Diversity Jurisdiction

Hertz Corp. v. Friend, 130 S. Ct. 1181, 559 US ___, 175 L. Ed. 2d 1029 (2010)

Federalism is the backbone of American government. The Constitution of the United States of America vests the federal government with limited power. By contrast, state governments have plenary power under each state's constitution. This post will focus on the limited power of the federal courts as related to civil procedure.

The U.S. Constitution established and empowered the Supreme Court of the United States. U.S. Const. Art. III, ‎§‎ 1. The same provision empowered Congress to "ordain and establish" the lower federal courts. Ibid. Thus, Congress created the circuit courts of appeal and district courts. Furthermore, Congress has authority to determine the jurisdiction of the lower federal courts.

The U.S. Constitution limits the power vested in the federal courts by allowing it to extend only to certain cases and controversies. U.S. Const. Art. III, ‎§‎ 2. One category where a federal court may exercise its judicial power applies to "Controversies . . . between Citizens of different States." Ibid. Exercising its constitutional authority to ordain, Congress enacted the diversity of citizenship statute. The U.S. Constitution gives federal courts limited power, preventing them from adjudicating a lawsuit between two citizens of the same state.

A problem arises, however, when one of the parties is a corporation. The issue is how a court should determine the citizenship of the corporation.

Early in American history corporate entities were not citizens. Bank of United States v. Deveaux, 5 Cranch 61 (1809). Under Deveaux, corporate citizenship was determined by the citizenship of its members.

This changed, however, in Louisville, C. & C. R. Co v Letson, 2 How 497 (1844)‎. There the Court determined a corporate entity is a citizen of the state of incorporation, separate and apart from the citizenship of its members. Importantly, only incorporated groups are considered as citizens for ‎diversity.

‎ The diversity statute enacted by Congress provides, a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U. S. C. §1332(c)(1) (emphasis added). Thus, a corporation may be a citizen of two separate states. For example, it may be a citizen of both Delaware and New Jersey when it has been incorporated under the laws of Delaware and its principal place of business is in New Jersey.

Until now, parties litigated the meaning of "principal place of business" either to assert or challenge the jurisdictional authority of the federal courts in civil matters. Federal case law on this issue had provided two distinct tests to determine the "principal place of business."

• The "Nerve Center" Test. This test refers to the place where high level officers direct, control, and coordinate corporate activities.
• The "Muscle Center" Test. This test refers to the place where most of the business activity occurs.

The following illustrates the confusion that ensued under this distinction:

• The "Center Of Corporate Activities" Test. Developed by the Third Circuit, this test searches for the "headquarters of a corporation’s day-to-day activity."
• A "Two Part Test." Developed in the Ninth Circuit, this test requires courts to:
  1. decide whether "a corporation’s activities are centralized or decentralized,” and
  2. apply either the “place of operations” or “nerve center” test.

In Hertz Corp. v. Friend the Supreme Court of the United States rejected the "muscle center" test to determine "principal place of business" and reaffirmed the "nerve center" test. The case arose in California state court but the defendants, asserting diversity of citizenship, sought to remove to federal court. The plaintiffs were from California (the Ninth Circuit) and the defendants had their corporate offices in New Jersey (the Third Circuit).

The plaintiffs probably urged the court to follow Ninth Circuit precedent, which applied both the "nerve center" and "muscle center" tests, while the defendants probably insisted on following Third Circuit precedent, which only applied the "nerve center" test.

Most likely the defendants hoped not only to prevail in the removal to federal court, but also planned to argue the California venue was an inconvenient forum, and to transfer the venue to a federal district court in the District of New Jersey.

Along the way to reaffirming the "nerve center" test, the Hertz Court reasoned this test was most appropriate based on the statute's plain language and its legislative history. This means the "nerve center" test comports with legislative intent. In addition, the Court reasoned the single test would serve the purpose of promoting administrative efficiency, and establishing uniformity of federal law.

Hertz Corp. v. Friend, 130 S. Ct. 1181, 559 US ___, 175 L. Ed. 2d 1029 (2010)

New Judicial Federalism and Federal Courts

Justice
(or Prudence, Justice, and Peace)
Jürgen Ovens (1623 - 1678)
[Public domain],
via Wikimedia Commons

The Third Circuit Court of Appeals recently denied habeas corpus relief in Clausell v. Sherrer (3d Cir. 2010).

The issue in Clausell involved a claim of discriminatory use of the peremptory strike by the prosecutor.

Federal law prohibits race-based, sex-based, and religion-based discrimination in this context as a violation of Equal Protection under Batson v. Kentucky, 476 U.S. 79 (1986) and subsequent cases.

New Jersey law also prohibits this as a violation of the right to trial by a jury made up of a representative cross section of the community under State v. Gilmore, 103 N.J. 508 (1986).

The Gilmore court sought to expand individual rights under the New Jersey Constitution on state law grounds. Even so, the Third Circuit treated the federal and state tests to determine the discriminatory use of the peremptory strike as substantially similar. Nevertheless, the legal grounds upon which federal and state law base these tests are markedly distinct.

This distinction as between federal and state law illustrates a phenomena known as the "New Judicial Federalism." This involves the process of state courts elevating individual rights above the requirements of federal law. State courts are able to make lasting state precedent if, and only if, they root their decisions on state law grounds that are adequate and independent of federal law. While civil rights activists tend to laud these decisions, law enforcement may tend to criticize them.

Perceptions change, however, as the individual progresses through the layers of appellate and collateral review. State law may provide individuals with a broader scope of protection from state action during the early stages of the criminal system. In exchange, this necessarily places additional burdens on the State during those stages. This post will explain why New Judicial Federalism critics become staunch supporters, and vice verse, later in the process. It also brings to light the judiciary's interest in the administration of justice.

To explain this process, the first track criminal defendants may follow after conviction is "direct appeal." This track allows the individual to pursue claims arising out of the investigation and adjudication. A defendant on this track may seek a remedy from the state's Appellate Courts, the State's Supreme Court, and quite possibly the Supreme Court of the United States. Importantly, when the individual seeks a remedy for an alleged violation of state law that does not raise a question of federal law, the Supreme Court of the United States will not review it on direct appeal. This means the state's supreme court has the final word.

The next track is Post-Conviction Relief ("PCR"). Beginning in trial court, this track allows the defendant to pursue allegations that his lawyer failed to provide effective assistance of counsel. As with direct appeal, the Supreme Court of the United States will not review issues based on adequate and independent state law grounds that do not raise a question of federal law.

The final track is to petition the federal court for a writ of habeas corpus. Here the defendant may claim he is being held as a prisoner in violation of his federal constitutional rights.

New Judicial Federalism empowers state courts to prohibit federal courts from granting habeas corpus relief on collateral review. This is so when the following factors are met. First, a prisoner raises a state law issue in an application for habeas corpus relief. Second, the state law at issue in the application provided greater protection than federal law. Finally, the State met its burden of honoring these enhanced individual rights in the prisoner's particular case.

Under these circumstances, federal courts cannot possibly grant habeas corpus relief. This is because state law surpassed the requirements of federal law. Therefore, violation of federal law is impossible.

Just as state courts can insulate their decisions from federal review on direct appeal and post conviction relief, they can also shield their decisions from collateral habeas corpus review by federal courts.

This dynamic indicates the New Judicial Federalism involves not only protecting individual rights. It also involves preserving state court autonomy from federal courts. That, of course, is at the heart of our federalist system.

Clausell v. Sherrer (3d Cir. 2010)

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Automobile Exception

Stado wilków
(A pack of wolves)
Alfred Wierusz-Kowalski (1849 - 1915)
[Public domain],
via Wikimedia Commons

The Bill of Rights and the New Jersey Constitution both prohibit the government from entering areas without a warrant where individuals hold reasonable privacy expectations.

One exception to the warrant requirement, the Automobile Exception allows the police to circumvent the warrant application process. But the Fourth Amendment and the New Jersey Constitution differ in respect of the Automobile Exception's elements.

Under federal law, a police officer may search a vehicle, its trunk, and all its containers without a warrant, so long as the circumstances provide the requisite probable cause to believe the vehicle has contraband. Some states are in lockstep with the United States Supreme Court in this matter.

New Jersey law, however, also requires the circumstances be exigent. Absent probable cause and exigency, New Jersey law requires police to obtain a warrant before conducting the automobile search.

Although this imposes a procedural hurdle, New Jersey law allows the police to obtain a warrant telephonically instead of appearing before a judge in person.

State v. Jason Lewis (App. Div. 2010) is a recent Appellate Division opinion involving the Automobile Exception.

Experienced New Jersey Criminal Defense Lawyer Michael Smolensky, Esquire, knows how to protect his clients. Mr. Smolensky can provide consultations on all cases regarding the violation of individual rights.

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The Shield has become a Sword

The Fourth Amendment protects individuals from unwanted government intrusion. Almost everyone accepts that theory, but unfortunately that does not always translate into practice.

Recently the Third Circuit handed down its opinion in United States of America v. Anthony Johnson, No. 09-2245 (Filed January 27, 2010), and the results make absolutely no sense.

The Fourth Amendment governs police conduct when they approach citizens. The police may request permission to ask questions, and the citizen has every right to refuse. Police officers may also stop an individual temporarily, which means the individual is not free to leave. The police have this power even though the individual may not have been placed under arrest. But it is absolutely clear the police do not have carte blanche to exercise this authority.

The law allows this only if the circumstances provide a basis reasonably to suspect criminal conduct either has taken or is taking place. This means the police must be able to detail who, what, when, where, and how they perceived events.

Furthermore, those observations must provide an objectively reasonable basis for their beliefs. The authority to stop includes, but is not limited to, people walking on foot and driving in cars.

A tip from a citizen does not provide reasonable suspicion unless certain criteria are satisfied. I blogged more extensively about this here, so I will repeat only the general principles now.

When looking at information from a tipster, courts must use common sense. Common sense is, far and away, the biggest principle to remember. The law requires courts to consider the reliability, truthfulness, and knowledge basis of the tip. But the analysis does not end there. The court must find the police took steps independently to corroborate the tip before they took any action.

In summary, the overarching concepts here are simple. First, the Fourth Amendment protects individual freedom. It appears in the Bill of Rights, so clearly its purpose is not merely perfunctory. Second, the law requires the court to use common sense in making a determination.

Consider the facts of this case using common sense. The tipster called 911 to report things she thought she saw and heard. It was night time on January 7, 2007, and the rain was coming down hard.

Common sense instructs us it was cold outside and difficult to see for three reasons:

1. it was night time,
2. it was raining, and
3. it was the middle of a Pennsylvania winter.

Indeed, the summary of facts in this opinion concedes it was hard to see. Although the opinion is silent about thunder and lightning, it was raining hard. Thus, applying common sense one may infer it was more difficult to hear than normal circumstances permit.

All of these details are important because they tend to undercut what the tipster thought she saw and heard. Despite the time and the weather, the tipster claimed she was standing in the front door. Despite the natural environment, she reported three things.

First, she thought she saw a white taxi with a green roof light park in a lot across the street. Notably, the taxi did not park on the street in front of her house. Furthermore, it did not park across the street opposite her house. Instead the taxi went into a parking lot on the other side of the street from her house on a dark, rainy night. Although the opinion does not indicate the distance, it clearly was not immediately in front of her. Additionally, the record is unclear whether the roof light was actually green or white.

Second, the tipster thought she observed two men exit two separate vehicles and wrestle on the ground in the lot across the street in the rain. But the tipster clearly did not provide any details at all about the men involved.

Third, she thought she heard at least one gun shot, and saw the taxi leave. Calling 911 she told the dispatcher "I'm standing here on [sic] my front door," and during the call she said she saw a police car as it arrived on the scene.

It seems, based either on the time of night, the weather, or having heard the sound of gun fire, that any reasonable person would have stayed clear of the door in a place that was safe if not warm. It seems this would dissuade a court engaged in analysis that calls for common sense.

Even putting those things aside, this is all the information the police had when they spotted a taxi ten blocks away. The taxi matched the description the tipster had provided only in respect of its color. The record reflects the roof light might have been green, or it might have been white. She had not provided a license plate or any other identifying information. She had not provided any details about the occupants, which meant the police knew absolutely nothing about the people in the cab. Finally the police did not witness the cab commit any motor vehicle offenses. Apparently Harrisburg does not have many taxis.

Nevertheless the police stopped the taxi, approached with guns drawn, ordered the driver and the defendant out, handcuffed them, and secured the defendant's young son. This stop resulted in the seizure of a gun from the defendant who has a prior felony record.

Despite all the common sense problems with these facts, the Court reasoned the tip provided reasonable suspicion to stop the cab. Along the way, the court's reasoning not only gave the benefit of all doubts to the government, but also it allowed innocent facts to play into the calculation for reasonable suspicion. Apparently courts only require the police independently to corroborate innocent details, and will find reasonable suspicion based on this.

In all events, these are among the many reasons this opinion is troublesome. Here the United States Court of Appeals for the Third Circuit turned a shield, the Fourth Amendment, into a sword. Now precedent in this circuit, the police can intrude on the right to be left alone based on absolutely nothing suspicious at all.

United States of America v. Anthony Johnson, No. 09-2245 (Filed January 27, 2010)