In certain types of cases, a party may be able to sue in either state or federal court. That is because both courts may have “subject matter jurisdiction” over the case. There are requirements for suing in federal court. Subject matter jurisdiction refers to the requirement that a given court has the power to hear the specific kind of claim that is brought to that court. As affirmed in a recent federal court decision, the requirements of subject matter jurisdiction in federal court are strict and must be established even where both parties to the litigation consent to the matter being heard in federal court. 

In Platinum-Montaur Life Sciences, LLC v. Navidea Biopharmaceuticals, Inc., the plaintiff had commenced the action in New York State Court. The defendant, Navidea, without making the required allegations regarding subject matter jurisdiction, filed a notice of removal seeking to remove the state court action to the United States District Court for the Southern District of New York on the ground that diversity jurisdiction existed. The District Court dismissed the case on its merits without first confirming that it had subject matter jurisdiction. On appeal, neither party brought up the issue of the District Court’s possible lack of jurisdiction and just addressed the lower court’s dismissal of the claim on other grounds. The Second Circuit, however, raised the jurisdictional question on its own and determined that the District Court should have decided that issue before making any rulings on the merits of the case.

The requirements to sue in federal court on diversity jurisdiction grounds, 28 U.S.C. § 1332 requires that the amount in controversy exceed $75,000 and the action be between “citizens of different states.” Complete diversity is necessary so no plaintiff and defendant can be citizens of the same state. Federal court jurisdiction was specifically limited by Congress when the federal court system was created. As such, the requirements must be met and cannot be waived by the parties. 

The District Court recognized the problem with jurisdiction and had, in its discretion, permitted the parties to conduct “informal jurisdictional discovery” with the hope that defendant could establish complete diversity jurisdiction. The case posed difficulties in that the defendant had trouble identifying the citizenship of the plaintiff because the plaintiff was owned by several partners, some of which were themselves partnerships. Despite allowing this discovery, a final decision about jurisdiction was not made by the District Court which proceeded to exercise jurisdiction and grant defendant’s motion to dismiss the complaint. 

The Second Circuit determined that the lower court could have permitted additional informal discovery in order to finally determine whether complete diversity existed. It further noted that when citizenship of an LLC or a limited partnership is in question, the District Court may not proceed to the merits without first having confirmed that it has subject matter jurisdiction by determining the citizenship of all partners. The Second Circuit also stated that the standard used by the District Court – that it had no good-faith basis for thinking that jurisdiction did not exist – was not the proper standard.

The action was remanded to the lower court for it to exercise its discretion to conduct any further proceedings that it deemed appropriate. Although the decision is less than 2 months old and the court below has not yet weighed in since the remand, it appears likely that the inability of the defendant in Platinum-Montaur to establish complete diversity jurisdiction will result in the matter being returned to state court and defendant’s request for removal being denied. 

If you have been sued in state court but believe the case should properly be in federal court or if you have a claim and are not certain where to commence your action, please contact one of our litigation attorneys.