IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 99-20878
ERROL P. HOWERY,
Plaintiff-Appellant,
versus
ALLSTATE INSURANCE CO.,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of Texas
February 28, 2001
Before KING, Chief Judge, and HIGGINBOTHAM and DUHÉ, Circuit
Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
Errol Howery’s home burned down. When he demanded payment
from his insurer, Allstate Insurance Company, it refused, accusing
him of arson. Howery filed suit in Texas state court. After more
than two years, as the case was approaching trial, Allstate removed
this case to federal court, asserting federal question
jurisdiction. The district court denied Howery’s motion to remand.
After another year of litigation in federal court, a jury agreed
with Allstate.
Howery appealed, challenging federal subject-matter
jurisdiction and the district court’s refusal to remand. Because
Howery’s complaint does not raise a federal question and the record
fails to establish diversity of the parties, we vacate the judgment
of the district court and remand with instructions to dismiss for
lack of jurisdiction.
I
A
Errol Howery owned a townhome that he insured against fire
with Allstate Insurance Company. When Howery’s home burned down,
he filed a claim with Allstate. Allstate refused to pay, convinced
that Howery had committed arson.
On March 5, 1996, Howery filed suit against Allstate in a
state court of general jurisdiction in Texas. During the next two
and a half years, Howery filed ten amended complaints. Only in the
last was there any reference to federal law. In his Tenth Amended
Complaint, which he filed August 11, 1998, Howery mentioned for the
first time “Federal Trade Commission rules, regulations, and
statutes.”
Allstate filed a notice of removal on August 20, 1998,
asserting that Howery’s complaint raised a federal question.
Allstate did not allege the existence of diversity jurisdiction nor
state the citizenship of the parties.1 The case was removed to the
United States District Court for the Southern District of Texas.
After Howery deleted the reference to federal law in his complaint,
he moved for remand, which the district court denied. The court
1
Allstate alleged that the case was “not removable as originally
filed”—thereby disclaiming the existence of diversity.
2
also denied Howery’s subsequent motion to amend his complaint to
add federal claims.
The case proceeded on Howery’s claim of bad faith denial of
insurance coverage and breach of contract. The court granted
summary judgment for Allstate on the bad faith claim, and after
trial a jury sustained Allstate’s defense of arson. The court
entered judgment against Howery.
Howery filed an appeal of the judgment on September 3, 1999.
Howery argued that there was no federal question, and thus no
jurisdiction; he further argued that the district court abused its
discretion in refusing to remand the case to state court. Briefing
of the appeal was completed almost a year later, and oral arguments
were scheduled for January 8, 2001. At oral argument, counsel for
Allstate raised for the first time the issue of diversity
jurisdiction.
B
Howery’s tenth amended complaint is the center of the dispute
over federal question jurisdiction. It alleged, in relevant part:
The acts, omissions, and other wrongful conduct of Allstate
complained of in this petition constituted unconscionable
conduct or unconscionable course of conduct, and false,
misleading, or deceptive acts or practices. As such, Allstate
violated the Texas Deceptive Trade Practices Act, Sections
17.46, et seq., and the Texas Insurance Code, including
articles 21.21, 21.21-1, 21.55, and the rules and regulations
promulgated thereunder, specifically including 28 TAC Section
21.3, et seq. and 21.203.
. . .
Allstate’s destruction of [Howery’s] file . . . constituted a
further violation of the Texas Deceptive Trade Practices Act,
for which plaintiff sues for recovery. Allstate also engaged
3
in conduct in violation of the Federal Trade Commission rules,
regulations, and statutes by obtaining Plaintiff’s credit
report in a prohibited manner, a further violation of the
Texas Deceptive Trade Practices Act. . . .
As a further basis for this claim and further evidencing
Allstate’s statutory and common law violations, Howery would
show that Allstate has sought to profit from its denial of his
claim.
The complaint does not contain allegations of diversity or
lack of diversity. It states that Howery is a citizen of Texas,
but does not allege the citizenship of Allstate.
II
Federal courts are courts of limited jurisdiction.2 We must
presume that a suit lies outside this limited jurisdiction, and the
burden of establishing federal jurisdiction rests on the party
seeking the federal forum.3 In this case, Allstate invoked the
jurisdiction of the federal courts by removing Howery’s state court
case to federal court. Allstate must prove that federal
jurisdiction existed at the time of removal,4 or, at the very
least, have alleged facts prior to the entry of judgment in this
case that establish federal subject-matter jurisdiction.5 Without
2
Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994).
3
Id.; see also Stafford v. Mobil Oil Corp., 945 F.2d 803, 804 (5th Cir.
1991) (“The burden of proving that complete diversity exists rests upon the party
who seeks to invoke the court’s diversity jurisdiction.”) (quoting Getty Oil
Corp. v. Ins. Co. of N. Am., 841 F.2d 1254, 1259 (5th Cir. 1988)).
4
See Texas Beef Group v. Winfrey, 201 F.3d 680, 686 (5th Cir. 2000).
5
See Caterpillar Inc. v. Lewis, 519 U.S. 61, 73, 75 (1996); H&D Tire &
Automotive-Hardware, Inc. v. Pitney Bowes Inc., 227 F.3d 326, 328 (5th Cir. 2000)
(“Even if a court lacks jurisdiction at the time of removal and regardless of
whether there was an objection to the removal, the judgment will stand if the
court had jurisdiction at the time it entered judgment. If, however, the court
4
the presence of such facts in the record, a federal court does not
have jurisdiction over the case.6
It is true that Caterpillar v. Lewis7 holds that improper
removal does not automatically nullify a subsequent federal court
judgment when the record establishes that the defect in federal
jurisdiction was cured before judgment,8 but Caterpillar merely
forgives “untimely compliance” with the removal statute;9 it still
requires that jurisdiction be established by the time judgment was
entered.10 We therefore examine the record of this case to
determine whether the facts or allegations in the record establish
the existence of subject-matter jurisdiction at the time of removal
or, at the latest, at the time of judgment. At the same time, we
need not address the denial of the motion to remand if the district
court lacked subject-matter jurisdiction.
lacked jurisdiction both at the time of removal and judgment, the judgment cannot
stand.”) (citations omitted); Texas Beef Group, 201 F.3d at 686.
6
See B., Inc. v. Miller Brewing Co., 663 F.2d 545, 548 (5th Cir. Unit A
1981) (“Where a federal court proceeds in a matter without first establishing
that the dispute is within the province of controversies assigned to it by the
Constitution and statute, the federal tribunal poaches upon the territory of a
coordinate judicial system, and its decisions, opinions, and orders are of no
effect.”).
7
519 U.S. 61 (1996).
8
Id. at 64.
9
Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 43
(1998).
10
See Caterpillar, 519 U.S. at 76-77 (“[I]f, at the end of the day and
case, a jurisdictional defect remains uncured, the judgment must be vacated. .
. . In this case, however, no jurisdictional defect lingered through judgment
in the District Court.”).
5
III
A
We first consider federal question jurisdiction. Federal
district courts have jurisdiction over cases “arising under the
Constitution, laws, or treaties of the United States.”11 In
determining whether a case “arises under federal law” we look to
whether the “plaintiff’s well-pleaded complaint raises issues of
federal law.”12
The general rule for determining whether a case raises a
federal question was announced by Justice Holmes in American Well
Works Co. v. Layne & Bowler Co.13: a “suit arises under the law that
creates the cause of action.”14 This famous formulation actually
serves better to include than to exclude federal cases,15 however,
in that claims created by state law often incorporate federal
standards or require the interpretation of federal law. That is,
the claim arises from state law but may turn on a question of
11
28 U.S.C. § 1331 (2000).
12
City of Chicago v. Int’l College of Surgeons, 522 U.S. 156, 163 (1997)
(quoting Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987)). Federal
question jurisdiction over a case removed from state court also depends on the
well-pleaded complaint rule. See Merrell Dow Pharmaceuticals Inc. v. Thompson,
478 U.S. 804, 808 (1986). “[T]he plaintiff’s well-pleaded complaint, not the
removal petition, must establish that the case arises under federal law.” Willy
v. Coastal Corp., 855 F.2d 1160, 1165 (5th Cir. 1988). The burden of
establishing jurisdiction rests on the party seeking removal. See id. at 1164.
13
241 U.S. 257 (1916).
14
Id. at 260.
15
See Franchise Tax Bd. v. Constr. Laborers Vacation Trust for S. Cal.,
463 U.S. 1, 9 (1983).
6
federal law embedded in the matrix of state law. But when this
federal question will sustain “arising under” jurisdiction is the
question. These cases are not answered by Holmes’s formulation.
In Gully v. First National Bank in Meridian,16 Justice Cardozo
offered one answer: “To bring a case within the [federal question
jurisdiction] statute, a right or immunity created by the
Constitution or laws of the United States must be an element, and
an essential one, of the plaintiff’s cause of action. The right or
immunity must be such that it will be supported if the Constitution
or laws of the United States are given one construction or effect,
and defeated if they receive another.”17 This was later refined in
Franchise Tax Board,18 which insisted that the embedded federal
question be substantial.19 Under American Well Works,
a complaint creates federal question jurisdiction when it states a
claim created by the Constitution or laws of the United States.
Under Gully and Franchise Tax Board, the complaint also creates
federal question jurisdiction when it states a cause of action
created by state law and (1) a federal right is an essential
16
299 U.S. 109 (1936).
17
Id. at 112 (citations omitted).
18
Franchise Tax Bd. v. Constr. Laborers Vacation Trust for S. Cal., 463
U.S. 1 (1983).
19
Id. at 13 (“[O]riginal federal jurisdiction is unavailable unless it
appears that some substantial, disputed question of federal law is a necessary
element of one of the well-pleaded state claims.”); see also Willy v. Coastal
Corp., 855 F.2d 1160, 1168 (5th Cir. 1988).
7
element of the state claim, (2) interpretation of the federal right
is necessary to resolve the case,20 and (3) the question of federal
law is substantial. Ultimately, whether a federal issue embedded
in the matrix of a state law claim will support federal question
jurisdiction entails a pragmatic assessment of the nature of the
federal interest at stake—a view embraced by two giants in this
field.21 Allstate argues that Howery’s complaint states a claim
created by federal law. In the alternative, Allstate claims that
Howery’s reference to federal law creates federal question
jurisdiction under Gully and Franchise Tax Board.
B
Allstate first argues that by mentioning the rules,
regulations, and statutes of the FTC, Howery is stating a claim
under the federal Fair Credit Reporting Act.22 A fair reading of
the complaint, however, makes clear that it was not invoking the
FCRA to state a federal claim. Howery’s mention of the FTC rules,
regulations, and statutes falls in the middle of a list of alleged
Allstate actions that Howery alleged were “further violation[s]” of
the Texas Deceptive Trade Practices Act.23 From its context, it
20
Even if a federal right is an element of the state claim, if differing
interpretations of the federal right would not affect the outcome of the case,
there is no federal question jurisdiction.
21
See David L. Shapiro, Jurisdiction and Discretion, 60 N.Y.U. L. Rev.
543, 568-69 (1985); Charles Alan Wright, Law of Federal Courts § 17, at 96 (4th
ed. 1983).
22
See 15 U.S.C. § 1681 et seq. (2000).
23
Tex. Bus. & Com. Code § 17.41 et seq. (2001).
8
appears that Howery’s mention of federal law merely served to
describe types of conduct that violated the DTPA, not to allege a
separate cause of action under the FCRA. This conclusion is
bolstered by the fact that the complaint explicitly alleges that
Allstate violated specific sections of the DTPA and Texas Insurance
Code and regulations, but makes no explicit mention of any specific
federal statute or regulation.
C
Federal jurisdiction is sustainable then only if Howery’s DTPA
claim requires resolution of a substantial question of federal law.
Allstate must show that (1) a federal right is an essential element
of Howery’s state claim, (2) interpretation of the federal right is
necessary to resolve the case, and (3) the question of federal law
is substantial. Allstate fails all three prongs of the test.
First, no federal right is an essential element of Howery’s
DTPA claim. The DTPA forbids a wide range of conduct, prohibiting
“[f]alse, misleading, or deceptive acts or practices in the conduct
of any trade or commerce”24 and enumerating a long list of specific
practices that violate the DTPA.25 Conduct that violates the FCRA
could possibly fall within the broad scope of the DTPA. But a
24
Tex. Bus. & Com. Code § 17.46(a).
25
Tex. Bus. & Com. Code § 17.46(b). The private right of action under the
DTPA is limited to recovery for injuries caused by conduct listed in this
subsection. See Tex. Bus. & Com. Code § 17.50.
9
violation of the FCRA is not an element of the DTPA; the statute
itself explicitly disclaims such a construction.26
Second, interpretation of a federal right is not necessary to
this case. Since no federal right is an element of Howery’s state
claim, no federal right needs to be interpreted. Even if a
violation of the FCRA were an element of a DTPA claim, Howery’s
complaint alleges that the FCRA violation is one of many alternate
grounds for finding a violation of the DTPA. As an alternate
theory supporting a single claim, the federal question is not a
necessary element of the state claim, and thus does not create
federal question jurisdiction. The Supreme Court has employed this
reasoning in the patent context in Christianson v. Colt Industries
Operating Corp.27
Allstate argues that Christianson is no longer the law.28 We
disagree. Christianson’s principle that a suit does not create
federal question jurisdiction when the federal question appears
only in an alternative argument for relief flows directly from the
holding in Gully that interpretation of the federal question must
be necessary to resolve the case. This principle recognizes that
26
“A violation of a provision of law other than this subchapter [the DTPA]
is not in and of itself a violation of this subchapter.” Tex. Bus. & Com. Code
§ 17.43.
27
486 U.S. 800, 809-810 (1988).
28
Allstate argues that Christianson should be confined to apply only to
its specific context in the area of patent law. This court has already rejected
such a narrow reading of Christianson. See Willy v. Coastal Corp., 855 F.2d 1160,
1170-71 (5th Cir. 1988) (applying Christianson to a non-patent law context).
10
Gully defines and narrows the class of cases in which there is
federal question jurisdiction when a claim arises from state law.29
An expansive interpretation of the federal question statute to
allow federal courts to assert jurisdiction over cases with
tangential and inessential federal components would step upon the
authority of state courts to decide state law and ignore the
capacity of state courts to decide questions of federal law. It
would allow a federal tail to wag the state dog. Franchise Tax
Board recognized as much with its insistence that the federal
question be substantial before a federal court takes jurisdiction
over a case stating only state law claims.30
Third, for reasons that are now wholly evident, the federal
question in this case is not “substantial.” The state law issues
overwhelm the federal law issues. No federal question jurisdiction
exists in this case.
IV
Allstate did not suggest the presence of diversity
jurisdiction until almost five years after Howery filed suit; and
it never raised the issue before the district court. It is true
that subject-matter jurisdiction cannot be created by waiver or
consent. It is equally true that federal courts must address
29
See Oliver v. Trunkline Gas Co., 796 F.2d 86, 88 (5th Cir. 1986)
(characterizing Franchise Tax Board as describing “narrow exceptions” to the rule
of American Well Works).
30
See Franchise Tax Board, 463 U.S. at 13.
11
jurisdictional questions whenever they are raised and must consider
jurisdiction sua sponte if not raised by the parties.31
The parties have rights to choice of forum. Exercising that
right should carry no pejorative cost of “forum shopping.” That
said, that Allstate did not remove for reason of diversity at the
outset was either an inadvertence or a tactical decision. Either
way, Allstate is not an attractive beneficiary of a last minute
save of jurisdiction. If that circumstance controlled the
decision, it is easily answered. But that is not the teaching of
Caterpillar.32 Rather, our concern is to bring an end in the most
efficient way possible to this case, if the federal courts have the
power to do so.33
The burden of establishing federal jurisdiction rests on the
party seeking the federal forum. For diversity jurisdiction, the
party asserting federal jurisdiction must “distinctly and
affirmatively allege[ ]” the citizenship of the parties.34 “Failure
adequately to allege the basis for diversity jurisdiction mandates
31
Kidd v. Southwest Airlines, Co., 891 F.2d 540, 546 (5th Cir. 1990).
32
See Caterpillar v. Lewis, 519 U.S. at 75-78.
33
See id. at 77 (“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.”).
34
Stafford, 945 F.2d at 804 (quoting McGovern v. American Airlines, Inc.,
511 F.2d 653, 654 (5th Cir. 1975)); see also Whitmire v. Victus Limited T/A
Master Design Furniture, 212 F.3d 885, 887 (5th Cir. 2000); Getty Oil Corp. v.
Ins. Co. of N. Am., 841 F.2d 1254, 1259 (5th Cir. 1988) (noting that the rule
that citizenship must be distinctly and affirmatively alleged requires “strict
adherence”).
12
dismissal.”35 Allstate thus bears the burden of establishing
diversity; if it fails to meet that burden, we cannot presume the
existence of federal jurisdiction.
Allstate has never pleaded diversity of the parties. It
suggested that the parties were diverse for the first time at oral
argument before this court. We nonetheless will overlook
Allstate’s failure to plead diversity if Allstate can identify
allegations and evidence in the record demonstrating diversity.
This court allows parties to cure “technical defects or failure to
specifically allege the citizenship of a party . . . in the
appellate courts,”36 but only when the amendment “would do nothing
more than state an alternative jurisdictional basis for recovery
upon the facts previously alleged.”37 In other words, when the
record establishes the diversity of the parties, but the party
asserting federal jurisdiction has failed to specifically plead
that the parties are diverse, we allow that party to amend its
pleadings to correct for their technical deficiency.38 Yet, if
there is no evidence of diversity on the record, we cannot find
35
Stafford, 945 F.2d at 805.
36
Whitmire v. Victus Limited T/A Master Design Furniture, 212 F.3d 885,
888 (5th Cir. 2000).
37
Id. (emphasis added and internal quotation marks omitted).
38
See Stafford, 945 F.2d at 805-06; 28 U.S.C.A. § 1653 (2000).
13
diversity jurisdiction, and we must dismiss the action for lack of
jurisdiction.39
Allstate argues that the record establishes that Howery and
Allstate are diverse. It points to the federal pretrial order; to
Allstate’s answers to Howery’s amended complaints in federal court;
and to Allstate’s Certificate of Counsel with Notice of Disclosure
of Interested Persons, which it filed with its Notice of Removal.
The federal pretrial order makes no statements about the
citizenship, place of incorporation, or principal place of business
of Allstate. It merely states that Howery is a resident of
Houston, Texas, and that Allstate has subjected itself to the
personal jurisdiction of the court.
Allstate’s answers to Howery’s federal complaints specifically
deny the allegations of Howery’s complaints that Allstate “is a
domestic insurance carrier.” They admit the allegation that Howery
is a citizen of Texas. They make no other statements relevant to
diversity jurisdiction.
39
See Stafford, 945 F.2d at 806. Allstate asserted at oral argument that
our cases allow parties to present evidence in support of jurisdictional claims
on appeal. This is incorrect. As we have explained above, facts establishing
jurisdiction must have been alleged at the time judgment was entered. The case
cited by Allstate, Whitmire, 212 F.3d at 888, says as much. See also
Caterpillar, 519 U.S. at 76-77; cf. Getty Oil Corp. v. Ins. Co. of North America,
841 F.2d 1254, 1260 (5th Cir. 1988) (remanding to district court to rule on the
existence of diversity jurisdiction in the first instance, given that the record
was unclear). Of course, prior to judgment, a party may amend its pleadings to
allege omitted jurisdictional facts. See, e.g., D.J. McDuffie, Inc. v. Old
Reliable Fire Ins. Co., 608 F.2d 145, 146 (5th Cir. 1979) (affirming a finding
of diversity jurisdiction when the defendant, prior to judgment, amended its
removal petition to specifically allege the citizenship of the parties).
14
Allstate’s Certificate of Counsel with Notice of Disclosure of
Interested Persons lists Allstate as an interested person and
provides an Illinois address.40 It states that Allstate was formed
and incorporated under the laws of Illinois. It also notes that
“[t]he Texas Department of Insurance characterizes Allstate
Insurance Company as a foreign, stock, casualty and property
insurance company.” It makes no other statements relating to
jurisdiction.
As a corporation, Allstate is a citizen of two states: its
state of incorporation, and the state of its principal place of
business.41 The portions of the record cited by Allstate establish
that Howery is a citizen of Texas and that Allstate is incorporated
in Illinois, and thus a citizen of Illinois. This is not the end
of the inquiry, however. Diversity of parties must be complete,42
and therefore Allstate must establish that Allstate’s principal
place of business is not Texas.
Determining a corporation’s principal place of business is a
factual inquiry dependent on a number of factors. The “total
activity” test that this circuit applies is expounded upon at
40
It also lists Howery and provides a Texas address.
41
See 28 U.S.C. § 1332(c)(1) (2000).
42
See Lowe v. Ingalls Shipbuilding, A Div. of Litton Systems, Inc., 723
F.2d 1173, 1177 (5th Cir. 1984); see also Strawbridge v. Curtiss, 7 U.S. (3
Cranch) 267, 267 (1806).
15
length in J.A. Olson Co. v. City of Winona.43 This test is a
synthesis of the “place of activity” and “nerve center” tests some
courts have employed.44 Essentially, “[w]e look to the nature,
location, importance, and purpose of a corporation’s activities and
the degree to which those activities bring the corporation into
contact with the local community.”45
The record in this case lacks such evidence of Allstate’s
principal place of business. The portions of the record cited by
Allstate prove only (1) that Allstate has a mailing address in
Illinois and (2) that Allstate is a “foreign” insurance company, as
designated by the Texas Department of Insurance. Unfortunately for
Allstate, the designation “foreign” by the Texas Department of
Insurance merely indicates that the company was incorporated in
another state.46 From the record, we have no inkling as to
Allstate’s principal place of business.
43
818 F.2d 401, 404-10 (5th Cir. 1987).
44
See id. at 406, 409.
45
See Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138
F.3d 160, 164 (5th Cir. 1998).
46
See Tex. Ins. Code art. 3.01 § 6 (defining “foreign company”). In our
own review of the record, we find indirect disavowals of diversity jurisdiction
by Allstate. In its removal-related motions, Allstate repeatedly asserts that
there was no basis for removal until Howery filed his tenth amended complaint.
This claim necessarily implies the absence of diversity jurisdiction. By taking
this position, Allstate avoided a remand to state court based on its failure to
remove the case within thirty days of the filing of Howery’s original complaint.
See 28 U.S.C. § 1446(b) (2000) (prohibiting removal more than thirty days after
the filing of a pleading that states a removable case).
16
Whether for tactical reasons or out of mere inadvertence,
Allstate has failed to plead or to present evidence of diversity of
the parties at any point in this case’s odyssey through state and
federal court. The record fails to establish federal jurisdiction
at either the time of removal or at the time of judgment.
V
Howery’s tenth amended complaint does not raise a federal
question that will support federal question jurisdiction. The
record does not contain allegations or evidence of diversity of the
parties. We then lack jurisdiction over this case and we need not
address Howery’s challenge to the district court’s refusal to
remand. We VACATE the judgment of the district court and REMAND
this case to the district court with instructions to DISMISS the
case for lack of jurisdiction.
17