Second Circuit Clears Up Federal Diversity Question for Lawful Permanent Residents
In a recent decision, the Second Circuit addressed the long-standing issue of whether U.S. courts have jurisdiction to hear disputes between lawful permanent residents and foreign entities under 28 U.S.C. § 1332.
By: Aïta Seck, Staff Member
The United States Court of Appeals for the Second Circuit ruled in Tagger v. Strauss Group Ltd. that 28 U.S.C. § 1332 does not confer jurisdiction in disputes between lawful permanent residents and foreign entities.
Tagger arose out of a dispute over a 1999 settlement agreement executed between the parties in Tel Aviv, Israel. In 2018, the plaintiff Benjamin Tagger sued defendant Strauss Group Limited (parent company of Sabra Dipping Co.), alleging various common law contract and tort claims arising out of the settlement agreement. Tagger is an Israeli citizen and lawful permanent resident of the United States living in Brooklyn, New York. Strauss is incorporated and headquartered in Israel. Tagger brought the case in the United States District Court for the Eastern District of New York, asserting federal diversity jurisdiction on the basis of diversity of citizenship.
Under 28 U.S.C. § 1332, federal district courts have jurisdiction to hear civil cases where more than $75,000 is in controversy between “citizens of a State and citizens or subjects of a foreign state.” Because Strauss group is a foreign corporation, the District Court’s decision hinged on whether Tagger is a citizen of New York for purposes of diversity jurisdiction. The District Court ruled that he is not, and thus that it did not have jurisdiction to hear the case. The Second Circuit agreed on appeal.
The question of whether federal courts have jurisdiction to hear disputes between lawful permanent residents and foreign parties under § 1332 has long been a topic of controversy. In 1988, Congress amended § 1332 to state that “an alien admitted to the United States for permanent residence shall be deemed a citizen of the State in which such alien is domiciled.” This clause, known as the “deeming clause,” led to uncertainty and divergent court rulings on the question of whether lawful permanent residents would be considered “aliens” when suing other aliens. After several circuit splits on the issue, Congress amended § 1332 to remove the “deeming clause” and to state that jurisdiction exists in suits between “citizens of a State and citizens or subjects of a foreign state, except that the district courts shall not have original jurisdiction under this subsection of an action between citizens of a State and citizens or subjects of a foreign state who are lawfully admitted for permanent residence in the United States and are domiciled in the same State.” The Tagger panel interpreted this amendment as “intended to ensure that permanent resident aliens would no longer be deemed to be U.S. citizens for purposes of diversity jurisdiction[.]” Accordingly, the court held that Tagger is an alien for the purposes of the suit, and concluded that § 1332 does not grant jurisdiction in a suit between a permanent resident alien and a non-resident alien.
Tagger argued in the alternative that the district court had jurisdiction under the “access to courts” provision of the 1951 Treaty of Friendship, Commerce and Navigation between the United States and Israel (FCN Treaty). The FCN Treaty stipulates that both U.S. and Israeli nationals shall be accorded “national treatment and most-favored-nation treatment with respect to access to the courts.” The Second Circuit previously held in Blanco v. United States that the “access” provisions conferred by international commercial treaties were intended to grant equal treatment with regard to factors like “filing fees, the employment of lawyers, legal aid, [and] security for costs and judgment.” Further, the Supreme Court interpreted “national treatment” to mean nothing more than the treatment of foreign nationals or corporations as equal to domestic nationals or corporations. Based on this precedent, the court rejected Tagger’s argument and held that the FCN Treaty does not confer jurisdiction.
The court’s ruling highlights several important issues in transnational law. First, it aligns with a trend in U.S. courts to treat the issue of extraterritoriality with caution and to apply U.S. laws narrowly in foreign contexts. In this case, the court limited not only the application of federal diversity jurisdiction but also the application of a bilateral treaty between the United States and Israel. Though the Second Circuit based its ruling solely on statutory interpretation, the decision is in line with the goal of limiting extraterritoriality, as expressed by Supreme Court guidance urging lower courts to presume that federal statutes apply only domestically.
Second, in light of the United States’ lack of formal recognition of dual citizenship, the court’s ruling presents a potential issue for lawful permanent residents who enjoy most, but not all, of the same benefits afforded U.S. citizens. In the past, courts have refused to grant federal diversity jurisdiction on the basis of dual citizenship. (This topic was discussed in an earlier Bulletin post.) The Department of Homeland Security estimates that there are 13.6 million lawful permanent residents living in the U.S., with as many as 9.2 million eligible for naturalization. Since more than 60% of lawful permanent residents have settled or currently reside in California, New York, Texas, and Florida, the issue is likely to arise in other circuits as well. Whether the ruling will encourage or deter those seeking to obtain U.S. citizenship is unclear. But the court’s decision will certainly lighten the load of the Second Circuit’s district courts, particularly the Southern District of New York — the largest and busiest federal trial court in the country.
Aïta Seck is a second-year student at Columbia Law School and a Staff member of the Columbia Journal of Transnational Law. She graduated from the University of Virginia in 2017.