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Hypothetical Statutory Jurisdiction

By Joshua S. Stillman – December 16, 2015

As students and practitioners, we are taught that the federal courts are courts of limited jurisdiction, that subject matter limitations are inviolable, and that federal courts must assure themselves of their subject matter jurisdiction prior to issuing any ruling on a case’s merits. E.g., Ex parte McCardle, 74 U.S. 506, 514 (1868). However, the actual practice in the federal courts is substantially more complex than the common wisdom might suggest. For instance, must a federal court always assure itself of its subject matter jurisdiction before dismissing on the merits, even if the jurisdictional issue is tricky, yet it is abundantly clear that the plaintiff—the party invoking federal jurisdiction—will lose on the merits regardless?

Prior to 1998, the lower federal courts had generally adopted the practice of bypassing jurisdictional issues to dismiss on the merits in such cases. Scott C. Idleman, “The Demise of Hypothetical Jurisdiction in the Federal Courts,” 52 Vand. L. Rev. 235, 237 & n.5 (1999). But in Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (1998), the Supreme Court held that the doctrine of hypothetical jurisdiction violated constitutional limitations on the federal courts’ authority. The Court explained that “[f]or a court to pronounce upon the meaning or the constitutionality of a state or federal law when it has no jurisdiction to do so is, by very definition, for a court to act ultra vires.” Id. at 101–2. Yet, the often-ambiguous opinion posed difficult questions of its own about when, if ever, hypothetical jurisdiction remained permissible. Idleman, supra, at 240.

Soon after, most circuits read Steel Co. narrowly such that it applied only to issues of Article III jurisdiction, and courts remained free to bypass issues of statutory subject matter jurisdiction to dismiss cases on clear merits grounds. Courts have used this doctrine of hypothetical statutory jurisdiction to bypass a host of statutory issues—from issues under the diversity jurisdiction statute, e.g., Umsted v. Umsted, 446 F.3d 17, 20 n.2 (1st Cir. 2006), to those under the Foreign Sovereign Immunities Act, e.g., Chalabi v. Hashemite Kingdom of Jordan, 543 F.3d 725, 728 (D.C. Cir. 2008). Only the Eleventh Circuit has held that Steel Co. prohibits the practice, reasoning that federal courts “possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree.” Friends of the Everglades v. EPA, 699 F.3d 1280, 1288–89 (11th Cir. 2012) (internal quotation marks and citations omitted; emphasis added).  

The majority of circuits have it wrong: Article III as interpreted by Steel Co. and its progeny prohibits hypothetical statutory jurisdiction. And while the doctrine has been justified primarily by efficiency concerns, hypothetical statutory jurisdiction can lead to highly inefficient outcomes in certain circumstances.

Hypothetical Statutory Jurisdiction Is Unconstitutional

The doctrine is contrary to fundamental Article III principles. The doctrine of hypothetical statutory jurisdiction must rest, at bottom, on the premise that statutory jurisdictional limitations are in some way inferior to their constitutional counterparts, such that Steel Co. bans only hypothetical assumptions of the latter. See Michael Coenen, “Constitutional Privileging,” 99 Va. L. Rev. 683, 709 (2013). But this is incorrect. The constitutional design itself dictates that statutory and constitutional components of subject matter jurisdiction are equally necessary for a federal court to exercise jurisdiction. And both are vitally important for safeguarding the separation of powers and federalism values at the core of Article III.

At the Constitutional Convention, the question of whether the new Constitution would create lower federal courts proved highly controversial. Martin H. Redish & Curtis E. Woods, “Congressional Power to Control the Jurisdiction of Lower Federal Courts: A Critical Review and a New Synthesis,” 124 U. Penn. L. Rev. 45, 52 (1975). Opponents attacked the idea as an unnecessary encroachment on state sovereignty and voted down a plan to establish lower federal courts. Id. at 53–54. In response, James Madison proposed a plan whereby Congress would be empowered but not required to create lower federal courts. Id. at 54. The “Madisonian Compromise” was enshrined in Article III’s provision that the “judicial Power of the United States, shall be vested . . . in such inferior Courts as the Congress may from time to time ordain and establish.” U.S. Const. Art. III. § 1 (emphasis added).  

The predominant understanding of the Madisonian Compromise is that Congress’s greater power to refrain from creating or to abolish the lower federal courts includes the lesser power to restrict their jurisdiction. Redish & Woods, supra, at 54. Per the Supreme Court, “[c]ourts created by statute can have no jurisdiction but such as the statute confers.” Sheldon v. Sill, 49 U.S. 441, 449 (1850). Though the Supreme Court was established by Article III, Congress can exercise control over its appellate jurisdiction through the Constitution’s Exceptions Clause in section 2 of Article III. Idleman, supra, at 250–51 & n.50. While there is a rich academic debate addressing how far Congress may go in exercising these powers,it is settled that the federal courts’ ability to reach the merits of a case depends on the absence of a constitutionally valid statutory jurisdictional restriction. See generally Erwin Chemerinsky, Federal Jurisdiction 186–216 (6th ed. 2012).

Thus, Article III jurisdiction and statutory jurisdiction are equally essential for the federal courts to exercise subject matter jurisdiction. As the Supreme Court has admonished, “[t]he limits upon federal jurisdiction, whether imposed by the Constitution or by Congress, must be neither disregarded nor evaded.” Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374 (1978) (emphasis added). Therefore, contrary to the basic premise underlying hypothetical statutory jurisdiction, statutory jurisdiction is no less essential to a federal court’s exercise of jurisdiction.

Moreover, like their constitutional counterparts, statutory jurisdictional limitations promote important separation-of-powers and federalism values. Giving Congress control over the scope of federal jurisdiction allows Congress to allocate cases between the state and federal judicial systems and to amend that judgment as circumstances require. See generally Paul M. Bator, “Congressional Power over the Jurisdiction of the Federal Courts,” 27 Vill. L. Rev. 1030, 1031 (1982). And Congress, unlike the courts, possesses the democratic legitimacy and institutional expertise and capacity to do so. See, e.g., Lumen N. Mulligan, “Gully and the Failure to Stake a 28 U.S.C. § 1331 ‘Claim’,” 89 Wash. L. Rev. 441, 454–55 & nn.70–74 (2014).

Congress’s control over the federal judiciary also is one of Congress’s primary “checks” on the judicial branch. Allowing the popularly elected branches of government to set limits on the judiciary, the members of which enjoy life tenure and are not directly accountable to the voters, promotes the democratic legitimacy of federal rulings. See Charles L. Black, Jr., “The Presidency and Congress,” 32 Wash. & Lee L. Rev. 841, 846 (1975). Thus, statutory jurisdictional restrictions, like their constitutional counterparts, play a vitally important role in promoting the separation-of-powers and federalism values at the heart of Article III. Hypothetical statutory jurisdiction ignores this fact.

Subsequent Supreme Court cases undermine hypothetical statutory jurisdiction. The Supreme Court elaborated on Steel Co. in Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574 (1999), and in Sinochem International Co. Ltd. v. Malaysia International Shipping Corp., 549 U.S. 422 (2007), clarifying that federal courts may dismiss on certain “threshold” grounds such as lack of personal jurisdiction and forum non conveniens prior to reaching issues of subject matter jurisdiction. Ruhrgas, 526 U.S. at 584–85; Sinochem, 549 U.S. at 432–33. In doing so, the Court drew a line between “threshold” issues such as personal jurisdiction and forum non conveniens—which may be decided before subject matter jurisdiction issues—and merits issues, which may not. See Sinochem, 549 U.S. at 431. The Court emphasized that courts are powerless to reach the merits in the absence of subject matter jurisdiction, without giving any hint that statutory jurisdictional restrictions are an exception: “[S]ubject-matter jurisdiction necessarily precedes a ruling on the merits,” Ruhrgas, 526 U.S. at 584, and “[j]urisdiction is vital only if the court proposes to issue a judgment on the merits,” Sinochem, 549 U.S. at 431 (internal quotation marks omitted).

Moreover, Ruhrgas and Sinochem involved statutory issues of subject matter jurisdiction. Ruhrgas, 526 U.S. at 584; Sinochem, 549 U.S. at 427–28. If Steel Co.'s rule banning hypothetical jurisdiction did not apply to statutory jurisdictional issues, the Court would have had no occasion to address whether the rule prevents courts from reaching threshold issues prior to those statutory jurisdictional issues. Rather, it would have been much simpler and more in keeping with values of judicial minimalism for the Court to announce that Steel Co. did not apply to statutory jurisdictional questions. See Alan M. Trammell, “Jurisdictional Sequencing,” 47 Ga. L. Rev. 1099, 1126–27 (2013). Thus, Ruhrgas and Sinochem strongly suggest that hypothetical statutory jurisdiction falls within the ambit of Steel Co. and is impermissible.

In addition, the primary doctrinal argument for hypothetical statutory jurisdiction has been undermined by the Supreme Court’s recent ruling in Lexmark International, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014). This argument reasoned that (1) Steel Co. had approved of a prior Supreme Court case in which the Court bypassed an issue of statutory standing—whether the plaintiff may bring suit under the statute in question—to dismiss on the merits; (2) issues of statutory standing are jurisdictional; so (3) Steel Co. approved of hypothetical statutory jurisdiction. See, e.g., Bowers v. Nat’l Collegiate Athletic Ass’n, 346 F.3d 402, 415–16 (3d Cir. 2003); Joshua Schwartz, Note, “Limiting Steel Co.: Recapturing a Broader ‘Arising Under’ Jurisdictional Question,” 104 Colum. L. Rev. 2255, 2270 (2004). But in Lexmark, the Court explained that statutory standing is simply an issue of “whether a legislatively conferred cause of action encompasses a particular plaintiff’s claim” and therefore goes to the merits rather than jurisdiction. Lexmark, 134 S. Ct. at 1387 & n.3. In light of Lexmark, the prior Supreme Court case was simply a case in which two merits issues were reordered, and Steel Co.’s endorsement of the case provides no support for hypothetical statutory jurisdiction.

In sum, in light of fundamental constitutional principles and subsequent Supreme Court cases, hypothetical statutory jurisdiction is unconstitutional.

Hypothetical Statutory Jurisdiction Can Be Highly Inefficient
The primary argument in favor of hypothetical statutory jurisdiction is based on efficiency: “Whom does it help to have appellate judges spend their time and energy puzzling over the correct answer to an intractable jurisdictional matter, when (assuming an easy answer on the substantive merits) the same party would win or lose regardless?” Steel Co., 523 U.S. at 110 (Breyer, J., concurring in part and concurring in the judgment). Yet, there are certain factual scenarios in which hypothetical statutory jurisdiction is the less efficient course.

First, if a court invokes hypothetical statutory jurisdiction to dismiss a case, the plaintiff is generally permitted to file an amended complaint. Fed. R. Civ. P. 15(a)(2). If the plaintiff supplements its merits allegations so that they will survive a motion to dismiss, the court will be required to confront the jurisdictional issue. If there is no jurisdiction, the court may have reached the merits without the power or the need to do so, and also invited a needless amended complaint and further motion practice, wasting both party and judicial resources.  

Similarly, if the dismissal based on hypothetical statutory jurisdiction is appealed and the court of appeals reverses, finding that the allegations state a claim on the merits, either the district court on remand or the court of appeals itself will have to address the jurisdictional issue. Again, if jurisdiction is lacking, both the district court and the appellate court needlessly considered the merits (without power to do so), and the parties briefed an unnecessary appeal on the merits.  

Second, hypothetical statutory jurisdiction creates an incentive to re-litigate subject matter jurisdiction in follow-on litigation. Prior to Steel Co., the courts developed the doctrine that if a court assumed hypothetical jurisdiction and dismissed on the merits, the judgment would be “entitled to preclusive effect” and would be with prejudice to refiling the case in another court “as long as the District Court did not ‘plainly usurp jurisdiction’ over the action.” Cantor Fitzgerald, L.P. v. Peaslee, 88 F.3d 152, 155 n.2 (2d Cir. 1996) (emphasis added). Although designed to prevent a judgment from being questioned for lack of subject matter jurisdiction in all but the most egregious cases, this vague standard invites a plaintiff to challenge the first court’s jurisdiction in follow-on litigation before a second judge, who might see matters very differently than the first court. Plaintiffs may have a high enough chance of success under a vague standard before a different judge to lead them to challenge the prior ruling—even if only to extract a settlement as the price for finality. Even if the judgment is afforded preclusive effect by the second court, the re-litigation costs to the parties and to the second court could be substantial.

Nor is it unlikely that a second court would find a clear usurpation of jurisdiction. Hypothetical statutory jurisdiction is designed to be used only when the jurisdictional issue is difficult. Idleman, supra, at 245–46. But prior to Steel Co., many courts relaxed this requirement substantially, invoking the doctrine whenever it was expedient. See id. at 260–70. As hypothetical statutory jurisdiction is prone to the same kind of abuse, a second court may have little difficulty finding that the first court clearly usurped jurisdiction when it bypassed what the second court deems to be a clear jurisdictional bar. And should that happen, the efficiency costs will be severe—both the jurisdictional issue and the merits may ultimately be litigated twice.

More fundamentally, hypothetical statutory jurisdiction amounts to an unconstitutional exercise of judicial power, as discussed above. If that is true, then “every exercise of hypothetical jurisdiction is, by its very nature, a usurpation of jurisdiction,” and no such ruling should be entitled to preclusive effect. Id. at 265. Should the second court correctly apply Steel Co. and its progeny and find that the first court clearly usurped jurisdiction on this basis, then the parties may likewise end up litigating jurisdiction and the merits twice. In all of these circumstances, it would have been much more efficient for the first court to have confirmed its statutory subject matter jurisdiction before reaching the merits.  

In sum, hypothetical statutory jurisdiction is contrary to basic Article III principles and is strongly undermined by recent Supreme Court precedent. While it can no doubt be an efficient way to dispose of many cases, it can also lead to highly inefficient outcomes—in part because the practice is unconstitutional, casting doubt on a judgment’s preclusive effect. Practitioners faced with the possibility of a court invoking hypothetical statutory jurisdiction should be aware of these possible outcomes and shape their litigation strategies accordingly.

Keywords: litigation, appellate practice, hypothetical statutory jurisdiction, subject matter jurisdiction, Article III

Joshua S. Stillman is an associate at Jones Day in New York, New York.

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