Mason v. American Express Company, 327

• Decision Date: 02 July 1964
• Docket Number: No. 327,Docket 28631.,327
• Citation: 334 F.2d 392
• Parties: Florence W. MASON and Willard M. Mason, Plaintiffs-Appellants, v. AMERICAN EXPRESS COMPANY and Howard L. Clark, as President of American Express Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

334 F.2d 392 (1964)

Florence W. MASON and Willard M. Mason, Plaintiffs-Appellants, v. AMERICAN EXPRESS COMPANY and Howard L. Clark, as President of American Express Company, Defendants-Appellees.

No. 327, Docket 28631.

United States Court of Appeals Second Circuit.

Argued March 5, 1964.

Decided July 2, 1964.

Baker, Nelson, Williams & Mitchell, New York City (C. Dickerman Williams, New York City, of counsel), for plaintiffs-appellants.

Michels, Gangel & Walton, Brooklyn (L. L. Walton, New York City, of counsel), for defendants-appellees.

Before WATERMAN and KAUFMAN, Circuit Judges, and DIMOCK, District Judge.^*

WATERMAN, Circuit Judge.

This appeal presents the important question of whether an unincorporated joint stock association, organized and existing under the laws of the State of New York, should, like a corporate body which has been incorporated there, be deemed a citizen of New York for the purpose of determining whether the diversity of citizenship requirements of Article III, Section 2 of the United States Constitution and 28 U.S.C. § 1332 have been met; or whether such an association is incapable of possessing citizenship for diversity purposes, so that the citizenship of its member shareholders must be looked to in order to determine the existence or absence of the requisite diversity of citizenship. We hold such an association to be a citizen of New York for the purposes of federal diversity jurisdiction.

Plaintiffs, citizens of New Jersey, brought suit against defendant, an express company organized as an unincorporated joint stock association under the laws of the State of New York,¹ in the United States District Court for the Southern District of New York. As the suit was a simple personal injury action, federal jurisdiction could only have been based upon diversity of citizenship. The question whether such jurisdiction in fact existed was raised below by Judge Wyatt, on his own motion, during a separate trial before the court without a jury on one of two substantive defenses raised by defendant in its answer. After careful consideration of the problem, Judge Wyatt, in a thoughtful and scholarly opinion, 224 F.Supp. 288, concluded "with great reluctance and with equal regret" that the rule laid down in the 1889 U. S. Supreme Court case of Chapman v. Barney, 129 U.S. 677, 9 S.Ct. 426, 32 L.Ed. 800 (1889), required a determination that defendant joint stock association was itself incapable of possessing citizenship for diversity purposes; and, because some of defendant's more than 20,000 members were shown to be citizens of plaintiffs' home state of New Jersey, Judge Wyatt dismissed the case for want of complete diversity of citizenship between the parties. It is our considered judgment, however, that the Supreme Court has abandoned the artificial and mechanical rule of Chapman v. Barney in favor of a more flexible test for capacity for citizenship, a test which demands that consideration be given to whether an organization's essential characteristics sufficiently invest it, like a corporation, with a complete legal personality distinct from that of the members it represents. And as we are convinced that a New York joint stock association such as this defendant has been legally endowed with essential characteristics that make it resemble a corporate entity much more than a mere aggregation of individuals, we reverse.

An essential preliminary to a meaningful analysis of the problem presented by this case is a discussion of the reasons underlying the now firmly established principle that a corporation, for diversity purposes, is deemed to be a citizen of the state of its incorporation. That principle was finally definitely settled in 1853, in the case of Marshall v. Baltimore & O. R. R., 57 U.S. (16 How.) 314, 14 L.Ed. 953 (1853).² The Court in that case, desiring to prevent the avoidance of federal diversity jurisdiction through the use of the corporate device, noted that diversity jurisdiction had been conferred on federal courts "in order to the inviolable maintenance of that equality of privileges and immunities" accorded to the citizens of the several states,³ and averred that such a privilege could not legitimately be taken away from the citizens of one state because another state had permitted other citizens to act through the corporate business form. 57 U.S. at 326. The Court countered the argument that a corporation was a mere artificial person incapable of possessing citizenship with the observation that citizens who have become involved in a controversy with a corporation have not dealt with a mere metaphysical abstraction but with real persons. Although the Court rounded out its analysis with the establishment of a conclusive presumption that all stockholders are citizens of the state of their corporation's incorporation, it is clear that, as stated by another Court some years later, "those who formulated the rule found its theoretical justification only in the complete legal personality with which corporations are endowed."⁴ Puerto Rico v. Russell & Co., 288 U.S. 476, 479, 53 S.Ct. 447, 448, 77 L.Ed. 903 (1933).

Thirty-five years after its decision in Marshall v. Baltimore & O. R. R., the Supreme Court handed down Chapman v. Barney, supra, in which it refused, in a brief opinion, to expand the rule which accorded separate citizenship to corporations so as also to embrace a New York joint stock association. As we have already indicated, and as we will explain more fully later in this opinion, our refusal to regard Chapman v. Barney as controlling law today stems primarily from our belief that the Supreme Court, some forty years after Chapman v. Barney, decided to depart from it. In addition, however, we think it advisable to note now several characteristics of the Chapman v. Barney decision which could well have forewarned of an eventual abandonment of it by the Court which handed it down, despite reaffirmation of it twice within the fifteen years following that decision, Thomas v. Board of Trustees, 195 U.S. 207, 25 S.Ct. 24, 49 L.Ed. 160 (1904); Great Southern Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 20 S.Ct. 690, 44 L.Ed. 842 (1900), and despite a faithful adherence to it in the lower federal courts. See, e. g., in this Circuit, Levering & Garrigues Co. v. Morrin, 61 F.2d 115 (2 Cir. 1932), aff'd with grant of certiorari limited to another question, 289 U.S. 103, 53 S.Ct. 549, 77 L.Ed. 1062 (1933); Ex parte Edelstein, 30 F.2d 636 (2 Cir.), cert. denied, Edelstein v. Goddard, 279 U.S. 851, 49 S.Ct. 347, 73 L.Ed. 994 (1929).⁵

The first point of significance about the Chapman v. Barney decision is that the jurisdictional question there dealt with, because of the peculiar combination of circumstances attending the appeal in the case, was neither briefed nor argued by either party. The case was submitted instead of argued, no appearance was entered for the appellee, and the appellant did not assign as error any lack of jurisdiction by the court below. The jurisdictional issue was raised by the Court on its own motion, and, after discussing briefly the three assignments of error set forth by the appellant, the Court in a brief, four-sentence paragraph discussed and resolved the question of whether the appellee joint stock corporation could have capacity for citizenship separate from the citizenships of its members. Of course this litigation history in no way detracts from the holding in that case, but it should, nevertheless, make a court today hesitant to follow the rule spawned by this 1889 decision if significant present-day reasons for not doing so exist. Secondly, the Court in Chapman v. Barney simply stated flatly that the appellee joint stock company could not "be a citizen of New York * * * unless it be a corporation," 129 U.S. at 682, 9 S.Ct. at 428 (emphasis in original), without making any effort to analyze the rationale of Marshall v. B. & O. R. R. in order to determine whether the reasons for extending citizenship to a corporation might apply with equal force to a joint stock association. This use of labels in place of a careful analysis was particularly ironic in view of the admonition in the Marshall opinion that "it is not reasonable that those who deal with such persons persons doing business through corporations should be deprived of a valuable privilege by a syllogism, or rather sophism, which deals subtly with words and names, without regard to the things or persons they are used to represent." 57 U.S. at 327-28. Thirdly, the Court failed even to mention its prior decision in Liverpool Insurance Co. v. Massachusetts, 77 U.S. (10 Wall.) 566, 19 L.Ed. 1029 (1870), where it had concluded that an English insurance company doing business in this country, though organized in England as a joint stock company, was, because of its essential characteristics, to be treated as if it were a corporation for purposes of the privileges and immunities clause of the United States Constitution and the Treaty of 1815 between this country and Great Britain.⁶ Finally, the Court in Chapman v. Barney appears to have directed so much of the little discussion it devoted to this general issue to emphasizing that New York could not make a joint stock association subject to the jurisdiction of a federal court merely by investing it with the capacity to sue in the name of its president that it failed to consider whether other legal characteristics accorded to a joint stock association under New York law might not have required that it be treated like a corporation for diversity of citizenship purposes.⁷

That a change from the Chapman v. Barney approach toward the status of a joint stock association was not too far off was indicated by the decision in United States v. Adams Express Co., 229 U.S. 381, 33 S.Ct. 878, 57 L.Ed. 1237 (1913), in which the Court held that a New York joint stock association was subject to the provisions of a federal statute regulating interstate commerce...