Coury v. Prot

• Decision Date: 19 June 1996
• Docket Number: 94-20694,Nos. 94-20084,s. 94-20084
• Citation: 85 F.3d 244
• Parties: David F. COURY, Plaintiff-Appellee, Cross-Appellant, v. Alain PROT, Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 244

85 F.3d 244

David F. COURY, Plaintiff-Appellee, Cross-Appellant, v. Alain PROT, Defendant-Appellant, Cross-Appellee.

Nos. 94-20084, 94-20694.

United States Court of Appeals, Fifth Circuit.

June 19, 1996.

D. Scott Funk, J. Cary Gray, Looper, Reed, Mark and McGraw, Houston, TX, for Coury.

Thomas Donald Moran, Schneider & McKinney, Houston, TX, for Prot.

Appeals from the United States District Court for the Southern District of Texas.

Before GARWOOD, SMITH and DENNIS, Circuit Judges.

DENNIS, Circuit Judge:

In this case David Coury, a citizen of California, sued Alain Prot, a dual citizen of the United States and France, in a Texas state court to recover for damages resulting from breach of contract and fraud. Prot removed the action to the federal district court pleading that he was a dual citizen of France and the United States domiciled in France and therefore entitled to remove this action under the alienage provision of diversity jurisdiction, 28 U.S.C. § 1332(a)(2). After a jury trial, the trial court dismissed Coury's fraud claim but submitted the balance of his case to the jury, which returned a verdict awarding Coury $164,500 including attorney's fees plus post-judgment interest based on Prot's breach of contract. Subsequently, the court denied Prot's post verdict motions and granted Coury's motion for turnover of two parcels of Prot's Texas property in satisfaction of the trial court's judgment implementing the jury award.

Prot appealed from the main judgment of the trial court and from its turnover order contending: (1) the district court lacked diversity jurisdiction under the alienage provision because when the suit was commenced and removed Prot was a dual citizen of the United States and France domiciled in France; (2) the district court erred in denying Prot's post verdict motion for leave to amend his answer to add the affirmative defense that the contract sued upon by Coury was illegal; (3) Prot's Texas parcels of property were exempt from turnover and forced sale under the state constitutional and statutory homestead exemptions.

Coury filed a cross appeal seeking pre-judgment interest and, in the event of reversal of the breach of contract award, to overturn the trial court's dismissal of his fraud claim.

Upon its initial consideration of the appeals, a different panel of this court concluded that based on the record presented for its review it could not determine whether Prot's domicile at the time the complaint was filed was in France or in Texas. For purposes of diversity jurisdiction, only the American nationality of a dual national is recognized. Action S.A. v. Marc Rich & Co., Inc., 951 F.2d 504, 507 (2nd Cir.1991) cert. denied, 503 U.S. 1006, 112 S.Ct. 1763, 118 L.Ed.2d 425 (1992); see also Sadat v. Mertes, 615 F.2d 1176 (7th Cir.1980) ("only the American nationality of the dual citizen should be recognized under 28 U.S.C. § 1332(a)."). An American national, living abroad, cannot sue or be sued in federal court under diversity jurisdiction, 28 U.S.C. § 1332, unless that party is a citizen, i.e. domiciled, in a particular state of the United States. 1 J. Moore, Moore's Federal Practice § 0.74 (1996). Thus, Prot's initial claim of diversity jurisdiction under the alienage provision was invalid. Furthermore, if Prot was found to be domiciled abroad, he would not be a citizen of any state and diversity of citizenship would also fail. However, if the district court determined that Prot was domiciled in Texas at the time the suit was filed and removed, although removal may have been improper, subject matter jurisdiction would not be lacking. Coury v. Prot, slip op. at 2, 3, 40 F.3d 385 (5th Cir. Nov. 3, 1994) (unpublished per curiam) (citing Grubbs v. General Electric Credit Corp., 405 U.S. 699, 702, 92 S.Ct. 1344, 1347, 31 L.Ed.2d 612 (1972)). Accordingly, the panel remanded the case to the district court for it to determine whether subject matter jurisdiction existed, with directions to vacate its judgment if jurisdiction was lacking or to return the case to this court if jurisdiction existed. Coury v. Prot, slip op., 40 F.3d 385 (5th Cir.1994) (unpublished per curiam).

On remand, the trial court conducted an evidentiary hearing, determined that Prot was domiciled in Texas when the suit was filed in state court in May, and removed in June, of 1992, and that jurisdiction existed. The trial court returned the case to this court.

Jurisdiction

The district court correctly determined that subject matter and diversity of citizenship jurisdiction exists. Prot was domiciled in Texas when the state court action was commenced and when he removed the case to federal court. Although in 1992 Prot had physically moved himself, his family and his business to France, he had not formed an intention to remain there.

Article III, § 2 of the Constitution provides that the judicial power of the United States shall extend, inter alia, to controversies "between Citizens of Different States" and to controversies "between a State, or the Citizens thereof, and foreign States, Citizens or Subjects." These provisions constitute the authority for the grant of "diversity" and "alienage" jurisdiction, respectively. 1 J. Moore, Moore's Federal Practice § 0.71 (1996).

It is axiomatic that the federal courts have limited subject matter jurisdiction and cannot entertain cases unless authorized by the Constitution and legislation. Id. at 5.-1]. The parties can never consent to federal subject matter jurisdiction, and lack of such jurisdiction is a defense which cannot be waived. Fed.R.Civ.P. 12(h)(3); See City of Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 76, 62 S.Ct. 15, 20, 86 L.Ed. 47 (1941). Accordingly, there is a presumption against subject matter jurisdiction that must be rebutted by the party bringing an action to federal court. See, e.g. Strain v. Harrelson Rubber Co., 742 F.2d 888, 889 (5th Cir.1984); 1 J. Moore, Moore's Federal Practice § 0.71[5.-1] (1996).

What makes a person a citizen of a state? The fourteenth amendment to the Constitution provides that: "All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside." United States Const. amend. XIV, § 1. However, "reside" has been interpreted to mean more than to be temporarily living in the state; it means to be "domiciled" there. Thus, to be a citizen of a state within the meaning of the diversity provision, a natural person must be both (1) a citizen of the United States, and (2) a domiciliary of that state. Federal common law, not the law of any state, determines whether a person is a citizen of a particular state for purposes of diversity jurisdiction. 1 J. Moore, Moore's Federal Practice, § 0.74 (1996); e.g., Mas v. Perry, 489 F.2d 1396, 1399 (5th Cir.) cert. denied, 419 U.S. 842, 95 S.Ct. 74, 42 L.Ed.2d 70 (1974).

Consistent with general principles for determining federal jurisdiction, diversity of citizenship must exist at the time the action is commenced. Newman-Green, Inc v. Alfonzo-Larrain, 490 U.S. 826, 830, 109 S.Ct. 2218, 2221, 104 L.Ed.2d 893 (1989). In cases removed from state court, diversity of citizenship must exist both at the time of filing in state court and at the time of removal to federal court. See, e.g., Kanzelberger v. Kanzelberger, 782 F.2d 774, 776 (7th Cir.1986). If diversity is established at the commencement and removal of the suit, it will not be destroyed by subsequent changes in the citizenship of the extant parties. Smith v. Sperling, 354 U.S. 91, 93 n. 1, 77 S.Ct. 1112, 1114 n. 1, 1 L.Ed.2d 1205 (1957); Mollan v. Torrance, 22 U.S. (9 Wheat.) 537, 539, 6 L.Ed. 154 (1824); 1 J. Moore, Moore's Federal Practice, § 0.74 (1996).

The lack of subject matter jurisdiction may be raised at any time during pendency of the case by any party or by the court. Fed.R.Civ.P. 12(h)(3). Moreover, the Supreme Court has held that a party cannot waive the defense and cannot be estopped from raising it. E.g., Insurance Corp of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982); Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978). Obviously, these principles can result in a tremendous waste of judicial and private resources. The general reaction is that this waste is simply a price that must be paid for federalism. 1 J. Moore, Moore's Federal Practice § 0.74 (1996). Some cases cry out for an exception to the rules, for example, when a party who invokes federal jurisdiction recants his original jurisdictional allegations or "discovers" that there was no diversity after all after suffering a loss on the merits. Id. So far, however, the traditional rule stands firm despite the urging of commentators for doctrines of estoppel or waiver to bar litigants from "playing fast and loose with the judicial machinery" and using the federal courts' limited subject matter jurisdiction in bad faith. Id. at n. 29. A few circuits have demonstrated a willingness to do so only to be repudiated by intervening Supreme Court decisions. American Fire & Casualty Co. v. Finn, 341 U.S. 6, 16-18, 71 S.Ct. 534, 541-542, 95 L.Ed. 702 (1951); City of Brady, Texas v. Finklea, 400 F.2d 352, 357-358 (5th Cir.1968); Di Frischia v. New York Cent. R.R., 279 F.2d 141, 141-144 (3rd Cir.1960); Klee v. Pittsburgh & W. Va. Ry. Co., 22 F.R.D. 252, 252-255 (W.D.Pa.1958).

Jurisdictional matters are to be decided by the court, although the court may, in its discretion, submit to the jury contested factual issues involving the presence of diversity of citizenship, to be used as an advisory determination. E.g. Har-Pen Truck Lines, Inc. v. Mills, 378 F.2d 705 (5th Cir.1967). As long as the trial court applies the correct standard of law, its findings as to the citizenship of the parties will be upheld on appeal unless they are clearly erroneous. Fed.R.Civ.P. 52(a); see, e.g....