The Supreme Court Jealously Guards the Federal Court’s Diversity Jurisdiction

On Behalf of | Mar 9, 2016 | Uncategorized |

It is often said that the federal courts are zealously jealous of their jurisdiction, conferring it only on the chosen few who demonstrate they possess the Constitutional privilege of having their dispute adjudicated by a federal tribunal.

The extent to which a federal court will go to guard its jurisdiction was fully displayed by the Supreme Court recently in Americold Realty Trust v. ConAgra Foods, Inc., U.S. Supreme Court Case No. 14-1382 (March 7, 2016). There a unanimous Supreme Court held that for purposes of determining whether diversity jurisdiction exists when one of the litigants is a real estate investment trust, a court does not examine the citizenship of the trustees, but rather the membership of all its members, including its shareholders.

The Americold Realty Trust holding is not remarkable since it reaffirms what has been the Court’s position since the mid-nineteenth century that only a human being and a corporation can be a citizen for jurisdictional purposes. What is remarkable is the length the Tenth Circuit Court of Appeals and then the Supreme Court went to ensure the federal court’s jurisdictional purity remains untarnished.

In the proceeding below, Defendant Americold removed a garden variety contract dispute revolving around a 1991 fire from state court to District Court and there successfully obtained a judgment. There is no indication the Plaintiffs objected to the removal of the case. In fact, they joined Americold in advising the Tenth Circuit that diversity jurisdiction existed.

Nevertheless, the Tenth Circuit refused to unquestionably accept the parties’ representations concerning jurisdiction and requested information on the real estate investment trust’s “members,” which included its shareholders. Since there was no record of the citizenship of Americold’s shareholders, the Court concluded the parties failed to demonstrate diversity jurisdiction.

One who does not appreciate how vigorously the federal courts guard their jurisdiction might conclude the saga would end there and a busy United States Supreme Court would not grant certiorari to review the Tenth Circuit’s opinion. But grant certiorari the Supreme Court did, only to unanimously affirm the Tenth Circuit’s holding, thereby sending the litigants back to where they had begun in Kansas state court to relitigate a claim that arose from an event 25 years ago.

The lesson for parties and their attorneys is in the federal courts jurisdictional correctness must be taken seriously, since one cannot assume that if one’s adversary does not challenge the court’s jurisdiction the matter is settled. Rather, as Americold Realty Trust painfully reminds us, at any point in the litigation a federal jurist may demand the parties demonstrate they belong in federal court and, if not satisfied, banish them to state court, leaving the litigants’ attorneys with the unenviable task of explaining to their clients why all the years of litigation in the federal courts has been for naught.

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