New Law Takes Effect Regarding Venue, Removal

For all the litigators out there, a reminder that The Federal Courts Jurisdiction and Venue Clarification Act of 2011, H.R. 394, P.L. 112-63. took effect last week.  The act amends the federal jurisdictional statutes regarding diversity jurisdiction (28 U.S.C. § 1332), venue (28 U.S.C. §§ 1390-92, 1404), and removal (28 U.S.C. §§ 1441, 1446, 1454).  Legislative history here.

Among its provision, the new act states that, with respect to diversity, the district courts shall not have original jurisdiction of any civil action between citizens of a state, and citizens or subjects of a foreign state who are lawfully admitted for permanent residence in the United States and are domiciled in the same state.

It modifies the citizenship rules to treat corporations as citizens of any foreign state: (1) by which it has been incorporated, and (2) where it has its principal place of business. It treats insurers as citizens of any foreign state: (1) of which the insured is a citizen, (2) by which the insurer has been incorporated, and (3) where the insurer has its principal place of business.

The law now dictates that, upon removal of any civil action with both removable and non-removable claims, the district court shall sever from the action all non-removable claims and remand them to the state court from which the action was removed.  So no discretion to hold on to such claims.

The law prescribes revised requirements for filing notices of removal, including allowing statements in the notice of the amount in controversy, when it exceeds the necessary amount, if the initial pleading seeks: (1) non-monetary relief; or (2) a money judgment, but where the relevant state practice either does not permit demand for a specific sum or permits recovery of damages in excess of the amount demanded. Removal of the action is proper on the basis of an amount in controversy asserted this way,  if the district court finds, by the preponderance of the evidence, that the amount in controversy exceeds the amount required.

Importantly, the law now allows removal of a case based on diversity of citizenship more than one year after commencement of the action if the district court finds that the plaintiff has acted in bad faith in order to prevent a defendant from removing the action.  This deals with a common plaintiff tactic in mass torts, such as the inclusion of a treater simply to defeat diversity. In 1988, Congress amended the statute to prohibit the removal of diversity cases more than one year after their commencement. This change was intended to encourage prompt determination of issues of removal in diversity proceedings, and it sought to avoid the disruption of state court proceedings that might occur when changes in the case made it subject to removal. The change, however, led some plaintiffs to adopt removal-defeating strategies designed to keep the case in state court until after the 1-year deadline passed. In those situations, some courts have viewed the 1-year time limit as `jurisdictional' and therefore an absolute limit on the district court's jurisdiction.

The new venue provision requires the issue of proper venue of any civil action brought in a U.S. district court to be determined without regard to whether the action is local or transitory in nature. It repeals the "local action" rule that any civil action, of a local nature, involving property located in different districts in the same state, may be brought in any of such districts.  It also allows a district court to transfer a civil action to any district or division to which all parties have consented.

Significantly, the act resolves a circuit split regarding the time each defendant in a multi-defendant case has to file a notice of removal. Traditionally, the defendant had 30 days from receipt of the plaintiff’s complaint to file a notice of removal.  But in multi-defendant cases, some courts have adopted the “first-served” rule, under which each defendant in a case had 30 days from the date on which the first defendant was served, while others adopted the “later-served” rule, which gives each defendant a 30-day period to file a notice of removal after that defendant is served.  The new law adopts the latter view (but keeps the unanimity rule.)

Second Circuit Upholds Dismissal of Alien Tort Statute Claim Against Corporate Defendants

A federal appeals court last week dismissed claims that defendants including Royal Dutch Shell PLC aided alleged human rights abuses in Nigeria, ruling that corporations cannot be found liable under the Alien Tort Statute.  See Kiobel, et al. v. Royal Dutch Petroleum Co. et al., No. 06-cv-4800 (2d Cir., Sept. 17, 2010).

Plaintiffs asserted claims for aiding and abetting violations of the law of nations against defendants —all of which are corporations— under the Alien Tort Statute (“ATS”), 28 U.S.C. § 1350,
a statute enacted by the first Congress as part of the Judiciary Act of 1789. The court called it a jurisdictional provision unlike any other in American law and of a kind apparently unknown to any other legal system in the world. The ATS laid largely dormant for over 170 years. Judge Friendly called it a “legal Lohengrin” since “no one seems to know whence it came.”  

Then, in the early 1980's, the statute was given new life, when courts first recognized that the ATS provides jurisdiction over (1) tort actions, (2) brought by aliens (only), (3) for violations of the law of nations (also called “customary international law,” 3) including, as a general matter, war crimes and crimes against humanity—crimes in which the perpetrator can be called “hostis humani generis, an enemy of all mankind.” Since that time, the ATS has given rise to an abundance of litigation in U.S. district courts. For most of that time, aliens brought ATS suits in U.S. courts only against notorious foreign individuals.  This case involved one of the key unresolved issues since the ATS was reinvigorated: Does the jurisdiction granted by the ATS extend to civil actions brought against corporations under the law of nations?

Plaintiffs were residents of Nigeria who claimed that Dutch, British, and Nigerian corporations engaged in oil exploration and production aided and abetted the Nigerian government in
committing violations of the law of nations. Their suit could proceed only if the ATS provides jurisdiction over tort actions brought against corporations under customary international law.  The district court dismissed the claim, and the Second Circuit reviewed de novo the dismissal for failure to state a claim, see Fed. R. Civ. P. 12(b)(6), assuming all well-pleaded, nonconclusory factual allegations in the complaint to be true.  The court noted that the substantive law that  determines jurisdiction under the ATS is neither the domestic law of the United States nor the domestic law of any other country.  By conferring subject matter jurisdiction over a limited number of offenses defined by international law, the ATS requires federal courts to look beyond rules of domestic law —however well-established they may be— to examine the specific and universally accepted rules that the nations of the world treat as binding in their dealings with one another.  The ATS thus leaves the question of the nature and scope of liability —who is liable for what— to customary international law.  Whether a defendant is liable under the ATS depends entirely upon whether that defendant is subject to liability under international law. It is inconceivable, said the court of appeals, that a defendant who is not liable under customary international law could be liable under the ATS. 

Customary international law includes only those standards, rules or customs affecting the relationship between states or between an individual and a foreign state, and used by those states for their common good and/or in dealings inter se.  The Second Circuit concluded, after exhaustive review, that the principle of individual liability for violations of international law has been limited to natural persons —not “juridical” persons such as corporations— because the moral responsibility for a crime so heinous and unbounded as to rise to the level of an “international crime” has rested solely with the individual men and women who have perpetrated it. Quoting the Nuremberg tribunal's explanation for individual liability for violations of international law:  “Crimes against international law are committed by men, not by abstract entities, and only by punishing individuals who commit such crimes can the provisions of international law be enforced.”  Indeed, said the Second Circuit, international law has steadfastly rejected the notion of corporate liability for international crimes, and no international tribunal has ever held a corporation liable for a violation of the law of nations.

The court concluded, therefore, that insofar as plaintiffs were bringing claims under the ATS against corporations, the plaintiffs failed to allege violations of the law of nations, and plaintiffs’ claims fell outside the limited jurisdiction provided by the ATS.

The majority felt the need to address the lengthy, and surprisingly strident, dissent.  The majority observed that the responsibility of establishing a norm of customary international law lies with those wishing to invoke it, and in the absence of sources of international law endorsing (or refuting) a norm, the norm simply cannot be applied in a suit grounded on customary international law under the ATS. Thus, even if there were, as the dissent argued, an absence of sources of international law addressing corporate liability, that supposed lack of authority would actually support the majority holding.  As it happens, no corporation has ever been subject to any form of liability under the customary international law of human rights, and thus the ATS, the remedy Congress has chosen, simply does not confer jurisdiction over suits against corporations.

The majority also noted the "passion" with which the dissent disagreed with the holding, as it called the majority “illogical” on nine separate occasions, “strange,” and “internally inconsistent.”  More than 200 years ago, Chief Justice John Marshall began the practice of announcing the judgment of the Supreme Court in a single opinion. This, in turn, led to formal dissenting opinions, which can serve a valuable purpose in the law. But one of the most famous dissents in legal history was by Justice Oliver Wendell Holmes in Lochner v. New York, 198 U.S. 45 (1905), when a majority of the Court struck down a state regulation limiting the hours someone could work in a bakery. The dissent began with a different tone: "I regret sincerely that I am unable to agree with the judgment in this case and that I think it my duty to express my dissent." Id. at 65.  Not quite the approach here.

 

Seventh Circuit Issues Forum Non Conveniens Ruling

The Seventh Circuit has affirmed a district court's ruling which dismissed Taiwanese plaintiffs' claims against blood product manufacturers on statute of limitations and forum non conveniens grounds. Chang v. Baxter Healthcare Corp., 2010 WL 1136521 (7th Cir. 3/26/10).

Because my colleague Dave Walk was part of the winning defense team, just the facts here without alot of commentary. 

The case was filed originally in California by residents of Taiwan but transferred by the multidistrict panel to the district court in Illinois with the other suits in the clotting-factor mass tort for pretrial proceedings.  The main tort claim was that the defendants acquired blood from "high-risk" donors, processed it improperly in California where they manufactured clotting factors, and after discovering that the factors were contaminated by HIV nevertheless continued to distribute the product in foreign countries (while withdrawing them from distribution in the United States). Thus, plaintiffs in this case, or the hemophiliac decedents whom they represented, in fact resided, and obtained and injected the clotting factor, in a foreign country.

The court addressed first the claims that were dismissed as untimely. The critical issue so far as these dismissals on the merits were concerned, said the court, was choice of law. When a diversity case is transferred by the multidistrict litigation panel, the law applied is that of the jurisdiction from which the case was transferred, in this case California. The California statutes of limitations don't begin to run until the plaintiff discovers, or should in the exercise of reasonable diligence have discovered, that he has a claim against the defendant.  But this discovery rule, even if applicable, would not save the plaintiffs' tort claims from dismissal for untimeliness. Plaintiffs argued that they didn't have enough information on which to base a suit until a New York Times article about the contamination of clotting factors with HIV was published on May 22, 2003, and therefore that their suit, filed in 2004, was timely.  But as the district court found, the plaintiffs had a reasonable basis to suspect that they had a cause of action more than five years before the article appeared, when their counsel actually had begun negotiations with two of the defendants to settle negligence claims arising from the alleged contamination of the defendants' clotting factors with HIV. (These negotiations culminated in the settlement in 1998 on which the plaintiffs' breach of contract claim was based.)

The plaintiffs argued that the limitations period should have been tolled by defendants' “fraudulent concealment” because when entering into the settlement agreement they claimed that they had done nothing wrong and that they were offering financial aid purely as a humanitarian gesture. The plaintiffs were mistaken in this. Denial of liability when negotiating a settlement agreement is the norm; it is not evidence of fraudulent concealment of anything.

The district court was also correct in ruling in the alternative that a California court would apply the Taiwanese 10-year statute of repose, because the plaintiffs' tort claims arose under Taiwanese law. The hemophiliacs whom the plaintiffs represented were infected in the 1980s, more than a decade before these suits were brought. If the plaintiffs' tort claims arose in Taiwan, California law makes the Taiwanese statute of repose applicable to those claims. The reason is California's “borrowing” statute, which is sensibly designed to discourage forum shopping, would bar the action in California if it would have been barred in Taiwan. The plaintiffs tried to argue that their claims arose in California, not Taiwan, because it was in California that the defendants allegedly failed to process their clotting factors in a way that would prevent contamination by HIV. But generally there is no tort without an injury. That is the rule in California.  And the injury alleged occurred in Taiwan.

Turning to the claims that the district court dismissed not as untimely but on the basis, rather, of forum non conveniens, the court noted that the contract was negotiated and signed in Taiwan.  The key language at issue, the so-called scale-up clause, was ambiguous.  Evidence beyond the language of the settlement agreement would be necessary to "disambiguate the clause," said the court, and it seemed that most of the persons who are in a position to give such evidence live in Taiwan, including the plaintiffs' Taiwanese counsel who negotiated the settlement, a Taiwanese patient representative, members of the Taiwanese department of health, defendants' Taiwanese outside counsel, and an employee of defendants in Taiwan.

Taiwanese law makes it difficult to gather evidence for use in a trial in a foreign country because Taiwan is not a party to the Convention on the Taking of Evidence Abroad in Civil or Commercial Matters; the alternative method of obtaining evidence in a foreign country, sending a letter rogatory to the foreign court, seemed to not be a very satisfactory means of obtaining evidence.  So this important factor pointed to Taiwan. The only circumstance that would favor holding the trial in California rather than in Taiwan would be the greater convenience for the defendants, since they are American companies. But as they didn't want the case to be tried in California, or indeed anywhere else in the United States, really there was nothing in favor of the American forum, said the court. When application of the doctrine of forum non conveniens would send the plaintiffs to their home court, the presumption in favor of giving plaintiffs their choice of court is little more than a tie breaker.  But, said the panel, "there is no tie here."