Category: Diversity Jurisdiction

Where Exactly Do You Live?


This may seem to be an unimportant question, but for federal jurisdiction it may make all the difference. In the case of Eberle v. Overdrive, Inc., No. 19-cv-466-jdp (W.D. Wisconsin January 28, 2020), the plaintiff filed suit against a former employer in Wisconsin state court. Overdrive sought to move the case to Ohio based on a forum clause. In response Eberle filed an affidavit that stated that he was a long-term resident of Wisconsin with deep ties to the state. Overdrive then removed the case to federal court. Eberle then moved to remand and filed a new affidavit that he was a citizen of Ohio and was raising children there. The court held an evidentiary hearing and determined that Eberle was, in fact, a citizen of Ohio and dismissed the case because both litigants were citizens of Ohio.

The more important question was: would Eberle face consequences for filing an affidavit in Wisconsin that contradicted the affidavit he later filed in federal court?

Sadly Eberle did not face any adverse consequences because the arguably problematic affidavit was filed in the state court, not the federal court. The court held that Eberle would not be sanctioned. The explanation:

At the hearing, the court expressed concern that Eberle’s state-court affidavit regarding his ties to Wisconsin had been misleading. The affidavit portrayed Eberle as a current Wisconsin resident who stood to be inconvenienced by any transfer of his case to Ohio. See, e.g., Dkt. 1-3, at 11 (“I am a longtime resident of Wisconsin, having been born and raised here, and lived here most of my adult life. Until Defendant hired me in 2017, I lived in Gleason, Wisconsin where I have been residing since 2008.”); id. at 12 (“I still maintain a residence at W1446 Bear Trail Road, Gleason, WI 54435. I filed my taxes earlier this year as a Wisconsin resident.”). After the hearing, the court ordered Eberle to show cause why he should not be sanctioned under Federal Rule of Civil Procedure 11(c)(3).

Eberle contends that all his statements were and are factually accurate. That’s not true in every detail: as of the date of the affidavit, May 24, 2019, he had not yet filed his taxes for the year. But the main problem is not affirmative false statements; it is that Eberle intentionally omitted material facts. Eberle failed to disclose in state court that he had been a nearly fulltime resident of Ohio since 2017, that he had moved his family there, continued to work there, and intended to remain there permanently. It is inconceivable that Eberle was unaware of these facts, or that he and his counsel did not realize that these facts were highly material to Overdrive’s motion to stay the state case in favor of litigation in Ohio.

The court will decline to impose sanctions under Rule 11, but not because Eberle’s statements are factually accurate. The court would impose sanctions under Rule 11 for intentional material omissions in an appropriate case. But Eberle’s intentional material omissions related to statements made to the state court, not to this court. If Eberle had relied on his state-court affidavit in advocating for remand, I would consider Rule 11 sanctions for his counsel. See Fed. R. Civ. P. 11 advisory committee’s note to 1993 amendment (“[I]f after a notice of removal is filed, a party urges in federal court the allegation of a pleading filed in state court ([including] in disputes regarding removal or remand), it would be viewed as `presenting’—and hence certifying to the district court under Rule 11—those allegations.”). As it stands, I have found that Eberle was honest with this court; it was the state court whose dignity was insulted by the material omissions that made Eberle’s state-court submissions so misleading.

The court did award Overdrive its legal fees in removing the case under 28 USC 1447(c).

But that’s not the end of the matter. Under 28 U.S.C. § 1447(c), courts remanding an improperly removed case “may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.” Eberle asked the court to shift costs and expenses to Overdrive for removing the case without an “objectively reasonable basis.” Dkt. 7, at 8-9 (quoting Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005)). That request is denied; Eberle’s state-court affidavit gave Overdrive a reasonable basis to infer that Eberle was a Wisconsin citizen. The court will, however, grant Overdrive’s request that Eberle be ordered to pay its removal-related fees and expenses. Although § 1447(c) is more commonly invoked against the defendant, there is “no party-based limitation in § 1447(c) on a district court’s discretion to award fees and costs.” Micrometl Corp. v. Tranzat Techs., Inc., 656 F.3d 467, 470 (7th Cir. 2011). Fee-shifting is appropriate here. Eberle’s misleading representations in state court prompted unnecessary expenditure of time and resources addressing a reasonable but ultimately flawed removal. See Martin, 546 U.S. at 141 (“a plaintiff’s . . . failure to disclose facts necessary to determine jurisdiction may affect the decision to award attorney’s fees”).

This is an excellent example of how removal issues can be confusing and complicated.

http://www.clintonlaw.net

Another Sad Adventure in Diversity Jurisdiction Leads To An Award of Attorney Fees


This is an unpublished case Zausa v. Zausa v. Pellin, 18-1896 (7th Circuit 2018). The case is noteworthy because the plaintiff’s counsel believed he could cure a diversity jurisdiction problem by filing the same case in another state. When that failed, he tried again before a second district judge. The second district judge awarded sanctions to the defendant for having to deal with the same meritless jurisdictional arguments twice.

Diversity jurisdiction requires that plaintiff and defendant be citizens of different states. Here, they were both citizens of Illinois. There could never be diversity of citizenship because the parties were from the same state. It would not matter if the case was filed in Illinois or Alaska – there was no diversity of citizenship.

Here, the lawyer made things worse by refiling a dismissed lawsuit before another federal judge. The first attempt to file the lawsuit was dismissed because there was no diversity of citizenship. The plaintiff’s lawyer then made a second such attempt by refiling the same case in another district.  The court set forth the procedural history of the case as follows:

Terri Zausa obtained a multi-million-dollar judgment against Jack in Illinois state court before this became a federal case. Jack has not been able to pay. Jack’s former business partner, Michael Pellin, allegedly owes him roughly $1.8 million for Jack’s share of their business, which Pellin purchased in 1990. In recent years, Pellin has not met the schedule of payments he owes Jack. Although Jack and Pellin executed a release from the purchase agreement in 2004, Terri says that there was no consideration given for the release, which was solely “for tax purpose[s].” And Pellin purportedly continued to make payments to Jack until 2010. Terri now attempts to collect directly from Pellin to satisfy Jack’s debt to her.

Terri’s first crack at collecting from Pellin began when attorney Salem represented her in filing an enforcement action in the Northern District of Illinois. Judge St. Eve dismissed Terri’s claims against Pellin with prejudice for lack of standing because Terri was not a party to Jack and Pellin’s agreements. Since Terri, the original creditor, and Jack, the original debtor, were not completely diverse, Judge St. Eve dismissed the case without prejudice for lack of subject-matter jurisdiction.

[Plaintiff’s attorney Maurice J.] Salem then brought another lawsuit against Jack on Terri’s behalf, this time in the Northern District of Indiana. The complaint also named Pellin as “Third-Party Respondent.” Contrary to Judge St. Eve’s conclusion, Salem stated that federal jurisdiction existed “by reason of complete diversity of citizenship” because Terri and Jack Zausa are Illinois residents and Pellin is an Indiana resident.

Pellin moved to dismiss the complaint for lack of subject-matter jurisdiction. He pointed to the previous litigation in front of Judge St. Eve and her explanation that complete diversity did not exist because, although Terri was attempting to discover Indiana-citizen Pellin’s assets, her ex-husband (an Illinois citizen) was the judgment debtor.

The jurisdictional theory Salem presented to Judge Moody was:

[I]n Indiana, there is complete diversity jurisdiction because neither Defendant Jack Zausa, nor Plaintiff Terri Zausa are domiciled in Indiana. In other words, Pellin, the only citizen of Indiana is the party of interest that does not share the state of Indiana with any other party. Compared to Illinois where Defendant Jack Zausa, another party of interest, shares the state with Plaintiff. However, the issue is not whether there is complete diversity jurisdiction in Illinois, because we are not in Illinois, the issue is whether there is complete diversity jurisdiction in Indiana.

(Emphasis in original). Unpersuaded, Judge Moody granted Pellin’s motion to dismiss, citing Terri’s (Salem’s) attempt to establish federal jurisdiction “with a skewed logic that is nearly impossible to follow.” He also noted that Terri, as plaintiff, could not sue Pellin as a “Third-Party Respondent.” Because Judge St. Eve had already explained the substantial defects in Terri’s lawsuit, and Salem then maintained the absurd approach to jurisdiction, Judge Moody ordered Salem to show cause why he should not be sanctioned under Federal Rule of Civil Procedure 11(b)(1) or (2). He also cautioned the plaintiff to refrain from asserting any more baseless jurisdictional theories.

In response to the show-cause order, Salem reiterated his incorrect understanding of diversity jurisdiction. He argued “as long as the parties with interest are not in the same state, then complete diversity jurisdiction exists.” Judge Moody concluded that there was no credible explanation for Salem’s conduct and granted all parties leave to move for attorney’s fees. Salem moved for reconsideration and asserted yet again that diversity jurisdiction existed. This time he attempted to explain in greater detail that moving the case to federal court in Indiana had solved the jurisdictional problem.

After the motion for reconsideration was denied, Pellin petitioned for reimbursement of the attorney fees that he had incurred. Salem opposed the motion by maintaining—for the fourth time—that diversity jurisdiction existed. He also asked Judge Moody to defer the issue of sanctions to the Northern District of Illinois, where he had filed a third lawsuit against Pellin that apparently was moving forward.

Judge Moody rejected Salem’s arguments, and in bold-face type declared one final time: “[C]omplete diversity means that no plaintiff may be from the same state as any defendant.” The judge ordered Salem to pay all of Pellin’s attorney’s fees. Judge Moody reasoned that sanctions were proper under either Rule 11(b)(1) or (2). He found that Salem filed the complaint with either “an unreasonable lack of legal basis” or “an intent to harass” Pellin and increase his litigation costs. Judge Moody also declined to defer the issue of sanctions to the Northern District of Illinois because that court would have no jurisdiction to rule on sanctionable conduct occurring in this case. Salem filed a motion for reconsideration, insisting Terri was not really suing “defendant” Jack, so it did not matter that the two of them were domiciled in the same state. Judge Moody denied the motion because it presented nothing new, and he renounced any further efforts “on this frivolous matter.”

Salem now appeals the district court’s order awarding attorney fees against him and the order denying his second motion for reconsideration.

Essentially, the court faulted Salem for not understanding the basics of diversity jurisdiction. The Court of Appeals for the Seventh Circuit affirmed the sanctions award against Salem because he raised the same frivolous arguments time and again before two separate federal judges.

The explanation:

Salem’s contentions are better viewed as restatements of his consistently confused theory of diversity jurisdiction, rather than “new” arguments. And, waiver aside, Salem’s arguments are frivolous and sanctionable, just as Judge Moody concluded. No matter how Salem phrases it, his core assertion is that federal subject-matter jurisdiction over a given case exists or does not depending on the state in which the federal court sits. He habitually misunderstands the tenets of diversity jurisdiction and confuses jurisdiction with venue.[3] He was so told, by both Judge St. Eve and Judge Moody, yet in this appeal he persisted with this faulty assertion.

This persistence in asserting frivolous arguments warrants sanctions against an attorney. A district court may sanction a lawyer who submits frivolous legal arguments not warranted “by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law.” FED. R. CIV. P. 11(b)(2); see Berwick Grain Co., Inc. v. Ill. Dep’t of Agric., 217 F.3d 502, 504 (7th Cir. 2000). A “frivolous” argument is one that is baseless or made without a reasonable inquiry into the facts and law. Berwick Grain Co., Inc., 217 F.3d at 504. A district judge may also sanction a lawyer or party who presents a pleading to the court “for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation.” FED. R. CIV. P. 11(b)(1). Consistently asserting a theory—as attorney Salem did here—directly contrary to federal statute (28 U.S.C. § 1332) as interpreted by all federal case law is frivolous.

The Seventh Circuit affirmed the sanctions award. The lesson here is an old one – you have to know the law. In federal court it is especially important to understand the procedural and jurisdictional rules.

Plaintiffs win jurisdictional battle – case remanded to state court.


This case deals with the removal of lawsuits to federal court. The plaintiffs were represented by the defendant lawyers in the trial of a personal injury case. After a $32 million verdict was entered against them, they sued their former lawyers for legal malpractice. Plaintiffs filed their case in the Circuit Court of Cook County.

Defendants removed the case. To remove they had to show that there was complete diversity of citizenship between the parties. The problem was that two defendants were citizens of Illinois. This would have defeated removal and required that the case be remanded to State Court. Defendants sought to overcome this burden by arguing that the plaintiffs fraudulently joined the two local defendants.

The district court disagreed and remanded the case to the Circuit Court of Cook County. The law is as follows:

The Seventh Circuit directs federal courts to interpret the removal statute narrowly, resolving any doubts in favor of the plaintiff’s choice of forum in the state court. Schur v. L.A. Weight Loss Ctrs., Inc., 577 F.3d 752, 758 (7th Cir. 2009). Under the fraudulent joinder doctrine, a court considering removal may “disregard, for jurisdictional purposes, the citizenship of certain non-diverse defendants, assume jurisdiction over a case, dismiss the non-diverse defendants, and thereby retain jurisdiction.” Id. at 763 (quoting Mayes v. Rapoport, 198 F.3d 457, 461 (4th Cir. 1999)). Fraudulent joinder exists if the plaintiff has made false allegations of jurisdictional fact, or if a claim against a non-diverse defendant has no chance of success. Poulos v. Naas Foods, Inc., 959 F.2d 69, 73 (7th Cir. 1992). Here, the defendants argue that the plaintiffs’ claims against Tannen and TLG have no chance of success.

Defendants seeking to remove a case from state court to federal court based on fraudulent joinder of a non-diverse defendant bear “a heavy burden.” Id. The test for fraudulent joinder is even more favorable to the plaintiff than the standard for deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Livingston v. Hoffmann-La Roche, Inc., No. 09 C 2611, 2009 WL 2448804, at *4 (N.D. Ill. Aug. 6, 2009). Warren must show that, after resolving all issues of fact and law in favor of the plaintiffs, the plaintiffs cannot establish a cause of action against Tannen or TLG. Poulos, 959 F.2d at 73. The Court must determine whether there is “any reasonable possibility” that a state court would rule against Tannen or TLG. Id. Warren, however, need not negate “any possible theory” that the plaintiffs might allege in the future; “only [the] present allegations count.” Id. at 74.

The ruling is as follows:

As stated at the outset, defendants seeking removal that depends on a finding of fraudulent joinder face the very high burden of showing that the plaintiff’s case against the non-diverse defendants has no chance of success. The plaintiffs’ prospects for success against Tannen may well be dubious, but that is not enough to warrant disregarding those claims in assessing the Court’s jurisdiction. Because defendants Tannen and TLG and plaintiffs Dillon Transport and Dillon are all citizens of Illinois, complete diversity as required by Section 1332 does not exist. This Court, therefore, lacks jurisdiction over the case and grants the plaintiffs’ motion to remand. Because the Court lacks jurisdiction over this case, it will not address the Warren defendants’ motion to dismiss for lack of personal jurisdiction. This case is remanded to the Circuit Court of Cook County.

The court essentially ruled that there was a valid basis to include Tannen as a defendant in the case. Therefore, he was not fraudulently joined. Therefore, the court had no subject matter jurisdiction. Therefore, removal was improper and another foray into federal court proved shortlived.

via Dillon v. NAMAN, HOWELL, SMITH & LEE, PLLC, Dist. Court, ND Illinois 2018 – Google Scholar

Edward X. Clinton, Jr.

Another Botched Attempt At Removal to Federal Court


The court remanded this case to the state court because the requirements for removal were not met. First, the amount in controversy was $10,000, far less than the $75,000 required for diversity jurisdiction. Second, all the parties appear to be California citizens so there was no diversity of citizenship. Because there was no basis for federal jurisdiction, the court remanded the case to the state court. 28 USC § 1447(c), which provides “If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.”

via PACIFIC URBAN RESIDENTIAL LLC v. Smith, Dist. Court, ND California 2018 – Google Scholar

Don’t Remove A Case to Federal Court Before Ascertaining Whether The Statute Permits It.


Defendants sued in the state court have a right to remove a case to federal court if there is diversity of citizenship and all defendants join the removal petition.  Here, the Defendants removed the lawsuit from the California courts to federal court before they determined the citizenship of each of the parties. Diversity must be complete. In other words, if a citizen of California sues another citizen of California, there is no diversity and no jurisdiction. Here, the court issued a rule to show cause to require the Defendants to justify the removal petition. They did not respond, but instead sought additional time. The court remanded the case back to state court.

The reasoning:

By failing to respond to the Order to Show Cause Defendants have not assuaged the Court’s concerns regarding jurisdiction. In order to invoke this Court’s diversity jurisdiction, Defendants must demonstrate there is complete diversity of citizenship between the parties and that the amount in controversy exceeds $75,000. Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996). To meet their burden to establish complete diversity, Defendants must allege the actual citizenship of all of its members/partners. Provincial Gov’t of Marinduque v. Placer Dome, Inc., 582 F.3d 1083, 1087 (9th Cir. 2009). Here, the vague assurances provided that all entities related to Defendants are Delaware entities with their principal places of business in New York, NY are not sufficient. Furthermore, the myriad of reasons[1] provided by Defendants for needing more time to comply with the OSC is evidence that Defendants have not determined the existence of complete diversity between the parties. Thus, although being given the opportunity to do so, Defendants have not met their burden of demonstrating there is complete diversity of citizenship.

Because Defendants fail to establish diversity jurisdiction as required by 28 U.S.C. § 1332 and 1441 removal was improper and the Court sua sponte REMANDS this action back to the San Diego Superior Court for lack of subject matter jurisdiction.

via EP EX REL. PRESTON v. CHULA VISTA CENTER, LP, Dist. Court, SD California 2018 – Google Scholar

Lawyer’s Claim Dismissed For Lack of Diversity of Citizenship


An Illinois attorney filed suit against a former client and asked the court for guidance as to who should receive sanctions awarded against him and in favor of Jeanine Stevens and John Cushing. Why he filed the case in Wisconsin is a mystery since the lawyer and the defendants he sued are all citizens of Illinois.

Result: case dismissed for lack of subject matter jurisdiction; there being no diversity of citizenship between the parties.

I’m surprised that a veteran and experienced lawyer did not take the time to consider and evaluate the diversity of citizenship before filing a case.

The case is David Alan Novoselsky v. Christine Zvunca, 17-cv-427, pending in the United States District Court for the Eastern District of Wisconsin. The decision is by Judge Stadtmueller.

https://scholar.google.com/scholar_case?case=12856920532563022533&q=legal+malpractice&hl=en&scisbd=2&as_sdt=400006&as_ylo=2017

Edward X. Clinton, Jr.

 

A Reminder that Legal Malpractice Claims Are Creatures of State law and Do Not Confer Federal Jurisdiction


If you sue your lawyer for failing to prosecute your ADA (American’s with Disabilities Act) claim, you do not have federal question jurisdiction. Instead, the claim arises under state law. The explanation:

And, the court explained, plaintiff’s legal malpractice claims arise under state law, not federal law, even though she attempts to invoke the Americans with Disabilities Act (“ADA”). See id. (citing Creamer v. Gen. Motors, Nos. 16-4045-SAC, et al., 2016 WL 3197379, at *5 (D. Kan. May 18, 2016) (concluding that plaintiff failed to allege federal question jurisdiction because her citation to the ADA “has no plausible application to plaintiff’s claims that defendant committed legal malpractice” and “absent diversity of citizenship and an amount in controversy over $75,000—which do not exist here—plaintiff’s state law claims of legal malpractice, assuming of course they have any merit, belong in state court”)).

Plaintiff submitted a response to the Show Cause Order. Doc. 5. But, like her Complaint, her response failed to provide any colorable basis for this court to invoke its limited subject matter jurisdiction. Instead, plaintiff reiterated that she was asserting legal malpractice claims against defendants. Id. at 1-4. She provided no basis for the court to exercise federal question or diversity jurisdictAnd, the court explained, plaintiff’s legal malpractice claims arise under state law, not federal law, even though she attempts to invoke the Americans with Disabilities Act (“ADA”). Sion. See generally id. So, the court dismissed her lawsuit without prejudice for lack of subject matter jurisdiction. Doc. 6.

Source: Creamer v. Martin, Dist. Court, D. Kansas 2017 – Google Scholar