Hereth v. Jones

• Decision Date: 27 July 1982
• Docket Number: Civ. A. No. 82-0187-R.
• Parties: Jack R. HERETH, et al. v. Stevens M. JONES, et al.
• Court: U.S. District Court — Eastern District of Virginia

544 F. Supp. 111

Jack R. HERETH, et al. v. Stevens M. JONES, et al.

Civ. A. No. 82-0187-R.

United States District Court, E. D. Virginia, Richmond Division.

July 27, 1982.

Alan G. Fleischer, John W. Vaughan, Jr., William R. Baldwin, III, Hirschler, Fleischer, Weinberg, Cox & Allen, Richmond, Va., for plaintiffs.

John S. Smart, Richmond, Va., for defendants.

OPINION

WARRINER, District Judge.

Having raised the question of jurisdiction sua sponte and now having studied the briefs, affidavits, and exhibits, the Court concludes that it lacks jurisdiction in this case upon two grounds.

I

First, though plaintiff Hopewell Medical Center, Inc., is incorporated under the laws of the State of Georgia, it has absolutely no function or activity in that State. Indeed, it is alleged to be "passive" in its activities within this Commonwealth. Nevertheless, infinitesimal though the activity be, such activity as this corporation engages in, it engages in as a general partner in Hopewell Convalescent Center, a limited partnership which owns a nursing home in Hopewell, Virginia.

The question of a corporation's "principal place of business" requires a determination of relative activity. A large, active corporation, such as Ford Motor Company, may have hundreds of employees in Virginia yet its principal place of business remains in Michigan. Plaintiff Hopewell Medical Center, Inc., has no employees anywhere thus the fact that it has none in Virginia is not significant, relatively speaking. Apparently its sole raison d'etre is to be the corporate general partner in the Virginia nursing home venture. Thus such activity as exists in Virginia is greater than the non-activity in any other State. That being so, the Court is forced to conclude that the principal place of business of plaintiff Hopewell Medical Center, Inc., is within the Commonwealth. It follows, then, that complete diversity is lacking since both defendants are citizens of Virginia.

II

With respect to the second aspect of the Court's lack of jurisdiction, the Court expresses its appreciation for plaintiffs' pointing out to the Court that Hopewell Convalescent Center, the limited partnership in whose name the general partners Hereth and Hopewell Medical Center, Inc., sue, has among its limited partners persons who are citizens of Virginia. Plaintiffs, having properly disclosed this fact, argues that the non-diverse citizenship of limited partners does not destroy diversity. Plaintiffs rely primarily on Colonial Realty Corporation v. Bache & Company, 358 F.2d 178 (2d Cir.), cert. denied, 385 U.S. 817, 87 S.Ct. 40, 17 L.Ed.2d 56 (1966). Other cases supporting plaintiffs' position are C. P. Robinson Construction Company v. National Corporation for Housing Partnerships, 375 F.Supp. 446 (M.D.N.C.1974); Erving v. Virginia Squires Basketball Club, 349 F.Supp. 709 (E.D.N.Y.1972); and Weinfield v. Paine Webber Jackson & Curtis, 191 F.Supp. 750 (D.Mass.1961).

None of these cases, however, is persuasive in light of the Fourth Circuit opinion in R. H. Bouligny, Inc. v. United Steelworkers of America, 336 F.2d 160 (4th Cir. 1964) as affirmed by the unanimous Supreme Court in United Steelworkers of America, AFL-CIO v. R. H. Bouligny, Inc., 382 U.S. 145, 86 S.Ct. 272, 15 L.Ed.2d 217 (1965). Though Bouligny dealt with diversity in a labor union context, rather than that of a limited partnership, the words and the reasoning of both the Circuit and the Supreme Court foreclose any attempt on the part of this Court to expand federal diversity jurisdiction by disregarding the citizenship of the individuals comprising any type of unincorporated association. Judge Bell for the Fourth Circuit pointed to Chapman v. Barney, 129 U.S. 677, 9 S.Ct. 426, 32 L.Ed. 800 (1889) as having "laid down the rule with respect to unincorporated associations." That rule, according to Judge Bell, is that "the actual citizenship of the members of an unincorporated association ... is controlling." Judge Bell asserted that the Chapman rule was reaffirmed in Great Southern Fireproof Hotel Company v. Jones, 177 U.S. 449, 454-55, 20 S.Ct. 690, 692-93, 44 L.Ed. 842 (1900), where the Court noted that "no voluntary association of persons" can be considered a citizen "unless it be a corporation."

While differentiations and distinctions can be made between various voluntary associations of persons, such as partnerships, limited partnerships, joint stock companies, labor unions, religious congregations, governing boards, and the like, the language of Great Southern as understood by Judge Bell excludes them all and excludes them all without differentiation. Unless they be a corporation they cannot be considered a fictitious citizen for purposes of diversity jurisdiction.

Judge Bell, in Bouligny, drove this point home with a quote from Great Southern as follows:

That a limited partnership association created under the Pennsylvania statute may be described as a "quasi-corporation," having some of the characteristics of a corporation, or as a "new artificial person," is not a sufficient reason for regarding it as a corporation within the jurisdictional rule heretofore adverted to. That rule must not be extended. We are unwilling to extend it so as to embrace partnership associations.

366 F.2d at 162, quoting Great Southern Fireproof Hotel Co. v. Jones, supra, 177 U.S. at 457, 20 S.Ct. at 693 (emphasis in original).

The Fourth Circuit in Bouligny reviewed post Great Southern cases where, it might be argued, the Supreme Court had blurred the bright line between corporations and all other unincorporated associations. Among these were United Mineworkers of America v. Coronado Coal Co., 259 U.S. 344, 42 S.Ct. 570, 66 L.Ed. 975 (1922); People of Puerto Rico v. Russell & Co., 288 U.S. 476, 53 S.Ct. 447, 77 L.Ed. 903 (1933); and American Federation of Musicians v. Stein, 213 F.2d 679 (6th Cir.), cert. denied, 348 U.S. 873, 75 S.Ct. 108, 99 L.Ed. 687 (1954). Having discussed these cases, and having distinguished them, the Fourth Circuit observed:

Whatever basis there once was for the belief that Russell intended to lay down new principles for the determination of the citizenship for diversity jurisdiction purposes, it was reversed by the passage of the 1958 amendment to the diversity statute.... The 1958 amendment ... did two things...: (1) For the first time, it referred specifically to corporations, providing that they shall be "deemed" citizens.... Corporations are treated as citizens because an Act of Congress directs that they be so treated. (2) For many corporations the statute now provides dual citizenship: A corporation is to be treated as a citizen of any State by which it is incorporated, and also of the State in which it maintains its principal place of business. This is, in the first place, confirmation of the fact that the fiction as to the citizenship of the stockholders has been abandoned.

336 F.2d at 164.

Judge Bell held that unincorporated associations could not be equated with corporations by judicial fiat attributing "deemed" citizenship to them. Although recognizing agitation for changes in the law respecting citizenship of unincorporated associations, Judge Bell emphasized that the proposal would have to be brought about by congressional amendment to the Judicial Code — not by judicial interpretation.

The Supreme Court, in its consideration of Bouligny and whether an unincorporated labor union is to be treated as a citizen for purposes of federal diversity jurisdiction, rejected several arguments critical of the distinction drawn for jurisdictional purposes between corporations, labor unions, and other unincorporated associations. The Court concluded that the resolution of such an issue was "properly a matter for legislative consideration which cannot adequately or appropriately be dealt with by this Court ...." 382 U.S. at 147, 86 S.Ct. at 273.

Whether unincorporated labor unions ought to be assimilated to the status of corporations for diversity purposes, how such citizenship is to be determined, and what if any related rules ought to apply, are decisions which we believe suited to the legislative and not the judicial branch, regardless of our views as to the intrinsic merits of petitioner's argument....

382 U.S. at 153, 86 S.Ct. at 276. In so ruling, the Court specifically rejected the argument that Russell had breached the doctrinal wall established in Chapman.

Navarro Savings Assn. v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980), is the Court's most recent pronouncement on the general area. Though the Court held that the trustees of a business trust could invoke diversity jurisdiction on the basis of their own citizenship, rather than that of the trust's beneficial shareholders, the Court took pains to re-assert the strict Great Southern rule. The Court specifically distinguished the law applicable to trusts which governed its decision in Navarro from that applicable to other bodies such as corporations or unincorporated associations. In so doing, Justice Powell observed:

The early cases held that only persons could be real parties to the controversy. Artificial or "invisible" legal creatures are not citizens of any State. citation omitted. Although corporations suing in diversity long have been "deemed" citizens, ..., unincorporated associations remain mere collections of individuals. When the "persons composing such association" sue in their collective name, they are the parties whose citizenship determines the diversity jurisdiction of the federal court. Great Southern Fireproof Hotel Co. v. Jones, 177 U.S. 449 20 S.Ct. 690, 44 L.Ed. 842 (1900) (limited partnership association); see Steelworkers v. Bouligny, Inc., 382 U.S. 145 86 S.Ct. 272, 15 L.Ed.2d 217 (1965) (labor union); Chapman v. Barney, 129 U.S. 677 9 S.Ct. 426, 32 L.Ed. 800 (1889) (joint stock company).

446 U.S. at 461, 100 S.Ct. at 1782.

Despite the passage of almost 100 years since Chapman, the Supreme Court...