314 U.S. 63 (2007), Indianapolis v. Chase National Bank

Citation:314 U.S. 63, 62 S.Ct. 15, 86 L.Ed. 47
Party Name:Indianapolis v. Chase National Bank
Case Date:November 10, 1941
Court:United States Supreme Court

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314 U.S. 63 (2007)

62 S.Ct. 15, 86 L.Ed. 47



Chase National Bank

United States Supreme Court

Nov. 10, 1941




1. To sustain federal jurisdiction on the ground of diversity of citizenship, there must exist an actual, substantial controversy, on one side of which the parties must all be citizens of States different from those of which the parties on the other side are citizens. P. 69.

2. Diversity jurisdiction cannot be conferred upon the federal courts by the parties' own determination of who are plaintiffs and who are defendants, and it is the duty of this Court, as well as of the lower courts, to look beyond the pleadings and arrange the parties according to their sides in the dispute. P. 69.

3. Whether there exists the necessary collision of interests to sustain diversity jurisdiction must be ascertained from the principal purpose of the suit and the primary and controlling matter in dispute. P. 69.

4. Upon the facts of this case, which was a suit brought, in a federal court of Indiana, by a New York bank against two Indiana gas companies and an Indiana city, this Court holds that the "primary and controlling matter in dispute" is whether a lease, whereby one of the gas companies conveyed all of its gas plant property to the other, was binding upon the city, to which the property had been afterwards conveyed by the lessee corporation pursuant to its franchise; that, with respect to that dispute, one of the gas companies and the city ("citizens" of the same State) are on opposite sides, and that, therefore,

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federal jurisdiction, which depends on diversity of citizenship, is lacking. Pp. 70, 74.

5. This Court's earlier denial of certiorari to review a judgment of the Circuit Court of Appeals reversing a judgment of the District Court which dismissed this suit for want of jurisdiction could not confer on the federal courts a jurisdiction which Congress has denied. P. 75.

6. The policy of the statute conferring diversity jurisdiction upon the district courts calls for its strict construction. P. 76.

113 F.2d 217 reversed.

Certiorari, 311 U.S. 636, 637, to review the reversal of a judgment which held a lease invalid. A petition for certiorari to review the case in an earlier phase, 96 F.2d 363, was denied, 305 U.S. 600.

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FRANKFURTER, J., lead opinion

MR. JUSTICE FRANKFURTER delivered the opinion of the Court.

This is a suit instituted by the Chase National Bank, a New York corporation, in the federal District Court for the Southern District of Indiana, naming as defendants the Indianapolis Gas Company, the Citizens Gas Company of Indianapolis (Indiana corporations), and the City of Indianapolis. (For brevity's sake, the parties will be referred to as Chase, Indianapolis Gas, Citizens Gas, and the City, respectively.) The power of the District Court to entertain this litigation was sustained by the Circuit

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Court of Appeals for the Seventh Circuit under the provision of the Judicial Code conferring upon the district courts jurisdiction "[o]f all suits of a civil nature . . . where the matter in controversy exceeds . . . $3,000, and . . . is between citizens of different States. . . ." 36 Stat. 1091, 28 U.S.C. § 41(1). The correctness of this jurisdictional ruling must be determined before the merits of Chase's claims can be considered. The specific question is this: does an alignment of the parties in relation to their real interests in the "matter in controversy" satisfy the settled requirements of diversity jurisdiction?

As is true of many problems in the law, the answer is to be found not in legal [62 S.Ct. 17] learning, but in the realities of the record. Though variously expressed in the decisions, the governing principles are clear. To sustain diversity jurisdiction, there must exist an "actual," Helm v. Zarecor, 222 U.S. 32, 36, "substantial," Niles-Bement-Pond Co. v. Iron Moulders' Union, 254 U.S. 77, 81, controversy between citizens of different states, all of whom on one side of the controversy are citizens of different states from all parties on the other side. Strawbridge v. Curtiss, 3 Cranch 267. Diversity jurisdiction cannot be conferred upon the federal courts by the parties' own determination of who are plaintiffs and who defendants. It is our duty, as it is that of the lower federal courts, to "look beyond the pleadings, and arrange the parties according to their sides in the dispute." Dawson v. Columbia Trust Co., 197 U.S. 178, 180. Litigation is the pursuit of practical ends, not a game of chess. Whether the necessary "collision of interest," Dawson v. Columbia Trust Co., supra, at 181, exists is therefore not to be determined by mechanical rules. It must be ascertained from the "principal purpose of the suit," East Tennessee, V. & G. R. Co. v. Grayson, 119 U.S. 240, 244, and the "primary and controlling matter in dispute," Merchants' Cotton-Press & Storage Co. v. Insurance Co.,

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151 U.S. 368, 385. These familiar doctrines governing the alignment of parties for purposes of determining diversity of citizenship have consistently guided the lower federal courts1 and this Court.2

And so we turn to the actualities of this litigation.

Chase is the trustee under a mortgage deed to secure a bond issue executed by Indianapolis Gas in 1902. In 1906, Citizens Gas was formed to compete with Indianapolis Gas in the distribution of light, heat, and power to the people of Indianapolis. Its franchise provided that, after the expiration of twenty-five years and the performance of certain specified conditions, the company should be wound up and its property conveyed to the City subject to the company's "outstanding legal obligations." The competition between the two gas companies continued until 1913, when Indianapolis Gas leased all of its gas plant property to Citizens Gas for a term of ninety-nine years. Citizens Gas agreed to pay as rental (a) the interest on the lessor's outstanding bonded indebtedness, and (b) annual sums equal to a six percent return on Indianapolis Gas' common stock. For twenty-two years thereafter, Citizens Gas operated the mortgaged property and paid the interest on the bonds. In 1935, pursuant to its franchise, Citizens Gas conveyed its entire property, including that covered by its lease from Indianapolis Gas, to the City. But the City refused to regard itself bound by this lease. On March 2,

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1936, the City and Indianapolis Gas agreed that, pending the settlement of the "presently existing controversy" between them as to whether the lease was valid and binding upon the City, the latter would deposit in escrow sums equal to the interest and dividend payments falling due. The agreement expressly provided that it was made without prejudice to either party's "position or rights."

Chase thereupon filed a bill of complaint in the District Court, naming as defendants [62 S.Ct. 18] Indianapolis Gas, Citizens Gas, and the City. It prayed that the lease from Indianapolis Gas to Citizens Gas be declared valid and binding upon the defendants, and, as such, be deemed part of the security for the performance of the mortgage obligations; that the City be ordered to perform all of the lessee's obligations in the lease and to pay directly to the plaintiff all of the interest payments as they shall become due; that judgment for overdue interest be entered against the defendants "liable therefor;" and that the plaintiff be awarded costs and attorneys' fees. The City and Citizens Gas specifically denied that the lease was valid and binding upon them; they alleged, further, that the controversy existed solely between Indianapolis Gas and the City, "citizens" of the same state. In its answer, Indianapolis Gas denied that it had "ever contended or admitted that the said ninety-nine year lease was not and is not a valid and binding obligation" upon the defendants.

Finding "no collision between the interests of the plaintiff and the interests of the Indianapolis Gas Company," the District Court realigned the latter as a party plaintiff, and, finding identity of citizenship between some of the plaintiffs and the remaining defendants, dismissed the suit for want of jurisdiction. The Circuit Court of Appeals reversed, one judge dissenting, 96 F.2d 363, and certiorari was denied, 305 U.S. 600.

On remand to the District Court, Chase filed a supplemental bill alleging default as to interest payments falling

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due and praying judgment against the defendants in the amount of the unpaid coupons. It alleged that

neither The Indianapolis Gas Company nor Citizens Gas Company, nor both of them, have property sufficient to pay their interest in default on the Bonds, other than the property now in the possession and under the control of the City of Indianapolis.

This was admitted by Indianapolis Gas. The District Court held on the merits that the lease was not enforceable against either Citizens Gas or the City, that the former had no power under its franchise to bind the latter to the lease, and that, by conveying the leased property to the City, Citizens Gas thereby discharged itself of its lessee obligations. Accordingly, the Court ordered that judgment be entered only against Indianapolis Gas for the amount of the unpaid interest.

Asserting that the District Court erred in not holding the lease valid and enforceable against the defendants, both Chase and Indianapolis Gas appealed. The Circuit Court of Appeals sustained their position, and again reversed, 113 F.2d 217. The Court held, further, that Chase was entitled to a judgment for unpaid interest against the parties in the following order of liability: the City, Citizens Gas, and Indianapolis Gas. We granted certiorari, 311 U.S. 636, because of the important jurisdictional issue involved in the litigation.

The facts leave no room for doubt that, on...

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