Committee Country Chair Update

On November 29, 2005, the United States Supreme Court rendered a unanimous opinion in Lincoln Property Company v Roche, and clarified that an out-of-state defendant may remove a case from state court to federal court without having to prove that none of its affiliates is a 'citizen' of the state where the suit was filed. (http://supct.law.cornell.edu/supct/html/04-712.ZS.html) Under 28 U.S.C. §1441, a defendant that is not a citizen of the state in which the lawsuit was filed is entitled to remove the case to federal court if there is otherwise diversity of citizenship between the plaintiffs and defendants and no local defendant has been served with process. See 28 U.S.C. §§1332 and 1441. The diversity jurisdiction and removal statutes do not, however, say that a non-resident defendant must prove that no person or entity should be joined as a defendant, such that the joinder would destroy diversity of citizenship among the parties.

Nevertheless, in Lincoln, the Fourth Circuit Court of Appeals remanded the case on the grounds that the non-resident defendant failed to negate the existence of an affiliated Virginia entity that was the 'real party in interest.' The Fourth Circuit reasoned that while Lincoln Property Company was the nominal party and ultimate parent company, some unidentified Virginia-based subsidiary or affiliate of Lincoln was probably the 'real party in interest.'

The Supreme Court reversed the judgment of the Fourth Circuit, and reaffirmed the proposition that defendants may remove an action on the basis of diversity of citizenship if there is complete diversity between all named plaintiffs and all named defendants, and no named defendant is a citizen of the forum state. The Supreme Court clarified that it is not incumbent on the named defendants to negate the existence of a potential defendant whose presence in the action would otherwise destroy diversity among the parties. The Supreme Court also explained that while Federal Rules of Civil Procedure 17(a) and 19 address the circumstances under which the joinder of 'real parties in interest' may be appropriate, those Rules do not change the laws governing federal-court subject-matter jurisdiction.

This case highlights the importance of examining the citizenship of the named parties in a state court lawsuit when evaluating the ability to remove a case to federal district court. Importantly, it relieves out-of-state and foreign defendants from having to prove that no in-state entity could be joined, so as to destroy diversity.

David J. Levy
dlevy@fulbright.com