Post-Removal Changes in the Party Structure of Diversity Cases: The Old Law, the New Law, and Rule 19

Abstract:     
A petition for writ of certiorari in Steel Valley Authority v. Union Switch & Signal Division, 809 F.2d 1006 (3d Cir. 1987), presented to the Court the question whether a district court had authority to remand to the state court a case that had been properly removed on diversity grounds but in which the plaintiff, after removal, had amended the complaint to join a nondiverse defendant. In Steel Valley, the court of appeals found the nondiverse defendant to be indispensable, although the original defendants, petitioners to the Supreme Court, contended that plaintiff had asserted no substantive claims or colorable causes of action against the nondiverse party it had joined as a defendant. The opportunity to decide whether to hear Steel Valley was taken from the Court, however, when the case was settled. The termination of the case meant continued life for the issues that it raised.

Those issues had plagued the lower federal courts. The issues included: (1) how the district courts should respond to requests to add, or unilateral addition, “as of course,” of, nondiverse parties after removal; (2) the effects of such joinder on federal subject-matter jurisdiction and, conversely, the effects that the limits on federal subject-matter jurisdiction should have on the handling of such proposed and actual changes in party structure; (3) whether the nondiverse persons in question were, “indispensable,”' and the importance of that finding; (4) the implications of the previous determinations for the propriety of remanding actions to state court or of dismissing them; and (5) the implications of the decision to remand or to dismiss for appellate reviewability of the district court's decisions. These issues concern the jurisdiction, powers, and discretion of the federal courts. They broadly implicate our federalism and, in particular, the continued viability of the federal courts' diversity jurisdiction within the context of removal.

Congress recognized the importance of these issues, passing new legislation in November 1988 to guide federal courts faced with postremoval proposals to add nondiverse defendants. This article will explore the problems of statutory construction, case construction, and policy with which the courts have been struggling and will evaluate Congress's recent effort to aid the courts. It will consider the underlying questions the new legislation touches, the adequacy with which the legislation responds to those questions, the issues that remain, and the new or modified problems that the legislation creates.

Number of Pages in PDF File: 93

Keywords: removal of actions, diversity jurisdiction

JEL Classification: K00, K10, K40, K41

Accepted Paper Series