Recent Amendment to Fed. R. Civ. P. 7.1 – Required Citizenship Disclosures in Diversity Cases
Those of us who practice in federal court are familiar with the need to file a Corporate Disclosure statement when we appear for a party. But you may not know that the rule governing such disclosures, Federal Rule of Civil Procedure 7.1, was amended effective December 1, 2022, in a couple of significant ways.
The new rule now reads (with additions emphasized in red):
Rule 7.1. Disclosure Statement
(a) Who Must File; Contents.
(1) Nongovernmental Corporations. A nongovernmental corporate party or a nongovernmental corporation that seeks to intervene must file a statement that:
(A) identifies any parent corporation and any publicly held corporation owning 10% or more of its stock; or
(B) states that there is no such corporation.
(2) Parties or Intervenors in a Diversity Case.
In an action in which jurisdiction is based on diversity under 28 U.S.C. § 1332(a), a party or intervenor must, unless the court orders otherwise, file a disclosure statement. The statement must name — and identify the citizenship of — every individual or entity whose citizenship is attributed to that party or intervenor:
(A) when the action is filed in or removed to federal court, and
(B) when any later event occurs that could affect the court’s jurisdiction under § 1332(a).
(b) Time to File; Supplemental Filing.
A party, intervenor, or proposed intervenor must:
(1) file the disclosure statement with its first appearance, pleading, petition, motion, response, or other request addressed to the court; and
(2) promptly file a supplemental statement if any required information changes.
Let’s talk about these changes and what they mean.
The first change now requires a disclosure statement by a party seeking to intervene. Why? To avoid the waste of time and judicial resources that occurs when diversity-destroying citizenship is discovered late.
The second change requires all parties or intervenors in a diversity case (yes, this includes plaintiffs) to name and disclose the citizenship of every individual or entity whose citizenship is attributed to that party or intervenor. The party still must plead diversity grounds for jurisdiction in the complaint or answer. However, the thought behind the new requirement is that early and accurate disclosure of citizenship will lead to early and accurate determination of jurisdiction.
What are some situations where it would help to have early disclosure of the individuals or entities whose citizenship are attributed to the disclosing party? Limited liability corporations, partnerships, limited partnerships, and joint ventures are great examples – each of these takes on the citizenship of each of its owners, partners or joint venturers. Therefore, disclosure of the citizenship of those owners, partners or joint venturers is critical to accurately determining diversity jurisdiction. This determination can be particularly challenging for alternative entities that are part of large corporate families, but is required, nonetheless. Other, more basic examples of individuals or entities whose citizenship is attributed to the disclosing party include the legal representative of an estate, infant or incompetent, or where a party brings a direct action against an insurer. § 1332(c)(1) and (2).
While disclosures will often prevent the need for discovery on citizenship issues, discovery still may be appropriate in some situations, to test jurisdictional facts by inquiring about whether a disclosure’s list of persons is complete or accurate. The amended rule does not deal with what to do when disclosures indicate that the party or intervenor cannot ascertain the citizenship of every individual or entity whose citizenship may be attributed to it.
The rule recognizes that the court may limit the disclosure in appropriate circumstances. What might those be? For starters, further disclosures aren’t needed when a party reveals citizenship that defeats diversity jurisdiction. Or, substantial privacy interests could protect against disclosure of certain parties.
If an event occurs after initial filing in federal court or removal that requires the court to determine citizenship, a supplemental disclosure is required.