CIVIL PROCEDURE

CASES, MATERIALS, AND QUESTIONS

FIFTH EDITION

2010 Letter Update

RICHARD D. FREER
Robert Howell Hall Professor of Law
Emory University School of Law
Atlanta, Georgia

WENDY COLLINS PERDUE

Professor of Law
Georgetown University Law Center
Washington, D.C.

LEXISNEXIS

1
 2010 Update Memorandum

This memorandum was prepared by Richard Freer and Wendy Perdue for the benefit of
students and faculty. The closing date for materials was June 30, 2010. Permission is
granted to distribute copies free of charge to students in classes using the casebook.

TABLE OF CONTENTS
Note on Changes to Computation of Time .....................................................................4

CHAPTER 3: NOTICE AND OPPORTUNITY TO BE HEARD ……………..…6

PART B: NOTICE
SECTION 1. THE CONSTITUTIONAL REQUIREMENT …….…..6

CHAPTER 4: SUBJECT MATTER JURISDICTION ............................................7

PART C: FEDERAL COURTS

SECTION 3. DIVERSITY OF CITIZENSHIP JURISDICTION …….7
d. DETERMINING CITIZENSHIP OF ENTITIES
The Hertz Corporation v. Friend …………………………………….. 7
Notes and Questions ………………………………………………….. 15
Note on Non-Incorporated Businesses ……………………………….. 16
SECTION 6: REMOVAL JURISDICTION ………………………… 16

CHAPTER 7: PLEADINGS ........................................................................................17

PART C: THE COMPLAINT

SECTION 1 REQUIREMENTS ............................................................17
Note on Iqbal ..........................................................................................17
Questions .................................................................................................21
SECTION 3: AMENDED PLEADINGS ………………………………22
PART D: DEFENDANT‘S OPTIONS IN RESPONSE ………………………22
SECTION 4: DEFAULT AND DEFAULT JUDGMENT …………… 22
PART E: AMENDED PLEADINGS ………………………………………….22
SECTION 1: BASIC PRINCIPLES UNDER RULE 15(a) …………...22
SECTION 3: AMENDMENT AND STATUTE OF LIMITATIONS ..23

CHAPTER 9: ADJUDICATION ……………………………………………………24

PART A: THE RIGHT TO A JURY ………………………………………….24
PART D: CONTROLLING AND SECOND-GUESSING JURIES ………….24

CHAPTER 10: WHAT LAW APPLIES IN FEDERAL COURT ………………...25

PART B: DETERMINING WHAT LAW APPLIES …………………………25

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CHAPTER 11: THE PRECLUSION DOCTRINES ................................................27

PART C: ISSUE PRECLUSION

SECTION 6. AGAINST WHOM CAN ISSUE PRECLUSION BE
ASSERTED?........................................................................................27

CHAPTER 12: SCOPE OF LITIGATION ...............................................................31

PART F: OVERRIDING PLAINTIFF‘S PARTY STRUCTURE …………..31

SECTION 2. NECESSARY AND INDISPENSABLE PARTIES ……31

CHAPTER 14: APPEALS …………………………………………………………..32

PART B: APPELLATE JURISDICTION IN THE FEDERAL COURTS ……32

SECTION 2. COLLATERAL ORDER DOCTRINE ….……………..32
SECTION 5: RULE 54(b)………………………………………………32
SECTION 7: APPEALABILITY OF DISCOVERY ORDERS . . . . ….33
PART E: REVIEW OF JUDGMENTS OUTSIDE OF THE APPELLATE
PROCESS ……………………………………………………………….33

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 NOTE ON CHANGES TO COMPUTATION OF TIME

Effective December 1, 2009, the Federal Rules changed the method for computing time
and various time limits. The changes affected these Rules:

• Civil Rules 6, 12, 14, 15, 23, 27, 32, 38, 50, 52, 53, 54, 55, 56, 59, 62, 65, 68,
71.1, 72, 81; Supplemental Rules B, C, and G; and Illustrative Civil Forms 3, 4,
and 60; and

• Appellate Rules 4, 5, 6, 10, 12, 15, 19, 25, 26, 27, 28.1, 30, 31, 39, and 41;

• Bankruptcy Rules 1007, 1011, 1019, 1020, 2002, 2003, 2006, 2007, 2007.2, 2008,
2015, 2015.1, 2015.2, 2015.3, 2016, 3001, 3015, 3017, 3019, 3020, 4001, 4002,
4004, 6003, 6004, 6006, 6007, 7004, 7012, 8001, 8002, 8003, 8006, 8009, 8015,
8017, 9006, 9027, and 9033;

• Criminal Rules 5.1, 7, 12.1, 12.3, 29, 33, 34, 35, 41, 45, 47, 58, 59, and Rules 8 of
the Rules Governing §§ 2254 and 2255 Cases.

The Rules Advisory Committee explained the reasons for the changes in the Committee
Note to the proposed amendments to Fed. R. Civ. P. 6:

Subdivision (a)(1). . . .

Under former Rule 6(a), a period of 11 days or more was

computed differently than a period of less than 11 days. Intermediate
Saturdays, Sundays, and legal holidays were included in computing the
longer periods, but excluded in computing the shorter periods. Former
Rule 6(a) thus made computing deadlines unnecessarily complicated and
led to counterintuitive results. For example, a 10-day period and a 14-day
period that started on the same day usually ended on the same day — and
the 10-day period not infrequently ended later than the 14-day period. . . .

Under new subdivision (a)(1), all deadlines stated in days (no

matter the length) are computed in the same way. The day of the event
that triggers the deadline is not counted. All other days — including
intermediate Saturdays, Sundays, and legal holidays — are counted, with
only one exception: If the period ends on a Saturday, Sunday, or legal
holiday, then the deadline falls on the next day that is not a Saturday,
Sunday, or legal holiday. An illustration is provided below in the
discussion of subdivision (a)(5). Subdivision (a)(3) addresses filing
deadlines that expire on a day when the clerk‘s office is inaccessible.

....

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 Periods previously expressed as less than 11 days will be shortened
as a practical matter by the decision to count intermediate Saturdays,
Sundays, and legal holidays in computing all periods. Many of those
periods have been lengthened to compensate for the change. See, e.g.,
Rule 14(a)(1).

Most of the 10-day periods were adjusted to meet the change in

computation method by setting 14 days as the new period. A 14-day
period corresponds to the most frequent result of a 10-day period under the
former computation method — two Saturdays and two Sundays were
excluded, giving 14 days in all. A 14-day period has an additional
advantage. The final day falls on the same day of the week as the event
that triggered the period — the 14th day after a Monday, for example, is a
Monday. This advantage of using week-long periods led to adopting 7-
day periods to replace some of the periods set at less than 10 days, and 21-
day periods to replace 20-day periods. Thirty-day and longer periods,
however, were generally retained without change.

Changes Made after Publication and Comment

....
(2) Civil Rules Time Provisions

Many Civil Rules containing specific time periods shorter than 11

days were published for comment on amendments extending the time
periods to account for the impact of changing to a computation method
that includes every day, abandoning the former practice of excluding
intermediate Saturdays, Sundays, and legal holidays. As set out below, it
is recommended that all of the proposals be adopted as published except
for Rules 50, 52, and 59. The proposals to extend the time for motions
under Rules 50, 52, and 59 from 10 days to 30 days have been scaled back
to a 28-day period. The 28-day period was chosen in coordination with
the Appellate Rules Committee to recognize the inconveniences that
would arise from adopting the same 30-day period as the deadline for
filing notices of appeal in most civil actions.

....

Effective December 1, 2010, unless Congress intervenes, FRCP 8(c), 26, and 56 will be
amended. The amendment to Rule 8(c) deletes ―discharge in bankruptcy‖ as an
affirmative defense.
The amendments to Rule 26 generally make work product protection available to draft
reports by testifying expert witnesses. The amendment to Rule 56 changes the practice
for presenting and ruling upon motions for summary judgment but do not change the
standard for granting the motion. These were thought necessary to regularize practice,
which had balkanized through local rules.

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CHAPTER 3: NOTICE AND OPPORTUNITY TO BE HEARD
B. NOTICE
1. THE CONSTITUTIONAL REQUIREMENT

At p. 150, add to the end of n.5:

You should note that while actual receipt of notice is not always constitutionally
necessary, it is constitutionally sufficient. See United Student Aid Funds Inc. v.
Espinosa, 130 S.Ct. 1367, 1378 (2010). However, as you will see in the next section,
there may be statutory requirements concerning the manner and form of notice that go
beyond the constitutional minimum.

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 CHAPTER 4: SUBJECT MATTER JURISDICTION
PART C: DETERMINING CITIZENSHIP OF ENTITIES
i. CORPORATIONS

At pages 194-199, replace J.A. Olson Co. v. City of Winona and Notes and
Questions with:

Congress passed § 1332(c)(1) in 1958. Before that, federal courts treated

corporations as citizens of the state(s) in which they were incorporated. But corporations
are often incorporated in states in which they do essentially no business. Indeed, most of
the Fortune 500 companies are incorporated in Delaware (to take advantage of what
historically has been thought pro-management business law). Their primary activity,
however, is not in that state. Because diversity of citizenship jurisdiction is apparently
aimed at allowing access to federal court to avoid fear of local bias, the state-of-
incorporation definition of citizenship is under-inclusive. For example, a Delaware
corporation that only does business in California, in theory, need not fear local bias of
California state courts. It should be deemed a citizen of California.

Section 1332(c)(1) reflected that concern. It deems a corporation to be a citizen

of ―any‖ state where incorporated. It is possible for a corporation to incorporate in more
than one state. Because of the word ―any‖ in § 1332(c)(1), such a business would be a
citizen of each state in which it did so. This is mostly a theoretical issue, though, because
today there are only a handful of companies that actually incorporate in more than one
state.

Section 1332(c)(1) provides that a corporation is also a citizen of ―the‖ state in

which it has its principal place of business. The word ―the‖ implies that there can only be
one principal place of business. No corporation can have more than one principal place
of business. The problem is that the statute gives no clue what that place is. Lower
federal courts wrestled with the issue for decades. Some emphasized the place where
business decisions are made – the ―nerve‖ center. Some emphasized the place where the
company engaged in more activity than anywhere else – the ―muscle‖ center. Most used
a combination of the two under the ―total activities‖ test. After 52 years of uncertainty,
the Supreme Court finally defined the statutory term in the following case.

THE HERTZ CORPORATION v. FRIEND

Supreme Court of the United States
130 S. Ct. 1181 (2010)

JUSTICE BREYER delivered the opinion of the Court.

The federal diversity jurisdiction statute provides that "a corporation shall be
deemed to be a citizen of any State by which it has been incorporated and of the State
where it has its principal place of business." 28 U.S.C. § 1332(c)(1) (emphasis added).
We seek here to resolve different interpretations that the Circuits have given this phrase.
In doing so, we place primary weight upon the need for judicial administration of a
jurisdictional statute to remain as simple as possible. And we conclude that the phrase

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"principal place of business" refers to the place where the corporation's high level officers
direct, control, and coordinate the corporation's activities. Lower federal courts have
often metaphorically called that place the corporation's "nerve center." We believe that
the "nerve center" will typically be found at a corporation's headquarters.
I
[Two employees of the Hertz Corporation – Friend and Nhieu – sued Hertz for
alleged violation of California‘s wage and hour laws. They sought to bring a class action
on behalf of other Californians who had allegedly suffered the same harm. Friend and
Nhieu were citizens of California. The issue is whether Hertz‘s principal place of
business was in California. If it were, there would be no diversity jurisdiction.
It may seem odd, but in this case the plaintiffs are not trying to invoke diversity.
They wanted to sue in state court. Under the doctrine of ―removal jurisdiction‖ – which
we will address in § 6 of this Chapter – a defendant sued in state court may ―remove‖ the
case to federal court. It may do so, though, only if the case invokes federal subject matter
jurisdiction. Hertz did not want to litigate in state court and removed it to federal court.
This procedural posture does not change the diversity-of-citizenship analysis. As you
read the case, however, remember that it is the defendant (not the plaintiff) who is
arguing in favor of diversity. Specifically, Hertz is arguing that its principal place of
business is not in California.]
* * * Hertz claimed that the plaintiffs and the defendant were citizens of different
States. Hence, the federal court possessed diversity-of-citizenship jurisdiction. Friend and
Nhieu, however, claimed that the Hertz Corporation was a California citizen, like
themselves, and that, hence, diversity jurisdiction was lacking.
To support its position, Hertz submitted a declaration by an employee relations
manager that sought to show that Hertz's "principal place of business" was in New Jersey,
not in California. The declaration stated, among other things, that Hertz operated
facilities in 44 States; and that California — which had about 12% of the Nation's
population — accounted for 273 of Hertz's 1,606 car rental locations; about 2,300 of its
11,230 full-time employees; about $811 million of its $4.371 billion in annual revenue;
and about 3.8 million of its approximately 21 million annual transactions, i.e., rentals.
The declaration also stated that the "leadership of Hertz and its domestic subsidiaries" is
located at Hertz's "corporate headquarters" in Park Ridge, New Jersey; that its "core
executive and administrative functions . . . are carried out" there and "to a lesser extent"
in Oklahoma City, Oklahoma; and that its "major administrative operations . . . are
found" at those two locations.
The District Court of the Northern District of California accepted Hertz's
statement of the facts as undisputed. But it concluded that, given those facts, Hertz was a
citizen of California. In reaching this conclusion, the court applied Ninth Circuit
precedent, which instructs courts to identify a corporation's "principal place of business"
by first determining the amount of a corporation's business activity State by State. If the
amount of activity is "significantly larger" or "substantially predominates" in one State,
then that State is the corporation's "principal place of business." If there is no such State,
then the "principal place of business" is the corporation's "'nerve center,'" i.e., the place
where "'the majority of its executive and administrative functions are performed.'"

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 Applying this test, the District Court found that the "plurality of each of the
relevant business activities" was in California, and that "the differential between the
amount of those activities" in California and the amount in "the next closest state" was
"significant." Hence, Hertz's "principal place of business" was California, and diversity
jurisdiction was thus lacking. * * *
* * * The Ninth Circuit affirmed in a brief memorandum opinion. Hertz filed a
petition for certiorari. And, in light of differences among the Circuits in the application of
the test for corporate citizenship, we granted the writ. Compare Tosco Corp., supra, at
500-502, and Capitol Indemnity Corp. v. Russellville Steel Co., 367 F.3d 831, 836 (CA8
2004) (applying "total activity" test and looking at "all corporate activities"), with
Wisconsin Knife Works, supra, at 1282 (applying "nerve center" test).
II
[The Court here concluded that the lower court orders were appealable.]
III
We begin our "principal place of business" discussion with a brief review of
relevant history. The Constitution provides that the "judicial Power shall extend" to
"Controversies . . . between Citizens of different States." Art. III, § 2. This language,
however, does not automatically confer diversity jurisdiction upon the federal courts.
Rather, it authorizes Congress to do so and, in doing so, to determine the scope of the
federal courts' jurisdiction within constitutional limits.
Congress first authorized federal courts to exercise diversity jurisdiction in 1789
when, in the First Judiciary Act, Congress granted federal courts authority to hear suits
"between a citizen of the State where the suit is brought, and a citizen of another State." §
11, 1 Stat. 78. The statute said nothing about corporations. In 1809, Chief Justice
Marshall, writing for a unanimous Court, described a corporation as an "invisible,
intangible, and artificial being" which was "certainly not a citizen." Bank of United States
v. Deveaux, 9 U.S. 61, 5 Cranch 61, 86, 3 L. Ed. 38 (1809). But the Court held that a
corporation could invoke the federal courts' diversity jurisdiction based on a pleading that
the corporation's shareholders were all citizens of a different State from the defendants, as
"the term citizen ought to be understood as it is used in the constitution, and as it is used
in other laws. That is, to describe the real persons who come into court, in this case,
under their corporate name." Id., at 91-92, 5 Cranch 61, 86, 3 L. Ed. 38.
In Louisville, C. & C. R. Co. v. Letson, 43 U.S. 497, 2 How. 497, 11 L. Ed. 353
(1844), the Court modified this initial approach. It held that a corporation was to be
deemed an artificial person of the State by which it had been created, and its citizenship
for jurisdictional purposes determined accordingly. Id., at 558-559, 2 How. 497, 11 L.
Ed. 353. Ten years later, the Court in Marshall v. Baltimore & Ohio R. Co., 57 U.S. 314,
16 How. 314, 14 L. Ed. 953 (1854), held that the reason a corporation was a citizen of its
State of incorporation was that, for the limited purpose of determining corporate
citizenship, courts could conclusively (and artificially) presume that a corporation's
shareholders were citizens of the State of incorporation. Id., at 327-328, 16 How. 314, 14
L. Ed. 953. And it reaffirmed Letson. 16 How., at 325-326, 14 L. Ed. 953. Whatever the

9
rationale, the practical upshot was that, for diversity purposes, the federal courts
considered a corporation to be a citizen of the State of its incorporation.
In 1928 this Court made clear that the "state of incorporation" rule was virtually
absolute. It held that a corporation closely identified with State A could proceed in a
federal court located in that State as long as the corporation had filed its incorporation
papers in State B, perhaps a State where the corporation did no business at all.
Subsequently, many in Congress and those who testified before it pointed out that this
interpretation was at odds with diversity jurisdiction's basic rationale, namely, opening
the federal courts' doors to those who might otherwise suffer from local prejudice against
out-of-state parties. Through its choice of the State of incorporation, a corporation could
manipulate federal-court jurisdiction, for example, opening the federal courts' doors in a
State where it conducted nearly all its business by filing incorporation papers elsewhere.
* * * Although various legislative proposals to curtail the corporate use of diversity
jurisdiction were made, none of these proposals were [sic] enacted into law.
At the same time as federal dockets increased in size, many judges began to
believe those dockets contained too many diversity cases. A committee of the Judicial
Conference of the United States studied the matter. * * *
Among its observations, the committee found a general need "to prevent frauds
and abuses" with respect to jurisdiction. The committee recommended against
eliminating diversity cases altogether. Instead it recommended, along with other
proposals, a statutory amendment that would make a corporation a citizen both of the
State of its incorporation and any State from which it received more than half of its gross
income. If, for example, a citizen of California sued (under state law in state court) a
corporation that received half or more of its gross income from California, that
corporation would not be able to remove the case to federal court, even if Delaware was
its State of incorporation.
During the spring and summer of 1951 committee members circulated their report
and attended circuit conferences at which federal judges discussed the report's
recommendations. Reflecting those criticisms, the committee filed a new report in
September, in which it revised its corporate citizenship recommendation. It now proposed
that "'a corporation shall be deemed a citizen of the state of its original creation . . . [and]
shall also be deemed a citizen of a state where it has its principal place of business.'" * *
* The committee wrote that this new language would provide a "simpler and more
practical formula" than the "gross income" test. It added that the language "ha[d] a
precedent in the jurisdictional provisions of the Bankruptcy Act."
In mid-1957 the committee presented its reports to the House of Representatives
Committee on the Judiciary. [During committee hearings, one witness, Judge Maris,
discussed ―principal place of business‖ as it had been interpreted in bankruptcy cases:]

* * * I think the courts have generally taken the view that where a
corporation's interests are rather widespread, the principal place of
business is an actual rather than a theoretical or legal one. It is the actual
place where its business operations are coordinated, directed, and carried
out, which would ordinarily be the place where its officers carry on its

10
 day-to-day business, where its accounts are kept, where its payments are
made, and not necessarily a State in which it may have a plant, if it is a big
corporation, or something of that sort.
But that has been pretty well worked out in the bankruptcy cases,
and that law would all be available, you see, to be applied here without
having to go over it again from the beginning."
* * * Subsequently, in 1958, Congress both codified the courts' traditional place
of incorporation test and also enacted into law a slightly modified version of the
Conference Committee's proposed "principal place of business" language. A corporation
was to "be deemed a citizen of any State by which it has been incorporated and of the
State where it has its principal place of business."
IV
The phrase "principal place of business" has proved more difficult to apply than
its originators likely expected. Decisions under the Bankruptcy Act did not provide the
firm guidance for which Judge Maris had hoped because courts interpreting bankruptcy
law did not agree about how to determine a corporation's "principal place of business." *
**
After Congress' amendment, courts were similarly uncertain as to where to look to
determine a corporation's "principal place of business" for diversity purposes. If a
corporation's headquarters and executive offices were in the same State in which it did
most of its business, the test seemed straightforward. The "principal place of business"
was located in that State. See, e.g., Long v. Silver, 248 F.3d 309, 314-315 (CA4 2001);
Pinnacle Consultants, Ltd. v. Leucadia Nat. Corp., 101 F.3d 900, 906-907 (CA2 1996).
But suppose those corporate headquarters, including executive offices, are in one
State, while the corporation's plants or other centers of business activity are located in
other States? In 1959 a distinguished federal district judge, Edward Weinfeld, relied on
the Second Circuit's interpretation of the Bankruptcy Act to answer this question in part:

Where a corporation is engaged in far-flung and varied activities which

are carried on in different states, its principal place of business is the nerve
center from which it radiates out to its constituent parts and from which its
officers direct, control and coordinate all activities without regard to
locale, in the furtherance of the corporate objective. The test applied by
our Court of Appeals, is that place where the corporation has an 'office
from which its business was directed and controlled' -- the place where
―all of its business was under the supreme direction and control of its
officers.‖ Scot Typewriter Co., 170 F. Supp. , at 865.

Numerous Circuits have since followed this rule, applying the "nerve center" test
for corporations with "far-flung" business activities. * * *
Scot's analysis, however, did not go far enough. For it did not answer what courts
should do when the operations of the corporation are not "far-flung" but rather limited to

11
only a few States. When faced with this question, various courts have focused more
heavily on where a corporation's actual business activities are located.
Perhaps because corporations come in many different forms, involve many
different kinds of business activities, and locate offices and plants for different reasons in
different ways in different regions, a general "business activities" approach has proved
unusually difficult to apply. Courts must decide which factors are more important than
others: for example, plant location, sales or servicing centers; transactions, payrolls, or
revenue generation.
The number of factors grew as courts explicitly combined aspects of the "nerve
center" and "business activity" tests to look to a corporation's "total activities," sometimes
to try to determine what treatises have described as the corporation's "center of gravity."
A major treatise confirms this growing complexity, listing Circuit by Circuit, cases that
highlight different factors or emphasize similar factors differently, and reporting that the
"federal courts of appeals have employed various tests" -- tests which "tend to overlap"
and which are sometimes described in "language" that "is imprecise." 15 Moore's §
102.54[2], at 102-112. See also id., §§ 102.54[2], [13], at 102-112 to 102-122
(describing, in 14 pages, major tests as looking to the "nerve center," "locus of
operations," or "center of corporate activities"). Not surprisingly, different circuits (and
sometimes different courts within a single circuit) have applied these highly general
multifactor tests in different ways. Id., §§ 102.54[3]-[7], [11]-[13] (noting that the First
Circuit "has never explained a basis for choosing between 'the center of corporate
activity' test and the 'locus of operations' test"; the Second Circuit uses a "two-part test"
similar to that of the Fifth, Ninth, and Eleventh Circuits involving an initial determination
as to whether "a corporation's activities are centralized or decentralized" followed by an
application of either the "place of operations" or "nerve center" test; the Third Circuit
applies the "center of corporate activities" test searching for the "headquarters of a
corporation's day-to-day activity"; the Fourth Circuit has "endorsed neither [the 'nerve
center' or 'place of operations'] test to the exclusion of the other"; the Tenth Circuit
directs consideration of the "total activity of the company considered as a whole"). See
also 13F Wright & Miller § 3625 (describing, in 73 pages, the "nerve center," "corporate
activities," and "total activity" tests as part of an effort to locate the corporation's "center
of gravity," while specifying different ways in which different circuits apply these or
other factors).
This complexity may reflect an unmediated judicial effort to apply the statutory
phrase "principal place of business" in light of the general purpose of diversity
jurisdiction, i.e., an effort to find the State where a corporation is least likely to suffer
out-of-state prejudice when it is sued in a local court, Pease v. Peck, 59 U.S. 595, 18
How. 595, 599, 15 L. Ed. 518 (1856). But, if so, that task seems doomed to failure. After
all, the relevant purposive concern -- prejudice against an out-of-state party -- will often
depend upon factors that courts cannot easily measure, for example, a corporation's
image, its history, and its advertising, while the factors that courts can more easily
measure, for example, its office or plant location, its sales, its employment, or the nature
of the goods or services it supplies, will sometimes bear no more than a distant relation to
the likelihood of prejudice. At the same time, this approach is at war with administrative

12
simplicity. And it has failed to achieve a nationally uniform interpretation of federal law,
an unfortunate consequence in a federal legal system.
V
A
In an effort to find a single, more uniform interpretation of the statutory phrase,
we have reviewed the Courts of Appeals' divergent and increasingly complex
interpretations. * * * We conclude that "principal place of business" is best read as
referring to the place where a corporation's officers direct, control, and coordinate the
corporation's activities. It is the place that Courts of Appeals have called the corporation's
"nerve center." And in practice it should normally be the place where the corporation
maintains its headquarters -- provided that the headquarters is the actual center of
direction, control, and coordination, i.e., the "nerve center," and not simply an office
where the corporation holds its board meetings (for example, attended by directors and
officers who have traveled there for the occasion).
Three sets of considerations, taken together, convince us that this approach, while
imperfect, is superior to other possibilities. First, the statute's language supports the
approach. The statute's text deems a corporation a citizen of the "State where it has its
principal place of business. " 28 U.S.C. § 1332(c)(1). The word "place" is in the singular,
not the plural. The word "principal" requires us to pick out the "main, prominent" or
"leading" place. 12 Oxford English Dictionary 495 (2d ed. 1989) (def. (A)(I)(2)). And the
fact that the word "place" follows the words "State where" means that the "place" is a
place within a State. It is not the State itself.
A corporation's "nerve center," usually its main headquarters, is a single place.
The public often (though not always) considers it the corporation's main place of
business. And it is a place within a State. By contrast, the application of a more general
business activities test has led some courts, as in the present case, to look, not at a
particular place within a State, but incorrectly at the State itself, measuring the total
amount of business activities that the corporation conducts there and determining whether
they are "significantly larger" than in the next-ranking State.
This approach invites greater litigation and can lead to strange results, as the
Ninth Circuit has since recognized. Namely, if a "corporation may be deemed a citizen of
California on th[e] basis" of "activities [that] roughly reflect California's larger
population . . . nearly every national retailer -- no matter how far flung its operations --
will be deemed a citizen of California for diversity purposes." Davis v. HSBC Bank Nev.,
N. A., 557 F.3d 1026, 1029-1030 ([9th Cir.] 2009). But why award or decline diversity
jurisdiction on the basis of a State's population, whether measured directly, indirectly
(say proportionately), or with modifications?
Second, administrative simplicity is a major virtue in a jurisdictional statute.
Complex jurisdictional tests complicate a case, eating up time and money as the parties
litigate, not the merits of their claims, but which court is the right court to decide those
claims. Complex tests produce appeals and reversals, encourage gamesmanship, and,
again, diminish the likelihood that results and settlements will reflect a claim's legal and
factual merits. Judicial resources too are at stake. Courts have an independent obligation

13
to determine whether subject-matter jurisdiction exists, even when no party challenges it.
So courts benefit from straightforward rules under which they can readily assure
themselves of their power to hear a case.
Simple jurisdictional rules also promote greater predictability. Predictability is
valuable to corporations making business and investment decisions. Cf. First Nat. City
Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 621, 103 S. Ct. 2591,
77 L. Ed. 2d 46 (1983) (recognizing the "need for certainty and predictability of result
while generally protecting the justified expectations of parties with interests in the
corporation"). Predictability also benefits plaintiffs deciding whether to file suit in a state
or federal court.
A "nerve center" approach, which ordinarily equates that "center" with a
corporation's headquarters, is simple to apply comparatively speaking. The metaphor of a
corporate "brain," while not precise, suggests a single location. By contrast, a
corporation's general business activities more often lack a single principal place where
they take place. That is to say, the corporation may have several plants, many sales
locations, and employees located in many different places. If so, it will not be as easy to
determine which of these different business locales is the "principal" or most important
"place."
Third, the statute's legislative history, for those who accept it, offers a simplicity-
related interpretive benchmark. The Judicial Conference provided an initial version of its
proposal that suggested a numerical test. A corporation would be deemed a citizen of the
State that accounted for more than half of its gross income. The Conference changed its
mind in light of criticism that such a test would prove too complex and impractical to
apply. That history suggests that the words "principal place of business" should be
interpreted to be no more complex than the initial "half of gross income" test. A "nerve
center" test offers such a possibility. A general business activities test does not.
B
We recognize that there may be no perfect test that satisfies all administrative and
purposive criteria. We recognize as well that, under the "nerve center" test we adopt
today, there will be hard cases. For example, in this era of telecommuting, some
corporations may divide their command and coordinating functions among officers who
work at several different locations, perhaps communicating over the Internet. That said,
our test nonetheless points courts in a single direction, towards the center of overall
direction, control, and coordination. Courts do not have to try to weigh corporate
functions, assets, or revenues different in kind, one from the other. Our approach
provides a sensible test that is relatively easier to apply, not a test that will, in all
instances, automatically generate a result.
We also recognize that the use of a "nerve center" test may in some cases produce
results that seem to cut against the basic rationale for 28 U.S.C. § 1332. For example, if
the bulk of a company's business activities visible to the public take place in New Jersey,
while its top officers direct those activities just across the river in New York, the
"principal place of business" is New York. One could argue that members of the public in
New Jersey would be less likely to be prejudiced against the corporation than persons in
New York — yet the corporation will still be entitled to remove a New Jersey state case

14
to federal court. And note too that the same corporation would be unable to remove a
New York state case to federal court, despite the New York public's presumed prejudice
against the corporation.
We understand that such seeming anomalies will arise. However, in view of the
necessity of having a clearer rule, we must accept them. Accepting occasionally
counterintuitive results is the price the legal system must pay to avoid overly complex
jurisdictional administration while producing the benefits that accompany a more uniform
legal system.
The burden of persuasion for establishing diversity jurisdiction, of course,
remains on the party asserting it. When challenged on allegations of jurisdictional facts,
the parties must support their allegations by competent proof. And when faced with such
a challenge, we reject suggestions such as, for example, the one made by petitioner that
the mere filing of a form like the Securities and Exchange Commission's Form 10-K
listing a corporation's "principal executive offices" would, without more, be sufficient
proof to establish a corporation's "nerve center." Such possibilities would readily permit
jurisdictional manipulation, thereby subverting a major reason for the insertion of the
"principal place of business" language in the diversity statute. Indeed, if the record
reveals attempts at manipulation -- for example, that the alleged "nerve center" is nothing
more than a mail drop box, a bare office with a computer, or the location of an annual
executive retreat -- the courts should instead take as the "nerve center" the place of actual
direction, control, and coordination, in the absence of such manipulation.
VI
Petitioner's unchallenged declaration suggests that Hertz's center of direction,
control, and coordination, its "nerve center," and its corporate headquarters are one and
the same, and they are located in New Jersey, not in California. Because respondents
should have a fair opportunity to litigate their case in light of our holding, however, we
vacate the Ninth Circuit's judgment and remand the case for further proceedings
consistent with this opinion.
It is so ordered.

NOTES AND QUESTIONS

1. Under what circumstances might using the ―nerve center‖ not be consistent
with the underlying theory of diversity of citizenship jurisdiction? Does the Court leave
open the possibility that some other test might be used? Under what circumstances? If
so, does the Court undermine its desire for uniform jurisdictional rules?
2. Although it is Congress‘s job (within Article III) to define the subject matter
jurisdiction of the federal courts, sometimes its efforts create uncertainty. Section
1332(c)(1) is an example. It became obvious soon after its passage in 1958 that
―principal place of business‖ was an imprecise term. Why did Congress not act to fix the
problem? What could it have done? When it passes imprecise jurisdictional statutes and
does not amend them, does Congress essentially delegate to the judiciary the
responsibility of determining the limits of its jurisdiction? Is there a problem with that?

15
 ii. NON-INCORPORATED BUSINESSES

At pages 202-203, add to Note 1. The Fourth Circuit has now agreed that the
citizenship of an LLC is to be determined by looking to the citizenship of all its members.
Ferrell v. Express Check Advance of SC, LLC, 591 F.3d 698 (4th Cir. 2010).

PART C, SECTION 6
REMOVAL JURISDICTION

At pages 232-233, at the end of note 2, please insert:

This may no longer be true. The majority sentiment seems to have shifted, and to
have rejected the approach in Noble. Indeed, Noble would come out differently today. In
Bailey v. Janssen Pharmaceutica, Inc., 536 F.3d 1202, 1205-1208 (11th Cir. 2008), the
Eleventh Circuit (which is the Court of Appeals for the court that decided Noble)
concluded that the second defendant should have the chance to cajole the first defendant
into removing the case. The Eleventh Circuit and other courts adopting this ―second-
filed‖ rule conclude that it is basically unfair to have the first defendant‘s inaction bar the
later-joined defendant.

As noted, this now seems to be the majority view. See Barbour v. International
Union, 594 F.3d 315 (4th Cir. 2010); Marano Enterprises of Kansas v. Z-Teca
Restaurants, LP, 254 F.3d 753, 757 (8th Cir. 2002); Brierly v. Alusuisse Flexible
Packaging, Inc. 184 F.3d 527, 533 (6th Cir. 1999).

16
 CHAPTER 7: PLEADINGS
PART C, SECTION 1
THE COMPLAINT

At page 310, following the Notes and Questions, please insert the following:

Note on Iqbal

The Court revisited Twombly in Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009). Many
observers viewed the Court's decision to grant certiorari in Iqbal as an opportunity to
clarify and restrict some of the questionable implications of Twombly. Instead, in a
fractured five-to-four decision, the majority of the Court strongly reaffirmed and arguably
expanded Twombly's main themes.

The plaintiff in Iqbal was a Muslim citizen of Pakistan. He alleged that after the
terrorist attacks of September 11, 2001, federal officials arrested and detained him under
restrictive conditions. Two of the defendants were John Ashcroft, the former Attorney
General of the United States, and Robert Mueller, the Director of the FBI. Iqbal
attempted to allege a claim for violation of his constitutional rights under Bivens v. Six
Unknown Federal Narcotics Agents, 403 U.S. 388 (1971). Specifically, Iqbal alleged
that Ashcroft and Mueller violated the First and Fifth Amendments by adopting policies
that led to his designation as a person "of high interest" and subjected him to harsh
conditions of confinement on account of his race, religion, or national origin.

Ashcroft and Mueller moved to dismiss the complaint on the ground that it failed
sufficiently to allege that their conduct violated Iqbal's clearly established constitutional
rights, and they therefore were entitled to immunity from suit. The district court and the
Second Circuit rejected the defendants‘ arguments and upheld the complaint.

The Supreme Court reversed, and held that the complaint failed to state a claim.
Justice Kennedy wrote the majority opinion, in which he was joined by Chief Justice
Roberts and Justices Scalia, Thomas, and Alito. In applying Twombly, the majority
noted, a court must first identify the elements of a viable claim. In actions alleging
unconstitutional discrimination by government officials, those officials may not be held
liable for the unconstitutional conduct of their subordinates under a theory of respondeat
superior. Rather, the plaintiff must allege that each defendant official's own actions have
violated the Constitution:

The factors necessary to establish a Bivens violation will vary with the
constitutional provision at issue. Where the claim is invidious
discrimination in contravention of the First and Fifth Amendments, our
decisions make clear that the plaintiff must plead and prove that the
defendant acted with discriminatory purpose. . . . Under extant precedent
purposeful discrimination requires more than ―intent as volition or intent
as awareness of consequences.‖ Personnel Administrator of Mass. v.
Feeney, 442 U. S. 256, 279 (1979). It instead involves a decision maker‘s

17
 undertaking a course of action ―‗because of,‘ not merely ‗in spite of,‘ [the
action‘s] adverse effects upon an identifiable group.‖ Ibid. It follows
that, to state a claim based on a violation of a clearly established right,
respondent must plead sufficient factual matter to show that petitioners
adopted and implemented the detention policies at issue not for a neutral,
investigative reason but for the purpose of discriminating on account of
race, religion, or national origin.

Id. at 1948-1949.

The majority then concluded that Iqbal's allegations against Ashcroft and Mueller
were insufficient under Twombly:

Two working principles underlie our decision in Twombly. First,

the tenet that a court must accept as true all of the allegations contained in
a complaint is inapplicable to legal conclusions. Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements,
do not suffice. . . . Rule 8 marks a notable and generous departure from
the hyper-technical, code-pleading regime of a prior era, but it does not
unlock the doors of discovery for a plaintiff armed with nothing more than
conclusions. Second, only a complaint that states a plausible claim for
relief survives a motion to dismiss. Determining whether a complaint
states a plausible claim for relief will, as the Court of Appeals observed,
be a context-specific task that requires the reviewing court to draw on its
judicial experience and common sense. . . .
....
We begin our analysis by identifying the allegations in the
complaint that are not entitled to the assumption of truth. Respondent
pleads that petitioners ―knew of, condoned, and willfully and maliciously
agreed to subject [him]‖ to harsh conditions of confinement ―as a matter of
policy, solely on account of [his] religion, race, and/or national origin and
for no legitimate penological interest.‖ The complaint alleges that
Ashcroft was the ―principal architect‖ of this invidious policy, and that
Mueller was ―instrumental‖ in adopting and executing it. These bare
assertions, much like the pleading of conspiracy in Twombly, amount to
nothing more than a ―formulaic recitation of the elements‖ of a
constitutional discrimination claim, namely, that petitioners adopted a
policy ―‗because of,‘ not merely ‗in spite of,‘ its adverse effects upon an
identifiable group.‖ As such, the allegations are conclusory and not
entitled to be assumed true. To be clear, we do not reject these bald
allegations on the ground that they are unrealistic or nonsensical. . . . It is
the conclusory nature of respondent‘s allegations, rather than their
extravagantly fanciful nature, that disentitles them to the presumption of
truth.
We next consider the factual allegations in respondent‘s complaint
to determine if they plausibly suggest an entitlement to relief. The
complaint alleges that ―the [FBI], under the direction of Defendant

18
Mueller, arrested and detained thousands of Arab Muslim men . . . as part
of its investigation of the events of September 11.‖ It further claims that
―[t]he policy of holding post-September-11th detainees in highly
restrictive conditions of confinement until they were ‗cleared‘ by the FBI
was approved by Defendants Ashcroft and Mueller in discussions in the
weeks after September 11, 2001.‖ Taken as true, these allegations are
consistent with petitioners‘ purposefully designating detainees ―of high
interest‖ because of their race, religion, or national origin. But given more
likely explanations, they do not plausibly establish this purpose.
The September 11 attacks were perpetrated by 19 Arab Muslim
hijackers who counted themselves members in good standing of al Qaeda,
an Islamic fundamentalist group. Al Qaeda was headed by another Arab
Muslim—Osama bin Laden—and composed in large part of his Arab
Muslim disciples. It should come as no surprise that a legitimate policy
directing law enforcement to arrest and detain individuals because of their
suspected link to the attacks would produce a disparate, incidental impact
on Arab Muslims, even though the purpose of the policy was to target
neither Arabs nor Muslims. On the facts respondent alleges the arrests
Mueller oversaw were likely lawful and justified by his nondiscriminatory
intent to detain aliens who were illegally present in the United States and
who had potential connections to those who committed terrorist acts. As
between that ―obvious alternative explanation‖ for the arrests, Twombly,
and the purposeful, invidious discrimination respondent asks us to infer,
discrimination is not a plausible conclusion.
But even if the complaint‘s well-pleaded facts give rise to a
plausible inference that respondent‘s arrest was the result of
unconstitutional discrimination, that inference alone would not entitle
respondent to relief. It is important to recall that respondent‘s complaint
challenges neither the constitutionality of his arrest nor his initial detention
in the [Metropolitan Detention Center in Brooklyn]. Respondent‘s
constitutional claims against petitioners rest solely on their ostensible
―policy of holding post-September-11th detainees‖ in the ADMAX SHU
[Administrative Maximum Special Housing Unit, in which detainees are
in 23-hour-a-day lockdown] once they were categorized as ―of high
interest.‖ To prevail on that theory, the complaint must contain facts
plausibly showing that petitioners purposefully adopted a policy of
classifying post-September-11 detainees as ―of high interest‖ because of
their race, religion, or national origin.
This the complaint fails to do. Though respondent alleges that
various other defendants, who are not before us, may have labeled him a
person of ―of high interest‖ for impermissible reasons, his only factual
allegation against petitioners accuses them of adopting a policy approving
―restrictive conditions of confinement‖ for post-September 11 detainees
until they were ―‗cleared‘ by the FBI.‖ Accepting the truth of that
allegation, the complaint does not show, or even intimate, that petitioners
purposefully housed detainees in the ADMAX SHU due to their race,

19
religion, or national origin. All it plausibly suggests is that the Nation‘s
top law enforcement officers, in the aftermath of a devastating terrorist
attack, sought to keep suspected terrorists in the most secure conditions
available until the suspects could be cleared of terrorist activity.
Respondent does not argue, nor can he, that such a motive would violate
petitioners‘ constitutional obligations. . . .
....
Respondent offers three arguments that bear on our disposition of
his case, but none is persuasive.
....
Respondent first says that our decision in Twombly should be
limited to pleadings made in the context of an antitrust dispute. This
argument is not supported by Twombly and is incompatible with the
Federal Rules of Civil Procedure. Though Twombly determined the
sufficiency of a complaint sounding in antitrust, the decision was based on
our interpretation and application of Rule 8. That Rule in turn governs the
pleading standard ―in all civil actions and proceedings in the United States
district courts.‖ Fed. Rule Civ. Proc. 1. Our decision in Twombly
expounded the pleading standard for ―all civil actions,‖ and it applies to
antitrust and discrimination suits alike.
....
Respondent next implies that our construction of Rule 8 should be
tempered where, as here, the Court of Appeals has ―instructed the district
court to cabin discovery in such a way as to preserve‖ petitioners‘ defense
of qualified immunity ―as much as possible in anticipation of a summary
judgment motion.‖ We have held, however, that the question presented by
a motion to dismiss a complaint for insufficient pleadings does not turn on
the controls placed upon the discovery process. Twombly, supra, at 559
(―It is no answer to say that a claim just shy of a plausible entitlement to
relief can, if groundless, be weeded out early in the discovery process
through careful case management given the common lament that the
success of judicial supervision in checking discovery abuse has been on
the modest side.‖).
....
We decline respondent‘s invitation to relax the pleading
requirements on the ground that the Court of Appeals promises petitioners
minimally intrusive discovery. That promise provides especially cold
comfort in this pleading context, where we are impelled to give real
content to the concept of qualified immunity for high-level officials who
must be neither deterred nor detracted from the vigorous performance of
their duties. Because respondent‘s complaint is deficient under Rule 8, he
is not entitled to discovery, cabined or otherwise.
....
Respondent finally maintains that the Federal Rules expressly
allow him to allege petitioners‘ discriminatory intent ―generally,‖ which
he equates with a conclusory allegation. It follows, respondent says, that

20
 his complaint is sufficiently well pleaded because it claims that petitioners
discriminated against him ―on account of [his] religion, race, and/or
national origin and for no legitimate penological interest.‖ Were we
required to accept this allegation as true, respondent‘s complaint would
survive petitioners‘ motion to dismiss. But the Federal Rules do not
require courts to credit a complaint‘s conclusory statements without
reference to its factual context. It is true that Rule 9(b) requires
particularity when pleading ―fraud or mistake,‖ while allowing ―[m]alice,
intent, knowledge, and other conditions of a person‘s mind [to] be alleged
generally.‖ But ―generally‖ is a relative term. In the context of Rule 9, it is
to be compared to the particularity requirement applicable to fraud or
mistake. Rule 9 merely excuses a party from pleading discriminatory
intent under an elevated pleading standard. It does not give him license to
evade the less rigid—though still operative—strictures of Rule 8. . . .

Justice Souter, who had written the majority opinion in Twombly, dissented,
joined by Justices Stevens, Breyer, and Ginsburg. To them, Twombly was distinguishable
because that case involved allegations of antitrust conspiracy based on parallel conduct,
and such conduct was just as consistent with lawful business behavior as with conspiracy.
Here in contrast, "the allegations of the complaint are neither confined to naked legal
conclusions nor consistent with legal conduct." Id. at 1960.

Questions

1. Is Iqbal consistent with Erickson (discussed in Note 5 above)? After all,

Erickson also engaged deprivation of constitutional rights – but successfully alleged.
Why the different result in Iqbal?

2. In his dissent in Twombly, Justice Stevens reviewed the efforts of the drafters
of the Federal Rules to rid federal pleading of the distinction between allegations of
―conclusions‖ and allegations of ―facts.‖ See pages 305-306 of the casebook. Has Iqbal
resurrected that distinction?

3. How does the majority deal with the fact that Rule 9(b) expressly allows
allegations of state of mind to be made generally?

4. Does Iqbal, for all practical purposes, make it impossible to state a claim for
unconstitutionally motivated conduct by government officials? It not, what must a
plaintiff alleging such a complaint include in the complaint that was not included in
Iqbal?

21
 D. DEFENDANT’S OPTIONS IN RESPONSE

At page 325, after the first paragraph, note that the 2009 amendments to Rule 12
change the time in which a defendant must respond to avoid default – from 20 days to 21
days after being served with process.

At page 328, concerning affirmative defenses, note that there is an emerging split
of authority on whether the plausibility standard of Twombly and Iqbal applies to
affirmative defenses. In those cases, the Supreme Court interpreted Rule 8(a), and
affirmative defenses are governed by Rule 8(c), so some courts refuse to apply the
increased detail requirement here. See, e.g., Charleswell v. Chase Manhattan Bank, N.A.,
2009 U.S. Dist. LEXIS 116358 (D. V.I. 2009); Romantine v. CH2M Hill Eng‘rs, 2009
U.S. Dist. LEXIS 98699 (W.D.Pa. 2009); First Nat‘l Ins. Co. of America v. Camps Servs,
2009 U.S. Dist. LEXIS 149 (E.D. Mich 2009).

On the other hand, some courts apply the standard to affirmative defenses. Safeco
Ins. Co. of America v. O‘Hara Corp., 2008 U.S.Dist. LEXIS 48399 (E.D. Mich. 2008);
Holtzman v. B/E Aerospace, inc., 2008 U.S. Dist. LEXIS 42630 (S.D. Fla. 2008).

SECTION 4: DEFAULT AND DEFAULT JUDGMENT

At page 332, Note 3, change 20 days to 21 days.

E. AMENDED PLEADINGS

1. BASIC PRINCIPLES UNDER RULE 15(a)

The 2009 amendments not only changed the time in which defendant must
respond — from 20 to 21 days after being served with process — but also changed the
rules for amendment of right under Rule 15(a). They thus changed the answers to the
hypotheticals on page 334 of the Casebook.

1. (a) Rule 15(a) traditionally allowed the plaintiff to amend of right before the
defendant served her ―responsive pleading.‖ Because a motion is not a responsive
pleading, the plaintiff in this hypothetical would have retained the right to amend. As
amended in 2009, Rule 15(a)(1)(A) now allows a plaintiff to amend of right once within
21 days after the defendant serves her answer or a motion under Rule 12(b), (e), or (f).
Thus, under the old rule, the defendant had the power to cut off the plaintiff‘s right to
amend by serving her answer. Now that is not true. The plaintiff has 21 days after the
defendant responds by serving an answer or motion in which to amend. So in this
hypothetical, assuming Plaintiff amends within 21 days after Defendant‘s service of the
motion, she would have a right to amend.

22
 (b) Again, assuming Plaintiff amended no later than 21 days after Defendant
served her motion, she would have a right to amend.

(c) The 2009 amendments change the timing here from 10 to 14 days after
service of the amended pleading. Rule 15(a)(3).

(d) The 2009 amendments changed the timing during which Defendant has a
right to amend – from 20 days after service of her answer to 21 days. The amendment in
this hypothetical is timely under either version.

(e) This hypothetical is not affected by the 2009 amendments.

3. AMENDMENT AND THE STATUTE OF LIMITITIONS

b. AMENDMENTS CHANGING A PARTY

At page 342, end of the § b., add: In Krupski v. Costa Crociere S. p. A., 2010
U.S. LEXIS 4567 (June 7, 2010), the Court held that relation back depends upon the
knowledge of the party to be joined, and not the plaintiff. Thus, it is the party to be
joined that must know, within the period under Rule 4(m) that it should have been named
but for a mistake. The plaintiff‘s knowledge or lack thereof is not the test.

23
 CHAPTER 9: ADJUDICATION WITH AND WITHOUT A TRIAL OR JURY
SECTION A: THE RIGHT TO A JURY

At page 435, after the first paragraph concerning Scope of the Constitutional
Right, add:

Professor Madison has detailed the constitutional evolution of the jury, recounting
federalist and anti-federalist writings. He concludes that ―[i]n the Anglo-American
tradition, . . . persons of all political stripes have agreed on one thing: the jury system
serves justice by allowing average citizens to serve as a check within the broader scheme
of governmental checks and balances.‖ Benjamin V. Madison, III, Trial by Jury or by
Military Tribunal for Accused Terrorist Detainees Facing the Death Penalty? An
Examination of the Principles That Transcend the U.S. Constitution, 17 U. Fla. J.L.&
Pub. Pol. 347, 391 (2006).

SECTION D: CONTROLLING AND SECOND-GUESSING JURIES

At page 532, end of page, add: To set aside a judgment as ―void‖ under Federal
Rule 60(b)(4), there must be a fundamental flaw; a merely erroneous decision is not
enough (if the decision were merely erroneous, the aggrieved party should have
appealed).. United Student Aid Funds v. Espinoza, 130 S.Ct. 1367 (2010).

24
 CHAPTER 10: WHAT LAW APPLIES IN FEDERAL COURT
B.DETERMINING WHAT LAW APPLIES

3. THE FEDERAL RULES OF CIVIL PROCEDURE

a. WHAT HAPPENS WHEN THERE IS A FEDERAL RULE OF CIVIL
PROCEDURE ON POINT -- THE RULES ENABLING ACT PRONG
ii. DETERMINING WHETHER A FEDERAL DIRECTIVE IS VALID

At p. 566, please add to the end of the section:

In Shady Grove Orthopedic Assoc. v. Allstate Ins. Co., 130 S.Ct. 1431 (2010), the
Court again considered a conflict between state law and a Federal Rule of Civil
Procedure. Under New York law, insurance companies have 30 days to pay or refuse a
claim and are required to pay a statutorily set interest rate on overdue benefits. The
plaintiff, a medical provider, brought a class action in federal court against Allstate
Insurance, alleging that Allstate routinely refused to pay interest on overdue amounts.
Rule 23 of the Federal Rules of Civil Procedure specifies the criteria for certification of a
class action in federal court. The district court refused to apply Rule 23, however, and
concluded that New York law on class actions governed. That law provides:

Unless a statute creating or imposing a penalty, or a minimum measure of

recovery specifically authorizes the recovery thereof in a class action, an
action to recover a penalty, or minimum measure of recovery created or
imposed by statute may not be maintained as a class action.

N.Y. Civ. Prac. Law Ann § 901 (West 2006). The Second Circuit affirmed. It conceded
that if there were a valid Federal Rule on point that conflicted with state law, the Federal
Rule would control. It concluded, however, that § 901 and Rule 23 did not conflict
because the former addresses eligibility for class certification while the latter addresses
the specific criteria for certification.

A divided the Supreme Court reversed, and held that the issue was governed by
Rule 23 of the Federal Rules of Civil Procedure. Justice Scalia, writing for a five Justice
majority, first rejected the argument that § 901 and Rule 23 do not conflict observing that
―the line between eligibility and certifiability is entirely artificial.‖ 130 S.Ct. at 1438.
Having found a conflict between the two provisions, the majority next considered
whether Rule 23 was valid under the Rules Enabling Act. In making this determination,
Justice Scalia, writing for only four members of the Court, stressed that the focus must be
on the Federal Rule not on the state law: ―[I]t is not the substantive or procedural nature
or purpose of the affected state law that matters, but the substantive or procedural nature
of the Federal Rule. We have held since Sibbach, and reaffirmed repeatedly, that the
validity of a Federal Rule depends entirely upon whether it regulates procedure.‖ 130
S.Ct. at 1444.

Justice Stevens, who joined in the first part of Scalia‘s opinion, offered a different
approach to determining the validity of a Federal Rule of Civil Procedure. Justice

25
Stevens emphasized the provision in the Rules Enabling Act requiring that such rules
―not abridge, enlarge or modify any substantive right.‖ He argued that because of this
language it was necessary to considered the substantive nature of the state law. In the
end he concurred in the holding that Rule 23 controlled because he concluded that the
substantive character of § 901 was not sufficiently clear to invalidate a Federal Rules of
Civil Procedure.

Unlike the majority, the dissent found that Rule 23 can and should be read to
avoid a conflict with state law. After considering the legislative history of § 901, the
dissent concluded that the N.Y. law was intended to have the substantive effect of
limiting damages and therefore should be applied.

26
 CHAPTER 11: THE PRECLUSION DOCTRINES
PART C SECTION 6
AGAINST WHOM CAN ISSUE PRECLUSION BE ASSERTED?

At pages 622-624, in lieu of Notes 3 through 10, please insert:

The Supreme Court sounded the death knell of virtual representation in Taylor v.
Sturgell, 128 S.Ct. 2161 (2008). Although the case involved claim preclusion, its
discussion of against whom a judgment may be enforced is relevant in issue preclusion as
well. In Taylor, Herrick, an antique aviation enthusiast, sought release of technical
documents from the Federal Aviation Administration (FAA). He wanted the documents
to help him restore such a plane to its original condition. After the FAA the request on
the basis that they constituted trade secrets. Herrick then sued the FAA and lost on
summary judgment.

Less than a month later, Taylor, who is a friend of Herrick and also an aircraft
enthusiast, sought the same documents from the FAA. Ultimately, Taylor sued the
agency. The corporation that succeeded to the interests of the airplane‘s manufacturer
intervened and sought to block release of the documents. The lower courts held that
Taylor‘s suit was barred by claim preclusion. Although Taylor was not a party in
Herrick‘s suit, the courts applied virtual representation to hold that Taylor was bound by
the judgment in Herrick‘s case. The district court adopted the Eighth Circuit‘s test from
Tyus, which is discussed in Note 2 at page 622 of the Casebook. On appeal, the District
of Columbia Circuit fashioned its own test for virtual representation.

The Supreme Court reversed. First, it reviewed the lower courts‘ reasoning.

The Eighth Circuit's seven-factor test for virtual representation, adopted by

the District Court in Taylor's case, requires an "identity of interests" between
the person to be bound and a party to the judgment. Six additional factors
counsel in favor of virtual representation under the Eighth Circuit's test, but
are not prerequisites: (1) a "close relationship" between the present party and
a party to the judgment alleged to be preclusive; (2) "participation in the prior
litigation" by the present party; (3) the present party's "apparent
acquiescence" to the preclusive effect of the judgment; (4) "deliberat[e]
maneuver[ing]" to avoid the effect of the judgment; (5) adequate
representation of the present party by a party to the prior adjudication; and (6)
a suit raising a "public law" rather than a "private law" issue. These factors,
the D. C. District Court observed, "constitute a fluid test with imprecise
boundaries" and call for "a broad, case-by-case inquiry."
The record before the District Court in Taylor's suit revealed the following
facts about the relationship between Taylor and Herrick: Taylor is the
president of the Antique Aircraft Association, an organization to which
Herrick belongs; the two men are "close associate[s]"; Herrick asked Taylor
to help restore Herrick's F-45, though they had no contract or agreement for
Taylor's participation in the restoration; Taylor was represented by the lawyer

27
who represented Herrick in the earlier litigation; and Herrick apparently gave
Taylor documents that Herrick had obtained from the FAA during discovery
in his suit.
Fairchild and the FAA conceded that Taylor had not participated in
Herrick's suit. App. to Pet. for Cert. 32a. The D. C. District Court
determined, however, that Herrick ranked as Taylor's virtual representative
because the facts fit each of the other six indicators on the Eighth Circuit's
list. Accordingly, the District Court held Taylor's suit, seeking the same
documents Herrick had requested, barred by the judgment against Herrick.
The D.C. Circuit affirmed. It observed, first, that other Circuits "vary
widely" in their approaches to virtual representation. Taylor v. Blakey, 490
F.3d 965, 971 (2007). In this regard, the D. C. Circuit contrasted the
multifactor balancing test applied by the Eighth Circuit and the D. C. District
Court with the Fourth Circuit's narrower approach, which "treats a party as a
virtual representative only if the party is 'accountable to the nonparties who
file a subsequent suit' and has 'the tacit approval of the court' to act on the
nonpart[ies'] behalf." Ibid. (quoting Klugh v. United States, 818 F.2d 294,
300 (CA4 1987)).
Rejecting both of these approaches, the D.C. Circuit announced its own
five-factor test. The first two factors--"identity of interests" and "adequate
representation"--are necessary but not sufficient for virtual representation.
490 F.3d at 971-972. In addition, at least one of three other factors must be
established: "a close relationship between the present party and his putative
representative," "substantial participation by the present party in the first
case," or "tactical maneuvering on the part of the present party to avoid
preclusion by the prior judgment."
Applying this test to the record in Taylor's case, the D. C. Circuit found
both of the necessary conditions for virtual representation well met. As to
identity of interests, the court emphasized that Taylor and Herrick sought the
same result--release of the F-45 documents. Moreover, the D. C. Circuit
observed, Herrick owned an F-45 airplane, and therefore had "if anything, a
stronger incentive to litigate" than Taylor, who had only a "general interest in
public disclosure and the preservation of antique aircraft heritage." Id., at
973.
Turning to adequacy of representation, the D. C. Circuit acknowledged that
some other Circuits regard notice of a prior suit as essential to a
determination that a nonparty was adequately represented in that suit. See
id., at 973-974 (citing Perez v. Volvo Car Corp., 247 F.3d 303, 312 (CA1
2001), and Tice v. American Airlines, Inc., 162 F.3d 966, 973 (CA7 1998)).
Disagreeing with these courts, the D. C. Circuit deemed notice an "important"
but not an indispensable element in the adequacy inquiry. The court then
concluded that Herrick had adequately represented Taylor even though
Taylor had received no notice of Herrick's suit. For this conclusion, the
appeals court relied on Herrick's "strong incentive to litigate" and Taylor's

28
 later engagement of the same attorney, which indicated to the court Taylor's
satisfaction with that attorney's performance in Herrick's case. See 490 F.3d
at 974-975.
The D.C. Circuit also found its "close relationship" criterion met, for
Herrick had "asked Taylor to assist him in restoring his F-45" and "provided
information to Taylor that Herrick had obtained through discovery";
furthermore, Taylor "did not oppose Fairchild's characterization of Herrick as
his 'close associate.'" Id., at 975. Because the three above-described factors
sufficed to establish virtual representation under the D. C. Circuit's five-
factor test, the appeals court left open the question whether Taylor had
engaged in "tactical maneuvering." See id., at 976 (calling the facts bearing
on tactical maneuvering "ambigu[ous]")
We granted certiorari to resolve the disagreement among the Circuits over
the permissibility and scope of preclusion based on "virtual representation.‖3
Id. at 2169-2170.
The Court then summarized the circumstances in which a non-party may be
bound by a judgment.
Though hardly in doubt, the rule against nonparty preclusion is subject to
exceptions. For present purposes, the recognized exceptions can be grouped
into six categories.
First, "[a] person who agrees to be bound by the determination of issues in
an action between others is bound in accordance with the terms of his
agreement." 1 Restatement (Second) of Judgments § 40 (1980) (hereinafter
Restatement). For example, "if separate actions involving the same
transaction are brought by different plaintiffs against the same defendant, all
the parties to all the actions may agree that the question of the defendant's
liability will be definitely determined, one way or the other, in a 'test case.'"
D. Shapiro, Civil Procedure: Preclusion in Civil Actions 77-78 (2001)
(hereinafter Shapiro). See also California v. Texas, 459 U.S. 1096, 1097
(1983) (dismissing certain defendants from a suit based on a stipulation "that
each of said defendants . . . will be bound by a final judgment of this Court"
on a specified issue).
Second, nonparty preclusion may be justified based on a variety of pre-
existing "substantive legal relationship[s]" between the person to be bound
and a party to the judgment. Shapiro 78. See also Richards, 517 U.S., at
3
The Ninth Circuit applies a five-factor test similar to the D. C. Circuit's. See Kourtis v. Cameron,
419 F.3d 989, 996 (2005). The Fifth, Sixth, and Eleventh Circuits, like the Fourth Circuit, have
constrained the reach of virtual representation by requiring, inter alia, the existence of a legal
relationship between the nonparty to be bound and the putative representative. See Pollard v.
Cockrell, 578 F.2d 1002, 1008 (CA5 1978); Becherer v. Merrill Lynch, Pierce, Fenner, & Smith, Inc.,
193 F.3d 415, 424 (CA6 1999); EEOC v. Pemco Aeroplex, Inc., 383 F.3d 1280, 1289 (CA11 2004).
The Seventh Circuit, in contrast, has rejected the doctrine of virtual representation altogether.
See Perry v. Globe Auto Recycling, Inc., 227 F.3d 950, 953 (2000).

29
 798. Qualifying relationships include, but are not limited to, preceding and
succeeding owners of property, bailee and bailor, and assignee and assignor.
See 2 Restatement §§ 43-44, 52, 55. These exceptions originated "as much
from the needs of property law as from the values of preclusion by
judgment." 18A C. Wright, A. Miller, & E. Cooper, Federal Practice and
Procedure § 4448, p 329 (2d ed. 2002).8
Third, we have confirmed that, "in certain limited circumstances," a
nonparty may be bound by a judgment because she was "adequately
represented by someone with the same interests who [wa]s a party" to the
suit. Richards, 517 U.S., at 798 . Representative suits with preclusive effect
on nonparties include properly conducted class actions, see Martin, 490 U.S.,
at 762, n. 2 (citing Fed. Rule Civ. Proc. 23), and suits brought by trustees,
guardians, and other fiduciaries, see Sea-Land Services, Inc. v. Gaudet, 414
U.S. 573, 593.
Fourth, a nonparty is bound by a judgment if she "assume[d] control" over
the litigation in which that judgment was rendered. Montana, 440 U.S., at
154. Because such a person has had "the opportunity to present proofs and
argument," he has already "had his day in court" even though he was not a
formal party to the litigation.
Fifth, a party bound by a judgment may not avoid its preclusive force by
relitigating through a proxy. Preclusion is thus in order when a person who
did not participate in a litigation later brings suit as the designated
representative of a person who was a party to the prior adjudication. See
Chicago, R. I. & P. R. Co. v. Schendel, 270 U.S. 611, 620, 623. And
although our decisions have not addressed the issue directly, it also seems
clear that preclusion is appropriate when a nonparty later brings suit as an
agent for a party who is bound by a judgment.
Sixth, in certain circumstances a special statutory scheme may "expressly
foreclos[e] successive litigation by nonlitigants . . . if the scheme is otherwise
consistent with due process." Martin, 490 U.S., at 762, n. 2. Examples of
such schemes include bankruptcy and probate proceedings, and quo warranto
actions or other suits that, "under [the governing] law, [may] be brought only
on behalf of the public at large," Richards, 517 U.S., at 804.
Id. at 2172-2173.

The Court found that none of these exceptions applied, and thus concluded that
Taylor‘s suit against the FAA could proceed.

8
The substantive legal relationships justifying preclusion are sometimes collectively referred to
as "privity." See, e.g., Richards v. Jefferson County, 517 U.S. 793, 798 (1996); 2 Restatement §
62, Comment a. The term "privity," however, has also come to be used more broadly, as a way
to express the conclusion that nonparty preclusion is appropriate on any ground. To ward off
confusion, we avoid using the term "privity" in this opinion.

30
 CHAPTER 12: SCOPE OF LITIGATION –
JOINDER AND SUPPLEMENTAL JURISDICTION

PART F, SECTION 2. NECESSARY AND INDISPENSABLE PARTIES

At page 702, please insert:

7. In Republic of Philippines v. Pimentel,553 U.S. 851 (2008), the Supreme Court

applied Rule 19(b) to compel dismissal in an interesting context. The case was an
interpleader action. As we will study in Chapter 13, interpleader allows someone in
possession of money or other property to join all potential claimants to the property.
Pimentel involved billions of dollars in assets stolen from various sources by the late
ruler of the Philippines, Ferdinand Marcos. A corporation founded by Marcos held the
assets and instituted interpleader in federal court in California, in an effort to return them
to their rightful owners.

Thousands of claimants were joined. Two claimants – the Republic of the

Philippines and a commission created by it – could not be joined, however, because of
sovereign immunity. The Court concluded that the interpleader proceeding could not
proceed without these two claimants, and that it had to be dismissed under Rule 12(b)(7).
First, the Philippines and its commission were necessary under Rule 19(a)(1)(B)(i). If
they did not participate, the assets to which they were entitled would be distributed to
others. Second, under Rule 19(b), the Court confirmed that judges routinely must
consider the merits of claims and defenses. Rule 19(b), after all, requires a court to
assess whether it is likely that a party or absentee will be harmed by nonjoinder. The
lower courts had done so and had concluded that the claims by the Philippines and its
commission were frivolous. The Court disagreed. In equity and good conscience, the
interpleader case had to be dismissed, at least in part to allow a sovereign nation to
determine in its own courts who owns the assets absconded by its former leader.

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 CHAPTER 14: APPEALS
B. APPELLATE JURISDICITON IN THE FEDERAL COURTS
2. COLLATERAL ORDER DOCTRINE

At page 778, please insert:

(f) In Mohawk Indus., Inc v. Carpenter, 130 S.Ct. 599 (2009), the Court held that
an order requiring a party to disclose material that it consider protected under the
attorney-client privilege is not immediately appealable under the collateral order doctrine.
The appealing party had argued that disclosure of privileged material is not effectively
reviewable on appeal because the privilege protects against not only the use of privileged
material at trial but the disclosure of material in the first place. The Court rejected this
argument explaining: ―Appellate courts can remedy the improper disclosure of privileged
material in the same way they remedy a host of other erroneous evidentiary rulings: by
vacating an adverse judgment and remanding for a new trial in which the protected
material and its fruits are excluded from evidence.‖ Id. at 606-07. As to concerns that
delayed review might undermine the core purposes of the attorney-client privilege, the
Court noted: ―Mohawk is undoubtedly correct that an order to disclose privileged
information intrudes on the confidentiality of attorney-client communications. But
deferring review until final judgment does not meaningfully reduce the ex ante incentives
for full and frank consultations between clients and counsel.‖ Id. at 607. The Court also
observed that if confronted with a ―particularly injurious or novel privilege ruling‖ a
litigant does have several other options including seeking review under § 1292 or
mandamus (discussed below), or defying the order and appealing the punishment for
criminal contempt of court.

5. Rule 54(b)

At p. 784, please add:

4. Rule 54(b) vests authority in the district to permit the appeal. Suppose the
court dismisses some but not all of the claims, but refuses to authorize the appeal. If the
plaintiff voluntarily dismisses the remaining claims, can the court‘s ruling on the other
claims be immediately appealed? Courts have split on this issue. Several circuits have
held there is no final judgment when unresolved claims are voluntarily dismissed without
prejudice, see, e.g., Rabbi Jacob Joseph School v. Province of Mendoza, 425 F.3d 207
(2d Cir. 2005); Marshall v. Kansas City Southern Ry. Co., 378 F.3d 495 (5th Cir. 2004),
while the Federal Circuit has rejected a categorical approached and focused on whether
there is ―evidence of intent to manipulate our appellate jurisdiction.‖ Doe v. United
States, 513 F.3d 1348, 1353 (Fed, Cir. 2008).

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7. APPEALABILITY OF DISCOVERY ORDERS

At pp. 785-786, please replace the second and third paragraphs of the section
with:

As noted above, in Mohawk Indus., Inc v. Carpenter, 130 S.Ct. 599 (2009), the
Court held that an order denying protection to material allegedly protected under the
attorney-client privilege is not immediately appealable under the collateral order doctrine.
The Court noted that if confronted with a ―particularly injurious or novel privilege
ruling,‖ immediate review might be available under § 1292 or by means of mandamus.
Cf. Agster v. Maricopa County, 422 F.3d 836 (9th Cir. 2005) (allowing interlocutory
appeal of order to produce document claimed to be privileged). See Cassandra Burke
Robertson, Appellate Review of Discovery Orders in Federal Court: A Suggested
Approach for Handling Privilege Claims, 81 WASH. L. REV. 733 (2006). A further
option is to defy the order and be held in contempt of court. Because the courts treat the
contempt judgment as a separate proceeding, that judgment is immediately appealable.
You will recall that this is the route used in Hickman v. Taylor and Ager, Chapter 8.
There, the lawyers and clients refused to turn over material that they believed was
protected from discovery. They were convicted of contempt and ordered to jail by the
trial judge. Although they were allowed to appeal immediately, this is obviously a risky
mechanism for securing an appeal.

At p. 793, please add the following new section:

E. Review of Judgments Outside of the Appeal Process

This chapter focuses on the review of judgments by means of an appeal to a

higher court. Earlier in the book we have seen two other mechanisms be which a
judgment might be reexamined. The first is a collateral attack where a second court
declines to enforce a prior judgment because the second court determines that the first
judgment is void. See Chapter 6 (C).

The second mechanism is to seek to reopen a judgment by means of Rule 60(b).

See Chapter 10 (C). Rue 60(b) (4) allows a party to seek relief from a judgment if it is
―void,‖ but as the Supreme Court has explained, the fact that a judgment is wrong does
not make it void.. United Student Aid Funds Inc. v. Espinosa, 130 S.Ct. 1367 (2010). The
case involved a bankruptcy judgment that discharged the debtor‘s student loan
obligations. Contrary to the requirements of the bankruptcy code, this discharge occurred
without the court finding ―undue hardship.‖ The creditor received notice of the discharge
but did not object. Later, after the credit sought to collect the discharged and the debtor
filed a motion to enforce the discharge, the creditor sought to reopen the judgment. The
Court held that even though the bankruptcy court‘s failure to find an undue hardship was
―legal error,‖ ―the order remains enforceable and binding on [the creditor] because [it]
had notice of the error and failed to object or timely appeal. Id. at 1380.

33
 ―A judgment is not void,‖ for example, ―simply because it is or may have
been erroneous.‘ Similarly, a motion under Rule 60(b)(4) is not a substitute
for a timely appeal.. Instead, Rule 60(b)(4) applies only in the rare instance
where a judgment is premised either on a certain type of jurisdictional error
or on a violation of due process that deprives a party of notice or the
opportunity to be heard. Cf. Chicot County Drainage Dist. v. Baxter State
Bank, 308 U.S. 371, 376 (1940);. The error United alleges falls in neither
category.

***
Rule 60(b)(4) strikes a balance between the need for finality of judgments
and the importance of ensuring that litigants have a full and fair opportunity
to litigate a dispute. Where, as here, a party is notified of a plan‘s contents
and fails to object to confirmation of the plan before the time for appeal
expires, that party has been afforded a full and fair opportunity to litigate, and
the party‘s failure to avail itself of that opportunity will not justify Rule
60(b)(4) relief. We thus agree with the Court of Appeals that the Bankruptcy
Court‘s confirmation order is not void

Id. at 1377-80.

34