Development Finance Corp. v. Alpha Housing & Health Care, Inc.

• Decision Date: 26 April 1995
• Docket Number: No. 94-3519,94-3519
• Citation: 54 F.3d 156
• Parties: DEVELOPMENT FINANCE CORPORATION; The National Housing and Health Care Trust, Inc., Appellees, v. ALPHA HOUSING & HEALTH CARE, INC., Appellee, v. John SOWER; Wilbur Dove, Third Party Defendants. Sylvan Associates, Inc., * ( * Pursuant to Rule 12(a), F.R.A.P.), Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 156

54 F.3d 156

32 Fed.R.Serv.3d 427

DEVELOPMENT FINANCE CORPORATION; The National Housing and Health Care Trust, Inc., Appellees, v. ALPHA HOUSING & HEALTH CARE, INC., Appellee, v. John SOWER; Wilbur Dove, Third Party Defendants.

Sylvan Associates, Inc., ^* (

^* Pursuant to Rule 12(a),

F.R.A.P.), Appellant.

No. 94-3519.

United States Court of Appeals, Third Circuit.

Argued March 10, 1995.

Decided April 26, 1995.

John Alan Conte, Robert A. Krebs (argued), Conte, Melton & D'Antonio, Conway, PA, for appellant.

George E. Pallas (argued), Andrea B. Dillon, Cohen & Huntington, P.C., Philadelphia, PA, for appellees Development Finance Corp. and The Nat. Housing and Health Care Trust, Inc.

Louis Pomerico, Pomerico, Leymarie, Clark & Punture, New Castle, PA, for appellee Alpha Housing & Health Care, Inc.

Before: HUTCHINSON, ALITO, and SAROKIN, Circuit Judges.

OPINION OF THE COURT

SAROKIN, Circuit Judge:

Sylvan Associates, Inc. ("Sylvan" or "applicant"), the sole member of defendant Alpha Housing & Health Care, Inc. ("Alpha"), a nonprofit corporation, appeals from the denial of its motion to intervene as a third-party plaintiff in an action for breach of contract. Sylvan wishes to argue that the contracts between plaintiffs and defendant were ultra vires, a claim that defendant itself is prohibited from raising under Pennsylvania law.

I.

Plaintiff Development Finance Corp. ("DEFCO") entered into a contract to assist defendant in arranging financing for the acquisition of nursing home facilities. After defendant purchased two facilities, it entered into a contract with plaintiff The National Housing and Health Care Trust, Inc. ("National Housing") whereby National Housing would assist in the management of the nursing homes. DEFCO and defendant subsequently executed another contract providing for revised terms of payment for DEFCO's services. DEFCO and National Housing now sue for defendant's alleged breach of the agreements. Federal jurisdiction for the original claims is based on the diversity of citizenship between plaintiffs and defendant, pursuant to 28 U.S.C. Sec. 1332.

Sylvan first moved to intervene as of right as a defendant, in order to assert as a defense that the agreements between plaintiffs and defendant were ultra vires. The district court denied the motion, Appendix ("App.") at 63, and Sylvan did not appeal.

Recasting its argument, Sylvan again moved to intervene as of right, this time as a third-party plaintiff, in an effort to enjoin performance of defendant's contracts with plaintiffs pursuant to 15 Pa.C.S. Sec. 5503(a)(1). The action asked the district court to grant plaintiffs only "such compensation as may be equitable," as the Pennsylvania statute provides. The district court denied the motion without a written decision. App. at 111. Sylvan filed a timely notice of appeal, and we have jurisdiction under 28 U.S.C. Sec. 1291 because the denial of a motion to intervene as of right is a final, appealable order. United States v. Alcan Aluminum, Inc., 25 F.3d 1174, 1179 (3d Cir.1994).

II.

We review the denial of a motion to intervene as of right for abuse of discretion. Alcan Aluminum, 25 F.3d at 1179; Brody v. Spang, 957 F.2d 1108, 1115 (3d Cir.1992). However, we will reverse "only if we find the district court 'has applied an improper legal standard or reached a decision we are confident is incorrect.' " Alcan Aluminum, 25 F.3d at 1179 (quoting Brody, 957 F.2d at 1115).

We must begin with a jurisdictional issue. As the party asserting jurisdiction, Sylvan bears the burden of showing that its claims are properly before the district court. Packard v. Provident Nat'l Bank, 994 F.2d 1039, 1045 (3d Cir.), cert. denied, --- U.S. ----, 114 S.Ct. 440, 126 L.Ed.2d 373 (1993).

Sylvan and Alpha are both incorporated under the laws of Pennsylvania. It is axiomatic that the federal judiciary's diversity jurisdiction depends on complete diversity between all plaintiffs and all defendants. See 28 U.S.C. Sec. 1332; Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806); Singh v. Daimler-Benz AG, 9 F.3d 303, 305 (3d Cir.1993). Sylvan concedes that there is no diversity of citizenship between itself and Alpha; both are Pennsylvania corporations. Intervenor's Brief at 20.

Sylvan contends that the district court has supplemental jurisdiction over its claim pursuant to 28 U.S.C. Sec. 1367(a), the recent codification of common law "pendent" and "ancillary" jurisdiction. Section 1367(a) provides

Except as provided in subsections (b) and (c) ... in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.

28 U.S.C.A. Sec. 1367(a) (1993).

A. Sec. 1367(b)

Subsection (b)'s limitation on the general grant of supplemental jurisdiction raises the most obvious problems for Sylvan:

In any civil action of which the district courts have original jurisdiction founded solely on section 1332 of this title, the district court shall not have supplemental jurisdiction ... over claims by persons ... seeking to intervene as plaintiffs under Rule 24, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.

28 U.S.C.A. Sec. 1367(b) (1993) (emphasis added). Sylvan does not dispute that the district court's original jurisdiction was "founded solely on section 1332" and that Sylvan has captioned its motion as one to intervene as a plaintiff. App. at 64. At first glance, then, Sec. 1367(b) would appear to deprive the district court of jurisdiction over Sylvan's claim against Alpha.

District courts considering Sec. 1367(b) have generally concluded that in a diversity action, the section eliminates supplemental jurisdiction over the claims of a plaintiff-intervenor who shares citizenship with a defendant. See Deere & Co. v. Diamond Wood Farms, 152 F.R.D. 158, 160 (E.D.Ark.1993); Yorkshire Partnership v. Pacific Capital Partners, 154 F.R.D. 141, 142 (M.D.La.1993); MCI Telecommunications Corp. v. Logan Group, 848 F.Supp. 86, 87-89 (N.D.Tex.1994); Manhattan Fire & Marine Ins. Co. v. Northwestern Regional Airport Comm'n, 1995 WL 382704, 1993 U.S. Dist. LEXIS 6858 at * 4 (W.D.Mich. March 25, 1993). See also Krueger v. Cartwright, 996 F.2d 928, 933 n. 6 (7th Cir.1993) (Sec. 1367(b) would have deprived court of supplemental jurisdiction over claim of party who shared citizenship with defendant in diversity action, had party moved to intervene as plaintiff).

We are aware of only one case to the contrary. See Colonial Penn Ins. Co. v. American Centennial Ins. Co., 1992 WL 350838 at * 3-4 (S.D.N.Y.1992).

Leading commentators generally agree that in a diversity action, Sec. 1367(b) eliminates supplemental jurisdiction over claims of plaintiff-intervenors who share citizenship with a defendant. See 7C Charles A. Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure, Sec. 1917 at 47 (1994 Supp.) (Section 1367(b) "specifically prohibits the exercise of [supplemental] jurisdiction in diversity cases for persons seeking to intervene as plaintiffs under Rule 24"); 3B James Wm. Moore et al., Moore's Federal Practice p 24.18 (2d ed. 1993), at 24-182 ("Sec. 1367(b) makes one change in prior practice by eliminating supplementary jurisdiction over a party who intervenes, even if by right, as a plaintiff in a diversity action if that party does not meet the requirements for diversity jurisdiction"); 28 U.S.C.A. Sec. 1367 (1993), David Siegel, Practice Commentary, "The 1990 Adoption of Sec. 1367, Codifying 'Supplemental' Jurisdiction" ("Practice Commentary"), at 833.

1. Alignment

Before rushing to deny Sylvan's bid to participate in this action, however, we must consider a fundamental principle of federal jurisdiction, a principle associated with, but not limited to, diversity jurisprudence. In determining the alignment of the parties for jurisdictional purposes, the courts have a "duty" to " 'look beyond the pleadings and arrange the parties according to their sides in the dispute.' " Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 69, 62 S.Ct. 15, 17, 86 L.Ed. 47 (1941) (quoting Dawson v. Columbia Trust Co., 197 U.S. 178, 180, 25 S.Ct. 420, 421, 49 L.Ed. 713 (1905)). Opposing parties must have a " 'collision of interests' " over the " 'principal purpose of the suit.' " Id. (quoting Dawson, 197 U.S. at 181, 25 S.Ct. at 421-22 and East Tennessee, V. & G.R. v. Grayson, 119 U.S. 240, 244, 7 S.Ct. 190, 192, 30 L.Ed. 382 (1886)).

In this circuit we have described the alignment inquiry as one which "obliges the court to penetrate the nominal party alignment and to consider the parties' actual adversity of interest." In re Texas Eastern Transmission Corp. PCB Contamination Ins. Coverage Litigation, 15 F.3d 1230, 1240-41 (3d Cir.), cert. denied, --- U.S. ----, 115 S.Ct. 291, 130 L.Ed.2d 206 (1994). See also Employers Ins. of Wausau v. Crown Cork & Seal Co., 905 F.2d 42, 46 (3d Cir.1990).

In Texas Eastern, we determined that a district court had "erroneously reasoned that realignment was a principle associated exclusively with diversity jurisdiction." 15 F.3d at 1242 (emphasis added). Realignment "in fact represents a broader principle of judicial interpretation of statutes conferring jurisdiction in federal courts, where the statutory conferral of jurisdiction is predicated upon the adversarial relationship of the parties." Id. at 1240. Thus, "where party designations have jurisdictional consequences," we must align the parties before determining jurisdiction. Texas Eastern, 15 F.3d at 1241 (realigning parties for jurisdictional analysis under Foreign...