University of Rhode Island v. A.W. Chesterton Co.

• Decision Date: 28 July 1993
• Docket Number: No. 92-1034,92-1034
• Citation: 2 F.3d 1200
• Parties: 85 Ed. Law Rep. 625, 37 Fed. R. Evid. Serv. 619 UNIVERSITY OF RHODE ISLAND, Plaintiff, Appellant, v. A.W. CHESTERTON COMPANY, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1200

2 F.3d 1200

85 Ed. Law Rep. 625, 37 Fed. R. Evid. Serv. 619

UNIVERSITY OF RHODE ISLAND, Plaintiff, Appellant, v. A.W. CHESTERTON COMPANY, Defendant, Appellee.

No. 92-1034.

United States Court of Appeals First Circuit.

Heard July 28, 1993.

Decided Aug. 16, 1993.

Louis J. Saccoccio, Washington, DC, with whom Merlyn P. O'Keefe and Packer & O'Keefe, Peace Dale, RI, were on brief, for plaintiff, appellant.

Steven E. Snow with whom Partridge, Snow & Hahn, Providence, RI, was on brief, for defendant, appellee.

Before CYR and BOUDIN, Circuit Judges, and HORNBY, ^* District Judge.

CYR, Circuit Judge.

The University of Rhode Island ("URI") appeals a judgment disallowing its breach of warranty claims against A.W. Chesterton Company ("Chesterton"), contending that the district court lacked subject matter jurisdiction, and challenging various rulings at trial. Finding no error, we affirm.

I BACKGROUND

We recite only those record facts essential to an understanding of the issues raised on appeal, drawing all reasonable inferences in favor of plaintiff-appellant URI. Richmond Steel, Inc. v. Puerto Rican American Ins. Co., 954 F.2d 19, 20 (1st Cir.1992). The R/V Endeavor is a vessel chartered by the National Science Foundation to URI's Graduate School of Oceanography (GSO) for research purposes. In the summer of 1985, John Metz, the GSO's port engineer, discovered serious rust corrosion on the inside of the Endeavor's steel ballast tanks, which are submerged in salt water during normal operation of the vessel. Responding to a Chesterton advertisement, Metz received test samples of "Rust Transformer," a Chesterton product which purportedly converts surface corrosion into a rust-inhibitor, which in turn serves as a base for further coats of paint. Satisfied with the test-sample results, Metz invited Chesterton sales representatives aboard the Endeavor. After inspecting the Endeavor's ballast tank corrosion, Chesterton's representatives recommended that Metz use Chesterton's 1-2-3 System (using Rust Transformer, a primer, and a final enamel coat) to rehabilitate the tanks. Metz ordered the 1-2-3 System on September 11, 1985. ¹ Six months after URI completed the 1-2-3 System application, the new coating on the ballast tanks began to loosen and flake off. URI allegedly expended $100,000 to correct the problem.

URI brought suit against Chesterton in Rhode Island state court on May 4, 1989, alleging negligence, strict liability, and breaches of an express warranty and implied warranties of merchantability and fitness for This court declined to entertain URI's interlocutory appeal from the jurisdictional ruling but noted disagreement among the circuits as to the proper criteria for determining the citizenship of state universities for diversity purposes. We recommended that the district court conduct "limited factfinding" on remand relating to several factors pertinent to URI's citizenship, including (1) "the degree of URI's dependence on and functional integration with the state treasury," (2) "the percentage of URI's annual budget that derives from state appropriations," and (3) "whether the legislature bases levels of such appropriations in part on the amount of nonappropriated funds available to URI." ² On remand, the district court denied URI's motion for a pretrial evidentiary hearing relating to these jurisdictional matters. The jury trial began on December 3, 1991. After the district court excluded the testimony of URI's only expert witness on the issue of contract damages, URI abruptly rested its case. Judgment was entered for Chesterton on all counts, as a matter of law, pursuant to Fed.R.Civ.P. 50(a), and URI appealed.

a particular purpose. Chesterton promptly removed the action to federal district court. URI moved for remand on the ground that URI, as an "alter ego, arm, or agent" of the State of Rhode Island, is not a "citizen" of Rhode Island for diversity purposes. The district court denied URI's remand motion without an evidentiary hearing, relying on an earlier district court decision, see Vanlaarhoven v. Newman, 564 F.Supp. 145 (D.R.I.1983) (Selya, J.), which determined that URI was not an "arm" of the State for sovereign immunity purposes.

II DISCUSSION

A. Subject Matter Jurisdiction

URI urges us to set aside the judgment and remand the case to state court on the ground that Chesterton, a Massachusetts corporation, has not established diversity. URI contends that it is not a Rhode Island "citizen," but a mere "arm" or "alter ego" of the State. See Gibbs v. Buck, 307 U.S. 66, 69, 59 S.Ct. 725, 727-28, 83 L.Ed. 1111 (1939) (holding that party invoking diversity jurisdiction must establish sufficient facts to warrant its exercise); Bank One, Texas, N.A. v. Montle, 964 F.2d 48, 50 (1st Cir.1992) (same); see also Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09, 61 S.Ct. 868, 872, 85 L.Ed. 1214 (1941) (removal statute should be strictly construed against removal); McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 187, 56 S.Ct. 780, 784, 80 L.Ed. 1135 (1936); Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97, 42 S.Ct. 35, 37, 66 L.Ed. 144 (1921).

We begin with first principles. A State cannot be a "citizen" of itself for purposes of diversity jurisdiction. ³ Moor v. County of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 1799, 36 L.Ed.2d 596 (1973); Postal Tel. Cable Co. v. Alabama, 155 U.S. 482, 487, 15 S.Ct. 192, 194, 39 L.Ed. 231 (1894). On the other hand, a political subdivision possessing the formal status of a "body politic and corporate," such as a county or municipality, is presumed a "citizen" for diversity purposes "unless it is simply 'the arm or alter ego of the State.' " Moor, 411 U.S. at 717, 721, 93 S.Ct. at 1799, 1801-02 (finding that Alameda County had a "sufficiently independent corporate character" to be a "citizen" of California for diversity purposes) (citation omitted) (emphasis in original); Illinois v. City of Milwaukee, 406 U.S. 91, 97, 92 S.Ct. 1385, 1389, 31 L.Ed.2d 712 (1972); Cowles v. Mercer County, 74 U.S. (7 Wall.) 118, 121-22, 19 L.Ed. 86 (1869). ⁴ Thus, in principle at least, public and private corporations are accorded similar treatment as "citizens" The Rhode Island Board of Higher Education ("Board") is nominally constituted by the State of Rhode Island as the legal entity which acts in behalf of URI and other public postsecondary educational institutions in Rhode Island. ⁵ The Board has been constituted a "public corporation," R.I.Gen.Laws Sec. 16-59-1, ⁶ see infra note 10, just as the County of Alameda is a "body corporate and politic" under California law. Moor, 411 U.S. at 719, 93 S.Ct. at 1801 (citing Cal.Gov't Code Sec. 23003).

for diversity purposes. See 28 U.S.C. Sec. 1332(c)(1) ("For purposes of this section ... a corporation shall be deemed to be a citizen of any State by which it has been incorporated...."); see also Media Duplication Servs., Ltd. v. HDG Software, Inc., 928 F.2d 1228, 1236 (1st Cir.1991).

Several ancillary principles derive from Moor. The criteria are substantially similar for evaluating whether an entity is a citizen of the State for diversity purposes, or a State for Eleventh Amendment sovereign immunity purposes, see Northeast Fed. Credit Union v. Neves, 837 F.2d 531, 534 (1st Cir.1988) (tests "pretty much the same"); see supra note 4, and present the same ultimate question for decision: whether the State of Rhode Island remains the real party in interest, notwithstanding URI's designation as the nominal plaintiff. See id. at 533 ("For the purpose of diversity jurisdiction, the determinative factor is whether the state is the real On the other hand, though the State's formal incorporation of a State-related entity is not necessarily dispositive on the issue of its autonomy, either for immunity or diversity purposes, see, e.g., Jagnandan, 538 F.2d at 1174, 1176; Krieger, 765 F.Supp. at 760, 762, the legislative act of incorporation should prompt a thorough examination into the precise nature of the entity established under state law. See Moor, 411 U.S. at 719, 93 S.Ct. at 1800 (undertaking "a detailed examination of the relevant provisions of California law" in order to rule out Alameda County's "mere agency"); id. at 721 n. 54, 93 S.Ct. at 1801 n. 54 (generally repudiating resort to "conclusory" determinations as to entity's legal character); see also Lake Country Estates, Inc. v. Tahoe Regional Planning Agency, 440 U.S. 391, 401, 99 S.Ct. 1171, 1177, 59 L.Ed.2d 401 (1979); Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 280, 97 S.Ct. 568, 572, 50 L.Ed.2d 471 (1977); Kovats, 822 F.2d at 1307; Goss v. San Jacinto Junior College, 588 F.2d 96, 98 (5th Cir.1979). Accordingly, comparing the incorporated public entity to the polar extremes (the State on the one hand, and political subdivisions on the other), we must determine whether the nominal public corporation possesses "a sufficiently independent corporate character to dictate that it be treated as a citizen of [the State of incorporation]." Moor, 411 U.S. at 721, 93 S.Ct. at 1802. See Mt. Healthy, 429 U.S. at 280, 97 S.Ct. at 572 (finding city board "more like a county or city than it is like an arm of the State") (emphasis added); see also Kashani v. Purdue Univ., 813 F.2d 843, 845 (7th Cir.), cert. denied, 484 U.S. 846, 108 S.Ct. 141, 98 L.Ed.2d 97 (1987); Goss, 588 F.2d at 98.

party in interest.") (quoting Krisel v. Duran, 386 F.2d 179, 181 (2d Cir.1967), cert. denied, 390 U.S. 1042, 88 S.Ct. 1635, 20 L.Ed.2d 303 (1968)); see also Kovats v. Rutgers, 822 F.2d 1303, 1307 (3d Cir.1987) (immunity), cert. denied, 489 U.S. 1014, 109 S.Ct. 1126, 103 L.Ed.2d 188 (1989); Ronwin v. Shapiro, 657 F.2d 1071, 1073 (9th Cir.1981) (Board of Regents of Arizona) (immunity and diversity); Jagnandan v. Giles, 538 F.2d 1166, 1173 (5th Cir.1976) (Mississippi State University) (immunity), cert. denied, 432 U.S. 910, 97 S.Ct. 2959, 53 L.Ed.2d 1083 (1977); ...