CARDEN ET AL. v. ARKOMA ASSOCIATES
No. 88-1476
Supreme Court of the United States
Argued November 7, 1989—Decided February 27, 1990
494 U.S. 185
Richard K. Ingolia argued the cause for petitioners. With him on the briefs was Kenneth J. Berke.
Mitchell J. Hoffman argued the cause for respondent. With him on the brief was Max J. Cohen.
JUSTICE SCALIA delivered the opinion of the Court.
The question presented in this case is whether, in a suit brought by a limited partnership, the citizenship of the limited partners must be taken into account to determine diversity of citizenship among the parties.
I
Respondent Arkoma Associates (Arkoma), a limited partnership organized under the laws of Arizona, brought suit on a contract dispute in the United States District Court for the Eastern District of Louisiana, relying upon diversity of citizenship for federal jurisdiction. The defendants, C. Tom Carden and Leonard L. Limes, citizens of Louisiana, moved to dismiss, contending that one of Arkoma‘s limited partners was also a citizen of Louisiana. The District Court denied the motion but certified the question for interlocutory appeal, which the Fifth Circuit declined. Thereafter Magee Drilling Company intervened in the suit and, together with the original defendants, counterclaimed against Arkoma under Texas law. Following a bench trial, the District Court awarded Arkoma a money judgment plus interest and attorney‘s fees; it dismissed Carden and Limes’ counterclaim as well as Magee‘s intervention and counterclaim. Carden, Limes, and Magee (petitioners here) appealed, and the Fifth Circuit af
II
A
We have often had to consider the status of artificial entities created by state law insofar as that bears upon the existence of federal diversity jurisdiction. The precise question posed under the terms of the diversity statute is whether such an entity may be considered a “citizen” of the State under whose laws it was created.1 A corporation is the par
“On looking into the record we find no satisfactory showing as to the citizenship of the plaintiff. The allegation of the amended petition is, that the United States Express Company is a joint stock company organized under a law of the State of New York, and is a citizen of that State. But the express company cannot be a citizen of New York, within the meaning of the statutes regulating jurisdiction, unless it be a corporation. The allegation that the company was organized under the laws of New York is not an allegation that it is a corporation. In fact the allegation is, that the company is not a corporation, but a joint stock company—that is, a mere partnership.” Id., at 682.
Similarly, in Great Southern Fire Proof Hotel Co. v. Jones, 177 U. S. 449 (1900), we held that a “limited partnership association“—although possessing “some of the characteristics of a corporation” and deemed a “citizen” by the law creating it—may not be deemed a “citizen” under the jurisdictional rule established for corporations. Id., at 456. “That rule must not be extended.” Id., at 457. As recently as 1965, our unanimous opinion in Steelworkers v. R. H. Bouligny, Inc., 382 U. S. 145, reiterated that “the doctrinal wall of Chapman v. Barney,” id., at 151, would not be breached.
The one exception to the admirable consistency of our jurisprudence on this matter is Puerto Rico v. Russell & Co., 288 U. S. 476 (1933), which held that the entity known as a sociedad en comandita, created under the civil law of Puerto
B
As an alternative ground for finding complete diversity, Arkoma asserts that the Fifth Circuit correctly determined its citizenship solely by reference to the citizenship of its general partners, without regard to the citizenship of its limited partners. Only the general partners, it points out, “manage the assets, control the litigation, and bear the risk of liability for the limited partnership‘s debts,” and, more broadly, “have exclusive and complete management and control of the operations of the partnership.” Brief for Respondent 30, 36. This approach of looking to the citizenship of only some of the members of the artificial entity finds even less support in our precedent than looking to the State of organization (for which one could at least point to Russell). We have never held that an artificial entity, suing or being sued in its own name, can invoke the diversity jurisdiction of the federal courts based on the citizenship of some but not all of its members. No doubt some members of the joint stock company in Chapman, the labor union in Bouligny, and the limited partnership association in Great Southern exercised greater control over their respective entities than other members. But such considerations have played no part in our decisions.
To support its approach, Arkoma seeks to press Navarro into service once again, arguing that just as that case looked to the trustees to determine the citizenship of the business trust, so also here we should look to the general partners, who have the management powers, in determining the citizenship of this partnership. As we have already explained, however, Navarro had nothing to do with the citizenship of
The dissent supports Arkoma‘s argument on this point, though, as we have described, under the rubric of determining which parties supposedly before the Court are the real parties, rather than under the rubric of determining the citizenship of the limited partnership. See n. 1, supra. The dissent asserts that “[t]he real party to the controversy approach,” post, at 201—by which it means an approach that looks to “control over the conduct of the business and the ability to initiate or control the course of litigation,” post, at 204—“has been implemented by the Court both in its oldest and in its most recent cases examining diversity jurisdiction with respect to business associations.” Post, at 201. Not a single case the dissent discusses, either old or new, supports that assertion. Deveaux, which was in any event overruled by Letson, seems to be applying not a “real party to the controversy” test, but rather the principle that for jurisdictional purposes the corporation has no substance, and merely “represents” its shareholders, see 5 Cranch, at 90–91; but even if it can be regarded as applying a “real party to the controversy” test, it deems that test to be met by all the shareholders of the corporation, without regard to their “control over the operation of the business.” Marshall, which as we have discussed rerationalized Letson‘s holding that a corporation was a “citizen” in its own right, contains language quite clearly adopting a “real party to the controversy” approach, and arguably even adopting a “control” test for that status. (“[T]he court . . . will look behind the corporate or collective name to find the persons who act as the representatives, curators, or trustees . . . .” 16 How., at 328–329 (emphasis added). “The presumption arising from the habitat of a corporation in the place of its creation [is] conclusive as to the residence or citizenship of those who use the corporate name and exercise the faculties conferred by it . . . .” Id., at 329 (emphasis added).) But as we have also discussed, and as
The dissent finds its position supported, rather than contradicted, by the trilogy of Chapman, Great Southern, and Bouligny—cases that did involve juridical persons but that did not apply “real party to the controversy” analysis, much less a “control” test as the criterion for that status. In those cases, the dissent explains, “the members of each association held equivalent power and control over the association‘s assets, business, and litigation.” Post, at 202. It seeks to establish this factual matter, however, not from the text of the opinions (where not the slightest discussion of the point appears) but, for Chapman, by citation of scholarly commentary dealing with the general characteristics of joint stock company agreements, with no reference to (because the record does not contain) the particular agreement at issue in the case, post, at 202–203; for Great Southern, by citation of scholarly commentary dealing with the general characteristics of Pennsylvania limited partnership associations, and citation of Pennsylvania statutes, post, at 203; and, for Bouligny, by nothing more than the observation that “[t]here was no indication that any of the union members had any greater power over the litigation or the union‘s business and
“[T]he failure of parties to urge objections [to diversity of citizenship] cannot relieve this court from the duty of ascertaining from the record whether the Circuit Court could properly take jurisdiction of this suit. . . . ‘The rule . . . is inflexible and without exception, which requires this court, of its own motion, to deny its own jurisdiction, and, in the exercise of its appellate power, that of all other courts of the United States, in all cases where such jurisdiction does not affirmatively appear in the record on which, in the exercise of that power, it is called to act.‘” 177 U. S., at 453 (quoting Mansfield, C. & L. M. R. Co. v. Swan, 111 U. S. 379, 382 (1884)).
If, as the dissent contends, these three cases were applying a “real party to the controversy” test governed by “control” over the associations, so that the citizenship of all members would be consulted only if all members had equivalent control, it is inconceivable that the existence of equivalency, or at least the absence of any reason to suspect nonequivalency, would not have been mentioned in the opinions. Given what 180 years of cases have said and done, as opposed to what they might have said, it is difficult to understand how the dissent can characterize as “newly formulated” the “rule that the Court will, without analysis of the particular entity before it, count every member of an unincorporated association for purposes of diversity jurisdiction.” Post, at 199.
In sum, we reject the contention that to determine, for diversity purposes, the citizenship of an artificial entity, the court may consult the citizenship of less than all of the entity‘s members. We adhere to our oft-repeated rule that diversity jurisdiction in a suit by or against the entity depends on the citizenship of “all the members,” Chapman, 129 U. S., at 682, “the several persons composing such association,” Great Southern, 177 U. S., at 456, “each of its members,” Bouligny, 382 U. S., at 146.
C
The resolutions we have reached above can validly be characterized as technical, precedent-bound, and unresponsive to policy considerations raised by the changing realities of business organization. But, as must be evident from our earlier discussion, that has been the character of our jurisprudence in this field after Letson. See Currie, The Federal Courts and the American Law Institute, 36 U. Chi. L. Rev. 1, 35 (1968). Arkoma is undoubtedly correct that limited partnerships are functionally similar to “other types of organizations that have access to federal courts,” and is perhaps correct that “[c]onsiderations of basic fairness and substance over form require that limited partnerships receive similar treatment.” Brief for Respondent 33. Similar arguments were made in Bouligny. The District Court there had upheld removal because it could divine “no common sense reason for treating an unincorporated national labor union differently from a corporation,” 382 U. S., at 146, and we recognized that that contention had “considerable merit,” id., at 150. We concluded, however, that “[w]hether unincorporated labor unions ought to be assimilated to the status of corporations for diversity purposes,” id., at 153, is “properly a matter for legislative consideration which cannot adequately or appropriately be dealt with by this Court,” id., at 147. In other words, having entered the field of diversity policy with regard to artificial entities once (and forcefully) in Letson, we have left further adjustments to be made by Congress.
Congress has not been idle. In 1958 it revised the rule established in Letson, providing that a corporation shall be deemed a citizen not only of its State of incorporation but also “of the State where it has its principal place of business.”
Thus, the course we take today does not so much disregard the policy of accommodating our diversity jurisdiction to the changing realities of commercial organization, as it honors the more important policy of leaving that to the people‘s elected representatives. Such accommodation is not only performed more legitimately by Congress than by courts, but it is performed more intelligently by legislation than by interpretation of the statutory word “citizen.” The 50 States have created, and will continue to create, a wide assortment of artificial entities possessing different powers and characteristics, and composed of various classes of members with varying degrees of interest and control. Which of them is entitled to be considered a “citizen” for diversity purposes, and which of their members’ citizenship is to be consulted, are questions more readily resolved by legislative prescription than by legal reasoning, and questions whose complexity is particularly unwelcome at the threshold stage of determining whether a court has jurisdiction. We have long since decided that, having established special treatment for corporations, we will leave the rest to Congress; we adhere to that decision.
III
Arkoma argues that even if this Court finds complete diversity lacking with respect to Carden and Limes, we should nonetheless affirm the judgment with respect to Magee because complete diversity indisputably exists between Magee and Arkoma. This question was not considered by the Court of Appeals. We decline to decide it in the first instance, and leave it to be resolved by the Court of Appeals on remand.
It is so ordered.
JUSTICE O‘CONNOR, with whom JUSTICE BRENNAN, JUSTICE MARSHALL, and JUSTICE BLACKMUN join, dissenting.
The only potentially nondiverse party in this case is a limited partner. All other parties, including the general partners and the limited partnership itself, assuming it is a citizen, are diverse. Thus, the Court has before it a single question—whether the citizenship of a limited partner must be counted for purposes of diversity jurisdiction. The Court first addresses whether the limited partnership is a “citizen.” I do not consider that issue, because even if we were to hold that a limited partnership is a citizen, we are still required to consider which, if any, of the other citizens before the Court as members of Arkoma Associates are real parties to the controversy, i. e., which parties have control over the subject of and litigation over the controversy. See Marshall v. Baltimore & Ohio R. Co., 16 How. 314, 328 (1854). Application of that test leads me to conclude that limited partners are not real parties to the controversy and, therefore, should not be counted for purposes of diversity jurisdiction.
I
The Court asserts that “[w]e have long since decided” to leave to Congress the issue of the proper treatment of unincorporated associations for diversity purposes, because the issue of which business association “is entitled to be considered a ‘citizen’ for diversity purposes, and which of their members’ citizenship is to be consulted, are questions more readily resolved by legislative prescription than by legal reasoning.” Ante, at 197. That assertion is insupportable in light of Navarro Savings Assn. v. Lee, 446 U. S. 458 (1980) (determination of which members of unincorporated business trust must be considered for purposes of diversity jurisdic
II
The starting point for any analysis of who must be counted for purposes of diversity jurisdiction is Strawbridge v. Curtiss, 3 Cranch 267 (1806), in which the Court held that “complete diversity” is required among “citizens” of different States. Complete diversity, however, is not constitutionally mandated. See State Farm Fire & Casualty Co. v. Tashire, 386 U. S. 523, 530–531 (1967) (statutory interpleader need not satisfy complete diversity requirement as long as there is diversity between two or more claimants); see also American Law Institute, Study of the Division of Jurisdiction Between State and Federal Courts § 1301(b)(2), Supporting Memorandum A, pp. 426–436 (1969). For example, in a class action
Since the early 19th century, one of the benchmarks for determining whether a particular party among those involved in the litigation must be counted for purposes of diversity jurisdiction has been whether the party has a “real interest” in the suit or, in other words, is a “real party” to the controversy. See 6 C. Wright & A. Miller, Federal Practice and Procedure § 1556, p. 711 (1971) (well settled “citizenship rule testing diversity in terms of the real party in interest is grounded in notions of federalism“). See generally Note, Diversity Jurisdiction over Unincorporated Business Entities: The Real Party in Interest as a Jurisdictional Rule, 56 Texas L. Rev. 243, 247–250 (1978). In Wormley v. Wormley, 8 Wheat. 421 (1823), for example, the Court stated:
“This Court will not suffer its jurisdiction to be ousted by the mere joinder or non-joinder of formal parties; but will rather proceed without them, and decide upon the merits of the case between the parties, who have the real interests before it, whenever it can be done without prejudice to the rights of others.” Id., at 451 (footnote omitted).
See also Wood v. Davis, 18 How. 467, 469 (1856) (“It has been repeatedly decided by this [C]ourt, that formal parties, or nominal parties, or parties without interest, united with the real parties to the litigation, cannot oust the federal courts of jurisdiction . . .“).
In Marshall, as in Deveaux, however, the determination whether the corporation was a citizen did not signal the end of the diversity jurisdiction inquiry. 16 How., at 328. Rather, the Court engaged in a two-part inquiry: (1) is the corporation a “juridical person” which can serve as a real party to the controversy, see id., at 327–329; and (2) are the shareholders real parties to the controversy. See id., at 328. To determine whether the corporation or the shareholders were real parties to the controversy, the Court considered which citizens held control over the business decisions and assets of the corporation and over the initiation and course of litigation involving the corporation. The corpora
“[F]or all the purposes of acting, contracting, and judicial remedy, [shareholders] can speak, act, and plead, only through their representatives or curators. For the purposes of a suit or controversy, the persons represented by a corporate name can appear only by attorney, appointed by its constitutional organs. . . . [T]hey are not really parties to the suit or controversy.” Ibid.
Having concluded that the shareholders were not the real parties to the controversy, the Court held that only the State of incorporation of the corporate entity need be counted for purposes of diversity jurisdiction and that the citizenship of the shareholders would be presumed to be that of the State of incorporation. Id., at 328–329. As the Court makes plain in Marshall, consideration of whether the shareholders were real parties to the controversy was a necessary prerequisite to the creation of the legal fiction that their citizenship would be deemed that of the corporation.
In a series of three cases considering the citizenship of business associations following Marshall, the Court was not called upon to determine which of the citizens before it were the real parties to the controversy because the business associations were not citizens themselves and the members of each association held equivalent power and control over the association‘s assets, business, and litigation. In Chapman v. Barney, 129 U. S. 677 (1889), the Court addressed the issue whether a joint stock company was a citizen for purposes of diversity jurisdiction. A joint stock company, now a historical anomaly, see A. Bromberg, Crane and Bromberg on Partnership 178, and n. 16 (1968), had several features of the corporate form, e. g., centralized management and transferability of shares, but was more like a general partnership in that each partner was personally liable and there was only one class of partners. See Comment, Limited Partnerships and Federal Diversity Jurisdiction, 45 U. Chi. L. Rev. 384,
The Court applied a similar approach in Great Southern Fire Proof Hotel Co. v. Jones, 177 U. S. 449 (1900), when it examined a limited partnership association. Quite unlike the modern limited partnership, the limited partnership association at issue in Great Southern, recognized by very few States, Comment, 45 U. Chi. L. Rev., supra, at 389, n. 36, was a species of business association involving a single class of partners with limited liability who exercised control over the operation of the business by annually electing the managers of the association. See, e. g., 1874 Pa. Laws, Act. No. 153, §§ 2, 5; Comment, 45 U. Chi. L. Rev., supra, at 389, n. 36. Not surprisingly, the Court viewed such an organization as more like a partnership than a corporation. See F. Burdick, Law of Partnership 361–362 (1899) (limited partnership association like corporation in some respects, but generally treated by the courts as a general partnership). As in the case of the joint stock company, because all partners were similarly situated in terms of power and control over the company, there was no reason for the Court to inquire who, among the partners, were the real parties to the controversy.
In the next case, in which application of the real party to the controversy test was appropriate, the Court unanimously applied it. See Navarro Savings Assn. v. Lee, 446 U. S., at 460, 464–465; id., at 469, 475 (BLACKMUN, J., dissenting). In that case, the Court addressed the question whether the beneficiaries’ citizenship must be counted when the trustees brought suit involving the assets of the trust. See id., at 458. Because the trust beneficiaries lacked both control over the conduct of the business and the ability to initiate or control the course of litigation, the Court held that the citizenship of the trust beneficiaries should not be counted. Id., at 464–465.
As Navarro makes clear, the nature of the named party does not settle the question of who are the real parties to the controversy. In fact, if the Court‘s characterization of the issue before us were correct, ante, at 187–188, n. 1, then we seriously erred in Navarro Savings Assn. v. Lee, supra, at 464–466, when we considered whether the trust beneficiaries were the real parties to the controversy, in light of the fact that they were not named parties to the litigation.
The Court attempts to distinguish Navarro on the ground that it involved not a juridical person, but rather the “dis
Application of the parties to the controversy test to the limited partnership yields the conclusion that limited partners should not be considered for purposes of diversity jurisdiction. Like the trust beneficiary in Navarro, the limited partner “can neither control the disposition of this action nor intervene in the affairs of the trust except in the most extraordinary situations.” Navarro, supra, at 464–465. See
The commentators are in agreement that the party to the controversy test is the appropriate test to be applied to determine diversity jurisdiction with respect to limited partnerships and that the citizenship of limited partners should not be counted. See, e. g., Comment, 45 U. Chi. L. Rev., at 418 (citizenship of limited partners should not be counted for purposes of diversity jurisdiction); Note, Who Are the Real Parties In Interest for Purposes of Determining Diversity Jurisdiction for Limited Partnerships?, 61 Wash. U. L. Q. 1051, 1066–1067 (1984) (same); Note, 56 Texas L. Rev., at 250–251 (real party in interest test should be applied to unincorporated business associations to determine whom to count for diversity); see also Colonial Realty Corp. v. Bache & Co., 358 F. 2d 178, 183 (1966) (Friendly, J.) (citizenship of limited partner should not be counted where state law declares partner is not “proper party to proceedings by or against a partnership“).
Because there is complete diversity between petitioners and the limited partnership (assuming that it should be considered a citizen) and each of the general partners, the issue presented by this case is fully resolved by application of the parties to the controversy test.
III
Even though the case does not directly relate to the issue before us, the Court takes pains to address and distinguish Puerto Rico v. Russell & Co., 288 U. S. 476 (1933). See ante, at 189–190. The issue in Russell was not diversity, but whether the suit against the sociedad en comandita could be removed from the Insular Court to the United States District Court for Puerto Rico on the ground that no party on one side was a citizen of or domiciled in Puerto Rico. See 288 U. S., at 478. None of the partners were citizens of Puerto Rico, but the Court determined that the sociedad was and, therefore, removal was precluded. Thus, Russell tells us nothing about whether the citizenship of the sociedad‘s members, unlimited or limited, should be considered for purposes of diversity jurisdiction.
For the foregoing reasons, I respectfully dissent.
Notes
That is the central fallacy from which, for the most part, the rest of the dissent‘s reasoning logically follows. The question presented today is not which of various parties before the Court should be considered for purposes of determining whether there is complete diversity of citizenship, a question that will generally be answered by application of the “real party to the controversy” test. There are not, as the dissent assumes, multiple respondents before the Court, but only one: the artificial entity called Arkoma Associates, a limited partnership. And what we must decide is the quite different question of how the citizenship of that single artificial entity is to be determined—which in turn raises the question whether it can (like a corporation) assert its own citizenship, or rather is deemed to possess the citizenship of its members, and, if so, which members. The dissent fails to cite a single case in which the citizenship of an artificial entity, the issue before us today, has been decided by application of the “real party to the controversy” test that it describes. See infra, at 192–195.
The dissent goes on to criticize as “seriously flawed,” post, at 208, our attempt to distinguish Russell in connection with the issue we do address, whether a partnership can be considered a “citizen.” We point out, not by way of complaint but to prevent confusion, that the criticism is gratuitous, inasmuch as the dissent itself takes no position on this issue, announcing at the very outset that it “do[es] not consider” the question “whether the limited partnership is a ‘citizen.‘” Post, at 198. In any event, the dissent‘s evidence bearing on the historical pedigree of partnerships comes to our attention at least 25 years too late. For the reasons stated in the text, Bouligny considered and rejected applying Russell beyond its facts.