In the context of transnational litigation, diversity jurisdiction in a U.S. federal court can be difficult to demonstrate. This is because the typical parties in transnational litigation may include U.S. citizens, U.S. citizens who are residents of a foreign country, foreign parties who are residents of a U.S. State and foreign parties who are residents of a foreign country. When all of these parties are mixed together, the requirements of 28 U.S.C. § 1332 may not be met, or complete diversity may not exist, thus eliminating federal court jurisdiction over the action.
In addition, when litigation has been commenced in a state court and one of the parties is a sovereign, although federal question jurisdiction exists in a U.S. federal court under the Foreign Sovereign Immunities Act of 1976 (FSIA), the issue arises: who may remove the lawsuit from the state court to the U.S. federal court? Any party, or only the sovereign?
Recently, the U.S. District Court for the Northern District of California issued a decision that is instructive on both points, Guan and Wang v. Bi et al., Case No. 13-CV-05537 (WHO), 2014 WL 953757 (N.D. Cal. March 6, 2014). This case is fully “transnational” in the sense that it was brought by a foreign party and a U.S. citizen, as plaintiffs, against all foreign party defendants, including a local governmental department of the People’s Republic of China (PRC), Dalian Customs Anti-Smuggling Bureau.
The only defendant to appear in the case, however, was Bi, a foreign party who is a resident of a foreign country. Bi removed the action to federal court, arguing that there was subject matter jurisdiction in diversity pursuant to 28 U.S.C. § 1332(a)(2) and under the FSIA. The Plaintiff filed a motion to remand the case to state court, maintaining that there was no diversity jurisdiction and even though the federal court may theoretically have federal question jurisdiction over the case under the FSIA, a non-sovereign party, such as Bi, is not permitted to remove the action to a U.S. federal court under 28 U.S.C. § 1441, the statute governing removal.
The Court first noted that in the context of this lawsuit, U.S. District Courts have jurisdiction in diversity pursuant to 28 U.S.C. § 1332 over all civil actions in which the amount in controversy requirement is satisfied and the case is between “citizens of a State and citizens or subjects of a foreign state.” Further, complete diversity is required, meaning that diversity confers jurisdiction on the federal court only with regard to cases “in which the citizenship of each plaintiff is diverse from the citizenship of each defendant.”
In this vein, the court discussed the 2011 amendments to the diversity jurisdiction statute, Section 1332, and noted that “diversity jurisdiction does not exist when a foreign plaintiff sues a foreign defendant,” including actions between a U.S. citizen and an alien on one side (both plaintiffs, for example) and all aliens on the other side (all defendants, for example). Because there is a foreign plaintiff and a foreign defendant, complete diversity is ruined and the presence of a U.S. citizen in such an action “does not salvage jurisdiction because diversity must be complete.” The court further found that the 2011 amendments eliminated the language in section 1332(a)(2) stating that a permanent resident alien is categorically deemed a citizen of the state in which he or she is domiciled, but added that “district courts shall not have original jurisdiction under this subsection of an action between citizens of a State and citizens or subjects of a foreign state who are lawfully admitted for permanent residence in the United States and are domiciled in the same State.”
The Court noted however that complete diversity may exist in cases with foreign parties on both sides of the litigation under section 1332(a)(3) so long as there are “citizens of [the] United States on both sides who satisfy diversity requirements.” For example, in a case where the only plaintiffs are a U.S. citizen residing in New York and a foreign party, and the only defendants are a U.S. citizen residing in New Jersey and a foreign party, the presence of the foreign parties on both sides (plaintiff-defendant) will not ruin the complete diversity of the U.S. citizens.
In Guan and Wang case, however, the Court found no diversity jurisdiction because one of the plaintiffs was a PRC citizen currently living in California” and the other plaintiff was “a United States citizen living in California” while “[a]ll of the defendants are foreign residents either living in the PRC or the United States for limited purpose.” Therefore, the court held that, “[a]nalyzed properly, this case involves an alien and a United States citizen on one side and aliens on the other side” and thus “no complete diversity of citizenship” exists pursuant to 28 U.S.C. § 1332. Interestingly, had the PRC citizen plaintiff (Guan in this case) not been added as a plaintiff in the case, the result would have been different.
As a second basis for federal jurisdiction, Bi argued that he could also remove the case because the federal court had federal question jurisdiction under the FSIA, that is, jurisdiction granted under a U.S. statute. Bi based his argument on the fact that under the FSIA, federal courts “have original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state.” 28 U.S.C. § 1330(a). While this is true, the court also noted that the FSIA provides that any civil action brought in state court against a foreign state “may be removed by the foreign state” to federal court pursuant to 28 U.S.C. § 1441(d).
Analyzing these two sections together, the court found that 28 U.S.C. § 1441(d) does not provide for any party other than the sovereign to remove the action. Further, the court found that allowing any defendant to remove an action involving a foreign state would render section 1441(d) superfluous, because section 1441(a) and (b) would always allow any defendant to remove an action against a foreign state.
Based on this statutory interpretation analysis, the court found that section 1441(a) does not enable the defendant to remove. Since section 1441(d) does not reference a non-sovereign defendant, the court reasoned that the FSIA’s removal provision is designed solely to assure foreign states access to a federal forum and to guarantee foreign states the right to remove an action from state court to a federal court. That is, 28 U.S.C. § 1441(d) is the exclusive basis for removal in actions against foreign states pursuant to the FSIA even where other non-sovereign defendants are named.
In practical terms, although perhaps an unlikely scenario, this also means that if a sovereign brings a lawsuit against a non-sovereign in a state court, the non-sovereign defendant will not be able to remove the lawsuit to federal court.