Associated Ins. Management Corp. v. Arkansas General Agency, Inc.

• Court: U.S. Court of Appeals — Eighth Circuit
• Writing for the Court: FAGG
• Citation: Associated Ins. Management Corp. v. Arkansas General Agency, Inc., 149 F.3d 794 (8th Cir. 1998)
• Decision Date: 14 August 1998
• Docket Number: Nos. 96-3829W,96-3861WA,s. 96-3829W
• Parties: ASSOCIATED INSURANCE MANAGEMENT CORPORATION; Colonia Insurance Company, Plaintiffs-Appellees, v. ARKANSAS GENERAL AGENCY, INC.; Defendant-Appellant, Rick W. Welch, Defendant. ARKANSAS GENERAL AGENCY, INC., Third Party Plaintiff-Appellant, v. COLONIA UNDERWRITERS INSURANCE COMPANY, Third Party Defendant-Appellee. ASSOCIATED INSURANCE MANAGEMENT CORPORATION; Colonia Insurance Company, Plaintiffs-Appellees, v. ARKANSAS GENERAL AGENCY, INC.; Defendant, Rick W. Welch, Defendant-Appellant. Rick W. WELCH, Third Party Plaintiff-Appellant, v. COLONIA UNDERWRITERS INSURANCE COMPANY, Third Party Defendant-Appellee.

Page 794

149 F.3d 794

ASSOCIATED INSURANCE MANAGEMENT CORPORATION; Colonia

Insurance Company, Plaintiffs-Appellees, v. ARKANSAS GENERAL AGENCY, INC.; Defendant-Appellant, Rick W. Welch, Defendant.

ARKANSAS GENERAL AGENCY, INC., Third Party Plaintiff-Appellant, v. COLONIA UNDERWRITERS INSURANCE COMPANY, Third Party

Defendant-Appellee.

ASSOCIATED INSURANCE MANAGEMENT CORPORATION; Colonia

Insurance Company, Plaintiffs-Appellees, v. ARKANSAS GENERAL AGENCY, INC.; Defendant, Rick W. Welch, Defendant-Appellant.

Rick W. WELCH, Third Party Plaintiff-Appellant, v. COLONIA UNDERWRITERS INSURANCE COMPANY, Third Party

Defendant-Appellee.

Nos. 96-3829WA, 96-3861WA.

United States Court of Appeals Eighth Circuit.

Submitted March 12, 1998.

Decided July 9, 1998.

Rehearing and Suggestion for Rehearing En Banc Denied Aug. 14, 1998.

Matthew T. Horan, Fort Smith, Arkansas, argued, for Appellant.

James E. Nesland, Denver, CO, argued (Richard P. Salgado, on the brief), for Appellee.

Before FAGG, ROSS, and BOWMAN, ^* Circuit Judges.

FAGG, Circuit Judge.

New York citizen Associated Insurance Management Corporation (Management Corporation of New York), acting under powers of attorney as a collection agent for New York citizen Colonia Insurance Company (Colonia of New York) and Arkansas citizen Colonia Underwriters Insurance Company (Colonia of Arkansas), brought this diversity-based action against Arkansas citizens Arkansas General Agency, Inc. and Rick W. Welch (collectively the Arkansas defendants) to recover premiums owed to the insurance companies. The Arkansas defendants moved to dismiss for lack of subject matter jurisdiction, contending there was not complete diversity of citizenship between the real parties to the controversy. The district court denied the motion, and a substantial judgment was entered against the Arkansas defendants after a trial on the merits. The Arkansas defendants now appeal, raising jurisdictional and trial-related issues. Because we conclude the district court lacked subject matter jurisdiction, we do not consider the other issues raised on appeal. We remand for vacation of the judgment entered against the Arkansas defendants and for dismissal of the action.

Initially, we summarize the well-established rules of federal diversity jurisdiction that control our decision in this case. First, we determine diversity of citizenship at the time an action is filed. See Sheehan v. Gustafson, 967 F.2d 1214, 1215 (8th Cir. 1992). Second, complete diversity of citizenship jurisdiction under 28 U.S.C. § 1332(a) is tested by the citizenship of the real parties to the controversy, and the citizenship of an agent who merely sues on behalf of the real parties must be ignored. See Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980); Iowa Pub. Serv. Co. v. Medicine Bow Coal Co., 556 F.2d 400, 404 (8th Cir.1977); Airlines Reporting Corp. v. S & N Travel, Inc., 58 F.3d 857, 861-62 (2d Cir.1995). Third, the Federal Rules of Civil Procedure have no bearing on the requirements of federal diversity jurisdiction. See Navarro Sav. Ass'n, 446 U.S. at 462 n. 9, 100 S.Ct. 1779; Iowa Pub. Serv. Co., 556 F.2d at 404 n. 5; Airlines Reporting Corp., 58 F.3d at 861 n. 4; Fed.R.Civ.P. 82. Finally, the district court cannot retroactively create diversity jurisdiction if it did not exist when the complaint was filed. See Sta-Rite Indus., Inc. v. Allstate Ins. Co., 96 F.3d 281, 285 (7th Cir.1996); Aetna Cas. & Sur. Co. v. Hillman, 796 F.2d 770, 775-76 (5th Cir.1986). Instead, the district court must dismiss the action. See Aetna Cas. & Sur. Co., 796 F.2d at 776.

In their motion to dismiss, the Arkansas defendants contended that rather than the named plaintiff, Management Corporation of New York, absent parties Colonia of New York and Colonia of Arkansas were the real parties in interest to enforce their premium-based claims, and thus the district court lacked jurisdiction because the citizenship of Colonia of Arkansas and the Arkansas defendants was not diverse. The district court rejected the Management Corporation of New York's contention that it was a real party in interest because its representative role was akin to that of an assignee instead of a collection agent representing the interests of others, and ruled the insurance companies it represented were "the real parties in interest as to [their] claims." The district court recognized that because "the citizenship of the [insurance companies] counts for purposes of diversity jurisdiction," the presence of Colonia of Arkansas in the lawsuit "would destroy diversity jurisdiction." Rather than dismissing the case, however, the district court was persuaded the diversity problem could be cured if instead of entering the lawsuit, Colonia of Arkansas merely ratified it by authorizing continuation of the lawsuit in its absence and agreeing to be bound by the result. See Fed.R.Civ.P. 17(a) (providing for continuation of lawsuit not brought by real party in interest when real party in interest ratifies, joins, or is substituted in lawsuit). Once Colonia of Arkansas filed its Rule 17(a) ratification and Colonia of New York joined the action as a party plaintiff, the district court concluded it had removed the obstacle to diversity jurisdiction and thus denied the Arkansas defendants' motion to dismiss.

Applying the law to the facts in this case, we conclude the case must be dismissed because there is not diversity of citizenship between Colonia of Arkansas and the Arkansas defendants, real parties to the controversy on the original premium-based claims. Although the district court correctly recognized diversity was flawed from the outset, the district court went astray when it tried to finesse the overarching rule that diversity jurisdiction depends on the citizenship of the real parties to the controversy when the complaint is filed. Thus, the district court's undertaking procedurally to cure the defect in its diversity jurisdiction was nothing more than the meaningless act of a court having no adjudicative jurisdictional power. See Aetna Cas. & Sur. Co., 796 F.2d at 776. Although ratification of the lawsuit under Rule 17(a) by Colonia of Arkansas, a nondiverse real party, satisfied the requirement that every action be prosecuted in the name of the real party in interest, the ratification did not retroactively confer diversity jurisdiction. See id.; Iowa Pub. Serv. Co., 556 F.2d at 404 n. 5; Fed.R.Civ.P. 82 (the Federal Rules of Civil Procedure do not extend the jurisdiction of the federal district courts). Rather than addressing jurisdiction, Federal Rule of Civil Procedure 17(a) relates only to the proper parties. See Navarro Sav. Ass'n, 446 U.S. at 462 n. 9, 100 S.Ct. 1779; Iowa Pub. Serv. Co., 556 F.2d at 404 n. 5; Airlines Reporting Corp., 58 F.3d at 861 n. 4; Certain Interested Underwriters v. Layne, 26 F.3d 39, 42 n. 1 (6th Cir.1994).

In a last ditch effort to save the judgment entered on the jury's verdict against the Arkansas defendants, the Management Corporation of New York and the insurance companies contend "the [Management Corporation of New York] could have prosecuted [Colonia of Arkansas's] claims as a real party in interest." We disagree. Having reviewed the powers of attorney and the underlying agreements between the Management Corporation of New York and the insurance companies, and guided by the "governing substantive law," Iowa Pub. Serv. Co., 556 F.2d at 404, we agree with the district court "that Arkansas law does not support such a [contention], and that [the Management Corporation of New York] is not a...