New York State Teachers Retirement System v. Kalkus, 84-2082

• Decision Date: 20 June 1985
• Docket Number: No. 84-2082,84-2082
• Citation: New York State Teachers Retirement System v. Kalkus, 764 F.2d 1015 (4th Cir. 1985)
• Parties: NEW YORK STATE TEACHERS RETIREMENT SYSTEM, Appellee, v. Peter KALKUS, Lamar Properties, Inc., Arlington Alliance, Ltd., Polk & Taylor Associates, Lamar Financial, Inc., and Lamar Financial Partnership, Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1015

764 F.2d 1015

54 USLW 2028

NEW YORK STATE TEACHERS RETIREMENT SYSTEM, Appellee, v.Peter KALKUS, Lamar Properties, Inc., Arlington Alliance Ltd., Polk & Taylor Associates, Lamar Financial Inc., and Lamar Financial Partnership, Appellants.

No. 84-2082.

United States Court of Appeals Fourth Circuit.

Argued May 6, 1985.

Decided June 20, 1985.

Grayson P. Hanes, Fairfax, Va. (Mark W. Wasserman, Hazel, Beckhorn & Hanes, Fairfax, Va., on brief), for appellants.

Rodney F. Page, Washington, D.C. (David T. Dekker, James J. Armbruster, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C., on brief), for appellee.

Before HALL and CHAPMAN, Circuit Judges, and KNAPP, Senior United States District Judge, Southern District of West Virginia, sitting by designation.

K.K. HALL, Circuit Judge:

Peter Kalkus, Lamar Financial, Inc., Lamar Properties, Inc., Arlington Alliance, Ltd., Lamar Financial Partnership, and Polk & Taylor Associates Limited Partnership("PTA") seek to appeal the district court's order, declaring that New York State Teachers Retirement System("Teachers") is entitled to additional interest under certain mortgage agreements.Because we conclude that the district court did not have diversity jurisdiction, we vacate the judgment below and remand this case to the district court with directions to dismiss for lack of subject-matter jurisdiction.

I.

On January 25, 1984, Teachers instituted this action in district court and sought a declaratory judgment interpreting particular terms in two agreements which modified deeds of trust on real estate located in Arlington County, Virginia.Jurisdiction was allegedly based on diversity of citizenship.

Teachers is a public retirement system created and existing by virtue of Article 11 of the Education Law of the State of New York and having the powers and privileges of a corporation pursuant to Section 502 of that statute.Teachers' principal place of business is in Albany, New York.It administers a system of retirement and pension benefits for retired public school employees in New York.

Except for PTA, all of defendants/appellants are citizens of states other than New York.PTA is a limited partnership established under the laws of Virginia.Its sole general partner is Kalkus, a resident and citizen of the State of New Jersey.Several dozen limited partners are residents of numerous states, including New York.

On March 7, 1984, defendants/appellants moved to dismiss the complaint, alleging, inter alia, that diversity jurisdiction had not been established on the ground that approximately twenty limited partners of PTA were non-diverse from Teachers.That motion was denied.

The case was tried to the district court, and on October 2, 1984, the court issued its final order and declaratory judgment, holding for Teachers on the merits, 595 F.Supp. 693.The district court concluded that it had jurisdiction over the action pursuant to 28 U.S.C. Sec. 1332(a).It ruled that the citizenship of a limited partnership is determined by the citizenship of all of its general partners, without regard to the citizenship of any limited partners, and that therefore, all of the defendants, for jurisdictional purposes, were citizens of states other than New York.

Defendants appeal.

II.

On appeal, the primary contention made by defendants/appellants is that the district court lacked subject-matter jurisdiction over this action.They maintain that all of the partners of PTA, both general and limited, must be considered in determining whether complete diversity exists.We agree and, consequently, do not reach the other contentions raised by appellants.

Neither the Supreme Court nor this Court has squarely addressed the question posed here, that is, whether the citizenship of a limited partner should be "counted" when a limited partnership sues or is sued in a diversity action.^*However, the Supreme Court has consistently held that in diversity actions involving unincorporated associations, federal courts must look to the citizenship of each member of the association to determine whether diversity exists.

The rule that an unincorporated association was a citizen of the state of each of its constituent members was announced nearly a century ago in Chapman v. Barney, 129 U.S. 677, 9 S.Ct. 426, 32 L.Ed. 800(1889).There, the Supreme Court held that a New York stock company, which it characterized as a "mere partnership," was not a citizen of New York because it was not a corporation.As a result, it could not invoke the diversity jurisdiction of a federal court because all of its members had not been shown to be diverse from the opposing party.Significantly, the joint stock company in Chapman had two classes of members: one class consisting of the president, who had capacity to sue, and the other consisting of the remaining members.Despite this distinction, the Supreme Court determined that the citizenship of all association members had to be considered to determine whether complete diversity existed.The Court did not seek to determine which of the members' classes were real parties in interest.Carlsberg Resources Corp. v. Cambria Savings & Loan Ass'n, 554 F.2d 1254, 1258-59(3d Cir.1977).

Eleven years later, in Great Southern Fireproof Hotel Co. v. Jones, 177 U.S. 449, 20 S.Ct. 690, 44 L.Ed. 842(1900), the Court reaffirmed the Chapman rule and held that diversity jurisdiction had not been established with respect to a defendantPennsylvania limited partnership association because all of the members of the defendant association were not shown to be diverse from the plaintiff.Id. at 456, 20 S.Ct. at 693.In Great Southern, unlike the case at bar, all of the partners were of a "limited" status.Carlsberg Resources, 554 F.2d at 1258.

More recently, in United Steelworkers v. R.H. Bouligny, Inc., 382 U.S. 145, 86 S.Ct. 272, 15 L.Ed.2d 217(1965), the Supreme Court held that for diversity purposes a labor union's citizenship was that of each of its constituent members.Further, the Court, expressly reaffirming the Chapman-Great Southern rule even though it acknowledged that courts and commentators had expressed dissatisfaction with that rule, stated that: "[P]leas for extension of the diversity jurisdiction to hitherto uncovered broad categories of litigants ought to be made to Congress and not to the courts."Id. at 150-51, 86 S.Ct. at 275.Although all members of the union did not have managerial authority, the Court did not undertake to ascertain who among the members of the union might be the real parties in interest.

Notwithstanding this line of Supreme Court precedent, the Second Circuit, in 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), held that the citizenship of limited partners was immaterial on the question of whether complete diversity existed.That decision contains little analysis, cites no supporting authority, fails to mention Chapman and Great Southern, and rests on New York law that a limited partner has no capacity to sue or be sued on behalf of the partnership.

The Third Circuit, in Carlsberg Resources Corp. v. Cambria Savings & Loan Ass'n, 554 F.2d 1254(3d Cir.1977), rejected the notion that only the citizenship of the real parties in interest was to be considered in determining whether complete diversity existed and held that a non-diverse limited partner destroyed diversity jurisdiction.The Third Circuit reasoned that implicit in Chapman was a refusal by the Supreme Court to differentiate between classes of association or partnership...