Ramada Inns, Inc. v. Rosemount Memorial Park AssociationRamada Inns, Inc. v. Rosemount Memorial Park Association
John J. Degnan, Atty. Gen. of New Jersey, Trenton, N. J., for appellees, Attorney General of New Jersey and New Jersey Cemetery Board; Erminie L. Conley, Asst. Atty. Gen., Trenton, N. J., of counsel; Mark S. Rattner (argued) Deputy Atty. Gen., Trenton, N. J., on brief.
Gladstone, Hart & Rathe, Hackensack, N. J., for appellee, Rosemount Memorial Park Association; Marvin H. Gladstone (argued), Milton Max Manshel, Jr. (argued), Hackensack, N. J., on brief.
Before SEITZ, Chief Judge, and ALDISERT and ROSENN, Circuit Judges.
OPINION OF THE COURT
ALDISERT, Circuit Judge.
This diversity case involving a contract dispute over a proposed sale of land by a private cemetery to a hotel chain requires us to decide if the state of New Jersey is a real party in interest to this controversy. Section 8A:3-21 of the New Jersey Statutes makes the Attorney General of New Jersey and the state cemetery board necessary and indispensable parties to any litigation involving a cemetery within the state. The district court held that because of this statute New Jersey was a real party in interest and therefore the Eleventh Amendment barred suit in federal court. It dismissed the complaint and plaintiff has appealed. Because we decide thаt
I.
Ramada Inns, a Delaware corporation, instituted this contract action against Rosemount Memorial Park Association, a nonsectarian cemetery located in Newark and Elizabeth, New Jersey. Jurisdiction was based on diversity of citizenship. The relief sought was cancellation of a contract to purchase a tract of vacant land suitable for the construction of a motor inn, and return of $75,000 which Ramada had depositеd with Rosemount. Rosemount counterclaimed for specific performance of the contract or, alternatively, for damages.
By stipulation of the parties the Attorney General of New Jersey and the New Jersey Cemetery Board were joined as parties defendant pursuant to
Following a mistrial, Rosemount moved to dismiss the action. In granting the motion, the district court noted that the state had no direct interest in the outcome of the litigation, but concluded that it was a real party in interest on the basis of New Jersey‘s statutory scheme for the regulation of cemeteries. The district court found particularly persuasive the requirements embodied in
Ramada argues that this is a contract dispute between two private parties and that the state cannot be considered a real party in interest because the attorney general and the cemetery board are only nominal parties to this action. Appellee urges us to accept the district court‘s reasoning that the inescapable effect of
Before reaching the constitutional implication of this question, however, we must decide whether the district court properly had subject matter jurisdiction over this claim based on diversity оf citizenship.
(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs, and is between
(1) citizens of different States;
(2) citizens of a State, and foreign states or citizens or subjects thereof; and(3) citizens of different States and in which foreign states or citizens or subjects thereof are additional parties.
Diversity jurisdiction, like all federal jurisdiction, is limited in nature, and it is well settled that a state is not a citizen within the meaning of the diversity statute. Moor v. Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 36 L.Ed.2d 596 (1973); Minnesota v. Northern Securities Co., 194 U.S. 48, 63, 24 S.Ct. 598, 48 L.Ed. 870 (1904). An action brought by a citizen of one state against another state is not cognizable under
III.
Whether a particular case involves a question of diversity jurisdiction,3 or Eleventh Amendment prohibition,4 the initial inquiry is the same: is the state a real party in interest to the litigation? That a state, a state agency, or its officers may have been named as parties defendant in an action is not dispositive of this question because such a determination can only be derived from the “essential nature and effect of the proceeding.” Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 464, 65 S.Ct. 347, 350, 89 L.Ed. 389 (1945). See In re Ayers, 123 U.S. 443, 8 S.Ct. 164, 31 L.Ed. 216 (1887); Pennsylvania Turnpike Commission v. Welsh, 188 F.2d 447, 450 (3d Cir. 1951). Conversely, even though the state, a state agency, or its officers have NOT been named as parties, the state may nonetheless be the real party in interest against which relief is sought. Quern v. Jordan, 440 U.S. 332, 345 n.17, 99 S.Ct. 1139, 1147 n.17, 59 L.Ed.2d 358 (1979); In re Ayers, supra, at 506. Because the question whether a state is the real party in interest will turn on factors widely variant from case to case, See Pennsylvania Turnpike Commission, supra, at 450, an examination of the cases which have considered the question will aid our determination.
IV.
Applying this analysis, we note that no relief is sought from the state either in Ramada‘s complaint or Rosemount‘s counterclaim. No possible outcome of this suit could result in an award of damages which will be paid out of the state treasury or in equitable relief which must be satisfied by the state. Ramada requests only that the money which it deposited with appellee be returned, and Rosemount asks that Ramada be ordered to honor the contract. Regardlеss of whose request prevails, the state will not be affected in any substantial way. Furthermore, neither the attorney general nor the cemetery board has raised the Eleventh Amendment defense. In fact, “the State (has) elected not to take an adversarial position as regards the application of the Eleventh Amendment to this case,” State‘s Brief at 8, and the state has remained completely neutral concerning the outcome of the suit. All of this, we think, indicates that the state is not a real party in interest to this litigation.
The district court found that New Jersey did have a pecuniary interest in this litigatiоn based on the requirements of
The district court also reasoned that because
Although New Jersey has seen fit to regulate the affairs of cemeteries within its borders, it does not follow that this regulation compels, or even warrants, a conclusion that New Jersey is a real party in interest to this contract dispute involving one of its citizens which happens to be a cemetery association. As the Court said in Missouri, Kansas & Texas Ry. Co., supra, 183 U.S. at 60, 22 S.Ct. at 21:
It is true that the state has а governmental interest in the welfare of all of its citizens, in compelling obedience to the legal orders of all its officials, and in securing compliance with all its laws. But such general governmental interest is not that which makes the State, as an organized political community, a party in interest in the litigation, for if that were so the State would be a party in interest in all litigation; because the purpose of all litigation is to preserve and enforce rights and secure compliance with the law of the State, either statute or common.
We hold that the Eleventh Amendment does not bar Ramada‘s claim against Rosemount because the state of New Jersey is not a real party in interest to this litigation. Accordingly, we will reverse the judgment of the district court and remand for further proceedings.
SEITZ, Chief Judge, concurring.
I concur in the result reached by the majority because I believe language used by the Supreme Court in prior cases seems to require that the real party in interest inquiry followed here is to be applied to both the eleventh amendment and diversity issues. Were I free to decide the latter issue on a clean slate, however, I would hold that this suit, in which agencies of the State of New Jersey have been nаmed as necessary and indispensable parties in accordance with state law and in the outcome of which the state has considerable interests, is not within the grant of diversity jurisdiction.
As an initial matter, I observe that although the Supreme Court has framed both the question whether a suit is barred by sovereign immunity and the question whether a state‘s presence in a suit destroys diversity in terms of whether the state is a real party in interest, the two inquiries have been held to be, at least in some respects, distinct. See Krisel v. Duran, 386 F.2d 179, 181 (2d Cir. 1967) (“The issue of whether or not the instrumentality of a state is a citizen of that state for diversity purposes is separate and distinct from the issue of sovereign immunity.“). That there should be a distinction is not surprising given that the purpose of the eleventh amendment is to bar those actions from federal court that seek to impose a “retroactive award which requires the payment of funds from the state treasury,” Quern v. Jordan, 440 U.S. 332, 347, 99 S.Ct. 1139, 1148, 59 L.Ed.2d 358 (1979), while it has been held that the grant of diversity jurisdiction does not extend to actions in which a state is a party in interest simply because “a state cannot in the nature of things, be a citizen of any state,” Stone v. South Carolina, 117 U.S. 430, 433, 6 S.Ct. 799, 800, 29 L.Ed. 962 (1886).
It is surprising, however, given the divergent principles underlying the two inquiries, that the only distinction between them to have received judicial recognition to date is that the state may waive its eleventh amendment sovereign immunity but is unable to waive the lack of subject matter jurisdiction if diversity does not exist in a given suit. See State Highway Commission of Wyoming v. Utah Construction Co., 278 U.S. 194, 199-200, 49 S.Ct. 104, 73 L.Ed. 262 (1929); Harris v. Pennsylvania Turnpike Commission, 410 F.2d 1332, 1333 n.1 (3d Cir. 1969). Thus, even though the New Jersey Attorney General and the cemetery board did not join in asserting the eleventh amendment defense, and even though they have adopted, throughout the course of this litigation, a neutral position with respect to the impact of this action on New Jersey‘s sovereign immunity, those facts are immaterial to the question whether the district court has subject mattеr jurisdiction of this suit.
I begin my examination of the latter question with the observation that relevant state law should be accorded some deference, particularly in a diversity action where the only federal interest is in providing a neutral forum. It is true, of course, that whether the State of New Jersey is a party to this action, such that diversity of citizenship is unavailable as a basis for subject matter jurisdiction, is a question of federal law. But, in analogous situations, we have found state law to be relevant, and at times dispositive, on issues concerning the role of the state and state agencies in federal litigation. See Skehan v. Board of Trustees of Bloomsburg State College, 538 F.2d 53, 62 (3d Cir.) (en banc), cert. denied, 429 U.S. 979, 97 S.Ct. 490, 50 L.Ed.2d 588 (1976). In the typical case in which the eleventh amendment is raised as a defense, such as Skehan, the plaintiff is asserting federal constitutional rights. In this action, where Ramada Inns’ substantive claim is based on state contract law, I see no reason for not according an equivalent or greater degree of deference to applicable state law.
Even prior to the passage of the present version of the Cemetery Act in 1971, New Jersey cоurts had recognized that a cemetery company “functions as a quasi-public charitable trust.” Frank v. Clover Leaf Park Cemetery Association, 29 N.J. 193, 148 A.2d 488, 496 (1959). For that reason, New Jersey courts have long held that “(w)henever the charge is made that the managers or trustees (of a cemetery company) are violating their duty or exceeding the powers granted, the Attorney General, as the principal legal representative of the public charged with the protection of the common interest in the trust, is a necessary party to the litigation.” Id. In codifying that common law principle, the New Jersey legislature evidently adopted the view that the Attorney General and the newly-created cemetery board should be joined as parties representing the public‘s interest in all litigation involving New Jersey cemetery companies.
None of the parties to this action has questioned that by naming the Attorney General and cemetery board as defendants, Ramada Inn has, in fact, named the State of New Jersey as a party. Recently, the Supreme Court has twice had occasion to reaffirm the view that a state is not a citizen for purposes of diversity jurisdiction, while recognizing “that a political subdivision of a State, unless it is simply ‘the arm or alter ego of the State,’ is a citizen of the State for diversity purposes.” Moor v. County of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 1800, 36 L.Ed.2d 596 (1973), quoting State Highway Commission of Wyoming, supra at 199, 49 S.Ct. 104. Accord Illinois v. City of Milwaukee, 406 U.S. 91, 97 & n.1, 92 S.Ct. 1385, 31 L.Ed.2d 712 (1972). In my view there can be no question but that for purposes of this lawsuit, and actions involving New Jersey cemetery companies generally, the Attorney General and cemetery board represent the State of New Jersey and act as its “arm or alter ego.” See Glenmede Trust Co. v. Dow Chemical Co., 384 F.Supp. 423, 430-32 (E.D.Pa.1974) (where the Pennsylvania Attorney General was named as a party to an action involving a charitable trust, he performed a uniquely governmental function concerning public rights, and removal on the basis of diversity was impossible, the state being considered a party to the suit).
Although I believe that the Attorney General and cemetery board are participating in this lawsuit as the alter ego of the State of New Jersey, that does not end the inquiry. The Supreme Court has made it clear that not every action in which the state, or an agency acting on its behalf, is named as a party is outside the diversity jurisdiction of the federal courts. The majority correctly reads the relevant Supreme Court precedent as adopting a “real party in interest” test as the standard to be applied in determining whether the presence of the state as a nominal pаrty will preclude diversity jurisdiction. I believe that that test, as it has been applied by the Court, is too rigid in failing to account for the type of interest New Jersey has in the outcome of this lawsuit.
Ordinarily when diversity jurisdiction is challenged on the ground that some nondiverse defendants have been named, the district court may drop such defendants and retain jurisdiction if the dropped parties are not “indispensable.” See Riverside Memorial Mausoleum, Inc. v. UMET Trust, 581 F.2d 62, 66 (3d Cir. 1978); Girardi v. Lipsett, Inc., 275 F.2d 492, 494 n.1 (3d Cir.), cert. denied, 364 U.S. 821, 81 S.Ct. 56, 5 L.Ed.2d 50 (1960). It seems curious that the applicable inquiry would change from indispensability to a real party in interest test when the nondiverse defendant is a state rather than a citizen of the same state as the plaintiff. The Supreme Court, however, clearly applied the latter test in Missouri, Kansas & Texas Railway Co. v. Missouri Railroad & Warehouse Commissioners, supra.
I am not certain that the result reached in Missouri Railway, or the analysis there applied, would be reaffirmed by a majority of the Court today. Nonetheless, I find no evidence in later decisions of the Court signalling a retreat from Missouri Railway. To be sure, in Ex parte Nebraska, 209 U.S. 436, 28 S.Ct. 581, 52 L.Ed. 876 (1908), Chief Justice Fullеr framed the applicable inquiry in a case in which the state was named as a party to the suit as whether the state was a “necessary and indispensable party” such that diversity jurisdiction would not lie:
If this case is one wherein there was a controversy wholly between citizens of different States, to the complete determination of which other parties to the record were not indispensable or necessary, then the removal being properly sought on that ground, the Federal court had jurisdiction. If the State of Nebraska was not an indispensable party by reason of its interest in the controvеrsy, its presence on the record as a plaintiff would not defeat the jurisdiction of the Federal court.
209 U.S. at 444, 28 S.Ct. at 584. Nonetheless, Ex parte Nebraska expressly reaffirmed the decision in Missouri Railway, and Chief Justice Fuller‘s language indicated that he was of the view that the real party in interest inquiry was interchangeable with and identical to an inquiry as to whether the state was a necessary and indispensable party. Thus, he stated “that the mere presence on the record of the State as a party plaintiff, will not defeat the jurisdiction of the Federal court when it appears that the State has no real interest in the controversy.” Id.
Some federal courts have used an indispensability inquiry when confronted with the issue presented in this case. For example, in Fifty Associates v. Prudential Insurance Co., 446 F.2d 1187, 1192 (9th Cir. 1970), where a state tax commission was named as a defendant, the Court of Appeals remanded the case to the district court for a determination as to whether the commission could be dismissed as a party not indispensable to the action and the lawsuit proceed. Of course, if a like inquiry were to be applied here, a determination that the state defendants could be dropped from this lawsuit as not indispensable to its maintenance would come into obvious conflict with the contrary judgment of the New Jersey legislаture. That conflict never surfaces in the majority opinion in this case because this action is not, in the words of Missouri Railway, one “to recover any money for the state,” and “(i)ts results will not enure to the benefit of the state as a state in any degree.”
If the question were open I would base my decision as to whether the state‘s presence in this lawsuit precludes the exercise of diversity jurisdiction not only on the direct effects that a decree in this action might have on the state, but also on the more general interests of the state in the outcome of the suit. As I have already noted, the New Jersey legislаture has here determined that the state Attorney General and cemetery board are necessary and indispensable parties to any litigation involving cemetery companies. That determination is based on state substantive law involving the need to protect the common interest in quasi-public charitable trusts, and hence is not merely a codification of the state‘s general governmental interest in the welfare of all its citizens that was deemed insufficient to deprive the federal courts of diversity jurisdiction in Missouri Railway. See Glenmede Trust, supra (finding that a state law rule requiring the joinder of the state attorney general as pаrens patriae in all actions involving charitable trusts renders impossible removal of such an action on the basis of diversity jurisdiction). Moreover, an examination of the nature of the proceedings here reveals that there is reason to credit the legislature‘s judgment that the State of New Jersey has an interest in the outcome of this lawsuit.
As the majority notes, New Jersey has a potential interest in “insuring that Rosemount make the mandatory contribution to its trust fund should the sale to Ramada ever be consummated.” at 1307. More importantly, however, the purpose of New Jersey‘s pervasive regulation оf cemetery companies is to insure that those companies will maintain the financial stability needed for their continued future service to the public. See, e. g.,
The state‘s interest in the outcome of this suit is also apparent in other ways. For example, Ramada asks that a lien be imposed upon the cemetery company‘s premises for the amount found by the court to be due. New Jersey law would seem to prohibit the imposition of such a lien upon lands dedicated for cemetery purposes, but the Cemetery Act does provide that the state Superior Court may sequester the rents, issues, profits, income and revenues derived from those lands in order to satisfy a judgment recovered against a cemetery company in thе state courts. See
Viewing the nature of these proceedings as a whole, I conclude that the State of New Jersey has a real interest in the outcome of this suit. Although that interest is not of the sort that implicates the state‘s eleventh amendment sovereign immunity, I believe it should be sufficient to prevent the exercise of diversity jurisdiction in this case. Where the judgment of a state legislature that its agencies are necessary and indispensable parties to an action is supported by a common law tradition and by the practicalities of the relief requested in a given case, I would credit that judgment. Because I believe, however, that language used by the Supreme Court in prior opinions leads to a contrary conclusion, I concur in the majority‘s holding that the state defendants in this lawsuit may be considered as nominal parties having no effect on the jurisdiction of the district court.
Notes
See also
In any action or proceeding affecting or instituted by any cemetery comрany the Attorney General and the New Jersey Cemetery Board shall be served with notice thereof in the same manner as any necessary party and shall take such steps in the action or proceeding as may be deemed necessary to protect the public interest.
The Eleventh Amendment states:
The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.
Section 8A:4-2 provides in relevant part:
There shall be established, by each and every cemetery operating within this State undеr certificate of authority issued therefor by the New Jersey Cemetery Board, a special, irrevocable trust fund for the purpose of continuous maintenance and preservation of the cemetery. The fund shall be called the Maintenance and Preservation Fund.
The creation, perpetuation and operation of the fund shall be supervised by the cemetery board pursuant to the provisions of this act. The said board may make such rules and promulgate such regulations as it deems necessary to insure proper and effective compliance with the purpose оf this chapter.
A cemetery company may sell free from any dedication for cemetery purposes, subject to prior approval of the board, any land or interest in land which is not, in the judgment of the cemetery company, necessary or suitable for interment purposes, providing no interment has been made therein. As a further condition of any such sale, the deed of conveyance shall be required to include a perpetual prohibition on the use of the premises so conveyed for any of the purposes or uses in which cemetery companies are, by the terms of this act (N.J.S. 8A:5-3), specifically prohibited from engaging. Not less than 15% Of the proceeds of said sale shall be deposited in the maintenance and preservation fund.
Our conclusion that New Jersey has no immediate pecuniary interest in this fund is consistent with the position taken by the attorney general. At oral argument before the trial judge he stated:
The maintenance and preservation fund is really not affected until such time as the contract is consummated and the funds are due to be deposited therein. So our interest at this present time is somewhat speculative. And that‘s why the State has taken a very neutral position.
Appendix at 115a.