Time of Filing Rule

Time of Filing Rule

The preceding sections explain whose citizenship counts and how to find it. But people change domicile, and partnerships gain and lose members, so a court also needs to know the date on which to look. The answer is the date the action is filed. Citizenship is measured then, not when the claim arose and not at any later stage. The rule therefore works in both directions: a move before filing can create diversity, while a move after filing can neither create it nor destroy it. This section takes the rule and its reason first, then the narrow way a defect can still be cured, and finally the limits on engineering diversity before filing.

Measuring at Filing

Diversity of citizenship must exist when the suit is instituted. It need not have existed when the cause of action arose, and it is not defeated by changes in citizenship after filing.¹ The Supreme Court has long put the principle this way: "the jurisdiction of the court depends upon the state of things at the time of the action brought."² Because the test looks only at the filing date, it applies the same way whether the challenge arrives shortly after filing, after trial, or for the first time on appeal.³

The rule cuts differently depending on which way a party moves. Suppose a driver who lived in Ohio when an accident occurred moves to Michigan before filing and then sues an Ohio defendant in federal court. Diversity exists, because the driver's domicile on the filing date is Michigan.⁴ The motive does not matter, so long as the move is a genuine change of domicile and the person does not plan to return home once the lawsuit is over.⁵ Now reverse the timing. Imagine a Virginia defendant sued by a New York plaintiff who then moves to New York after the complaint is filed. Diversity was complete when the action began, so the later move changes nothing.⁶ The mirror image also holds. If the parties were co-citizens at filing, a later change in domicile cannot create diversity.⁷

The leading illustration is Grupo Dataflux v. Atlas Global Group. Atlas, a Texas limited partnership, sued Grupo Dataflux, a Mexican corporation, for breach of contract, alleging diversity between a Texas citizen and a citizen of Mexico.⁸ Under the rule that a partnership takes the citizenship of every partner, Atlas was a Mexican citizen on the filing date because two of its limited partners were Mexican. Aliens therefore stood on both sides, and diversity was absent. The Mexican partners withdrew a month before trial, and the jury returned a $750,000 verdict. Only then did Dataflux move to dismiss.⁹ The Court held that the departure of the Mexican partners could not cure the defect, and the verdict fell with the case.¹⁰

The reason for so costly a result is that a filing-date test gives certainty. A court can ask a single question about facts fixed on a single day, and no litigant can later reopen the answer by moving. The Court had applied the rule regardless of cost before, dismissing a case in Anderson v. Watt that had been pending for about five and a half years and had already produced a decree and a sale.¹¹ The Fifth Circuit in Dataflux had tried to carve out an exception for cases where nobody noticed the defect until after verdict and the defect had been cured before then. The Supreme Court refused, because an efficiency exception would have an indeterminate scope. It would also contradict the settled principle that the parties' litigation conduct cannot expand a court's subject-matter jurisdiction.¹² Justice Ginsburg, dissenting, would have preserved the verdict because the defect was gone before trial began, while accepting that post-filing changes cannot divest jurisdiction that existed at the start.¹³

Curing by Dropping a Party

The filing-date rule has one narrow route around it, and the route turns on a distinction that is easy to blur. A change in a party's citizenship cannot cure a defect that existed at filing. The dismissal of a dispensable nondiverse party can. Federal Rule of Civil Procedure 21 lets a court drop parties at any stage, and it is well settled that this authority extends to dropping a dispensable nondiverse party even after judgment, which courts of appeals may do as well.¹⁵ If the nondiverse party is indispensable, meaning the case cannot fairly proceed without that party, the court cannot rescue jurisdiction this way and must dismiss.¹⁶

In Caterpillar Inc. v. Lewis the case was removed even though one plaintiff and one defendant shared Kentucky citizenship. Before trial that defendant settled and was dismissed, and the jury trial then produced a judgment for the remaining defendant. The Court let the judgment stand, because the dismissal had converted incomplete diversity into complete diversity among the parties who remained.¹⁷ The same logic appears in a hypothetical in which a corporate defendant is found, just before trial, to have its principal place of business in the plaintiff's state. The court cannot hear the case as framed, but it may drop that defendant and continue against the diverse ones.¹⁸

The difference between the two situations explains why Dataflux came out as it did. Atlas was one plaintiff, an artificial entity whose citizenship is determined by looking through to all of its partners. The Mexican partners were not parties who could be dismissed, so their withdrawal changed the identity of no party. It only changed the citizenship of the single plaintiff after the fact, and no judicial order to drop a spoiler was even possible.¹⁹ A parallel limit applies to new parties joined after the suit begins. If a New Jersey plaintiff suing a New York corporation later joins a New Jersey co-defendant, diversity is tested again at the joinder and the new party must be dropped.²⁰ The only difference between the cured and uncured cases is whether the defect was removed by dropping a dispensable party or by a mere change in someone's citizenship.

Manufactured Diversity

Because a genuine move before filing counts, litigants have an incentive to engineer diversity by other means, and Congress answered with 28 U.S.C. § 1359. It denies jurisdiction over a civil action in which a party, "by assignment or otherwise," has been "improperly or collusively made or joined to invoke the jurisdiction of such court."²² In Kramer v. Caribbean Mills, Inc. the Court held that an assignment made only for collection and motivated by a desire to obtain diversity falls within the "very core" of the statute.²³ The Court did not disturb the line of decisions holding that an absolute transfer, in which the transferor keeps no interest in the claim, is not collusive whatever the reason for it.²⁴

A matched pair shows where the line falls. Suppose a plaintiff in State A, who cannot sue a State A defendant in federal court, hands the claim to a friend in State B for collection and keeps most of the recovery. The assignment is a device, because the real party in interest has not changed, and § 1359 removes jurisdiction. If the plaintiff instead sells the claim outright for its value and keeps no stake, the buyer is the real owner of the claim, and the assignment is not collusive even though the buyer's citizenship was convenient.

The same concern once arose with court-appointed representatives, because naming an out-of-state administrator or guardian could manufacture diversity. Congress resolved the problem in 28 U.S.C. § 1332(c)(2) by deeming the legal representative of an estate to be a citizen only of the decedent's state, and the representative of an infant or incompetent a citizen only of that person's state.²⁵ The statute removes any reason to choose a representative for citizenship purposes. A change of domicile remains the only lawful route to a new citizenship, and it must be a bona fide change.²⁶