Fourth Circuit "reluctantly" affirms dismissal of suit where plaintiffs challenged their own assertions of jurisdiction

Now here's something you don't see every day.

Today, the Fourth Circuit held that a set of plaintiffs who filed suit in federal court alleging diversity jurisdiction who lost on summary judgment were entitled to vacation of the judgment because they were not "citizens" for diversity purposes.

In S. Carolina Dept. of Disabilities & Special Needs v. Hoover Universal, Inc., Nos. 07-1190, 07-1202 (4th Cir. July 30, 2008) (PDF) the South Carolina Department of Mental Health, the South Carolina Department of Disabilities and Special Needs, and the South Carolina State Budget and Control Board-Insurance Reserve Fund commenced product liability actions against Hoover Universal, Inc., invoking diversity jurisdiction and alleging damages resulting from Hoover’s sale to the plaintiffs of defective trusses and sheathing, which were incorporated into public buildings constructed in the 1970s.

Relying mainly on South Carolina’s statute of repose and statutes of limitations, the district court entered summary judgments in favor of Hoover. While appeals were pending, the plaintiffs filed a motion to vacate the judgments in the district court under Federal Rule of Civil Procedure 60(b), asserting that under 28 U.S.C. § 1332(a)(1), they were not "citizens" for diversity purposes and therefore the district court never had subject matter jurisdiction. After granting a limited remand for consideration of the jurisdiction issue, the district court granted the plaintiffs’ motion.
The Fourth Circuit affirmed, "albeit reluctantly in view of the plaintiffs’ original invocation of diversity jurisdiction and their late recognition of the lack of subject matter jurisdiction."

The following passage from the opinion best summarizes the Court's holding and reasoning:

An undoubtedly inequitable hardship results from allowing the plaintiffs to prosecute actions in federal court and, after they lose on motions for summary judgment, granting their motions to vacate the judgments because of a lack of subject matter jurisdiction. As Hoover laments, "Plaintiffs have presented the federal courts with a procedural morass of their own making, and should not be rewarded at this late stage of the proceedings with a ‘do over’ in state court." In most situations, this argument would be persuasive. But subject matter jurisdiction goes to the very power of the court to act, and regardless of the waste resulting from having completed proceedings later vacated by a late-discovered jurisdictional defect, an order or judgment entered by a court without subject matter jurisdiction is a nullity.

Of course, you could also say shame on the defendant for not raising the issue in a 12(b)(1) motion at the outset. But you can imagine they might have preferred to litigate this claim in federal court. Who knows, they might have been holding on to the jurisdictional defect as their ace in the hole if things went south for them. At any rate, this is certainly an odd outcome to a case.

E-filing in the Fourth Circuit

You probably received an e-mail a couple of months ago telling you that e-filing became mandatory in the Fourth Circuit effective June 1, 2008. If you were like me, you did not immediately go through the registration process. However, last week, I had to make my first e-filing (a motion), so I had to register.

Here's some advice: Don't wait until the last minute to register. The process takes several hours.

First, if you don't participate in live training, you'll need to go through a few electronic learning modules. I know what you're thinking: "I already know how to use CM/ECF because I file things all the time in federal district court." But, no. The Fourth Circuit's CM/ECF process is not the same. It uses completely different software. You'll need some training. The Court requires you to take at least the module on "Filing an Appearance of Counsel Form," and "Filing a Motion to Seal." You'll be glad you took them.

Next, you have to complete the Policies and Procedures Review, which is an online QUIZ. You must answer 9 out of 10 questions correctly to successfully complete the review. Don't panic, it's an open book test. The "book" is actually a PDF (of course) called the CM/ECF User Manual. And, the site says you can take the review as many times as necessary to successfully complete it.

After completing the on-line training and Policies and Procedures Review, submit the On-line Training Certification form.

Then, you must register through PACER for a new username and password. If you've registered in other circuits, you might be able to use your preexisting Appellate CM/ECF login. If not, here is a direct link to the registration page. For some reason, they didn't make it easy to find.

The first time you try to e-file, you will probably have to download Java Runtime Environment (JRE) 6: Java6 is required for CM/ECF to operate on your computer. When you go to log in, if it seems like it's taking forever, that's because your computer is downloading the software. If you want to get a head start, go ahead and download it now and get that part out of the way. (It is available at http://www.java.com/)

Once you get logged in to CM/ECF, you see that the menu system is completely different from the CM/ECF system used by the district courts. I found the JAVA-based system to be much SLOWER.

So, there you go. It's that easy.

Also, be sure your pop-up blocker is turned off, if you have one installed (i.e. Google toolbar, etc.)

The bottom line is, don't procrastinate.

AT&T gets "roadside assistance" from the Fourth Circuit

AT&T properly removed a class action lawsuit filed in West Virginia over automoatic "Roadside Assistance" charges under the Class Action Fairness Act of 2005 (CAFA), the Fourth Circuit held yesterday in Strawn v. AT&T Mobility LLC, No. 07-2084 (PDF).

After AT&T removed the suit from the Circuit Court of Kanawha County under CAFA, the district court remanded the case, finding that AT&T failed to show that the matter in controversy exceeded the sum or value of $5 million, exclusive of interest and costs, the jurisdictional threshold established by CAFA.

On the plaintiffs’ motion to remand, the district court read the complaint as defining a narrower class consisting of only those customers who paid the $2.99/mo. "roadside assistance" fee "unwillingly." When AT&T could not provide an estimate of how many customers paid the fee but did so unwillingly, the court held that AT&T had failed to carry its burden of demonstrating the basis for its allegation that the amount in controversy exceeded $5 million and remanded this case to state court.

AT&T appealed, and the Fourth Circuit reversed, concluding that the district court either "misread or construed too broadly the issues raised by the complaint and the definition of the putative class."

Stipulations issue not reached

In an effort to thwart removal, the Plaintiffs attached to their complaint three stipulations, two signed by the named plaintiffs Strawn and Staton and one signed by counsel for the named plaintiffs and purported class members. Each of the named plaintiffs stipulated that he is not seeking damages in excess of$75,000, and counsel stipulated that their law firm does not seek damages, including attorneys fees and costs, exceeding $75,000 for each class member and that the law firm "will not accept an aggregate award for attorneys fees and costs exceeding $5 million inclusive ofany other damages awarded to each named Plaintiff and Class member."

In remanding the case, the district court rejected as ineffective the plaintiffs’ effort to limit the amount in controversy through the stipulations attached to the complaint. Strawn v. AT&T Mobility, Inc., 513 F.Supp. 2d 599, 602 (S.D. W. Va. 2007) ("Although courts have recognized binding stipulations under certain circumstances can amount to an agreement not to seek damages equal to or in excess of the jurisdictional amount, the stipulations in this case do not rise to that level.") . The plaintiffs did not cross-appeal this ruling.