Caterpillar, Inc. V. Lewis - Decision of The Court

Decision of The Court

Article III allows federal courts to hear disputes between citizens of different states, but the Court has long interpreted the enabling statute whereby Congress exercised the right to confer this power as requiring that there be "complete diversity" of citizenship before federal courts may hear cases predicated on diversity jurisdiction. See 28 U.S.C. § 1332, Exxon-Mobil v. Allapattah Servs., and Strawbridge v. Curtiss. "Complete diversity" means that all plaintiffs must be citizens of different states than all defendants; in the case of corporate parties, their states of incorporation and places of business are both relevant. Under federal statute, diversity must exist at the time of removal and thereafter. In this case, both sides agreed that the district court did not correctly determine that the diversity requirement was satisfied at the time of removal and that the Sixth Circuit correctly identified this defect. Both sides also agreed that complete diversity did exist at the time of judgment. "Does the District Court's initial misjudgment still burden and run with the case, or is it overcome by the eventual dismissal of the nondiverse defendant?"

The Court ruled that because subject-matter jurisdiction existed at the time of judgment, the jurisdictional defect had been cured, and the Sixth Circuit erred in ruling otherwise. But Lewis had preserved his objection to federal jurisdiction by filing a motion to remand the case to state court and then by raising the issue on appeal. Shouldn't the plaintiff be rewarded for his diligent effort to preserve his choice to try the case in state court? Lewis argued that to allow Caterpillar to benefit from the district court's mistake would encourage defendants to seek removal more often in the hopes that the district court will make a mistake they might exploit. "These arguments are hardly meritless but they run up against an overriding consideration. Once a diversity case has been tried in federal court, with rules of decision supplied by state law under the regime of Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), considerations of finality, efficiency, and economy become overwhelming." If the Court were to require that a case that had proceeded through trial to judgment had to be dismissed afterward for lack of jurisdiction, there would be a tremendous waste of judicial resources. In this case, complete diversity, and hence federal jurisdiction, existed at the time of judgment. "To wipe out the adjudication postjudgment, and return to state court a case now satisfying all federal jurisdictional requirements, would impose an exorbitant cost on our dual court system, a cost incompatible with the fair and unprotracted administration of justice." Furthermore, the Court did not foresee that premature removal requests would prove to be the temptation Lewis envisioned. Instead, the Court trusted district courts to apply the removal rules properly, and observed that the fear of irritating district judges would deter defendants from filing frivolous removal requests.