Tuck v. United Services Auto. Ass'n

Decision Date14 October 1988
Docket NumberNo. 85-2770,85-2770
Citation859 F.2d 842
PartiesLeroy TUCK, Administrator of the Estate of Johnny L. Tuck, Deceased, Leroy Tuck, individually, and Dorothy Tuck, individually, Plaintiffs-Appellees, v. UNITED SERVICES AUTOMOBILE ASSOCIATION, a corporation, Defendant-Appellant.
CourtU.S. Court of Appeals — Tenth Circuit

Patrick E. Carr, Carr & Carr, Tulsa, Okl., for plaintiffs-appellees.

Linda G. Alexander, Niemeyer, Noland & Alexander, Oklahoma City, Okl., for defendant-appellant.

Before ANDERSON and BALDOCK, Circuit Judges, and PARKER, * District Judge.

STEPHEN H. ANDERSON, Circuit Judge.

United Services Automobile Association (USAA) appeals from an adverse judgment, claiming, among other things, that the judgment was entered without subject matter jurisdiction. We remand to the district court for further consideration of the jurisdictional question.

I.

In May 1982, Marine Corps Captain Johnny L. Tuck was killed in an automobile accident caused by an uninsured motorist. 1 Captain Tuck was insured by appellant USAA. Captain Tuck's parents, Leroy and Dorothy Tuck, appellees here, sought benefits under the uninsured motorist provision of the USAA policy. Their claim was effectively denied by USAA, and the Tucks brought this action under the diversity jurisdiction of the federal courts alleging (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; and (3) intentional infliction of emotional distress. The case was tried before a jury in the District Court for the Northern District of Oklahoma. The jury returned a verdict for the Tucks on all three claims. The jury awarded $100,000.00 as damages for breach of the insurance contract, $200,000.00 in actual damages and $500,000.00 in punitive damages for bad faith breach of the insurance contract, and $50,000.00 actual damages and $50,000.00 punitive damages for intentional infliction of emotional distress. After trial, USAA filed a motion for judgment notwithstanding the verdict, or in the alternative, for a new trial. The district court denied both motions, but did reduce the actual damage award for the bad faith claim to $75,000.00.

USAA filed a timely notice of appeal from the judgment. Several months after the appeal was filed, USAA filed with this court a motion to dismiss the action based on a lack of subject matter jurisdiction. USAA argued that there was a lack of complete diversity between the parties, requiring dismissal of the Tucks' action by this court. This was the first time that USAA had raised the question of subject matter jurisdiction.

The Tucks' complaint alleged that USAA was a "foreign corporation." R. Vol. I, Tab 1. USAA's answer admitted that allegation. Id. at Tab 6. The pretrial order incorporated those jurisdictional findings. Id. at Tab 37. On appeal, USAA revealed, for the first time, that it was not a corporation, but rather an unincorporated association organized under the insurance laws of the state of Texas. USAA correctly argued that the membership of an unincorporated association, for purposes of diversity jurisdiction, is the citizenship of all of its members. See Arbuthnot v. State Automobile Ins. Ass'n, 264 F.2d 260, 261-62 (10th Cir.1959). Because some members of USAA are citizens of Oklahoma, the home of the Tucks, USAA urged that complete diversity was lacking, and the federal courts had no power to hear this case. See Owen Equip. and Erection Co. v. Kroger, 437 U.S. 365, 373-74, 98 S.Ct. 2396, 2402-03, 57 L.Ed.2d 274 (1978) (requirement of complete diversity).

II.

The Federal Rules of Civil Procedures direct that "[w]henever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action." Fed.R.Civ.P. 12(h)(3). "A court lacking jurisdiction cannot render judgment but must dismiss the cause at any stage of the proceedings in which it becomes apparent that jurisdiction is lacking." Basso v. Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir.1974) (emphasis in original). "If the parties do not raise the question of lack of jurisdiction, it is the duty of the federal court to determine the matter sua sponte. Therefore, lack of jurisdiction cannot be waived and jurisdiction cannot be conferred upon a federal court by consent, inaction or stipulation." Id. (citations omitted). 2 See Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 2104, 72 L.Ed.2d 492 (1982) ("[N]o action of the parties can confer subject-matter jurisdiction upon a federal court.... [A] party does not waive the requirement by failing to challenge jurisdiction early in the proceedings.").

"[F]or purposes of diversity jurisdiction, the citizenship of an unincorporated association is the citizenship of the individual members of the association." Jett v. Phillips & Associates, 439 F.2d 987, 990 (10th Cir.1971); see United Steelworkers of America v. Bouligny, Inc., 382 U.S. 145, 86 S.Ct. 272, 15 L.Ed.2d 217 (1965); see generally 13B C. Wright, A. Miller, E. Cooper, Federal Practice & Procedure Sec. 3630 (2d ed. 1984). This rule has been frequently criticized because often, as in this case, an unincorporated association is, as a practical matter, indistinguishable from a corporation in the same business. See Bouligny, 382 U.S. at 149-53, 86 S.Ct. at 274-76; Arbuthnot, 264 F.2d at 262; see also 3A J. Moore & J. Lucas Moore's Federal Practice, p 17.25, at 17-209 (1987 rev.) ("Congress should remove the one remaining anomaly and provide that where unincorporated associations have entity status under state law, they should be treated as analogous to corporations for purposes of diversity jurisdiction."). Unfortunately, while we may not like this requirement, and the results which sometimes follow, we do not have the power to change it.

This is not the first time that USAA has faced this problem. In Baer v. United Services Automobile Ass'n, 503 F.2d 393 (2d Cir.1974), plaintiff Baer appealed a judgment in favor of USAA to the Second Circuit. The Court of Appeals raised the question of jurisdiction sua sponte, and after a careful evaluation of USAA's status under Texas law, determined that, for diversity purposes, USAA was properly considered a citizen "of each and every state in which [it] has members." Id. at 395. The Tucks offer nothing that persuades us to depart from the holding in Baer. 3 Accordingly, we are forced to conclude that, as the case now stands, there is not complete diversity among the parties and subject matter jurisdiction is lacking.

We are not prepared, however, to grant USAA's motion to dismiss the action, for it is well-settled that nondiverse parties may be dismissed in order to preserve diversity jurisdiction. Miller v. Leavenworth-Jefferson Elec. Coop., Inc., 653 F.2d 1378, 1382 (10th Cir.1981); Jett, 439 F.2d at 989-90; see Harris v. Illinois-California Express, Inc., 687 F.2d 1361, 1369 (10th Cir.1982) ("a non-diverse party whose presence is not essential under Rule 19, ... may be dropped to achieve diversity"); 7 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure, Sec. 1685, at 457 (2d ed. 1986) ("Courts frequently employ Rule 21 to preserve diversity jurisdiction over a case by dropping a nondiverse party if his presence in the action is not required under Rule 19."). "The court may dismiss a nondiverse party in order to achieve diversity even after judgment has been entered." Publicker Indust., Inc. v. Roman Ceramics Corp., 603 F.2d 1065, 1069 (3d Cir.1979); see Long v. District of Columbia, 820 F.2d 409, 416 (D.C.Cir.1987). Moreover, several circuits have held that courts of appeals may preserve diversity jurisdiction by dismissing nondiverse parties on appeal. See Long, 820 F.2d at 417; Continental Airlines, Inc. v. Goodyear Tire & Rubber Co., 819 F.2d 1519, 1523-24 (9th Cir.1987); Jaser v. New York Property Ins. Underwriting Ass'n, 815 F.2d 240, 243 (2d Cir.1987); but see Newman-Green, Inc. v. Alfonzo-Larrain, 854 F.2d 916 (7th Cir.1988) (en banc) (appeals court has no power to dismiss nondiverse party; remanded to district court).

Relying on these cases, the Tucks have filed in this court a motion to dismiss those members of USAA who are Oklahoma citizens. After a careful review of the Tucks' motion and the applicable law, however, we have determined that even if we have the power to dismiss nondiverse parties on appeal, the question is more appropriately remanded to the district court.

There are several factors which complicate the Tucks' belated effort to perfect diversity and require the attention of the district court. First, the suit was filed against USAA as an entity, not against the individual members of the association. 4 Therefore, a motion to dismiss the nondiverse members is not sufficient to create complete diversity because USAA, with its ubiquitous citizenship, remains a party to the action. Cf. Kaplan Co. v. Industrial Risk Insurers, 86 F.R.D. 484, 486 & n. 5 (E.D.Penn.1980) (District court concluded that "plaintiff may proceed in the absence of the association qua association and those of its members whose presence would destroy diversity."). It appears to us that the Tucks must now move to dismiss USAA from the suit and then add the diverse members of the association as defendants. 5 Therein lies the second problem, for the district court must determine if the Tucks, at this stage, may amend the complaint to add USAA's diverse members under Rule 19, and whether that amendment relates back to the filing of the complaint pursuant to Rule 15(c). See Jaser, 815 F.2d at 244 (service upon association constitutes service on all the individual members providing sufficient notice so that the amended complaint related back for statute of limitations purposes); see also Anderson v. Deere & Co., 852 F.2d 1244, 1247 (10th Cir.1988); Trombino v. Transit Casualty Co., 110 F.R.D. 139, 141-43 (D.R.I.1986); Kaplan, 86 F.R.D. at...

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