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Diversity Jurisdiction

If a case does not raise a federal question, the parties must be diverse in order to proceed in federal court. Diversity means that adverse parties are from different states. This is easy to see if there are only two parties involved (one plaintiff and one defendant). If the plaintiff is from Florida and the defendant is from Georgia, you have diversity. If the plaintiff is from Florida and the defendant is from Florida, you do not have diversity. However, what if their are multiple parties on one or both of the sides of the conflict?

Federal courts require that complete diversity exist in order to proceed in federal court. Complete diversity means that all of the plaintiffs must be diverse from all of the defendants. This is instead of minimal diversity where only one of the adverse parties would have to be diverse (i.e. two plaintiffs, one from Florida and one from Georgia v. one defendant, from Florida). The monumental case that recognized that complete diversity is required was Strawbridge v. Curtiss, 7 U.S. 267 (1806). In Strawbridge, the Court recognized that although the Constitution only requires minimum diversity,  Congress (through 28 U.S.C. 1332(a)(1)) imposes a requirement of complete diversity.

Diversity of Citizenship

Now that complete diversity is required, how do you determine where a party is citizen. For individual persons, domicile and citizenship are identical for purposes  of diversity jurisdiction, and require both presence and an intent to remain permanently or indefinitely. Sheehan v. Gustafson, 967 F.2d 1214 (1992). Some courts state the latter requirement as the lack of any definite intent to leave. Finally, it is important to understand that an individual can only be a citizen of one state at a time. In other words, you keep the citizenship you have until you establish a new one.

Conversely, a corporation can have more than one place of citizenship for the purpose of diversity jurisdiction. Corporations are citizens of both states that they are incorporated and their principal place of business. Hertz Corp v. Friend, 297 Fed. Appx. 690 (2010).

It is important to recognize that the standard of appellate review for diversity of citizenship is clearly erroneous because it is a mixed question of law and fact.

Amount in Controversy

In addition to diversity of citizenship the Federal courts require that the amount in controversy exceed $75,000. There are a few nuances to amount in controversy but for the most part it is straight forward because the goal is to make this an easy standard because we don’t want to litigate about the amount in controversy. In measuring whether the amount in controversy the standard is that the complaint will be dismissed if it “appears to a legal certainty that the claim is really for less than the jurisdictional amount.” St. Paul Mercury Indemnity Co. v. Red Cab Co. (1938).

  • Injunctions – To determine the amount in controversy for an injunction, the court uses the “either viewpoint” approach. This means that the amount in controversy can be determined from either the plaintiff’s or the defendant’s viewpoint.
  • Aggregation Rules
  1. A single plaintiff can aggregate related and unrelated claims and jurisdiction is determined by the total amount sought in the complaint. Courts allow unrelated claims to be aggregated because the courts do not want additional litigation about whether a claim is related or unrelated for purposes of satisfying the amount in controversy. Although this rule is a bit illogical, it is justified by the quest for efficiency.
  2. However, multiple plaintiffs cannot aggregate their individual claims to reach the jurisdictional amount. If there are multiple plaintiffs, at least one of them (standing alone) must be able to satisfy the amount in controversy. Once a single plaintiff satisfies this requirement, courts now allow other plaintiffs to “ride the coattails” and join in the diversity suit even if they do not meet the amount in controversy requirement.
  3. Anti-aggregation rule. This is a rare exception in cases where there is one res at issue (i.e. an estate) and there are several plaintiffs that have a claim to it. As long as the value of the res is at least $75,000, the amount in controversy requirement is satisfied (even if the plaintiff’s individual claims may not).
  • Punitive damages

What prevents a plaintiff from claiming excessive punitive damages in order to meet the amount in controversy requirement? Because of this possibility courts scrutinize a claim for punitive damages more closely than a claim for actual damages. First, the court will ask that there is competent proof of the punitive damages. Ordinarily, punitive damages should not exceed the compensatory damages by a large multiple (e.g. few awards exceeding a single-digit ratio between punitive and compensatory damage will satisfy due process). Finally, Rule 11 (in theory) should limit excessive allegations of punitive damages.

 

 

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Negligence

The tort of negligence is simply defined as “the failure to exercise reasonable care.” However, for a plaintiff to prevail under a negligence claim he must allege and prove facts establishing ALL five of the legal elements of negligence:

  1. The defendant owed the plaintiff a legal duty
  2. The defendant, by behaving negligently, breached that duty
  3. The plaintiff suffered actual damage;
  4. The defendant’s negligence was an actual cause of this damage and
  5. The defendant’s negligence was a “proximate cause” of this damage

Even if a plaintiff does prove all of the elements, the plaintiff may still not fully recover. Once the plaintiff has proved the elements, the defendant is only subject to liability; not liable (at least not yet). The defendant may still have an adequate affirmative defense which may allow him to escape liability.

In analyzing whether the defendant owed the plaintiff a legal duty it is important to remember that courts have recognized that a duty is owed by all people to “exercise the care that would be exercised by a reasonable and prudent person under the same or similar circumstances to avoid or minimize risks of harm to others.”

This duty is known as the standard of care. “The standard never varies, but the care which it is reasonable to require of the actor varies with the danger involved in his act and is proportionate to it. The greater the danger, the greater the care which must be exercised.” Stewart v. Motts, 539 Pa. 596 (1995).

 

 

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Federal Subject Matter Jurisdiction

Federal courts have limited jurisdiction (as opposed to the general jurisdiction of state courts)*. Limited jurisdiction means that the federal courts only have the jurisdiction affirmatively granted to them. Who grants this jurisdiction? Well, federal subject matter jurisdiction requires two things: constitutional authority and congressional authorization to use that authority. Specifically, the constitutional authority comes from Article III of the United States Constitution and the congressional authorization comes from statutes that are passed by Congress. In order to have original subject matter jurisdiction, a federal district court must meet BOTH requirements.

Federal courts hear two types of cases:

1) Federal question cases or cases that “arise under” some federal law and

2) Diversity cases where the parties are from different states and the case in controversy exceeds $75,000.

*Note: Because state courts have general jurisdiction they are presumed to have jurisdiction over all subjects unless some statutory or constitutional provision deprives them of jurisdiction

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Exceptions to the Statute of Frauds

As stated in the post on whether a contract is subject to the statute of frauds, when the statute of frauds is asserted as a defense against the enforcement of an alleged contract, one should ask the following questions:

1. Is the contract subject to the statute of frauds?

2. If it is subject, is the statute of frauds satisfied?

3. If it is not satisfied, do the factors invoke one of the exceptions to the statute of frauds?

If the answer to the first question is “yes” and the second question is “no,” then you need to look to see if one of the exceptions to the statute of frauds applies. Below is a list of the exceptions to the statute of frauds under common law and the UCC:

COMMON LAW EXCEPTIONS

  1. Part Performance (Restatement section 129). If it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement. This exception is very similar to promissory estoppel and only applies in situations where a transfer of interest in land exists and with specific performance. This exception also has no application in an action at law for money damages.
  2. Full Performance (Restatement section 130. As soon as any one party fully performs under the contract, then the SOF does not apply. This exception only applies to contracts that cannot be completed within one year
  3. Promissory Estoppel – Although this is not really an exception, promissory estoppel can be used anytime. A minority of jurisdictions bar promissory estoppel actions through the statute of frauds because they see it as an impermissible way to circumvent the statute of frauds.

 

UCC EXCEPTIONS

  1. Part Performance – Note: In an installment contract you need to show acceptance at every installment to show part performance.  Also if there is a partial payment figure out what the parties intended.
  2. Admissions Exception – If the party against whom enforcement is sought makes an under oath admission of facts that in the court’s view establish that such a contract was indeed made
  3. Special Manufacture Exception – If goods are specially manufactured for the buyer and “not suitable for sale to others in the ordinary course of  the seller’s business (e.g. making mugs for ACME, Inc. that has their logo and slogan.)
  4. Merchant Confirmation Exception – Here you will need something in writing that is signed but does not need to be signed by the person against whom enforcement is sought. It only needs to be signed by any party to the contract. However, the following must be present:
  1. Both parties must be merchants under the UCC
  2. The writing (confirmatory letter) has to be sent to and received by the party to whom enforcement is sought
  3. The party has ten days to objection. The objection has to be in writing .
    1. NOTE: You want to be careful that you are not creating a writing that satisfies the statute of frauds
    2. In order to do so, the objection should explicitly state or object to the terms
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When is a contract subject to the Statute of Frauds?

When the statute of frauds is asserted as a defense against the enforcement of an alleged contract, one should ask the following questions:

1. Is the contract subject to the statute of frauds?

2. If it is subject, is the statute of frauds satisfied?

3. If it is not satisfied, do the factors invoke one of the exceptions to the statute of frauds?

Below is the analysis that should be conducted under the UCC and Common Law to answer this first question, “Is the contract subject to the statute of frauds?”

The UCC presents the easier test as to whether a contract is subject to the statute of frauds. Under the UCC, the only thing we care about is whether the contract is for $500 or more.

Under common law we don’t care about the dollar amount of the contract. Restatement (Second) 110 states that “[t]he following classes of contracts are subject to the Statute of Frauds, forbidding enforcement unless there is a written memorandum or applicable exception:

  1. A contract of an executor or administrator to answer for a duty of his decedent (the executor-administrator provision)
  2. A contract to answer for the duty of another (the suretyship provision)
  3. A contract made upon consideration of marriage (the marriage provision);
  4. A contract for the sale of an interest in land (includes leases) (the land contract provision);
  5. A contract that is not to be performed within one year from the making thereof (the one-year provision)”

The majority of these classes are self-explanatory but a few notes on the fifth class, the one-year provision. This class requires a contract not to be performed within one year from the date the contract is made to be in writing. The standard view is that a contract is not subject to the statutory provision if it is possible to be performed within a year, even if the prospect of such performance is remote or unlikely. Therefore, the question you should ask is, “At the time of the formation, could it have been completed within a year?” If the answer is “yes,” no matter how remote or unlikely it is, then most courts will deem that the contract fits this class and is not subject to the statute of frauds. Something to remember is that many courts are looking for reasons to exclude things from the statute of frauds.

 

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Dormant Commerce Clause Analysis

A state violates the Dormant Commerce Clause if it “oversteps” its role in regulating interstate commerce. The first step in analyzing a state regulation under the Dormant Commerce Clause is to determine whether the regulation incidentally burdens interstate commerce or affirmatively discriminates against interstate commerce. An affirmative burden on interstate commerce exists if the regulation “on its face” or “in its practical effect” regulates interstate commerce.

An incidental burden violates the Commerce Clause only if the burdens it imposes on interstate trade are “clearly excessive in relation to the putative local benefits.” If an affirmative burden is found, the state has the burden to demonstrate that the statute “serves a legitimate local purpose” and that this purpose could not be well served by any available nondiscriminatory means. An affirmative burden is analyzed under strict scrutiny.

State laws that affirmatively discriminate against out-of-staters are almost always declared unconstitutional. Such a law will be allowed only if it is proven that the law is necessary and the least restrictive means were used to achieve a non-protectionist purpose. The only case to survive strict scrutiny under the Dormant Commerce Clause is Maine v. Taylor, 477 US 131 (1986).

If a law does not discriminate against out-of-staters, the Court balances its burdens on interstate commerce against its benefits.

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Consideration

Consideration is a crucial concept in understanding Contract Law. The making of a promise (offer and acceptance) is insufficient by itself to result in the formation of a contract.* The additional requirement is the presence of “consideration.”

The concept of consideration has developed over the years. In 1875 consideration was defined as:

“A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.”

Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first. The idea behind consideration is determining the types of contracts we want to enforce. The main type of contract we don’t want to enforce is a gift.

The court now explains that consideration requires a benefit to the promisor or a detriment to the promise that is bargained for. In other words, benefit or detriment are insufficient to constitute consideration. However, according to Pennsy Supply the requirement that consideration be bargained for does not require actual bargaining between the parties.

The court uses the Homlesian test of “reciprocal conventional inducement, each for the other.” (Bargaining theory of consideration). “The promise must induce the detriment and the detriment must induce the promise.” Oliver Wendell Holmes, Jr.

The Restatement adopts the bargain theory of consideration and rejects any additional requirement of benefit or detriment.

*Note: International contract law recognizes that a contract can be formed without the additional requirement of consideration.

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Takings in Property Law

The central principle of the Takings Clause (from the Fifth Amendment) is to “bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” Armstrong v. United States, 364 U.S. 40, 49 (1960).

To establish a “taking” a plaintiff must show three separate elements:

1. A taking by the state;

2. For public use (interpreted as a legitimate public purpose);

3. Without just compensation

In defending an alleged “taking,” the state must show its justification in some aspect of their police power, asserted for the general welfare.

If a taking is found, a court will order the state to provide just compensation to the owner. The Supreme Court has determined that “fair market value” constitutes just compensation. Fair market value is defined as “the amount a willing buyer would pay in cash to a willing seller.”