With updated answer:
Essay Question 3.
P (a citizen of California) sues D (a citizen of Nevada) for negligence under California law in the Federal District Court for the Southern District of Texas. P’s suit concerns a car accident that took place between P and D in California. In his complaint, P asks for $1,000,000 in damages for the loss of his arm in the accident. P alleges that the source of personal jurisdiction over D is a plot of land owned by D (and worth $35,000) that is located in the Southern District of Texas. Under Texas law, limited appearances are not allowed: If the source of personal jurisdiction over the defendant is the defendant’s property, the defendant may limit a judgment against him to the value of the property only by defaulting. If the defendant appears to defend on the merits, he will be taken to have consented to in personam jurisdiction. D appears and makes a motion to dismiss for improper venue and for lack of subject-matter jurisdiction. How should D’s motions be decided?
We never spoke about either venue or SMJ for quasi-in-rem actions brought in federal court. But you should have been able to use some things that you did know to address these problems. But before getting to venue and SMJ, here is some background on quasi-in-rem actions in federal court. You had every reason to assume that a federal court in Texas should assert quasi-in-rem jurisdiction over a defendant to the same extent that this was allowed under Texas law. After all, this would appear to follow from Fed. R. Civ. P. 4(k)(1)(A), which mandates that a federal court look to the PJ law of the state where the federal court is located (with some exceptions irrelevant here). So if there is PJ in Texas state court under a quasi-in-rem theory, there would be PJ in federal court in Texas under the same theory. Furthermore, if there are no limited appearances allowed in Texas state court, there would be no limited appearances allowed in federal court in Texas as well. In fact, the matter is a bit more complicated than this, since the issue is not in fact governed by 4(k)(1)(A). There is special rule, 4(n), which I did not assign and you should not have known about, that governs quasi-in-rem actions in federal court. This rule allows federal courts to assert quasi-in-rem jurisdiction only if PJ is not possible in the district through reasonable efforts by other means under Rule 4. If these other methods fail, then a federal court may assert quasi-in-rem jurisdiction to the extent that it is allowed by the state where the federal court sits. Most federal courts have also concluded that if state law prohibits a limited appearance it is prohibited in federal court too. So 4(n) would provide a hurdle to asserting quasi-in-rem jurisdiction over D in federal court. But you had no reason to know this. You should have simply assumed that because quasi-in-rem is available in Texas state court, then it is available in federal court in Texas. And you should have assumed that because limited appearances are not allowed in Texas state court, they are not allowed in federal court in Texas.
Of course, if a Texas state court’s assertion of quasi-in-rem PJ is unconstitutional under the 14th Amendment, then a federal court in Texas cannot assert quasi-in-rem jurisdiction either. And Shaffer does put the constitutionality of quasi-in-rem actions into doubt to some extent. But this case involves real property, and quasi-in-rem PJ involving real property is the most likely to be constitutional. In any event, there did not appear to be an avenue in the question for discussing the constitutionality of quasi-in-rem jurisdiction.
Now to the question of venue. It looks like there should be no venue under 1391(b)(1), since D does not reside in the S.D. Tex. (he resides, that is, is domiciled, in Nevada). Nor is there venue under the first clause of 1391(b)(2), since no substantial part of the events or omissions giving rise to the claim occurred in the S.D. Tex. (the car accident was in California). BUT – and it is this that I was looking for – there is at least an argument for venue under the second clause of 1391(b)(2), which says that there is venue in a district in which a “substantial part of property that is the subject of the action is situated.” It is unlikely, however, that the property that is the source of PJ in a quasi-in-rem action should be understood as the subject of the action (although it would in an in rem action). The best answers considered the argument and then rejected it, but considering it was the most important thing. Finally there is no venue under 1391(b)(3) because are other districts that would have venue (e.g. D. Nev.). Notice that the venue statute makes quasi-in-rem of very limited usefulness in federal courts. Even if one is able to get PJ over a defendant in a district where his property is located for causes of action unrelated to the property, the action will be dismissed on venue grounds unless one can show that the defendant resides in the district or a substantial part of the events or omissions giving rise to the claim occurred there. These would usually have provided PJ on their own anyway. (The only exceptions would be if the defendant is an alien, who may be sued in any district, or the fallback provision of 1391(b)(3) applies, because there is no other district with venue.)
How about SMJ? The big question here is whether the jurisdictional minimum for diversity is met. It was a recognition of this problem that I was looking for. Should one look to the amount that the plaintiff is asking for or the value of the property that is the source of PJ? (This question has been largely unanswered by the federal courts.) I personally am inclined toward the value of the property that is the source of PJ. If D defaulted, for example, it would be legally certain that his liability would be only $35,000 and thus that the amount in controversy was below the jurisdictional minimum. As a result the default judgment would be void for lack of SMJ. If that's true, why shouldn't D be able to get it dismissed on SMJ grounds now? Of course, there is the added complication that limited appearances are not allowed under Texas law (which we are assuming would apply in federal court in Texas as well). Quite a few of you assumed that this meant that there must be in personam PJ over D now, since he appeared to argue that there was no venue or SMJ. That’s not so. To say that Texas law does not allow limited appearances means that it is not possible for D to appear and argue on the merits (that is concerning his liability in the accident), without submitting himself to in personam PJ. But that’s not what D has done. He has appeared to argue lack of SMJ and improper venue. Indeed even if there were a Texas law stating that an appearance to challenge SMJ or venue submitted the defendant to in personam PJ (and, to repeat, the prohibition on limited appearances is NOT such a law), the law would not apply in federal court. Why? There is a federal rule of civil procedure that is contrary to it. Rule 12(b) says, “No defense or objection is waived by joining it with one or more other defenses or objections in a responsive pleading or in a motion.” In other words, the defense of PJ is not waived by having appeared to argue lack of SMJ or improper venue. In short, D is still free to limit his liability to the value of the property attached. If that’s true, then it sounds like he has a good argument that there is no SMJ over him.