Com. of Puerto Rico v. Cordeco Development Corp.

• Decision Date: 17 March 1982
• Docket Number: Civ. No. 81-0288.
• Citation: 534 F. Supp. 612
• Parties: COMMONWEALTH OF PUERTO RICO, Plaintiff, v. CORDECO DEVELOPMENT CORPORATION, Defendant.
• Court: U.S. District Court — District of Puerto Rico

534 F. Supp. 612

COMMONWEALTH OF PUERTO RICO, Plaintiff, v. CORDECO DEVELOPMENT CORPORATION, Defendant.

Civ. No. 81-0288.

United States District Court, D. Puerto Rico.

March 17, 1982.

Héctor Reichard-Cardona, Secretary of Justice, Com. of Puerto Rico by Howard Charles, Atty., Federal Litigation Div., Dept. of Justice, Com. of Puerto Rico, San Juan, P. R., for plaintiff.

Charles A. Cordero, San Juan, P. R., for defendant.

REMAND ORDER

CEREZO, District Judge.

The Commonwealth of Puerto Rico filed a petition for expropriation on January 1979 in the Superior Court of Puerto Rico seeking the condemnation of part of defendant Cordeco's oceanfront property. The land condemned will serve as a recipient of the pluvial waters of a government housing project to be built nearby. Cordeco filed a Petition for Removal on March 4, 1981 which was later amended. Jurisdiction is invoked on the basis of diversity of citizenship, Cordeco being a corporation which is registered in Panama, and because the cause of action arises under the Constitution of the United States and other federal laws. Cordeco claims it has been deprived of property without due process of law because the expropriation proceedings are part of a plan devised by certain individuals¹ to make a profitable sale of the housing project. It contends that the housing project could not be sold unless the problem of the drainage of pluvial waters was solved and that the delay caused by this problem resulted in the expiration of a governmental permit for the project. It is further alleged that an expired permit for the project was then renewed without following legal procedures in the proper agency and that, as part of the plan, these individuals then induced the Governor of Puerto Rico to commence proceedings to condemn part of Cordeco's land. Cordeco claims that these series of events, plus the alleged inadequate appraisal of the land, all point to violations of the Fifth and Fourteenth Amendments and of 42 U.S.C. Secs. 1981, 1982, 1983, 1985. As a final alternative argument, it suggests that we exercise pendent jurisdiction over the expropriation proceedings because there are serious constitutional questions involved.

Plaintiffs urge that there is no diversity jurisdiction because the Commonwealth is the plaintiff in the condemnation proceedings and a "state" cannot be a citizen for diversity purposes.² Defendant argues, in turn, that the Commonwealth is only a nominal party³ and that the real parties in interest are the Cooperative Development Company ("Agency") and the Agency's chief executive,⁴ who are U. S. citizens, residents of Puerto Rico, and, therefore, as a foreign corporation, it is entitled to litigate in this forum since diversity jurisdiction exists. Plaintiffs' position is based primarily on the fact that the action is an exercise of its power of eminent domain, a power that has traditionally been associated with the sovereign characteristics of a state. Louisiana Power and Light Co. v. City of Thibodaux, 360 U.S. 25, 26, 79 S.Ct. 1070, 1071, 3 L.Ed.2d 1058 (1959); Galveston Wharf Co. v. Galveston, 260 U.S. 473, 476, 43 S.Ct. 168, 169, 67 L.Ed. 355 (1923); Long Island Water Supply Co. v. Brooklyn, 166 U.S. 685, 17 S.Ct. 718, 41 L.Ed. 1165 (1897). It cites State v. American Machine & Foundry Co., 143 F.Supp. 703 (D.C.Colo. 1956) in its support. In that case, the District Court determined that the State of Colorado was the real party in interest due to the nature of the condemnation proceedings. Defendant, in turn, urges us to adopt the criteria of Idaho Potato Commission v. Washington Potato Commission, 410 F.Supp. 171 (D.C.Idaho 1975) where a financially independent government agency was held to be the real party in interest in enforcing the rights to a patent that it possessed. We find that the circumstances of this case bring it closer to State v. American Machine, ante, than to Idaho Potato Commission, ante. The nature of the action before us compels this conclusion.

Under Rule 17(a) FRCP a real party in interest is one who by federal or local substantive law possesses the right sought to be enforced and not necessarily the person who will ultimately benefit from recovery. Doherty v. Mutual Warehouse Co., 245 F.2d 609, 611 (5th Cir. 1957); see: 6 Wright & Miller, Federal Practice and Procedure, § 1541, p. 635 (1971). The purpose of Rule 17(a) is to ensure that the judgment will have proper res judicata effect by preventing a party not joined in the complaint from asserting the "real party in interest" status in an identical future suit; Prevor-Mayorsohn Caribbean v. Puerto Rico Marine, 620 F.2d 1, 4 (1st Cir. 1980), see: Advisory Committee Note to the 1966 Amendment to Rule 17(a) (1980 West Ed.) p. 40. In order to determine if the party is complying with the rule, the court must first examine the substantive law supporting the right asserted in the cause of action and decide if the person claiming to be the real party in interest possesses that right. Rule 17(b) also indicates that the capacity of a corporation to sue will be determined by the law under which it was organized. The Supreme Court recently held that the determination of a real party in interest for purposes of diversity of jurisdiction, though roughly similar to the procedural guidelines of Rule 17 FRCP, must rest on the substantive right that a given party possesses. The Court considered that the real parties in interest were the trustees instead of the beneficiaries because "... they (the trustees) have legal title, manage the assets and control the litigation...." Navarro Savings Ass'n. v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 1784, 64 L.Ed.2d 425 (1980). To determine the substantive character of a state as party to a proceeding in order to ascertain if diversity jurisdiction may be invoked, the inquiry must bear upon the essential nature of the proceeding to which a state is party. Ford Motor Co. v. Department of the Treasury, 323 U.S. 459, 464, 65 S.Ct. 347, 350, 89 L.Ed. 389 (1945).

The courts in Puerto Rico have long recognized the power of eminent domain as one inherent to the Commonwealth. ELA v. Soc. Civil Agrícola e Industrial, 104 DPR 392, 397 (1975); P.R. Housing Authority v. District Court, 68 PRR 50, 55 (1948) aff'd. 171 F.2d 563 (1st Cir. 1949). Although the power of eminent domain, as embodied in P.R.Laws Ann. Tit. 31 Sec. 1113 and Tit. 32 Secs. 2901-2920, can be exercised by government agencies, officers and municipalities, it is always by a delegation of power from the state that these instrumentalities may condemn property. No Commonwealth agency, officer, municipality nor any other government instrumentality may initiate a proceeding for condemnation unless the power of eminent domain has been delegated to it by the state. See: P.R. Laws Ann. Tit. 31 Sec. 1113, Tit. 32 Sec. 2902; P.R. Housing Authority v. District Court, 68 PRR 50, 55-58 (1948) aff'd. 171 F.2d 563 (1st Cir. 1949). This principle is also evident in the statute prescribing the manner in which the U. S. Government will exercise its power of eminent domain. 40 U.S.C. Sec. 256, et seq. and U. S. v. 162.20 Acres of Land, 639 F.2d 299, 303 (5th Cir. 1981); Southern California Fin. Corp. v. U. S., 634 F.2d 521, 523 (Ct.Cl.1980). In other words, the origin of the power of eminent domain is not found in the instrumentality of government benefited by the expropriation but rather in the state itself.

Although the Puerto Rico Development Company has been authorized to acquire property by expropriation, it is only by requesting the Governor to initiate the proceedings and acquire the property on "behalf of the Commonwealth of Puerto Rico" that this agency can exercise the delegated power. P.R.Laws Ann. Tit. 5 Sec. 981h(b). When the agency returns to the Commonwealth the total amounts disbursed as compensation or when the Governor deems it necessary that the title be vested in the agency, then by order of the court, title to the property is conveyed to the agency id. at Sec. 981h(d)(e). In the meantime, title is vested in the Commonwealth and is recorded as such in the Registry of Property. P.R.Laws Ann. Tit. 32 Sec. 2907. There is no indication in the law creating this agency that it is empowered to initiate condemnation proceedings in its own name. The fact that the agency cannot per se initiate the proceedings but must request the Governor to institute the action on behalf of the Commonwealth is a clear indication that the Legislature of Puerto Rico chose to limit the delegation to this agency by the manner the power was to be exercised. This limitation is not unique to this agency but is found in many government instrumentalities to which a similar concession has been granted. See: P.R.Laws Ann. Tit. 32 Sec. 2916 (Municipalities), Tit. 5 Sec. 931r(a) (Cooperative Development Administration); Tit. 22 Sec. 149 (Aqueduct & Sewer Authority); Tit. 22 Sec. 6 (Public Works Dept.); Tit. 22 Sec. 203 (Electric Power Authority); Tit. 23 Sec. 251g (Commercial Development Co.); Tit. 23 Sec. 278m (Industrial Development Co.), etc. Not all government instrumentalities in Puerto Rico to which the power of eminent domain has been delegated are limited in this manner. The enabling statutes of the Puerto Rico Land Administration, for example, when describing the proceeding by which it may acquire property by condemnation, states: "The power hereby conferred on the Governor" (to initiate the condemnation proceedings on behalf of the agency) "shall not limit or restrain the authority of the Administration to institute itself the condemnation proceedings when it may deem it convenient." P.R.Laws Ann. Tit. 28 Sec. 264. The Puerto Rico Housing Authority also has been expressly permitted to exercise the power of eminent domain in its own name. Id. Tit. 17 Sec. 14. These express provisions, outlining the manner in which the power of eminent domain is exercised, reinforce the proposition that the requirement imposed on...