McMoran Oil and Gas Co. v. KN Energy, Inc., s. 89-1068

• Decision Date: 10 July 1990
• Docket Number: 89-1098,Nos. 89-1068,s. 89-1068
• Citation: 907 F.2d 1022
• Parties: McMORAN OIL AND GAS COMPANY, a Delaware corporation; Freeport-McMoran Inc., a Delaware corporation; and FMP Operating Company, a Texas Limited Partnership, Plaintiffs- Appellees/Cross- Appellants, v. KN ENERGY, INC., a Kansas corporation, Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1022

907 F.2d 1022

17 Fed.R.Serv.3d 436

McMORAN OIL AND GAS COMPANY, a Delaware corporation;

Freeport-McMoran Inc., a Delaware corporation;

and FMP Operating Company, a Texas

Limited Partnership, Plaintiffs- Appellees/Cross- Appellants, v. KN ENERGY, INC., a Kansas corporation,

Defendant-Appellant/Cross-Appellee.

Nos. 89-1068, 89-1098.

United States Court of Appeals, Tenth Circuit.

July 10, 1990.

Rehearing Denied Aug. 30, 1990.

Tucker K. Trautman (Lawrence P. Terrell and D. Monte Pascoe, with him on the briefs) of Ireland, Stapleton, Pryor & Pascoe, P.C., Denver, Colo., for plaintiffs-appellees/cross-appellants.

Robert L. Morris of Morris, Lower & Sattler (P. Kathleen Lower of Morris, Lower & Sattler, and Steve H. Ozawa of KN Energy, Inc., Lakewood, Colo., with him on the briefs), Denver, Colo., for defendant-appellant/cross-appellee.

Before MOORE and McWILLIAMS, Circuit Judges, and BRATTON, Senior District Judge. ^*

JOHN P. MOORE, Circuit Judge.

Had the Supreme Court recently not decided to "adhere to our oft-repeated rule that diversity jurisdiction in a suit by or against the entity depends on the citizenship of 'all the members,' " Carden v. Arkoma Assocs., --- U.S. ----, 110 S.Ct. 1015, 1021, 108 L.Ed.2d 157 (1990) (citation omitted), this case might well have continued on its journey in federal court, successfully slipping past Scyllaea. Instead snared on her rocky shore like the misfortuned seafarer, the action is wrest from our jurisdiction and must be dismissed.

I.

This odyssey began in 1985 when McMoRan Oil & Gas Company, a Delaware corporation with its principal place of business in Louisiana, and its parent company, Freeport-McMoRan Inc., a Delaware corporation with its principal place of business in New York, (McMoRan, collectively), filed suit in federal court in the district of Colorado, against KN Energy, Inc., a Kansas corporation with its principal place of business in Colorado. McMoRan alleged jurisdiction under 28 U.S.C. Sec. 1332(a)(1). In its suit, McMoRan, an oil and gas production company which sold gas to KN, complained that KN breached the parties' gas purchase contract by failing to pay the renegotiated price provided in the contract. After two years of discovery, trial to the court was set to begin in July 1987.

Shortly before trial, McMoRan sought leave to file a second amended complaint. It became necessary for the court to reschedule the July trial to March 1988, however, without ruling on that motion. In December 1987, McMoRan again moved for permission to file a revised second amended complaint under Fed.R.Civ.P. 15 and 25(c), asserting that additional discovery, a recently decided Tenth Circuit case, and its assignment of the contract to FMP Operating Company, a Texas limited partnership, necessitated the proposed amendment. The court granted the motion, and McMoRan filed a revised amended complaint in January 1988.

Trial to the court was scheduled finally for November 1988, after three previously set dates were vacated. ¹ Three weeks before the November trial, however, KN moved to dismiss the action for lack of subject matter jurisdiction because of the addition of a nondiverse limited partner of FMP Operating Company, Freeport-McMoRan Energy Partners, which was comprised of Colorado and Kansas limited partners. ² At a subsequent hearing, the court denied the motion, noting that with trial just two weeks off, "at a late point like this, there is sufficient ancillary jurisdiction that the court should proceed." After a two-day trial, the court entered judgment in favor of McMoRan and FMP Operating and awarded $1,602,712.51, based on its interpretation of the contract language "highest price then being paid" but limited monthly escalations to the express language of the contract. McMoRan and KN appealed, raising a variety of issues, all of which are now marooned by the failure of jurisdiction.

II.

Although recognizing our responsibility to oversee limitations on federal jurisdiction, Koerpel v. Heckler, 797 F.2d 858, 861 (10th Cir.1986), McMoRan asseverates that obligation is fully met by looking only to the date on which the initial complaint is filed. If complete diversity exists on that date, subsequent changes like "the mere addition" of a party plaintiff will not deprive the court of jurisdiction unless the additional plaintiff was an indispensable party when the complaint was filed. See, e.g., American Nat. Bank & Trust Co. of Chicago v. Bailey, 750 F.2d 577, 582-83 (7th Cir.1984), cert. denied, 471 U.S. 1100, 105 S.Ct. 2324, 85 L.Ed.2d 842 (1985). McMoRan maintains that since FMP Operating was not an indispensable party at the outset of the action, the subsequent contract assignment compelling its addition as a party plaintiff does not disturb the initial attachment of diversity jurisdiction. Indeed, because the nature of the action and the right asserted remained the same, McMoRan urges, the court's jurisdiction "should not be re-examined as of a later date." Finally, McMoRan notes in its brief, as general partners, ³ "both McMoRan and FMI, with their general partner responsibilities and authority and significant financial stake in FMPO, continued to have a real interest in the outcome of this litigation."

Before we consider the particular issues of this case, we revisit the principles of 28 U.S.C. Sec. 1332(a)(1) which confers federal jurisdiction "where the matter in controversy exceeds the sum or value of $50,000, exclusive of interest and costs, and is between citizens of different States." The statute requires complete diversity of citizenship; that is, no plaintiff can be a citizen of the same state as any defendant. "Whatever may have been the original purposes of diversity-of-citizenship jurisdiction, this subsequent history [the re-enacted or amended statute] clearly demonstrates a congressional mandate that diversity jurisdiction is not to be available when any plaintiff is a citizen of the same State as any defendant." Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 373-74, 98 S.Ct. 2396, 2402-03, 57 L.Ed.2d 274 (1978) (citation omitted).

While the courts and Congress previously have decided how most artificial entities created by state law will be treated for purposes of federal diversity jurisdiction, the citizenship of a limited partnership has only recently been resolved. For purposes of determining whether diversity jurisdiction is present, the Court has held during the present term that the citizenship of all of the members of the entity must be consulted. Carden, 110 S.Ct. at 1021. Thus, if a limited partner is a citizen of the same state as a party on the other side of the action, diversity jurisdiction is unavailable to try an otherwise non-federal claim.

Regardless of how the parties may characterize their presence or the action, "[s]ince diversity of citizenship is a jurisdictional requirement, the Court is always 'called upon to decide' it." Id. at 1021 (quoting Great Southern Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 20 S.Ct. 690, 44 L.Ed. 842 (1900)). No action by the parties, by waiver, consent, or stipulation, can intrude on the court's duty to assure its power to render judgment. As courts of limited jurisdiction, we must always be aware that this power emanates solely from the Constitution and Congress and "must be neither disregarded nor evaded." Owen Equipment, 437 U.S. at 374, 98 S.Ct. at 2403.

Hence, although complete diversity was present when the complaint was filed, our inquiry now focuses on whether the addition of a party plaintiff, denominated a substitution under Fed.R.Civ.P. 25(c), destroys the court's subject matter jurisdiction. At the outset, we recognize that when the matter was resolved by the district court, the circuits...