Acase now before the U.S. Supreme Court could clarify a 200-year-old mistake by the great Chief Justice John Marshall. Standard Fire v. Knowles concerns judicial forum shopping and the interpretation of the Class Action Fairness Act, but it also reinvigorates a long-running debate about federal court jurisdiction.
In Standard Fire, a federal district court in Arkansas sent back to a notoriously “plaintiff-friendly” state court a class action brought by a local plaintiff against an out-of-state insurance company. The remand order was based on the plaintiffs’ legally unenforceable stipulation not to seek a recovery in excess of the $5 million jurisdictional limit covered by the Class Action Fairness Act. The federal court also found, erroneously, that there is presumption that cases against out-of-state defendants should not be removed from state to federal courts. The Constitution requires no such presumption.
When the U.S. Constitution was adopted in 1787, the framers established the federal courts to provide a neutral forum for “cases in which the state tribunals cannot be supposed to be impartial,” as Alexander Hamilton explained. The framers thus expressly extended federal jurisdiction to cases involving opposing parties from different states. The Constitution’s framers were so concerned about state court bias that they considered a neutral federal tribunal necessary to the “national peace and harmony.” Less than two decades later, however, a perfunctory six-sentence opinion by Marshall undermined this essential feature of the federal judiciary’s constitutional jurisdiction and power.
The 1806 ruling in Strawbridge v. Curtiss established what would become known as the “complete diversity” rule — meaning lawsuits may not be removed from state to federal court if any opposing parties are from the same state. As a result, plaintiffs’ attorneys have been able to evade federal court jurisdiction for the “home cooking” of state courts by the simple expedient of naming an in-state defendant along with the out-of-state targets of the lawsuit.
According to an opinion written by Marshall’s colleagues several years after his death, the chief justice “repeatedly expressed regret” that Strawbridge was wrongly decided. Although the Supreme Court has subsequently clarified that the Strawbridge rule is not required by the Constitution, the decision has never been overruled. Except for interstate class actions as defined by the Class Action Fairness Act, Congress has never acted to clarify constitutional protections for out-of-state defendants. In fact, the lower federal courts have compounded Marshall’s mistake by developing an elaborate gantlet of presumptions and rules specifically designed to keep “diversity of citizenship” cases out of federal courts. One such rule is at issue in the Standard Fire case.
Federal diversity jurisdiction isn’t an archaic vestige of a bygone age. The original intent for the federal judiciary’s role is as sound today as it was more than two centuries ago. Evading federal jurisdiction to obtain crushing settlements and judgments in plaintiff-friendly state courts causes real harm to national and international businesses and results in lost global competitiveness for our nation and lost jobs for our citizens.