(a) Who must file; Contents.
(1) Nongovernmental Corporations. A nongovernmental corporate party or a nongovernmental corporation that seeks to intervene must file a statement that:
(A) identifies any parent corporation and any publicly held corporation owning 10% or more of its stock; or
(B) states that there is no such corporation.
(2) Parties or Intervenors in a Diversity Case. In an action in which jurisdiction is based on diversity under 28 U.S.C. § 1332(a), a party or intervenor must, unless the court orders otherwise, file a disclosure statement. The statement must name-and identify the citizenship of-every individual or entity whose citizenship is attributed to that party or intervenor:
(A) when the action is filed in or removed to federal court, and
(B) when any later event occurs that could affect the court’s jurisdiction under §1332(a).
(b) Time to file; Supplemental filing. A party, intervenor, or proposed intervenor must:
(1) file the disclosure statement with its first appearance, pleading, petition, motion, response, or other request addressed to the court; and
(2) promptly file a supplemental statement if any required information changes.
Summary and Explanation
Federal Rule of Civil Procedure 7.1 addresses the requirement for parties in federal civil litigation to disclose any corporate parent or publicly held corporation that owns 10% or more of the party’s stock. This rule aims to provide transparency regarding the entities that have a financial interest in the litigation outcome. Here’s a summary and explanation of its key aspects:
1. Disclosure Requirement
Parties must file a corporate disclosure statement identifying:
- Any parent corporation and any publicly held corporation owning 10% or more of the party’s stock, or
- That there is no such corporation.
- This disclosure helps the court identify potential conflicts of interest, such as in cases where a judge may have financial interests that could be affected by the case outcome.
2. Timing of Disclosure
- The disclosure statement must be filed at the outset of the litigation with the first pleading or other document filed by a corporate party, and it must be promptly updated if any information changes.
3. Non-corporate Parties
- While the rule primarily targets corporate entities, non-corporate parties, including individuals and other types of entities, are generally not required to make similar disclosures unless specifically ordered by the court.
4. Purpose and Importance
- Transparency: The rule is designed to ensure transparency in legal proceedings by revealing the presence of corporate entities that may have a substantial financial interest in the litigation.
- Conflict of Interest Prevention: By requiring these disclosures, the rule aids in preventing conflicts of interest, ensuring that judges recuse themselves from cases where they may have a financial interest.
- Fairness in Litigation: Understanding the corporate relationships behind the parties involved can help in assessing the dynamics of the case, including potential biases and influences.
Practical Implications
- Compliance with Rule 7.1 is crucial for maintaining the integrity of the judicial process. Failure to comply can lead to sanctions or other penalties.
- Attorneys must diligently investigate and disclose relevant corporate affiliations at the beginning of litigation to avoid any potential issues related to conflicts of interest.
In essence, Federal Rule of Civil Procedure 7.1 enhances the fairness and integrity of the judicial process by requiring transparent disclosure of significant corporate interests in parties to a lawsuit, helping to safeguard against conflicts of interest in the federal courts.
History
(As added Apr. 29, 2002, eff. Dec. 1, 2002; amended Apr. 30, 2007, eff. Dec. 1, 2007; Apr. 11, 2022, eff. Dec. 1, 2022.)
Committee Notes on Rules—2002
Rule 7.1 is drawn from Rule 26.1 of the Federal Rules of Appellate Procedure, with changes to adapt to the circumstances of district courts that dictate different provisions for the time of filing, number of copies, and the like. The information required by Rule 7.1(a) reflects the “financial interest” standard of Canon 3C(1)(c) of the Code of Conduct for United States Judges. This information will support properly informed disqualification decisions in situations that call for automatic disqualification under Canon 3C(1)(c). It does not cover all of the circumstances that may call for disqualification under the financial interest standard, and does not deal at all with other circumstances that may call for disqualification.
Although the disclosures required by Rule 7.1(a) may seem limited, they are calculated to reach a majority of the circumstances that are likely to call for disqualification on the basis of financial information that a judge may not know or recollect. Framing a rule that calls for more detailed disclosure will be difficult. Unnecessary disclosure requirements place a burden on the parties and on courts. Unnecessary disclosure of volumes of information may create a risk that a judge will overlook the one bit of information that might require disqualification, and also may create a risk that unnecessary disqualifications will be made rather than attempt to unravel a potentially difficult question. It has not been feasible to dictate more detailed disclosure requirements in Rule 7.1(a).
Rule 7.1 does not prohibit local rules that require disclosures in addition to those required by Rule 7.1. Developing experience with local disclosure practices and advances in electronic technology may provide a foundation for adopting more detailed disclosure requirements by future amendments of Rule 7.1.
Changes Made After Publication and Comments. The provisions that would require disclosure of additional information that may be required by the Judicial Conference have been deleted.
Committee Notes on Rules—2007 Amendment
The language of Rule 7.1 has been amended as part of the general restyling of the Civil Rules to make them more easily understood and to make style and terminology consistent throughout the rules. These changes are intended to be stylistic only.
Committee Notes on Rules—2022 Amendment
Rule 7.1(a)(1). Rule 7.1 is amended to require a disclosure statement by a nongovernmental corporation that seeks to intervene. This amendment conforms Rule 7.1 to similar recent amendments to Appellate Rule 26.1 and Bankruptcy Rule 8012(a).
Rule 7.1(a)(2). Rule 7.1 is further amended to require a party or intervenor in an action in which jurisdiction is based on diversity under 28 U.S.C. § 1332(a) to name and disclose the citizenship of every individual or entity whose citizenship is attributed to that party or intervenor. The disclosure does not relieve a party that asserts diversity jurisdiction from the Rule 8(a)(1) obligation to plead the grounds for jurisdiction, but is designed to facilitate an early and accurate determination of jurisdiction.
Two examples of attributed citizenship are provided by § 1332(c)(1) and (2), addressing direct actions against liability insurers and actions that include as parties a legal representative of the estate of a decedent, an infant, or an incompetent. Identifying citizenship in such actions is not likely to be difficult, and ordinarily should be pleaded in the complaint. But many examples of attributed citizenship arise from noncorporate entities that sue or are sued as an entity. A familiar example is a limited liability company, which takes on the citizenship of each of its owners. A party suing an LLC may not have all the information it needs to plead the LLC’s citizenship. The same difficulty may arise with respect to other forms of noncorporate entities, some of them familiar—such as partnerships and limited partnerships— and some of them more exotic, such as “joint ventures.” Pleading on information and belief is acceptable at the pleading stage, but disclosure is necessary both to ensure that diversity jurisdiction exists and to protect against the waste that may occur upon belated discovery of a diversity- destroying citizenship. Disclosure is required by a plaintiff as well as all other parties and intervenors.
What counts as an “entity” for purposes of Rule 7.1 is shaped by the need to determine whether the court has diversity jurisdiction under § 1332(a). It does not matter whether a collection of individuals is recognized as an entity for any other purpose, such as the capacity to sue or be sued in a common name, or is treated as no more than a collection of individuals for all other purposes. Every citizenship that is attributable to a party or intervenor must be disclosed.
Discovery should not often be necessary after disclosures are made. But discovery may be appropriate to test jurisdictional facts by inquiring into such matters as the completeness of a disclosure’s list of persons or the accuracy of their described citizenships. This rule does not address the questions that may arise when a disclosure statement or discovery responses indicate that the party or intervenor cannot ascertain the citizenship of every individual or entity whose citizenship may be attributed to it.
The rule recognizes that the court may limit the disclosure in appropriate circumstances. Disclosure might be cut short when a party reveals a citizenship that defeats diversity jurisdiction. Or the names of identified persons might be protected against disclosure to other parties when there are substantial interests in privacy and when there is no apparent need to support discovery by other parties to go behind the disclosure.
Disclosure is limited to individuals and entities whose citizenship is attributed to a party or intervenor. The rules that govern attribution, and the time that controls the determination of complete diversity, are matters of subject-matter jurisdiction that this rule does not address. A supplemental statement is required if an event occurs after initial filing in federal court or removal to it that requires a determination of citizenships as they exist at a time after the initial filing or removal.