Transferring a State Court Case to Federal Court: When Must the Grounds for Transfer Exist?


Linda S Mullenix

2 National Law Journal 87


This article previews the issues and arguments in Caterpillar, Inc. v. Lewis, on the Supreme Court appellate docket for the 1996-97 Term. This fall the Supreme Court begins its 1996 Term with a warm-up exercise on a highly technical issue relating to removal procedure. Specifically, this case concerns the issue of exactly when federal jurisdiction must exist for valid removal jurisdiction. The primary issue before the Court asks whether, in determining if a federal court has jurisdiction over a removed case, is it enough that valid jurisdiction existed at the time of trial and judgment even though it did not exist at the time the case was transferred from state to federal court?

Generally, a plaintiff has the initial choice of where to file a lawsuit. If the plaintiff chooses to sue in a state court, the defendant may have the opportunity to remove, i.e., transfer, the case to federal court. A number of defendants prefer to have the cases against them heard in federal rather than state court and so seek to exercise the right of removal. A defendant may remove a lawsuit, however, only if the federal district court has valid jurisdictional grounds for deciding the case. If no such grounds exist, the federal court must remand the case, i.e., send it back to state court.

This is the second time in two years that the Supreme Court considers a technical issue relating to federal removal jurisdiction. Taken together, these two cases suggest a lack of clarity in the removal statutes that continues to dog federal courts, especially in atypical circumstances. The long-standing hornbook rule in diversity removal cases is that diversity jurisdiction has to exist both at the time the litigation was filed in state court and at the time the defendant sought to remove the case. The Supreme Court has relaxed this rule, however, suggesting that improper removal may be cured if the jurisdictional defect is eliminated and the district court has jurisdiction to enter a judgment. And, despite the Sixth Circuit's disposition in the present case, that court has suggested that a party can be precluded from asserting lack of diversity if the party waits until after judgment, and it is clear that diversity in fact existed at the time of judgment.

In general, removal is intended to be simple and to protect nonresident defendants against bias when sued in state court. The parties here do not dispute that diversity jurisdiction existed by the time of trial and judgment. Instead, the parties' dispute arises from a quirky set of circumstances concerning exactly when the parties satisfied diversity requirements. This dispute, in turn, involves a factual dispute about when Caterpillar knew or didn't know that the plaintiff had settled out of the case.

The lack of voluminous precedent concerning the timing of jurisdictional requisites suggests that in the overwhelming majority of cases removal procedures work well. Clearly, the technical timing problem presented in this case is not one that has commanded or consumed a great deal of time or attention of federal judges. Moreover, the idiosyncratic facts involved seem unlikely to recur with alarming frequency in federal procedure. Some may say that the most interesting question involved in this case is why the Supreme Court agreed to review an unpublished decision that is not precedential for other cases but merely resolves the dispute between Lewis and Caterpillar.

Full Citation

Linda S. Mullenix, Transferring a State Court Case to Federal Court: When Must the Grounds for Transfer Exist?, 1996-97 Preview of U.S. Supreme Court Cases 87.