Roche v. Lincoln Property Co.

Citation373 F.3d 610
Decision Date30 June 2004
Docket NumberNo. 03-2064.,03-2064.
PartiesChristopher ROCHE; Juanita Roche, Plaintiffs-Appellants, v. LINCOLN PROPERTY COMPANY; SWIB Investment Company, Defendants-Appellees, and Invesco Institutional, Defendant.
CourtU.S. Court of Appeals — Fourth Circuit

Jerry M. Phillips, Phillips, Beckwith & Hall, Fairfax, Virginia, for Appellants. Connie Nora Bertram, Venable, L.L.P., Washington, D.C., for Lincoln Property Company; Richard Alan Dean, Tucker, Ellis & West, L.L.P., for Swib Investment Company.

Before WIDENER and GREGORY, Circuit Judges, and C. Arlen BEAM, Senior Circuit Judge of the United States Court of

Affirmed in part, reversed in part, and remanded by published opinion. Judge GREGORY wrote the opinion in which Judge WIDENER and Senior Judge BEAM joined.


GREGORY, Circuit Judge:

Plaintiffs discovered evidence of toxic mold in their Fairfax County, Virginia apartment. They notified the property management office in Virginia and an inspection was ordered, mold was found, and abatement was required. During the mold remediation process Plaintiffs were relocated and their personal belongings were left in the care of the property management firm and the mold treatment firm. After treatment had been completed, Plaintiffs determined that certain of their valuables had been misplaced or stolen. They also learned from their treating physician that the mold had caused and exacerbated certain medical conditions. Plaintiffs brought suit in state court alleging breach of implied warranty of habitability, negligence, conversion and violations of Virginia's landlord-tenant act. Defendants removed the matter to federal court relying on diversity of citizenship. In support of removal, Defendants contended that the Texas parent corporation named in the state complaint created diversity of citizenship. Plaintiffs contended that there was not complete diversity because the property was managed by a Virginia subsidiary of the Texas parent. The district court denied Plaintiff's motion to remand for lack of diversity jurisdiction and granted summary judgment for the defendants. Plaintiffs now appeal the jurisdictional issues and summary judgment. We conclude that Defendants failed to carry their burden of proof with respect to their allegedly diverse citizenship. The judgment of the district court is therefore reversed as to jurisdiction, the remainder is vacated, and this case is remanded with instructions to remand to state court pursuant to 28 U.S.C. § 1447(c).


On August 22, 2002, Plaintiffs Christopher and Juanita Roche (the "Roches" or "Plaintiffs") filed a Motion for Judgment against Lincoln Property Company ("Lincoln"), the State of Wisconsin Investment Board ("SWIB"), and Invesco Institutional ("Invesco") in the Virginia Circuit Court for Fairfax County, claiming personal injury and property damage sustained as a result of their exposure to toxic molds at the Westfield apartments. The Motion for Judgment named as defendants: "Lincoln Property Company t/a Lincoln Property Company ECW, Inc.," "INVESCO Institutional (N/A Inc.) Institutional Division of AMVESCAP a/k/a Invesco Realty Advisors," and "SWIB Investment Company State of Wisconsin Investment Board Lincoln Property Company." On September 17, 2003, Defendants filed a Notice of Removal pursuant to 28 U.S.C. § 1441, on the basis of diversity of citizenship. Defendants then filed a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, which was granted with leave for Plaintiffs to file an amended complaint. Plaintiffs amended their complaint and a jury trial was scheduled for May 3, 2002.

On April 22, 2003, Plaintiffs filed a Motion to Remand challenging diversity with respect to Lincoln. The motion was later expanded to include an additional claim of lack of subject matter jurisdiction on the basis that defendant SWIB was an arm of the State of Wisconsin and, therefore, not a citizen for diversity purposes. On May 2, 2003, the Plaintiffs filed a Rule 60(b) motion for relief from an order or judgment that is void for lack of jurisdiction.

On July 11, 2003, the district court denied Plaintiffs' motions to remand and for relief. On August 21, 2003, Plaintiffs filed their Notice of Appeal. On September 3, 2003, the district court denied Plaintiffs' motion for reconsideration.


We review a denial of a motion to remand to state court de novo. See Mayes v. Rapoport, 198 F.3d 457, 460 (4th Cir.1999) (citing Mansfield, Coldwater & Lake Michigan Ry. Co. v. Swan, 111 U.S. 379, 384, 4 S.Ct. 510, 28 L.Ed. 462 (1884); Tillman v. Resolution Trust Corp., 37 F.3d 1032, 1034 (4th Cir.1994) (reviewing de novo denial of motion to dismiss for lack of subject matter jurisdiction); see also Burden v. General Dynamics Corp., 60 F.3d 213, 216 (5th Cir.1995) (reviewing de novo denial of motion to remand)).

Federal courts have jurisdiction over controversies between "Citizens of different States" by virtue of 28 U.S.C. § 1332(a)(1) and U.S. Const., Art. III, § 2. Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 460, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980).1 Early in its history, the Supreme Court "established that the `citizens' upon whose diversity a plaintiff grounds jurisdiction must be real and substantial parties to the controversy." Id. at 460-61, 100 S.Ct. 1779 (quotations and citations omitted) (emphasis added). "Thus, a federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy." Id. (citations omitted) (emphasis added).

The early cases held that only "persons" could be real parties to the controversy. Artificial or "invisible" legal creatures were not citizens of any State. Id. (citing Bank of United States v. Deveaux, 5 Cranch 61, 86-87, 91, 3 L.Ed. 38 (1809)).2 Corporations suing in diversity, however, have long been "deemed" citizens in modern jurisprudence. See id.3 The "real and substantial party in interest standard," however, applies nonetheless. Id. Nearly all federal circuit courts have applied the "real party in interest standard" when determining whether true diversity of citizenship exists. See e.g., Sid Richardson Carbon & Gasoline Co. v. Interenergy Res., Ltd., 99 F.3d 746, 752-53 (5th Cir.1996) (applying real party in interest standard on review of motion to remand for lack of diversity); Rockwell Int'l Credit Corp. v. U.S. Aircraft Ins. Group, 823 F.2d 302 (9th Cir.1987) (same), overruled on other grounds by Partington v. Gedan, 923 F.2d 686 (9th Cir.1991); Hughes-Bechtol, Inc. v. West Virginia Bd. of Regents, 737 F.2d 540, 543-44 (6th Cir.1984) (same); Nuclear Eng'g Co. v. Scott, 660 F.2d 241, 250 (7th Cir.1981) (same and noting that real party in interest is to be determined by "essential nature and effect of the proceeding").

Moreover, this Court has also applied the "real and substantial party in interest" standard when determining the propriety of exercising diversity jurisdiction. See, e.g., Koehler v. Dodwell, 152 F.3d 304, 308 (4th Cir.1998) (citing Navarro, 446 U.S. at 460-61, 100 S.Ct. 1779 and Ross v. Bernhard, 396 U.S. 531, 538, 90 S.Ct. 733, 24 L.Ed.2d 729 (1970) (observing that the corporation, not the shareholder, is the real party in interest in a shareholder's derivative suit)); see also authorities cited in note 4, infra, (applying real party in interest standard to determine whether assignments were collusive to obtain or destroy diversity jurisdiction). And, it is firmly settled that a corporate parent and its subsidiaries may not manipulate federal diversity jurisdiction by litigating cases in the name of the other where the real party in interest is not diverse. See Simpson v. Alaska State Comm'n for Human Rights, 608 F.2d 1171, 1174 (9th Cir.1979) ("We acknowledge that assignments of Causes of action between parents and subsidiaries are presumptively ineffective to create diversity jurisdiction.") (citing Prudential Oil Corp. v. Phillips Petroleum Co., 546 F.2d 469, 475 (2d Cir.1976) and Green & White Constr. Co. v. Cormat Constr. Co., 361 F.Supp. 125, 127-28 (N.D.Ill.1973)).4

Thus, in diversity cases, the general rule is that the citizenship of the real parties in interest is determinative for purposes of diversity jurisdiction. The citizenship rule testing diversity in terms of the real party in interest is grounded in notions of federalism. It is based upon the principle that a primarily local controversy should be tried in the appropriate state forum and that nominal or formal parties, who do not have a significant interest in the outcome of the litigation, should not be able to use the federal courts. See C. Wright & A. Miller, 6A Federal Practice & Procedure Civ.2d § 1556, at 419-22 (West 2004). Diversity of citizenship, therefore, is determined not by reference to the formal or nominal parties but, rather, there must be complete diversity between the real and substantial parties in interest. See 28 U.S.C. § 1332(a); see also Nolan v. Boeing Co., 919 F.2d 1058, 1063 (5th Cir.1990) (observing that removal jurisdiction is "based on the citizenship of the real parties in interest rather than their appointed representatives" or nominal parties). But cf. Plains Growers, Inc. v. Ickes-Braun Glasshouses, Inc., 474 F.2d 250, 252 (5th Cir.1973) ("The citizenship of one who has an interest in the lawsuit but who has not been made a party to the lawsuit by plaintiff cannot be used by plaintiff on a motion to remand to defeat diversity jurisdiction.").5


Congress has resolved that, "[i]f at any time before final judgment it appears that the district court lacked subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c). And, it is well-settled that courts strictly construe the removal statute and resolve all doubts in favor of remanding the case to state court. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09, 61 S.Ct. 868, ...

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