The Deadline for Determining Diversity: A World Without End, or Atlas Shrugged?

Abstract

This article previews the issues and arguments in Grupo Dataflux v. Atlas Global, on appeal to the Supreme Court during the 2003-04 Term. The Grupo Dataflux appeal raises the question whether federal courts must adhere to the historical rule that the diversity citizenship is determined at the time of filing of the case, or whether courts may recognize a limited exception for citizenship defects cured later in the proceedings.

In Grupo Dataflux the Supreme Court is asked whether the Court will uphold the longstanding rule that, in federal cases based on the court’s diversity jurisdiction, diversity of citizenship is determined at the time the case is filed and that subsequent changes to the parties’ citizenship cannot create or destroy diversity jurisdiction.

Correlatively, the Court is asked whether federal courts will now recognize a new exception that permits a party’s subsequent unilateral change in a party’s citizenship, during the course of a litigation, to create diversity jurisdiction when it did not exist at the time the plaintiff filed the lawsuit in federal court.

Until this appeal, the black letter rule has long been that diversity of citizenship is determined as of the time of the filing of the complaint. Therefore, post-filing events that change parties’ citizenship – or reduce the amount in controversy – cannot either confer jurisdiction on the federal courts, or divest federal courts of that jurisdiction. Much of this federal jurisprudence, reaffirming the time-of-filing rule, has been intended to set forth a bright-line principle to combat manipulative unilateral behavior to either confer or defeat federal diversity jurisdiction after a lawsuit was filed in federal court.

Federal courts have long frowned on manipulative actions that attempt to create or destroy diversity jurisdiction. In addition, courts have justified the time-of-filing rule because the rule establishes a simple, fixed point from which to determine the validity of diversity jurisdiction. Arguably, without the rule courts would have to reassess whether diversity exists throughout the litigation, as events transpire to change either citizenship or the amount in controversy.

The Fifth Circuit, in its Atlas Global decision, articulated an exception to the bright-line time-of-filing rule. Pursuant to this exception, a trial court may affirm valid diversity subject matter jurisdiction, even if it did not exist at the time a lawsuit was filed, if three criteria are satisfied.

Thus, the core controversy in Grupo Dataflux is the extent to which the Fifth Circuit has rocked the very fundamental principles recited by rote by every law student and attorney in the United States. Will the bright-line, inflexible time-of-filing rule live to see another day? Or, will the Supreme Court uphold and validate the Fifth Circuit’s formulation of an exception to the longstanding time-of-filing rule? If so, did the Fifth Circuit do a good job in articulating an exception to the time-of-filing rule? Is the exception truly limited and narrowly drawn?