Mesa Operating Ltd. Partnership v. Louisiana Intrastate Gas Corp., 86-3128

Citation797 F.2d 238
Decision Date18 August 1986
Docket NumberNo. 86-3128,86-3128
PartiesMESA OPERATING LIMITED PARTNERSHIP, Plaintiff-Appellee, v. LOUISIANA INTRASTATE GAS CORPORATION, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Douglas C. Longman, Jr., Onebane, Donohoe, Bernard, Torian, Diaz, McNamara & Abell, Lafayette, La., Lawrence E. Donohoe, Jr., Edward M. Doyle, Houston, Tex., for defendant-appellant.

John M. Wilson, Liskow & Lewis, George J. Domas, New Orleans, La., for plaintiff-appellee.

Appeal from the United States District Court for the Middle District of Louisiana.

Before GARWOOD and JONES, Circuit Judges, and WILL *, District Judge.

WILL, District Judge:

Opposing parties in this case contracted on June 15, 1981 for fifteen years. Mesa Operating Limited Partnership (Mesa) was to sell and Louisiana Intrastate Gas Corp. (LIG) was to buy royalty gas belonging to the State of Louisiana for which Mesa served as agent. The contract contained an arbitration provision under which the parties were to arbitrate "any controversy between the parties ... arising under this Contract." Sec. 8.1. The contract was performed satisfactorily to both sides for about two years. Mesa alleges that some time before July, 1984 LIG ceased payments due under the take-or-pay provision of the contract. Mesa then attempted to invoke the arbitration procedure by letter of December 23, 1985. LIG refused to name an arbitrator, taking the positions (a) that Mesa had not complied with Louisiana statutory procedure in acquiring the right to sell the gas belonging to the State, rendering the contract void ab initio, and (b) that validity ab initio of a contract is not arbitrable under the applicable Louisiana law.

Mesa filed a petition to compel arbitration in the District Court for the Middle District of Louisiana under section 4 of the Federal Arbitration Act (FAA), 9 U.S.C. Secs. 1-14, on January 14, 1986. LIG moved to dismiss on grounds of lack of federal jurisdiction under Title 28 and inapplicability of the FAA. The district court granted Mesa's petition and LIG has appealed. We affirm.

I. Diversity Jurisdiction

Under the FAA, federal jurisdiction is available only if otherwise available through some independent source such as 28 U.S.C. Sec. 1331 or Sec. 1332. 9 U.S.C. Sec. 4. Here diversity is the alleged basis of jurisdiction. LIG contends that the citizenship of the limited partners of a limited partnership must be alleged and considered in determining diversity jurisdiction. Since we find it unnecessary to consider the citizenship of limited partners, we conclude that it need not be ascertained.

We apply the Supreme Court's analysis in Navarro Savings Ass'n v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980), affirming a decision of this court, to this case. In Navarro, the Court had to decide whether to look to the citizenship of the beneficiaries of a business trust or only to that of the trustees. The Court characterized the business trust as "neither an association nor a corporation," id. at 462, 100 S.Ct. at 1782, although having some attributes of both. Id. The Court held the trust's resemblance to other forms of business enterprise irrelevant to the determination of whose citizenship determined diversity jurisdiction. Id. at 465, 100 S.Ct. at 1784. The Court identified the correct analysis as focusing on the "real parties to the controversy." Id. at 462, 100 S.Ct. at 1782. These parties the Court defined as those with the power to own, manage and control the assets of the trust and to control its litigation. Id. at 465, 100 S.Ct. at 1784.

We find this reasoning equally appropriate here. A limited partnership is also neither corporation nor association but a similar hybrid. Here, as in Navarro, the power to control and manage assets and litigation rests exclusively with one class of members, the general partners. We think that where it is possible to identify clearly a class of members as the real party to a controversy, the citizenship of that class alone is relevant for diversity purposes.

Judge Friendly of the Second Circuit reached a similar result in Colonial Realty Corp. v. Bache & Co., 358 F.2d 178, 183-84 (2d Cir.), cert. denied, 385 U.S. 817, 87 S.Ct. 40, 17 L.Ed.2d 56 (1966). The court there found that, under the state statute creating limited partnerships, a limited partner was "not a proper party to proceedings by or against the partnership ..." unless the suit involved insolvency of the partnership or rights of the limited partners against the partnership. 358 F.2d at 183-84. Although this constitutes a parallel route to the same result, the concept of two distinct classes of members one of which has no place in the dispute is essentially the same reasoning under a different label. Courts in the Second Circuit have continued to follow that decision. Westville Holdings v. American Petroleum Partners, 592 F.Supp. 44 (S.D.N.Y.1984).

A number of other circuits disagree. Carlsberg Resources Corp. v. Cambria Sav. & Loan, 554 F.2d 1254 (3d Cir.1977); Elston Inv. Ltd v. David Altman Leasing Corp., 731 F.2d 436 (7th Cir.1984); New York State Teachers Retirement System v. Kalkus, 764 F.2d 1015 (4th Cir.1985). The leading case, Carlsberg Resources, opposing the holding of Colonial Realty, looked to traditional treatment of unincorporated associations. The court in Carlsberg cited two turn-of-the-century cases, Chapman v. Barney, 129 U.S. 677, 9 S.Ct. 426, 32 L.Ed. 800 (1889) and Great Southern Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 20 S.Ct. 690, 44 L.Ed. 842 (1900). Chapman involved a joint stock company whose president had capacity to sue in the name of the partnership; there is no other indication that he had any other powers different from the other members. Great Southern involved a "limited partnership" with no general partner. In Navarro, the Court characterized these two cases as "early cases" in which a voluntary unincorporated association remains a "mere collection of individuals" who "sue in their collective name." 446 U.S. at 461, 100 S.Ct. at 1782. Associations thus described are clearly quite different from a limited partnership with two separate and distinct classes of members, one of which enjoys exclusive ownership of assets and control over all legal and business decisions. We do not regard Navarro as having endorsed application of the holdings in these early cases to the modern limited partnership as Carlsberg and the cases following Carlsberg have concluded.

The three circuits that have looked to the citizenship of limited partners for diversity purposes have also relied on United Steelworkers v. Bouligny, Inc., 382 U.S. 145, 86 S.Ct. 272, 15 L.Ed.2d 217 (1965), as drawing a hard line on expansion of diversity jurisdiction. But the question in Bouligny was whether a labor union could itself be treated as a separate citizen for diversity purposes. The case did not involve a choice as to whether two separate classes of members could be differentiated as does this case and as did Navarro. As we said in Lee v. Navarro Savings Ass'n, 597 F.2d 421 (5th Cir.1979), aff'd, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980), we believe Bouligny applies only to the situation where an unincorporated association seeks to establish jurisdiction as an entity.

This is consistent with the holding in Navarro, where the Supreme Court found Bouligny inapposite. The Court cited Bouligny only to exemplify the difference in outcome for diversity purposes between a real party in interest test and the Court's real party to the controversy test. 446 U.S. at 462-63 n. 9, 100 S.Ct. at 1782-83 n. 9. The union in Bouligny did not meet the test for real party to the controversy. Like the early cases, in Bouligny there was no class with exclusive control based on contract (or statute) setting forth permanent rights, powers and obligations as granted to the trustees in Navarro and to the general partners here. Thus, district courts in New York have encountered no difficulty in applying Colonial Realty to limited partnerships, Westville Holdings, supra, while applying Bouligny to unions, United States Postal Service v. American Postal Workers Union, 564 F.Supp. 545 (S.D.N.Y.1983).

The reasoning of the other circuits comes down to a disinclination to expand diversity jurisdiction without congressional authorization. We find that reason irrelevant to our decision. If determination of diversity jurisdiction rests on the test the Supreme Court developed in Navarro, diversity jurisdiction extends only to the precise parties to whom it should extend: that is, the real parties to the controversy. While this may arguably create diversity expansion, it is more semantics than principle. An attempt to create a new type of citizen would, of course, expand jurisdiction. Here we are dealing only with which already extant citizens are involved in the case; the issue here is merely a necessary interpretation of existing law.

In Lee, we drew an analogy between a business trust and a limited partnership. "The trust here is analogous to a limited partnership, and the citizenship of its beneficiary shareholders should not be counted in determining the existence of diversity jurisdiction." 597 F.2d at 425. We relied on the Declaration of Trust in that case to determine that the trustees had exclusive control. The exclusive power to manage and control the trust and to control its litigation was precisely the point on which the Supreme Court affirmed. These powers were those which conferred the status of real parties to the controversy on the trustees. Despite the fact that the Court retitled our test from "real parties in interest" to "real parties to the controversy," the Court affirmed our test as we applied it. We reject the argument, made in Elston Inv., Kalkus, and Trent Realty Assoc. v. First Fed. Sav. & Loan, 657 F.2d 29 (3d Cir.1981), that the Court's characterization of a trust as neither...

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