Perpetuating Diversity Jurisdiction after Partial Dismissal: The Second Circuit’s Clarification in Banga v. Lustig (2025)

Introduction

Banga v. Lustig, 24-140-cv, is a Second Circuit summary order resolving a pro se plaintiff’s appeal from the Southern District of New York. Although the court affirmed most of the district court’s dismissals, it vacated the dismissal of one California Health & Safety Code § 123110 claim and, critically, clarified the proper treatment of state-law claims aggregated to satisfy the amount-in-controversy requirement in diversity cases. The decision rejects the notion that a district court may treat surviving aggregated claims as “supplemental” once other claims have been dismissed, thereby cementing a rule that diversity jurisdiction—once properly invoked—persists over any remaining aggregated state-law claim, irrespective of its individual monetary value.

Summary of the Judgment

Res Judicata: Affirmed dismissal of common-count, unjust-enrichment, constructive-fraud, and fiduciary-duty claims because a prior California judgment based on the same “primary right” barred relitigation.
Statutes of Limitation: Affirmed dismissal of emotional-distress and Business & Professions Code § 17200 claims and all but one § 123110 claim as untimely under California’s two- and three-year periods—applied via New York’s borrowing statute (CPLR 202).
Diversity Jurisdiction Error: Vacated the dismissal of the timely § 123110 claim. The district court misclassified that claim as “supplemental” when, under 28 U.S.C. § 1332(a) and precedent, it remained part of the original action whose aggregated amount once exceeded $75,000.
Disposition: Judgment affirmed in part, vacated in part, and case remanded for further proceedings on the single § 123110 claim.

Analysis

1. Precedents Cited and Their Influence

Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2001) – foundational for applying the res-judicata law of the state where the judgment would be rendered in diversity cases.
Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 600 F.3d 190 (2d Cir. 2010) – instructs federal courts sitting in New York to apply New York’s res-judicata and choice-of-law rules.
Boeken v. Philip Morris USA, Inc., 230 P.3d 342 (Cal. 2010) – articulates California’s three-prong test for res judicata; used to bar the majority of Banga’s claims.
Global Fin. Corp. v. Triarc Corp., 715 N.E.2d 482 (N.Y. 1999) – key “borrowing statute” case compelling timeliness under both New York and foreign limitations periods for non-residents.
Aryeh v. Canon Bus. Sols., Inc., 292 P.3d 871 (Cal. 2013) – “last element rule” for UCL accrual; used to hold Banga’s § 17200 claim time-barred.
Wolde-Meskel v. V.I.P. Community Services, Inc., 166 F.3d 59 (2d Cir. 1999) – the linchpin precedent explaining that claims aggregated to reach $75,000 are within “original” diversity jurisdiction and are not supplemental.
Additional authorities: TechnoMarine (res judicata review standard), Mazzei (Rule 12(b)(6) standard), Scherer (amount-in-controversy not diminished by affirmative defenses).

2. Legal Reasoning

The Second Circuit undertook a claim-by-claim analysis:

Res Judicata Application – By borrowing California’s claim-preclusion principles, the court concluded that Banga’s earlier California suit involved identical primary rights and culminated in a merits dismissal; hence four causes of action were barred.
Statute of Limitations – Through New York’s CPLR 202, the court applied California’s two-year (emotional distress) and three-year (§ 123110) periods, rejecting tolling theories (discovery rule, continuous accrual) beyond 2019.
Diversity Jurisdiction Ruling – Relying on Wolde-Meskel, the panel emphasized that § 1332(a) confers jurisdiction over a “civil action” as a whole; once the aggregated amount threshold is met at filing, each claim shares original jurisdiction. Post-filing dismissals do not convert surviving claims into “supplemental” claims under § 1367, nor do they oust the court of jurisdiction, even if the remaining individual claim is non-monetary or modest in value.

3. Potential Impact

Clarifies Jurisdictional Stability – District courts within the Second Circuit—and persuasive to other circuits—must treat any surviving aggregated claim as jurisdictionally secure, minimizing premature dismissals when the amount-in-controversy subsequently dips below $75,000.
Procedural Efficiency – Litigants can litigate residual state-law claims in federal court without refiling in state court, conserving judicial resources and avoiding statute-of-limitation traps.
Litigation Strategy – Plaintiffs must still plead good-faith aggregated damages at inception; defendants cannot later force remand or dismissal by knocking out high-value claims alone.
Res-Judicata Vigilance – The decision reaffirmed rigorous application of claim-preclusion standards, especially where plaintiffs recast old theories into new causes of action.

Complex Concepts Simplified

Res Judicata (Claim Preclusion): A bar against relitigating a claim that was or could have been raised in prior litigation ending in a final judgment between the same parties.
Statute of Limitations: A fixed time window in which a lawsuit must be filed; once expired, the claim is forever barred.
Diversity Jurisdiction (§ 1332): Federal courts may hear state-law disputes when parties are citizens of different states and the amount in controversy exceeds $75,000.
Aggregation Doctrine: A plaintiff may combine several state-law claims’ values to surpass the $75,000 threshold; the total, not each claim, is what counts.
Supplemental Jurisdiction (§ 1367): Allows federal courts to hear state-law claims related to a claim within original federal jurisdiction. But if such state claims were part of the original diversity aggregation, they are not “supplemental.”
Borrowing Statute (CPLR 202): New York requires non-resident plaintiffs to satisfy both New York’s and the foreign state’s limitation periods.

Conclusion

Banga v. Lustig underscores two core lessons. First, res judicata and statutes of limitation remain formidable gatekeepers against repetitive or stale claims, especially when prior state proceedings exist. Second—and more novel—the Second Circuit decisively reaffirmed that once diversity jurisdiction is properly invoked through aggregation, it endures even after high-value claims fall away. This rule safeguards litigants from jurisdictional whiplash and ensures that federal courts retain authority to resolve the entirety of a civil action unless diversity itself (citizenship) was flawed from the beginning. Practitioners should heed the decision when crafting complaints and when moving to dismiss, recognizing that post-filing developments seldom strip a federal court of diversity jurisdiction over surviving aggregated claims.