Plaintiff's Own Withdrawal Of Federal Claim Ends Jurisdiction Over State Claim

In addition to claims that fall within specific federal subject-matter jurisdiction, federal courts also are permitted to hear state-law claims pled as part of the same case. See 28 U.S.C. § 1367 (the doctrine of supplemental jurisdiction).

It is well-established that if a defendant successfully moves to dismiss all of the claims for which federal jurisdiction exists, leaving only claims based on state law, the district court has the discretion to dismiss the state-law claims (which the plaintiff then might be able to assert in state court). District courts frequently do just that. See, e.g., Sanchez & Daniels v. Koresko, No. 07-1228, 2007 WL 2757761 (7th Cir. Sept. 24, 2007) (district court properly terminated case after dismissing all claims over which it had original jurisdiction).

The Eleventh Circuit recently considered a case in which the termination of all federal claims occurred by plaintiff’s voluntary amendment of the complaint. In contrast to the discretionary standard applicable after granting of a Rule 12 motion, in Pintando v Miami-Dade Housing Agency, 501 F.3d 1241 (11th Cir. Sept. 25, 2007), the court found that when a party voluntarily withdraws all claims over which the district court had original jurisdiction, the judge is required to dismiss the case. Analogizing to Rockwell Int’l Corp. v. Unites States, 127 S. Ct. 1397 (2007) [covered in a previous post], the court held that the withdrawal of allegations in an amended complaint which had formed the basis of federal jurisdiction defeats jurisdiction altogether, and the case cannot continue in federal court.

Thus, if confronted with a situation like this one, a district court may grant a motion for leave to amend, and then must immediately dismiss the case for lack of federal jurisdiction.

“Original Source” Rule Disqualifying Some Claims Does Not Bar Remaining Claims

I recently reported on the U.S. Supreme Court’s consideration of the jurisdictional nature of the “original source” rule in the False Claims Act. See Rockwell Int’l Corp. v. United States, 127 S. Ct. 1397 (2007), discussed here. The Tenth Circuit recently faced a similar issue.

In United States ex rel. Boother v. Sun Healthcare Group, Inc., 496 F.3d 1169 (10th Cir. Aug. 7, 2007), the Tenth Circuit considered whether a relator bringing a qui tam action alleging several counts could proceed even if some of the counts lacked jurisdiction due to the “original source” rule. The court held as a matter of first impression that a deficiency in one claim does not preclude jurisdiction over all other claims joined in the same lawsuit.

The district court had dismissed the case after finding a jurisdictional defect in three claims. However, following the model of Rockwell Int’l Corp., the appellate court remanded the case for an independent jurisdictional analysis of each of the remaining claims.

U.S. Supreme Court Holds False Claims Act “Original Source” Rule Is Jurisdictional

In Rockwell Int’l Corp. v. United States, 127 S. Ct. 1397 (U.S. Mar. 27, 2007), the Supreme Court noted that the False Claims Act, 31 U.S.C. §§ 3729, et seq., eliminated federal court jurisdiction over qui tam actions brought by a private party “relator” based upon the public disclosure of allegations reported in the news media unless such party is “an original source of the information.” In this case, a former Rockwell engineer named James Stone brought a qui tam action alleging that Rockwell knowingly employed a defective system for disposing of toxic waste, and the Government intervened. Ultimately the case proceeded to trial and the jury found in part for Stone, and the lower courts affirmed.

The Supreme Court reversed for lack of jurisdiction, finding that Stone was not the “original source” of the information upon which the claims were based. The Court held that where claims are brought based on publicly disclosed information, a relator’s status as the original source of that information is jurisdictional and must be considered de novo even where, as argued here, the defendant conceded the issue. Here, Stone had informed Rockwell that its system was faulty due to a defective piping system, but the final pretrial order (which superseded the pleadings), and all the proofs at trial, concerned an entirely different defect. Because Stone had no independent knowledge of the defect that actually was at stake, the district court lacked jurisdiction over the matter.

Voluntary Dismissal For Lack Of Jurisdiction Not With Prejudice Under Rule 41(a)(1)

The Seventh Circuit has clarified the interaction between Fed.R.Civ.P. 41(a)(1) and 12(h)(3).

In Murray v. Conseco, Inc., 467 F.3d 602 (7th Cir. Oct. 25, 2006), defendants moved to dismiss for failure to state a claim and for lack of subject-matter jurisdiction. Plaintiffs conceded the jurisdictional point and filed a “notice of consent to dismiss.” Defendants convinced the district court that this was both a voluntary dismissal under Rule 41(a)(1) and also the second time plaintiffs dismissed, and therefore the dismissal was required to be with prejudice under that rule.

On appeal, the Seventh Circuit reversed because this was not a voluntary dismissal within the definition of Rule 41(a)(1) due to its being filed later in the proceedings. Instead, plaintiff was complying with the mandate that the court be advised as soon as becoming aware of jurisdictional problems. The court’s dismissal was made in compliance with Rule 12(h)(3), not Rule 41(a)(1), and the two-dismissal rule was not implicated.

State Taxpayers Lack Standing To Challenge State Tax Or Spending Decisions

The U.S. Supreme Court historically has restricted the standing of plaintiffs suing the federal government to invoke Article III “case or controversy” jurisdiction merely based on their status as taxpayers.

In DaimlerChrysler Corp. v. Cuno, No. 04-1704 (May 15, 2006), the Court extended that jurisprudence to cases involving state taxpayers suing state governments to challenge state tax or spending decisions.

Moreover, while the Court has permitted municipal residents to sue municipalities to challenge the illegal use of public funds by the municipal corporation, the Court held that such precedents did not confer standing on municipal residents to challenge state tax or spending decisions.

Litigants May Not Defend Against Opponents' Claims By Filing Separate Lawsuits Seeking To Stay Them

Some litigants believe the best defense is a good offense. However, the Seventh Circuit recently confirmed that a "good offense" does not include filing a separate lawsuit seeking a stay of the first.

In Buntrock v. SEC, No. 03-1890, 2003 WL 22442993 (7th Cir. Oct. 29, 2003), the SEC authorized its legal staff to bring a civil complaint in federal court against Dean Buntrock charging him with violations of federal securities laws. Buntrock filed his own lawsuit against the SEC, seeking to stay the SEC's filing of a case against him; when the SEC actually filed its case (Buntrock had not sought an injunction), Buntrock amended his complaint to seek a stay of the SEC's case. Both cases were consolidated, and on the SEC's motion the court dismissed Buntrock's case for lack of subject-matter jurisdiction.

The Seventh Circuit affirmed the dismissal because Buntrock's case had "no basis in law or common sense." The jurisprudence of federal jurisdiction includes a line of cases holding that a plaintiff's case might be so completely frivolous that it does not even trigger the jurisdiction of the federal courts. The Seventh Circuit found this to be such a case. One reason for disallowing such a tactic is that defendant's approach would "turn every case in which there is a defense into two cases." The rules of federal procedure provide litigants with the opportunity to present their defenses in a single action. Put simply, if you have a defense to a plaintiff's claims, you must plead it in the case plaintiff has filed.

Another, more technical, approach is that Buntrock has an adequate remedy at law -- to interpose his defense in the SEC's case -- and is unable to satisfy the prerequisites for equitable relief, i.e., a stay. While Buntrock argued that his remedy was not adequate because he would have to go through a whole trial, and the purpose of his complaint was to prevent that, the Seventh Circuit held that did not render his remedy inadequate as a matter of law.