Newman-Green, Inc. v. Alfonzo-Larrain R.

Decision Date11 August 1988
Docket NumberALFONZO-LARRAIN,No. 87-1195,NEWMAN-GREE,INC,87-1195
Citation854 F.2d 916
Parties, 11 Fed.R.Serv.3d 1511 , Plaintiff-Appellant, v. AlejandroR., et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

Rowe W. Snider, Lord, Bissell & Brook, Chicago, Ill., for plaintiff-appellant.

Charles G. Albert, Bell, Boyd & Lloyd, Chicago, Ill., for defendants-appellees.

Before BAUER, Chief Judge, and CUMMINGS, WOOD, Jr., CUDAHY, POSNER, COFFEY, FLAUM, EASTERBROOK, RIPPLE, MANION and KANNE, Circuit Judges.

POSNER, Circuit Judge.

We vacated the panel decision, and took the case en banc to decide whether a court of appeals is empowered to dismiss a party in order to retain federal jurisdiction. Previous decisions by this court had answered the question "no," but the panel disagreed and held that we may do this, 832 F.2d 417, 419-20 (7th Cir.1987), and it went on to reverse the district court on the merits. The full court adheres to our previous decisions. "Where the record reveals no jurisdiction, we are powerless to do anything but recognize the defect." Alderman v. Elgin, Joliet & Eastern Ry., 125 F.2d 971, 973 (7th Cir.1942); see also Carson v. Allied News Co., 511 F.2d 22 (7th Cir.1975). The record reveals no jurisdiction, so we remand the case to the district court--of course without expressing any view on the merits--for such further proceedings as may be consistent with our jurisdictional ruling.

The suit began in 1982 when the plaintiff, Newman-Green, Inc., filed a complaint in the federal district court against five individuals who had guaranteed a debt owed to the plaintiff. The district court had no jurisdiction over the case. The naming of Bettison--a citizen of the U.S. but not of any state--as a defendant had destroyed complete diversity, Sadat v. Mertes, 615 F.2d 1176, 1180 (7th Cir.1980) (per curiam); see 28 U.S.C. Sec. 1332(a); Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806); Fidelity & Deposit Co. v. City of Sheboygan Falls, 713 F.2d 1261, 1264 (7th Cir.1983); 13B Wright, Miller & Cooper, Federal Practice and Procedure Sec. 3621 (2d ed. 1984); cf. Currie, The Federal Courts and the American Law Institute, 36 U.Chi.L.Rev. 1, 9-10 (1968), and there was no possible basis of federal jurisdiction except diversity, since the complaint was based exclusively on state law.

Years passed. Extensive discovery, virtually all of it directed against Bettison, was conducted, and the district judge made numerous rulings, climaxed by the grant of summary judgment for the defendants--all this in a suit over which the court had no jurisdiction. Still acting without jurisdiction, the district court entered a final judgment for the defendants under Rule 54(b) of the Federal Rules of Civil Procedure. On October 28, 1987, almost five years after the complaint had been filed, the panel before which the plaintiff's appeal had been argued--having itself raised the jurisdictional issue at oral argument, and having invited supplemental memoranda in which the plaintiff asked the panel to order Bettison dismissed and the defendants asked the panel to order the case dismissed--dismissed Bettison and proceeded to the merits.

Protracted proceedings have unfolded in a case over which the district court never acquired jurisdiction. For us now to confer jurisdiction on the district court retroactively to the date of the complaint--to pretend that Bettison was never a party--would violate the principle that the existence of federal jurisdiction depends on the facts when the complaint is filed, not on later facts. See, e.g., New Orleans & Bayou Sara Mail Co. v. Fernandez, 79 U.S. (12 Wall.) 130, 134, 20 L.Ed. 249 (1870); St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 289-90, 58 S.Ct. 586, 590-91, 82 L.Ed. 845 (1938); Fidelity & Deposit Co. v. City of Sheboygan Falls, supra, 713 F.2d at 1266; Field v. Volkswagenwerk AG, 626 F.2d 293, 304-05 (3d Cir.1980). "Jurisdiction cannot be obtained retroactively." Denberg v. United States Railroad Retirement Bd., 696 F.2d 1193, 1197 (7th Cir.1983). To the same effect see Mansfield, Coldwater & Lake Michigan Ry. v. Swan, 111 U.S. 379, 381-82, 4 S.Ct. 510, 511-12, 28 L.Ed. 462 (1884) (a case, like the present one, in which complete diversity was lacking when the case was brought); American Nat'l Bank & Trust Co. v. Bailey, 750 F.2d 577, 585 (7th Cir.1984); Illinois v. General Electric Co., 683 F.2d 206, 209 (7th Cir.1982).

To the principle that federal courts cannot obtain jurisdiction retroactively, as to virtually every legal generalization, there are exceptions. One is where a court of appeals assumes jurisdiction over a partial final judgment entered under Fed.R.Civ.P. 54(b) after the notice of appeal had been filed. See, e.g., Sutter v. Groen, 687 F.2d 197, 199 (7th Cir.1982); Local P-171, Amalgamated Meat Cutters & Butcher Workmen v. Thompson Farms Co., 642 F.2d 1065, 1068 (7th Cir.1981). That exception, however, involves form rather than substance, and in any event is within the specific curative provision of Rule 4(a)(2) of the Federal Rules of Appellate Procedure: "a notice of appeal filed after the announcement of a decision or order but before the entry of the judgment or order shall be treated as filed after such entry and on the day thereof." Where the exercise of jurisdiction is discretionary (as with pendent jurisdiction), events occurring after the filing of the suit may result in or even compel a decision to relinquish that jurisdiction. See United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966). But that is not a case of obtaining jurisdiction retroactively. More important, a decision not to exercise jurisdiction presupposes the presence of jurisdiction, not its absence. "The question of power will ordinarily be resolved on the pleadings. But the issue whether pendent jurisdiction has been properly assumed is one which remains open throughout the litigation." Id. at 727, 86 S.Ct. at 1139. And when pendent jurisdiction is relinquished, the district court need not dismiss the case (as it would have to do if it lacked jurisdiction); it may in appropriate cases remand it to a state court. Carnegie-Mellon University v. Cohill, --- U.S. ----, 108 S.Ct. 614, 619, 98 L.Ed.2d 720 (1988). A genuine and significant exception to the principle that jurisdiction cannot be conferred retroactively is discussed later in this opinion.

We can find no source for a power in a court of appeals to preserve diversity jurisdiction by dismissing a nondiverse party retroactively to the date the suit was filed. The source cannot be 28 U.S.C. Sec. 1653, which authorizes us merely to amend "defective allegations of jurisdiction." (Emphasis added.) The predecessor statute (enacted in 1915) expressly limited such amendments to cases in which diversity jurisdiction "in fact existed at the time the suit was brought or removed, though defectively alleged." Act of March 3, 1915, ch. 90, 38 Stat. 956, 28 U.S.C. Sec. 399 (1940 ed.); see Dollar S.S. Lines, Inc. v. Merz, 68 F.2d 594, 595 and n. 1 (9th Cir.1934); Carson v. Allied News Co., supra, 511 F.2d at 24 n. 6; Thomas v. Anderson, 223 Fed. 41, 43 (8th Cir.1915). The Revision Note to section 1653 says that, besides the extension of the power to amend from diversity cases to all cases, "changes were made in phraseology." A change from permitting a defective allegation to be amended in order to reflect more accurately the facts that create federal jurisdiction to permitting federal jurisdiction to be conferred retroactively would be more than a change in phraseology. There is a difference between a case in which the complaint alleges that a defendant is a "resident" of a state different from the plaintiff's, thus leaving open the possibility that he is a "citizen" of the plaintiff's state--but in fact the defendant is a citizen of a state other than the plaintiff's--and a case in which the defendant is a citizen of the plaintiff's state. In the first case section 1653 allows us to correct the complaint in order to show that the case is, in fact though not in pleading, within the diversity jurisdiction. (For a collection of such cases see 13B Wright, Miller & Cooper, supra, Sec. 3611, at p. 518 n. 30.) In the second case the defect is not in the allegations--the "defect" is that the case is not within federal jurisdiction--and section 1653 is inapplicable.

Like any other piece of legislative history, a reviser's note is not conclusive. If the language of section 1653, or the events that led to its passage, showed that Congress wanted to empower the courts of appeals to preserve jurisdiction by adding or dropping parties, the Revision Note would have to give way. But the contrary is true. The language of the statute suggests that its only purpose was to extend the power to cure defective allegations from diversity cases to all cases. The previous statute had distinguished between the existence of jurisdiction and its being "defectively alleged," and the reference to allegations was carried forward into section 1653. There is no hint that the authors of the new statute (who were also, of course, the authors of the Revision Note) wanted to authorize courts of appeals to create jurisdiction in district courts retroactively.

The 1915 statute, the predecessor of section 1653, had, as its wording shows, been intended to overrule cases like Denny v Pironi & Slatri, 141 U.S. 121, 124, 11 S.Ct. 966, 967, 35 L.Ed. 657 (1891), a case of defective allegation of jurisdiction where the Court had held that "a case cannot be amended here so as to show [show, not create ] jurisdiction, but the court below, in its discretion, may allow it to be done," and Continental Life Ins. Co. v. Rhoads, 119 U.S. 237, 7 S.Ct. 193, 30 L.Ed. 380 (1886), a similar case. The statute had not been intended to erase the...

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