The Virginia Business Litigation Blog
Federal courts have jurisdiction over civil actions that arise under the Constitution, laws or treaties of the United States (“federal question” jurisdiction) and in civil actions where the amount in controversy exceeds $75,000 and the matter is between citizens of different states (“diversity” jurisdiction). Parties must be completely diverse for diversity jurisdiction to apply, meaning that no party may share common citizenship with any party on the opposite side. A defendant may “remove” a case from state to federal court if the federal court has either federal question or diversity jurisdiction. The party seeking removal must establish that jurisdiction is proper, and if federal jurisdiction is doubtful, removal is not appropriate. In Terry Phillips Sales, Inc. v. Suntrust Bank, on a motion to remand due to failure of service on nondiverse defendants, the United States District Court for the Eastern District of Virginia retained jurisdiction of the case and ordered plaintiffs to properly serve the nondiverse defendants.
The plaintiffs in Sales were Virginia residents and employees of Suntrust Bank. They filed a complaint in a Richmond circuit court alleging multiple tort claims arising from an Employee Stock Ownership Plan. The complaint named Suntrust and three of its employees who plaintiffs alleged were Virginia citizens. Defendants contended that Suntrust is a citizen of Georgia with its principal place of business in Atlanta and that plaintiffs fraudulently joined the individual Virginia defendants to destroy diversity. Defendants removed the case based on diversity jurisdiction, and plaintiffs moved to remand the case back to state court.
Plaintiffs apparently had not properly served the nondiverse individual defendants but argued that their failure to do so was not evidence of fraudulent joinder as that those defendants were aware that plaintiffs intended to pursue their claims. Plaintiffs submitted an exhibit indicating that two of the defendants received at least some indication that they were being sued in the Richmond circuit court, but they did not provide any evidence that the third individual defendant had any notice.
Plaintiffs must serve a complaint on all defendants pursuant to Federal Rule of Civil Procedure 4. Rule 4(e)(1) states that a summons and complaint may be served by “following state law for serving a summons in an action brought in courts of general jurisdiction in the state where the district court is located or where service is made.” A plaintiff must abide by Rule4(e)(1) even 
if the defendant has actually received the complaint. Virginia has a “curing statute” which provides that process that has reached the defendant is sufficient even though not served as per Virginia law. However, Virginia courts have made it clear that the curing statute requires that the defendant received court issued process.
Here, plaintiffs’ evidence that two of the defendants knew they were being sued in state court is not sufficient. Plaintiffs did not assert that any of the individual defendants received court-issued process, so the curing statute did not apply. The court held that the individual defendants had not been served process.
In removal cases, a district court can issue any order and process necessary to bring before it all proper parties whether served by process issued by the state court or otherwise. The court may also retain jurisdiction over a case while defects in service are cured. Here, the court found that service of process would be timely as long as plaintiffs served defendants by April 29, 2014. Since proper service was still possible, the court ordered plaintiffs to serve the nondiverse defendants pursuant to Rule 4.