Navarro Savings Association v. Lee

• Decision Date: 19 May 1980
• Docket Number: No. 79-465,79-465
• Citation: 100 S.Ct. 1779,64 L.Ed.2d 425,446 U.S. 458
• Parties: NAVARRO SAVINGS ASSOCIATION, Petitioner, v. Lawrence F. LEE, Jr., et al
• Court: U.S. Supreme Court

446 U.S. 458

100 S.Ct. 1779

64 L.Ed.2d 425

NAVARRO SAVINGS ASSOCIATION, Petitioner,

v Lawrence F. LEE, Jr., et al.

No. 79-465.

Argued March 18, 1980.

Decided May 19, 1980.

Syllabus^*

Held : Respondents, as individual trustees of a business trust organized under Massachusetts law, may invoke the diversity jurisdiction of the federal courts on the basis of their own citizenship without regard to the citizenship of the trust beneficiaries. A federal court must rest jurisdiction only upon the citizenship of real parties to the controversy, and a trustee is a real party to the controversy for purposes of diversity jurisdiction when (as do respondents here) he possesses certain customary powers to hold, manage, and dispose of assets for the benefit of others. Cf. Bullard v. Cisco, 290 U.S. 179, 54 S.Ct. 177, 78 L.Ed. 254. Respondents are active trustees whose control over the assets held in their names is real and substantial. That the trust may depart from conventional forms in other respects has no bearing upon this determination. Nor does the trust's resemblance to a business enterprise alter the distinctive rights and duties of the trustees. Pp. 460-466.

5 Cir., 597 F.2d 421, affirmed.

Bernus Wm. Fischman, Houston, Tex., for petitioner.

James A. Ellis, Jr., Dallas, Tex., for respondents.

Mr. Justice POWELL delivered the opinion of the Court.

The question is whether the trustees of a business trust may invoke the diversity jurisdiction of the federal courts on the basis of their own citizenship, rather than that of the trust's beneficial shareholders.

I

The respondents are eight individual trustees of Fidelity Mortgage Investors, a business trust organized under Massachusetts law.¹ They hold title to real estate investments in trust for the benefit of Fidelity's shareholders.² The declaration of trust gives the respondents exclusive authority over this property "free from any power and control of the Shareholders, to the same extent as if the Trustees were the sole owners of the Trust Estate in their own right. . . . " ³ The respondents have power to transact Fidelity's business, execute documents, and "sue and be sued in the name of the Trust or in their names as Trustees of the Trust." ⁴ They may invest the funds of the trust, lend money, and initiate or compromise lawsuits relating to the trust's affairs.⁵

In 1971, respondents lent $850,000 to a Texas firm in return for a promissory note payable to themselves as trustees. The note was secured in part by a commitment letter in which petitioner Navarro Savings Association agreed to lend the Texas firm $850,000 to cover its obligation to the respondents. In 1973, respondents called upon Navarro to make the "takeout" loan. Navarro refused, and this action followed. The amended complaint, filed in the United States District Court for the Northern District of Texas, sought approximately $175,000 in damages for breach of contract. Federal jurisdiction was premised upon diversity of citizenship. 28 U.S.C § 1332.⁶ The complaint asserted—and the parties agree—that Navarro was a Texas citizen and that each respondent was a citizen of another State. The parties have stipulated, however, that some of Fidelity's beneficial shareholders were Texas residents.

The District Court dismissed the action for want of subject-matter jurisdiction. 416 F.Supp. 1186 (1976). Concluding that a business trust is a citizen of every State in which its shareholders reside, the court held that the parties lacked the complete diversity required by Strawbridge v. Curtiss, 3 Cranch 267, 2 L.Ed. 435 (1806). The Court of Appeals for the Fifth Circuit reversed. 597 F.2d 421 (1979). It held that the respondent trustees were real parties in interest because they had full power to manage and control the trust and to sue on its behalf. Since complete diversity existed among the actual parties to the controversy, the Court of Appeals directed the District Court to proceed to trial on the merits. We granted certiorari, 444 U.S. 962, 100 S.Ct. 447, 62 L.Ed.2d 374 (1979), and we now affirm.

II

Federal courts have jurisdiction over controversies between "Citizens of different States" by virtue of 28 U.S.C. § 1332(a)(1) and U.S.Const., Art. III, § 2. Early in its history, this Court established that the "citizens" upon whose diversity a plaintiff grounds jurisdiction must be real and substantial parties to the controversy. McNutt v. Bland, 2 How. 9, 15, 11 L.Ed. 159 (1844); see Marshall v. Baltimore & Ohio R. Co., 16 How. 314, 328-329, 14 L.Ed. 953 (1854); Coal Co. v. Blatchford, 11 Wall. 172, 177, 20 L.Ed. 179 (1871). Thus, a federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy. E. g., McNutt v. Bland, supra, at 14; see 6 C. Wright & A. Miller, Federal Practice and Procedure § 1556, pp. 710-711 (1971).

The early cases held that only persons could be real parties to the controversy. Artificial or "invisible" legal creatures were not citizens of any State. Bank of United States v. Deveaux, 5 Cranch 61, 86-87, 91, 3 L.Ed. 38 (1809).⁷ Although corporations suing in diversity long have been "deemed" citizens, see n. 7, supra, unincorporated associations remain mere collections of individuals. When the "persons composing such association" sue in their collective name, they are the parties whose citizenship determines the diversity jurisdiction of a federal court. Great Southern Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 456, 20 S.Ct. 690, 693, 44 L.Ed. 842 (1900) (limited partnership association); see Steelworkers v. Bouligny, Inc., 382 U.S. 145, 86 S.Ct. 272, 15 L.Ed.2d 217 (1965) (labor union); Chapman v. Barney, 129 U.S. 677, 9 S.Ct. 426, 32 L.Ed. 800 (1889) (joint stock company).

Navarro contends that Fidelity's trust form masks an unincorporated association of individuals who make joint real estate investments. Navarro observes that certain features of the trust's operations also characterize the operations of an association: centralized management, continuity of enterprise, and unlimited duration. Arguing that this trust is in sub- stance an association, Navarro reasons that the real parties to the lawsuit are Fidelity's beneficial shareholders.

III

We need not reject the argument that Fidelity shares some attributes of an association. In certain respects, a business trust also resembles a corporation. But this case involves neither an association nor a corporation. Fidelity is an express trust, and the question is whether its trustees are real parties to this controversy for purposes of a federal court's diversity jurisdiction.⁸

As early as 1808, this Court stated that trustees of an express trust are entitled to bring diversity actions in their own names and upon the basis of their own citizenship. Chappedelaine v. Dechenaux, 4 Cranch 306, 308, 2 L.Ed. 629. Federal Rule of Civil Procedure 17(a) now provides that such trustees are real parties in interest for procedural purposes.⁹ Yet similar principles governed diversity jurisdiction long before the advent of uniform rules of procedure.¹⁰ In 1870, the Court declared that jurisdiction properly founded upon the diverse citizenship of individual trustees "is not defeated by the fact that the parties whom they represent may be disqualified." Coal Co. v. Blatchford, 11 Wall., at 175 (mortgage contract). "[T]he residence of those who may have the equitable interest" is simply irrelevant. Bonnafee v. Williams, 3 How. 574, 577, 11 L.Ed. 732 (1845) (note held in trust for third party). The same rule applies when "the beneficiaries are many." Dodge v. Tulleys, 144 U.S. 451, 456, 12 S.Ct. 728, 36 L.Ed. 501 (1892) (dictum) (railroad trust deed).¹¹

In Bullard v. Cisco, 290 U.S. 179, 189, 54 S.Ct. 177, 180, 78 L.Ed. 254 (1933), the trust beneficiaries were "numerous and widely scattered" investors who had conveyed certain bonds to a committee formed by a protective agreement. The agreement did not use trust terminology. Nevertheless, the Court held that the "rights, powers and duties expressly assigned" to committee members "necessarily" made them trustees. Ibid. The agreement gave the committeemen "full title to the deposited bonds," and it defined "the control and power of disposal which the trustees were to have over them." Ibid. Refusing to analogize the committee to a collection agency, the Court concluded that "[t]he beneficiaries were not necessary parties and their citizenship was immaterial." Id., at 190, 54 S.Ct., at 181.¹²

Bullard reaffirms that a trustee is a real party to the controversy for purposes of diversity jurisdiction when he possesses certain customary powers to hold, manage, and dispose of assets for the benefit of others.¹³ The trustees in this case have such powers. At all relevant times, Fidelity operated under a declaration of trust that authorized the trustees to take legal title to trust assets, to invest those assets for the benefit of the shareholders, and to sue and be sued in their capacity as trustees. Respondents filed this lawsuit in that capacity. They seek damages for breach of an obligation running to the holder of a promissory note held in their own names. Fidelity's 9,500 beneficial shareholders had no voice in the initial investment decision. They can neither control the disposition of this action nor intervene in the affairs of the trust except in the most extraordinary situations.¹⁴

We conclude that these respondents are active trustees whose control over the assets held in their names is real and substantial. That the trust may depart from conventional forms in other respects has no bearing upon this determination. Nor does Fidelity's resemblance to a business enterprise alter the distinctive rights and duties of the trustees.¹⁵ There is no allegation of sham or collusion. See 28 U.S.C. § 1359; Bullard v. Cisco, supra, 290 U.S., at 187-188, 54 S.Ct., at 180 and n. 5. The respondents are not "naked trustees" who act...