and I have found no reason to change my mind about this well into middle age. Three of the four defendants that plaintiffs claimed were Pennsylvania citizens are entities affiliated with GlaxoSmithKline plc, the British entity that is the "global head" of the GlaxoSmithKline group of companies. Defendant SmithKline Beecham Corp. was once a Pennsylvania corporation, but it converted in 2009 to a Delaware LLC. As far as I understood, the purpose of the conversion was to avoid "unnecessary tax liability." (Wish I could convert myself to a Delaware LLC!) SmithKline Beecham then dissolved. The court thus held that SmithKline Beecham was not a Pennsylvania citizen because it had converted itself into a new entity, defendant GSK LLC.
GSK LLC operates the US division of GlaxoSmithKline plc. Its headquarters is still in Philadelphia, "where it occupies 650,000 square feet of office space and employs 1,800 people" – the same as when it was still SmithKline Beecham. SmithKline Beecham's board of directors became GSK LLC's "board of managers." Does that mean GSK LLC's principal place of business is still Pennsylvania?
No. As an LLC, GSK LLC's citizenship for diversity purposes is derivative of its owner's (or "member's") citizenship. Its sole member is GSK Holdings, a Delaware corporation with its principal place of business in (according to the Third Circuit) Delaware. GSK Holdings subleases a ten-by-ten foot office in Delaware. It has one employee who works about 20 hours per year. Its three directors hold quarterly 15-30 minute meetings in Delaware (at least one of the directors is usually physically present at the meetings) to discuss GSK Holdings' investments.
As for the fourth defendant at issue, Avantor, it evidently moved its principal place of business to Pennsylvania five days after the removal, so the court held that it was still a New Jersey citizen at the time of removal.