Leveraged Leasing Admin. Corp. v. PacifiCorp Capital, Inc.

Decision Date24 June 1996
Docket NumberNo. 1404,D,1404
Citation87 F.3d 44
Parties29 UCC Rep.Serv.2d 1162 LEVERAGED LEASING ADMINISTRATION CORP., as successor in interest to UCC Leasing, Ltd. and on behalf of; Meyer Dweck; Alan Tripp Singer; Bayless Jewelry, Inc.; Bobby Wilkerson, Inc. and James E. Fitzgerald, Plaintiffs-Appellants, v. PACIFICORP CAPITAL, INC., as successor in interest to Thomas Nationwide Capital Corporation, Defendant-Appellee. ocket 95-9030.
CourtU.S. Court of Appeals — Second Circuit

Noel W. Hauser, Noel W. Hauser and Associates, New York City, for Plaintiff-Appellants.

Michael E. Geltner, Geltner & Associates, P.C., Washington, D.C., for Defendant-Appellee.

Before: KEARSE, WINTER and CALABRESI, Circuit Judges.

CALABRESI, Circuit Judge:

This case arises from a series of sale-leaseback transactions of computer equipment. Somewhere along the way, somebody lost track of who owned what. The plaintiffs claim that they own the computers; the defendant denies it. The district court granted summary judgment in favor of the defendant on all three claims: breach of contract, conversion, and accounting.

Because the complaint alleges only the residence, and not the citizenship, of some of the plaintiffs, we cannot determine whether diversity jurisdiction exists. We therefore remand the case to the district court for further proceedings to establish the citizenship of all of the plaintiffs. We further note that, if jurisdiction does exist, the district court should not have granted summary judgment on the contract and conversion claims.

I. BACKGROUND

PacifiCorp Capital, Inc. ("PacifiCorp"), is the successor in interest to Thomas Nationwide Capital Corporation ("Thomas"), a company that purchased computer equipment and then leased it for various terms to end-users. 1 PacifiCorp regularly sold this equipment to investors (subject to the end-user leases) who could reap tax advantages stemming from rapid depreciation of the computer equipment. The transactions were structured so that PacifiCorp would continue to collect the rent on the computers, and the investors would own the equipment outright after the short-term leases to the end-users expired.

The equipment at issue was sold (and leased back) numerous times, from investor to investor. The entire time, the equipment was apparently in the possession of the end-users, and PacifiCorp collected their rental payments.

The plaintiffs claim that, somewhere along the line, they bought the computer equipment in question. According to the complaint, the chain of title ran from Thomas (now PacifiCorp), to four intermediaries, to UCC Leasing, Ltd., then to a company called Westwind, and finally to the individual plaintiff-investors. According to the plaintiffs, after the short-term leases to the end-users expired, all remaining rights to the computer equipment (that is, the right to sell the equipment outright or to rent it out to new end-users) belonged to the individual plaintiff-investors. PacifiCorp, however, purportedly either sold the equipment or rented it again, and kept the proceeds.

The plaintiffs brought this suit to compel PacifiCorp to give them the computers (or the sale proceeds from the computers), plus any extra rent that it earned after the initial subleases to the end-users had expired. The complaint asserted three separate claims: breach of contract, conversion, and accounting. PacifiCorp apparently admits that it no longer has title to the computers, but denies that the chain of title runs to the plaintiffs. It claims instead that the equipment was never sold to UCC Leasing in the first place, and, in addition, points to the absence of documents proving each purported subsequent sale.

The district court granted summary judgment in favor of PacifiCorp on all three claims. The plaintiffs appeal.

II. DISCUSSION
A. Diversity Jurisdiction

PacifiCorp argues that the plaintiffs have not proved diversity, which is concededly the only basis for federal jurisdiction over this case. A federal court's lack of subject matter jurisdiction is not waivable by the parties, and we must address jurisdictional questions before reaching the merits. FED. R. CIV. P. 12(h)(3) ("Whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action"); see also Fox v. Board of Trustees, 42 F.3d 135, 140 (2d Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 2634, 132 L.Ed.2d 873 (1995).

It is firmly established that diversity of citizenship " 'should be distinctly and positively averred in the pleadings, or should appear with equal distinctness in other parts of the record.' " Wolfe v. Hartford Life & Annuity Ins. Co., 148 U.S. 389, 13 S.Ct. 602, 37 L.Ed. 493 (1893). It is also clear that a statement of the parties' residence is insufficient to establish their citizenship. Id.; John Birch Soc'y v. National Broadcasting Co., 377 F.2d 194, 199 (2d Cir.1967).

The complaint in this case sets forth the citizenship of the three incorporated plaintiffs, but describes the three individual plaintiffs only as "residents" of either New York or Wyoming. If any of those three is a citizen of Virginia, however--as is defendant PacifiCorp--then there would be incomplete diversity of the parties. That would suffice to defeat federal jurisdiction under 28 U.S.C. § 1332. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 267, 2 L.Ed. 435 (1806) (requiring that no plaintiff share citizenship with any defendant), overruled on other grounds, Louisville, Cincinnati & Charlestown R.R. Co. v. Letson, 43 U.S. (2 How.) 497, 555, 11 L.Ed. 353 (1844). Based on this record, we cannot find that complete diversity exists.

Such a jurisdictional defect can be cured even in the Court of Appeals simply by amending the complaint pursuant to 28 U.S.C. § 1653 ("Defective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts."). First Nat'l Bank of Cincinnati v. Pepper, 454 F.2d 626, 636 (2d Cir.1972) (stating that an appellate court cannot consider any new issue not raised in the district court, except to cure jurisdictional defects under 28 U.S.C. § 1653).

Under the present circumstances, however, we believe that a remand is more appropriate. At oral argument, counsel for the plaintiffs represented to the court that he could produce affidavits from each of the plaintiffs setting forth their citizenship. But counsel for the defendant sought an opportunity to contest the factual basis of those affidavits. Even were we to let the plaintiffs amend their complaint in this Court, then, an evidentiary hearing would be required to resolve this factual dispute.

Accordingly, we remand the case for further proceedings as the district court deems suitable, to determine whether jurisdiction exists. And we note that if, on remand, the district court were to find that there is incomplete diversity, it would have discretion either to dismiss the complaint or to permit withdrawal of the nondiverse parties.

In the interests of judicial economy, we add the following observations about the district court's grant of summary judgment, in the event that jurisdiction exists.

B. Merits
1. Breach of Contract

The district court rejected the plaintiffs' breach-of-contract claim on the ground that they had failed, as a matter of law, to prove an essential link in the chain of title. According to the sale documents, Westwind had sold the computer equipment to the individual plaintiff-investors on either September 30, 1984, or December 30, 1984. Yet Westwind had no title to the equipment on those dates, since the sale documents from UCC Leasing to Westwind were dated December 31, 1984. The district court reasoned that since Westwind had no title to convey on September 30 or December 30, its purported transfers to the individual plaintiff-investors were void as a matter of law.

In reaching its conclusion, the court acknowledged the general rule that parties may agree to sell things that they do not yet own. Nevertheless, the court held that according to § 2-401(3) of New York's Uniform Commercial Code, the contract between the parties must explicitly state that the sale is meant to be a future sale--at least where neither the goods nor any documents are to be delivered. See N.Y.U.C.C. § 2-401 ("Unless otherwise explicitly agreed where delivery is to be made without moving the goods ... (b) if the goods are at the time of contracting already identified and no documents are to be delivered, title passes at the time and place of contracting."). Because the parties had not "explicitly agreed" otherwise, the court reasoned, title had to pass--if ever--at the time of contracting. Because Westwind had no title at that time, the sales were void.

The district court's application of § 2-401's timing provisions was erroneous, however. The common-law rule is clear that, where a seller has no title to goods at the time it enters into a contract to sell them, the contract is not void. Batchis v. Dlugasch, 128 Misc. 148, 149, 218 N.Y.S. 369, 369 (Sup. Ct. 1926) ("It is perfectly proper for one to make a contract to sell a piece of property that he does now own...."); Wamsley v. H.L. Horton & Co., 28 N.Y.S. 423, 424 (Sup.Ct., 1st Dep't 1894) ("It is a general rule of law that a man may contract for the sale of a specific thing which is not his own at the time."); see also Equico Lessors, Inc. v. Maruka Machinery Corp. of Am., 523 So.2d 665, 667 (Fla.Dist.Ct.App.1988).

At most, such contracts are voidable at the option of the purchaser. See Grassi v. Tatavito Homes, Inc., 90 A.D.2d 479, 480, 454 N.Y.S.2d 471, 473 (2d Dep't 1982) (holding that upon the breach of a sale of real estate, a buyer has a right to rescission as well as loss-of-bargain damages), aff'd, 58 N.Y.2d 1038, 462 N.Y.S.2d 445, 448 N.E.2d 1356 (1983); Wright v. Barnes, 541 So.2d 977, 979 (La.Ct.App.1989) ("The sale of a thing belonging to another...

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