There is no place like home – Fifth Circuit clarifies citizenship vs. residence for diversity

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: