People of Puerto Rico v. Russell Co Sucesores En 10 8212 13, 1933

Decision Date13 March 1933
Docket NumberNo. 492,492
Citation53 S.Ct. 447,288 U.S. 476,77 L.Ed. 903
PartiesPEOPLE OF PUERTO RICO v. RUSSELL & CO., SUCESORES, S. EN C. et al. Argued Feb. 10—13, 1933
CourtU.S. Supreme Court

Messrs. Wm. Cattron Rigby and Fred W. Llewellyn, both of Washington, D.C., for People of Puerto Rico.

Mr. Francis E. Neagle, of New York City, for respondents.

Mr. Justice STONE delivered the opinion of the Court.

The people of Puerto Rico, the petitioner, brought this suit in the insular district court of San Juan, Puerto Rico, against the respondent Russell & Co., a sociedad en comandita organized under the laws of Puerto Rico, to recover certain assessments levied on lands of Russell & Co., under an act of the Legislature of Puerto Rico. The individual respondents, members of the sociedad, none of whom are citizens of Puerto Rico or domiciled there, were not named as defendants. They appeared specially in the insular court and removed the cause to the United States District Court for Puerto Rico. That court denied a motion to remand and gave its decree for respondents on the ground, first raised by the answer, that the assess- ments sued for were levied in violation of section 2 of the Organic Act of Porto Rico, March 2, 1917, c. 145, 39 Stat. 951 (48 USCA § 737), forbidding the enactment of any law impairing the obligation of contract. On appeal the Court of Appeals for the First Circuit affirmed, 60 F.(2d) 10; this Court granted certiorari. 287 U.S. 593, 53 S.Ct. 222, 77 L.Ed. —-.

Section 41 of the Organic Act (48 USCA § 863) confers on the United States District Court for Puerto Rico 'jurisdiction of all cases cognizable in the district courts of the United States,' and also 'jurisdiction of all controversies where all of the parties on either side of the controversy are citizens * * * of a foreign State or States, or citizens of a State, Territory, or District of the United States not domiciled in Porto Rico, wherein the matter in dispute exceeds, exclusive of interest or cost, the sum or value of $3,000.' By section 42 (48 USCA § 864) 'the laws of the United States relating to * * * removal of causes, and other matters or proceedings as between the courts of the United States and the courts of the several States shall govern in such matters and proceedings as between the district court of the United States and the courts of Porto Rico. * * *' Thus suits arising under the Constitution or laws of the United States are within the jurisdiction of the District Court for Puerto Rico (section 24, Judicial Code, 28 U.S.C. § 41 (28 USCA § 41)), and civil suits begun in the insular court over which the federal court has original jurisdiction may be removed in accordance with the provisions of section 28 of the Judicial Code (28 U.S.C. § 71 (28 USCA § 71)).

Admittedly, if the individual members of the sociedad are 'parties' within the meaning of the Organic Act, § 41, supra, the suit is one within the jurisdiction of the District Court because of their nonresidence, diversity of citizenship being unnecessary. See Porto Rico Ry., Light & Power Co. v. Mor, 253 U.S. 345, 40 S.Ct. 516, 64 L.Ed. 944. And, if the nonresidence of the individual members would confer jurisdiction upon the federal court in a suit against the sociedad originally instituted there, we will assume, for present purposes, that it would also suffice to justify removal by the individuals, even though the insular court refuses to recognize them as parties. Compare McLaughlin v. Hallowell, 228 U.S. 278, 290, 33 S.Ct. 465, 57 L.Ed. 835. The petitioner argues, nevertheless, that the suit was not removable because of citizenship, for the reason that the sociedad is a juridical entity under Puerto Rican law and, as in the case of a corporation, its domicile rather than that of its members determines citizenship for purposes of federal jurisdiction. If the petitioner's contention is sound, the District Court was without jurisdiction, unless the suit was, as the respondents argue, one arising under the laws of the United States. The questions raised by these contentions must therefore first be answered.

For almost a century, in ascertaining whether there is the requisite diversity of citizenship to confer jurisdiction on the federal courts, we have looked to the domicile of a corporation, not that of its individual stockholders, as controlling. Louisville R.R. Co. v. Letson, 2 How. 497, 11 L.Ed. 353; Rundle v. Delaware & Raritan Canal Co., 14 How. 80, 14 L.Ed. 335; Marshall v. Baltimore & Ohio R.R., 16 How. 314, 14 L.Ed. 953; Lafayette Insurance Co. v. French, 18 How. 404, 15 L.Ed. 451; Covington Draw Bridge Co. v. Shepherd, 20 How. 227, 15 L.Ed. 896; St. Louis & San Francisco Ry. Co. v. James, 161 U.S. 545, 16 S.Ct. 621, 40 L.Ed. 802; Patch v. Wabash Ry., 207 U.S. 277, 28 S.Ct. 80, 52 L.Ed. 204, 12 Ann.Cas. 518. In its final form this rule of jurisdiction was stated in terms of a 'conclusive presumption' that the stockholders are citizens of the state of the corporate domicile, see Marshall v. Baltimore & Ohio R.R., supra, 16 How. 328, 14 L.Ed. 953; Covington Draw Bridge Co. v. Shepherd, supra, 20 How. 233, 15 L.Ed. 896; St. Louis & San Francisco Ry. Co. v. James, supra, 161 U.S. 554, 16 S.Ct. 621, 40 L.Ed. 802; but even those who formulated the rule found its theoretical justification only in the complete legal personality with which corporations are endowed. Fictitious that personality may be, in the sense that the fact that the corporation is composed of a plu- rality of individuals, themselves legal persons, is disregarded, but 'it is a fiction created by law with intent that it should be acted on as if true.' Klein v. Board of Supervisors, 282 U.S. 19, 24, 51 S.Ct. 15, 16, 75 L.Ed. 140, 73 A.L.R. 679. This treatment of the aggregate for other purposes as a person distinct from its members, with capacity to perform all legal acts, made it possible and convenient to treat it so for purposes of federal jurisdiction as well. But status as a unit for purposes of suit alone, as in the case of a joint-stock company, see Chapman v. Barney, 129 U.S. 677, 682, 9 S.Ct. 426, 32 L.Ed. 800; Levering & Garrigues v. Morrin (C.C.A.) 61 F.(2d) 115, 117, or a limited partnership, not shown to have the other attributes of a corporation, Great Southern Fireproof Hotel Co. v. Jones, 177 U.S. 449, 20 S.Ct. 690, 44 L.Ed. 842; compare Thomas v. Board of Trustees, 195 U.S. 207, 25 S.Ct. 24, 49 L.Ed. 160, has been deemed a legal personality too incomplete; what was but an association of individuals for so many ends and a juridical entity for only a few was not easily to be treated as if it were a single citizen.

The tradition of the common law is to treat as legal persons only incorporated groups and to assimilate all others to partnerships. Chapman v. Barney, supra; Great Southern Fireproof Hotel Co. v. Jones, supra. The tradition of the civil law, as expressed in the Code of Puerto Rico, is otherwise.1 Therefore to call the sociedad en comandita a limited partnership in the common-law sense, as the respondents and others have done, is to invoke a false analogy. In the law of its creation, the sociedad is consistently regarded as a juridical person. It may contract, own property, and transact business, sue and be sued in its own name and right. Civil Code (1930), §§ 27 to 30; Code of Commerce (1930), §§ 95, 97, 123, 124. Its members are not thought to have a sufficient personal interest in a suit brought against the entity to entitle them to intervene as parties defendant. See People v. Rivera Zayas, 29 Porto Rico, 423, 430. It is created by articles of association filed as public records. Code of Commerce, §§ 95, 98; compare Civil Code, §§ 1558, 1560. Where the articles so provide, the sociedad endures for a period prescribed by them, regardless of the death or withdrawal of individual members. Civil Code, §§ 1591, 1596, 1598; Code of Commerce, § 141. Powers of management may be vested in managers designated by the articles from among the members whose participation is unlimited, and they alone may perform acts legally binding on the sociedad. Civil Code, §§ 1583, 1589; Code of Commerce, §§ 102, 106, 125. Its members are not primarily liable for its acts and debts (Code of Commerce, § 156), and its creditors are preferred with respect to its assets and property over the creditors of individual members, although the latter may reach the interests of the individual members in the common capital. Civil Code, § 1590; see Quintana Bros. & Co. v. S. Ramirez & Co., 22 Porto Rico 707, 716. Although the members whose participation is unlimited are made contingently liable for the debts of the sociedad in the event that its assets are insufficient to satisfy them (Code of Commerce, §§ 125, 156; see Sucrs. of M. Lamadrid & Co. v. Torrens, Mortorell & Co., 28 Porto Rico 824), this liability is of no more consequence for present purposes than that imposed on corporate stockholders by the statutes of some states. Compare Louis- ville R.R. Co. v. Letson, supra, 2 How. 557, 558, 11 L.Ed. 353; Liverpool Insurance Co. v. Massachusetts, 10 Wall. 566, 575, 19 L.Ed. 1029. These characteristics under the Codes of Puerto Rico give content to their declaration that the sociedad is a juridical person. That personality is so complete in contemplation of the law of Puerto Rico that we see no adequate reason for holding that the sociedad has a different status for purposes of federal jurisdiction than a corporation organized under that law. In neither case may nonresidents of Puerto Rico, who have taken advantage of its laws to organize a juridical entity for the purpose of carrying on business there, remove from the insular courts controversies arising under local law.

Respondents' contention that the suit is one arising under the laws of the United States, and therefore removable, irrespective of the citizenship of the defendant, rests upon two grounds: First, that the suit was brought pursuant to an Act of Congress of...

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