The Fifth Circuit Court of Appeal issued its opinion in Midcap Media Finance, L.L.C. v. Pathway Data, Incorporated, Number 18-50650 that remanded the case to the district court without reaching the merits of the case because the parties failed to establish diversity jurisdiction. Midcap is important because even though the parties agreed that the district court had diversity jurisdiction and proceeded through trial, it could be all for nothing if jurisdiction is unsatisfied.
Midcap sued Pathway and Pathway’s CEO in the Western District of Texas after Pathway and the CEO stopped making required payments under an agreement the parties entered into for online advertising. The district court concluded that Pathway breached the agreement and awarded damages to Midcap. But the district court found the CEO was not personally liable for the damages. Both parties appealed. After assessing their own jurisdiction, the Fifth Circuit concluded there was insufficient jurisdictional evidence.
The Fifth Circuit held that the parties failed to properly allege complete diversity, which means that Midcap must be a citizen of a different state than Pathway and its CEO. To prove citizenship, the parties must identify two prongs: (1) place and residence; and (2) an intent to make the place of residence one’s home. An allegation of residency alone is not enough to satisfy an allegation of citizenship.
After receiving supplemental briefing from the parties on jurisdiction, the Fifth Circuit found itself forced to remand the case back to the district court after the parties attempted to rely on allegations of the parties’ place of residence but not their citizenship. The Fifth Circuit also rejected an attempt to introduce new evidence of citizenship on appeal, which had not been presented to the district court. The Court remanded the case to the district court to give the parties the opportunity to amend their jurisdictional allegations and supplement the record with new jurisdictional evidence.
This case is an important reminder about the distinction between residence and citizenship. The takeaway is that an agreement between the parties that jurisdiction is satisfied is insufficient and the parties must sufficiently plead and prove federal jurisdiction or face being dismissed for lack of jurisdiction—even after trial.
By: Schyler Parker
The opinion can be found here: http://www.ca5.uscourts.gov/opinions/pub/18/18-50650.0.pdf
Texas Business Appeals 