JURISDICTION

The geographic area over which authority extends; legal authority; the authority to hear and determine causes of action.

Exxon Mobil Corp. v. Allapattah Services, Inc.

Congress has placed jurisdictional barriers in front of litigants who wish to file civil lawsuits in federal court. In diversity-jurisdiction cases (i.e., those in which a litigant from one state files a lawsuit against a party from another state, in federal district court ), Congress has sought to prevent a flood of minor disputes by requiring the "amount in controversy" to exceed $75,000. If a plaintiff satisfies this requirement, the federal court is authorized to exercise supplemental jurisdiction over additional claims that are part of same case and controversy. These additional claims often involve claims under state law. Questions have arisen as to whether every plaintiff in a class-action lawsuit must satisfy the $75,000 amount in controversy in order to give the federal court supplemental jurisdiction over state claims. The U.S. Supreme Court, in Exxon Mobil Corp. v. Allapattah Services, Inc., __U.S. __, 125 S.Ct. 2611, __ L.Ed.2d __ (2005), rejected this reading of the federal statute , ruling that as long as one named plaintiff satisfied the amount-in-controversy requirement, the federal court could exercise supplemental jurisdiction over all of the parties and claims.

In 1991, approximately 10,000 Exxon gasoline dealers filed a class-action lawsuit against Exxon Corporation in a Florida federal district court. The dealers claimed that Exxon had employed a scheme to overcharge the dealers for their fuel purchases. The plaintiffs exercised diversity jurisdiction under 28 U.S.C.A. §1332(a) to gain access to the federal court. A jury ruled in favor of the plaintiffs, but the district court asked the U.S. Court of Appeals for the Eleventh Circuit whether it had properly invoked supplemental jurisdiction over the claims of class members who had not met the $75,000 threshold. The Eleventh Circuit concluded that the district court had properly allowed supplemental jurisdiction because at least one of the class representatives had met the amount-in-controversy requirement.

The Supreme Court, in a 5-4 decision, upheld the Eleventh Circuit's interpretation of the diversity-jurisdiction requirement. Justice Anthony Kennedy, in his majority opinion, noted that the Court had endorsed supplemental jurisdiction in Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). Although the Court's "expansive interpretative approach" could have been used to extend diversity jurisdiction, Justice Kennedy pointed out that the Court had mandated that there must be complete diversity-the presence of a single plaintiff from the same state as single defendant deprives the federal district court of diversity jurisdiction over the entire case. The purpose of diversity jurisdiction is to provide a "federal forum for important disputes where state courts might favor, or be perceived as favoring, home-litigants." Therefore, incomplete diversity "destroys original jurisdiction with respect to all claims, so there is nothing to which supplemental jurisdiction can adhere."

Justice Kennedy acknowledged that Congress had enacted an amendment to the federal jurisdiction statutes in 1990. The text of 28 U.S.C.A. §1367(a) stated that in any civil action in which the federal courts have original jurisdiction, "the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III" of the Constitution. This was, in Kennedy's view, a "broad grant of supplemental jurisdiction." The key question in the present case was whether the failure of some plaintiffs to meet the amount-in-controversy requirement deprived the federal court of original jurisdiction under §1367(a) and supplemental jurisdiction over the additional claims. Justice Kennedy concluded that the federal court retained original and supplemental jurisdiction as long as the "well-pleaded complaint contains at least one claim that satisfies the amount-in-controversy requirement." This interpretation was consistent with the "broad jurisdictional grant" language of §1367(a). It made no sense to grant jurisdiction only when a court had "original jurisdiction over every claim in the complaint." Such an "indivisibility theory" was too radical an approach to apply to supplemental jurisdiction because the courts had the authority to correct jurisdictional effects by "dismissing the offending parties rather than dismissing the entire action."

Justice Kennedy also rejected the argument that Congress had not intended to overrule previous Court precedent that limited supplemental jurisdiction when it enacted §1367(a). There was no need to consult legislative history because the statute's text was the authoritative statement; even if the Court wished to consult legislative history, there was little in the record to give "significant weight" to the idea that Congress had sought to preserve significant limitations on supplemental jurisdiction.

Justice Ruth Bader Ginsberg, in a dissenting opinion joined by Justices John Paul Stevens, Sandra Day O'Connor, and Stephen Breyer, contended that Congress had not overruled prior cases that mandated that each plaintiff in a class action meet the amount-in-controversy requirement or else be dismissed from the case.

Exxon Mobil Corp. v. Saudi Basic Industries Corporation

In the U.S. judicial system, state and federal courts entertain lawsuits that are permitted based on constitutional and statutory jurisdiction. Federal courts pay deference to state jurisdiction and, when appropriate, rule that a federal lawsuit is precluded from proceeding because of an existing state court judgment. In rare instances, a loser in state court seeks to appeal the decision in federal district court . However, under what is known as the Rooker-Feldman doctrine, the U.S. Supreme Court has ruled that such appeals must be dismissed for lack of subject-matter jurisdiction. Only the U.S. Supreme Court has appellate jurisdiction to review state court judgments. Despite the limited reach of this doctrine, occasionally a federal court misapplies it, leading to Supreme Court review. Such was the case in Exxon Mobil Corp. v. Saudi Basic Industries Corporation, __U.S. __, 125 S.Ct. 1517, __ L.Ed.2d __ (2005). In that case, the Court ruled that a federal appeals court had erred in dismissing a federal lawsuit brought by a winning party in a concurrent state court case.

Two subsidiaries of Exxon Mobil Corp. (Exxon) had formed joint ventures in 1980 with Saudi Basic Industries Corporation (SABIC) to produce polyethylene in Saudi Arabia. By 2000, Exxon and SABIC had become embroiled in a dispute over royalties that SABIC had charged to Exxon for sublicenses to use the manufacturing method. In July 2000, SABIC filed suit against Exxon in Delaware state court, asking for a declaratory judgment that it had charged the proper royalties. Two weeks later, Exxon countersued SABIC in a New Jersey federal district court, alleging that SABIC had overcharged for the sublicenses. Exxon invoked federal subject-matter jurisdiction using a federal law that permits federal district courts to adjudicate actions against foreign states.

In January 2002, Exxon answered SABIC's state-court complaint and made counterclaims that it had made in the New Jersey federal district court. In March 2003, the Delaware action went to trial, with Exxon receiving a $400 million jury verdict in its favor. Before the trial, SABIC had asked the New Jersey court to dismiss the federal action, arguing that it had foreign sovereign immunity . After the district court denied the motion, SABIC appealed to the federal U.S. Court of Appeals for the Third Circuit. In December 2003, the appeals court heard arguments and, on its own initiative, examined whether under the Rooker-Feldman doctrine the federal action should be dismissed because Exxon had prevailed in Delaware state court. It concluded that the federal district court had subject-matter jurisdiction at the inception of the case but that federal jurisdiction ended when the state court entered judgment for Exxon. To rule otherwise risked "encouraging parties to maintain federal actions as 'insurance policies' while their state court claims were pending." Therefore, under Rooker-Feldman, a federal court was precluded from proceeding.

The U.S. Supreme Court, in a unanimous decision, reversed the Third Circuit's ruling. Justice Ruth Bader Ginsburg, writing for the Court, noted that the doctrine at issue derived from Supreme Court rulings in two cases (one from 1923, another from 1983). In both cases, the losing party in a state matter filed suit in federal district court to overturn the state court's decision, and in both cases the suits were dismissed for lack of federal jurisdiction. Justice Ginsburg found that "When there is parallel state and federal litigation, Rooker-Feldman is not triggered simply by the entry of judgment in state court." The doctrine did not support "the notion that properly invoked concurrent jurisdiction vanishes if a state court reaches the same or related question" while the federal case is pending.

Federal lawsuits may be dismissed once a state court case is adjudicated, but Justice Ginsburg ruled that these dismissals are governed by preclusion law. Under the Full Faith and Credit Act, 28 U.S.C.A. §1738, federal courts must give "the same preclusive effect to a state-court judgment as another court of that State would give." However, preclusion is not a jurisdictional issue, and federal jurisdiction "does not terminate automatically on the entry of judgment in state court." In addition, the federal lawsuit may proceed if it is based on an independent claim that "denies a legal conclusion that a state court has reached." In this case, Exxon was the winner, not the losing party, and had filed a motion in federal court not to undo a Delaware court judgment but to "protect itself in the event it lost in state court on grounds (such as the state statute of limitations ) that might not preclude relief in the federal venue."

Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing

American government is built on the concept of federalism, by which the states and the federal government have separate spheres of authority. In the judicial system, the concept of federalism has led the U.S. Supreme Court to develop principles for determining when state court actions may be removed to federal court. These jurisdictional principles are based on the Constitution, federal laws, and the practical impact on the federal courts , which are referred to as "prudential" jurisdictional concerns. Under the "federal question" statute , 28 U.S.C.A. §1331, a defendant may remove a state court action to federal court if the plaintiff could have filed the lawsuit in federal court originally as a civil action "arising under" the laws of the United States. Federal-question jurisdiction is usually invoked when a plaintiff files a cause of action based on a federal law. However, there are times when a defendant can remove a case to federal court when the cause of action is based on a state law. In order to do so, the defendant must show that a substantial federal issue is to be contested and that permitting federal jurisdiction will not open the floodgates to other similar lawsuits. The Supreme Court revisited these issues in Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, __U.S. __, 125 S.Ct. 2363, __ L.Ed.2d __ 2005 WL 1383604 (2005) and ruled that a state real estate action could be heard in federal court because the outcome of the case would be based on the interpretation of a federal tax law.

In 1994, the Internal Revenue Service (IRS) seized real property owned by Grable & Sons Metal Products (Grable), a Michigan company, to satisfy a federal tax delinquency. Grable received actual notice of the seizure from the IRS by certified mail. The IRS then sold the property to Darue Engineering & Manufacturing and, at the appropriate time, delivered a quitclaim deed to Darue, giving it legal title to the real estate. In 1999, Grable filed a quiet-title action in Michigan state court, contending that the IRS had failed to notify it of the seizure as required by the federal law. Under such an action, Grable sought recovery of legal title to the property. The law stated that the IRS notice must either be given to the owner of the property or left at his or her usual place of business. Grable argued that this provision meant that the IRS should have personally served the notice rather than sending it by certified mail.

Darue removed the case to federal district court as containing a federal question : The claim of title depended on the interpretation of the notice provision of the federal tax law. The district court rejected Grable's request that the case be sent back to state court, ruling that Grable's lack of a federal cause of action did not bar federal jurisdiction. The court then ruled in favor of Darue. It found that, although the law required personal service , substantial compliance with the law was sufficient. The U.S. Court of Appeals for the Sixth Circuit upheld both the jurisdictional and substantive rulings. The U.S. Supreme Court agreed to hear Grable's appeal on only the jurisdictional issue to resolve a conflict within the courts of appeals.

The Court, in a unanimous decision, upheld the Sixth Circuit ruling. Justice David Souter, writing for the Court, noted that most cases removed to federal courts under the federal question provision are based on causes of action created by federal law; the federal civil rights tort law , 42 U.S.C.A. §1983 is a good example of such a law. However, there are less-frequent cases win which federal-question jurisdiction is properly invoked to address state-law claims that "implicate significant federal issues." Justice Souter reviewed case law that reached back more than 100 years to demonstrate that the Court had developed a doctrine that "captures the commonsense notion that a federal court ought to be able to hear claims recognized under state law that nonetheless turn on substantial questions of federal law."

Justice Souter took pains to clarify that no bright-line rules existed in this area of the law; each case had to be evaluated individually according to a list of factors. In order to remove a case to federal court when a federal cause of action is not present, a court must determine that the contested federal issue is substantial and that it indicates "a serious federal intent in claiming the advantages thought to be inherent in a federal forum." However, even if there is a substantial interest, a court must find that a federal forum may entertain the action "without disturbing any congressionally approved balance of federal and state responsibilities." In other words, the Court sought to preserve the concept of federalism and not to subject the court to a flood of litigation that should remain under state jurisdiction.

In this case, the Court believed that the interpretation of the notice provision of the federal tax law raised a matter of substantial interest. More importantly, Justice Souter concluded that federal jurisdiction "over actions like Grable's would not materially affect, or threaten to affect, the normal currents of litigation." Therefore, the case had been properly heard in the federal courts.