494 U.S. 185 (1990), 88-1476, Carden v. Arkoma Associates

Docket Nº:No. 88-1476
Citation:494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157, 58 U.S.L.W. 4243
Party Name:Carden v. Arkoma Associates
Case Date:February 27, 1990
Court:United States Supreme Court
 
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Page 185

494 U.S. 185 (1990)

110 S.Ct. 1015, 108 L.Ed.2d 157, 58 U.S.L.W. 4243

Carden

v.

Arkoma Associates

No. 88-1476

United States Supreme Court

Feb. 27, 1990

Argued Nov. 7, 1989

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

Syllabus

Respondent Arkoma Associates, a limited partnership organized under Arizona law, sued petitioners Carden and Limes on a contract dispute in the District Court relying on diversity of citizenship for federal jurisdiction. Carden and Limes, Louisiana citizens, moved to dismiss on the ground that one of Arkoma's limited partners was also a Louisiana citizen. The court denied the motion, finding the requisite "complete diversity." After petitioner Magee Drilling Co. intervened and counterclaimed against Arkoma, the court awarded judgment to Arkoma. The Court of Appeals affirmed, finding, with respect to the jurisdictional challenge, that complete diversity existed because Arkoma's citizenship should be determined by reference [110 S.Ct. 1016] to the citizenship of its general, but not its limited, partners.

Held:

1. Complete diversity is lacking with respect to Carden and Limes. Pp. 187-197.

(a) A limited partnership is not in its own right a "citizen" of the State that created it within the meaning of the federal diversity statute. This Court has firmly resisted extending the well established rule treating corporations as "citizens" to other artificial entities. Chapman v. Barney, 129 U.S. 677, 682; Great Southern Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 456, 457; Steelworkers v. R.H. Bouligny Inc., 382 U.S. 145, 151. Puerto Rico v. Russell & Co., 288 U.S. 476. Navarro Savings Assn. v. Lee, 446 U.S. 458. Pp. 187-192.

(b) A federal court must look to the citizenship of a partnership's limited, as well as its general, partners to determine whether there is complete diversity. That only the general partners have exclusive and complete control over the partnership's operations and the litigation is irrelevant. This Court's decisions have never held that an artificial entity can invoke diversity jurisdiction based on the citizenship of some but not all of its members. Bank of United States v. Deveaux, 5 Cranch 61, 90-91, Marshall v. Baltimore & Ohio R. Co., 16 How. 314, 328-329, Navarro, supra, distinguished. Pp. 192-196.

(c) Whether, and which, artificial entities other than corporations are entitled to be considered "citizens" for diversity purposes are complex questions best left to Congress to decide. Pp. 196-197.

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2. The question whether complete diversity exists between Magee and Arkoma was not considered by the Court of Appeals, and this Court will not decide it in the first instance. P. 197.

874 F.2d 226 (CA5, 1988), reversed and remanded.

SCALIA, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, STEVENS, and KENNEDY, JJ., joined. O'CONNOR, J., filed a dissenting opinion, in which BRENNAN, MARSHALL, and BLACKMUN, JJ., joined, post, p. 198.

SCALIA, J., lead opinion

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 and as well as Magee's intervention and counterclaim. Carden, Limes, and Magee (petitioners here) appealed, and the Fifth Circuit affirmed.

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874 F.2d 226 (CA 5 1988). [110 S.Ct. 1017] With respect to petitioners' jurisdictional challenge, the Court of Appeals found complete diversity, reasoning that Arkoma's citizenship should be determined by reference to the citizenship of the general, but not the limited, partners. We granted certiorari. 490 U.S. 1045, (1989).

II

`Article III of the Constitution provides, in pertinent part, that "The judicial Power shall extend to . . . Controversies . . . between Citizens of different States." Congress first authorized the federal courts to exercise diversity jurisdiction in the Judiciary Act of 1789, ch. 20, § 11, 1 Stat. 78. In its current form, the diversity statute provides that

[t]he district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds . . . $50,000 . . . , and is between . . . citizens of different States. . . .

28 U.S. C.A. § 1332(a) (Oct. 1989 Supp.). Since its enactment, we have interpreted the diversity statute to require "complete diversity" of citizenship. See Strawbridge v. Curtiss, 3 Cranch 267, (1806). The District Court erred in finding complete diversity in this case unless (1) a limited partnership may be considered in its own right a "citizen" of the State that created it, or (2) a federal court must look to the citizenship of only its general, but not its limited, partners to determine whether there is complete diversity of citizenship. We consider these questions in turn.

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 paradigmatic

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artificial "person," and the Court has considered its proper characterization under the diversity statute on more than one occasion -- not always reaching the same conclusion. Initially, we held that a corporation "is certainly not a citizen," so that to determine the existence of diversity jurisdiction the Court must "look to the character of the individuals who compose [it]." Bank of United States v. Deveaux, 5 Cranch 61, 86, 91-92, (1809). We overruled Deveaux 35 years later in Louisville, C. & C.R. Co. v. Letson, 2 How. 497, 558 (1844), which held that a corporation is "capable of being treated as a citizen of [the State which created it], as much as a natural person." Ten years later, we reaffirmed the result of Letson, though on the somewhat different theory that "those who [110 S.Ct. 1018] use the corporate name, and exercise the faculties conferred by it," should be presumed conclusively to be citizens of the corporation's State of incorporation. Marshall v. Baltimore & Ohio R. Co., 16 How. 314, 329, (1854).

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While the rule regarding the treatment of corporations as "citizens" has become firmly established, we have (with an exception to be discussed presently) just as firmly resisted extending that treatment to other entities. For example, in Chapman v. Barney, 129 U.S. 677 (1889), a case involving an unincorporated "joint stock company," we raised the question of jurisdiction on our own motion, and found it to be lacking:

On locking 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., 129 U.S. 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

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Rico, could be treated as a citizen of Puerto Rico for purposes of determining federal court jurisdiction. The sociedad's juridical personality, we said,

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.

Id. at 482. Arkoma fairly argues that this language, and the outcome of the case,

reflec[t] the Supreme Court's willingness to look beyond the incorporated/unincorporated dichotomy and to...

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