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C. T. CARDEN v. ARKOMA ASSOCIATES

SUPREME COURT OF THE UNITED STATES No. 88-1476 110 S. Ct. 1015, 494 U.S. 185, 108 L. Ed. 2d 157, 58 U.S.L.W. 4243, 1990.SCT.41170 <http://www.versuslaw.com> decided: February 27, 1990. C. T. CARDEN, ET AL., PETITIONERSv.ARKOMA ASSOCIATES ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT. Richard K. Ingolia argued the cause for petitioners. With him on the briefs was Kenneth J. Berke. Mitchell J. Hoffman argued the cause for respondent. With him on the brief was Max J. Cohen. Scalia, J., delivered the opinion of the Court, in which Rehnquist, C. J., and White, Stevens, and Kennedy, JJ., joined. O'connor, J., filed a dissenting opinion, in which Brennan, Marshall, and Blackmun, JJ., joined, post, at p. 198. Author: Scalia


ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT.

Scalia, J., delivered the opinion of the Court, in which Rehnquist, C. J., and White, Stevens, and Kennedy, JJ., joined. O'connor, J., filed a dissenting opinion, in which Brennan, Marshall, and Blackmun, JJ., joined, post, at p. 198.

Author: Scalia

 JUSTICE SCALIA delivered the opinion of the Court.

The question presented in this case is whether, in a suit brought by a limited partnership, the citizenship of the limited partners must be taken into account to determine diversity of citizenship among the parties.

I

Respondent Arkoma Associates (Arkoma), a limited partnership organized under the laws of Arizona, brought suit on a contract dispute in the United States District Court for the Eastern District of Louisiana, relying upon diversity of citizenship for federal jurisdiction. The defendants, C. Tom Carden and Leonard L. Limes, citizens of Louisiana, moved to dismiss, contending that one of Arkoma's limited partners was also a citizen of Louisiana. The District Court denied the motion but certified the question for interlocutory appeal, which the Fifth Circuit declined. Thereafter Magee Drilling Company intervened in the suit and, together with the original defendants, counterclaimed against Arkoma under Texas law. Following a bench trial, the District Court awarded Arkoma a money judgment plus interest and attorney's fees; it dismissed Carden and Limes' counterclaim as well as Magee's intervention and counterclaim. Carden, Limes, and Magee (petitioners here) appealed, and the Fifth Circuit affirmed. F.2d 226 (1988). With respect to petitioners' jurisdictional challenge, the Court of Appeals found complete diversity, reasoning that Arkoma's citizenship should be determined by reference to the citizenship of the general, but not the limited, partners. We granted certiorari. 490 U.S. 1045 (1989).

II

Article III of the Constitution provides, in pertinent part, that "the judicial Power shall extend to . . . Controversies . . . between Citizens of different States." Congress first authorized the federal courts to exercise diversity jurisdiction in the Judiciary Act of 1789, ch. 20, § 11, 1 Stat. 78. In its current form, the diversity statute provides that "the district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds . . . $50,000 . . ., and is between . . . citizens of different States . . . ." 28 U.S.C. § 1332(a). Since its enactment, we have interpreted the diversity statute to require "complete diversity" of citizenship. See Strawbridge v. Curtiss, 3 Cranch 267 (1806). The District Court erred in finding complete diversity in this case unless (1) a limited partnership may be considered in its own right a "citizen" of the State that created it, or (2) a federal court must look to the citizenship of only its general, but not its limited, partners to determine whether there is complete diversity of citizenship. We consider these questions in turn.

A

We have often had to consider the status of artificial entities created by state law insofar as that bears upon the existence of federal diversity jurisdiction. The precise question posed under the terms of the diversity statute is whether such an entity may be considered a "citizen" of the State under whose laws it was created.*fn1 A corporation is the paradigmatic artificial "person," and the Court has considered its proper characterization under the diversity statute on more than one occasion -- not always reaching the same conclusion. Initially, we held that a corporation "is certainly not a citizen," so that to determine the existence of diversity jurisdiction the Court must "look to the character of the individuals who compose [it]." Bank of United States v. Deveaux, 5 Cranch 61, 86, 91-92 (1809). We overruled Deveaux 35 years later in Louisville, C. & C. R. Co. v. Letson, 2 How. 497, 558 (1844), which held that a corporation is "capable of being treated as a citizen of [the State which created it], as much as a natural person." Ten years later, we reaffirmed the result of Letson, though on the somewhat different theory that "those who use the corporate name, and exercise the faculties conferred by it," should be presumed conclusively to be citizens of the corporation's State of incorporation. Marshall v. Baltimore & Ohio R. Co., 16 How. 314, 329 (1854). While the rule regarding the treatment of corporations as "citizens" has become firmly established, we have (with an exception to be discussed presently) just as firmly resisted extending that treatment to other entities. For example, in Chapman v. Barney, 129 U.S. 677 (1889), a case involving an unincorporated "joint stock company," we raised the question of jurisdiction on our own motion, and found it to be lacking:

"On looking into the record we find no satisfactory showing as to the citizenship of the plaintiff. The allegation of the amended petition is, that the United States Express Company is a joint stock company organized under a law of the State of New York, and is a citizen of that State. But the express company cannot be a citizen of New York, within the meaning of the statutes regulating jurisdiction, unless it be a corporation. The allegation that the company was organized under the laws of New York is not an allegation that it is a corporation. In fact the allegation is, that the company is not a corporation, but a joint stock company -- that is, a mere partnership." Id., at 682.

Similarly, in Great Southern Fire Proof Hotel Co. v. Jones, 177 U.S. 449 (1900), we held that a "limited partnership association" -- although possessing "some of the characteristics of a corporation" and deemed a "citizen" by the law creating it -- may not be deemed a "citizen" under the jurisdictional rule established for corporations. Id., at 456. "That rule must not be extended." Id., at 457. As recently as 1965, our unanimous opinion in Steelworkers v. R. H. Bouligny, Inc., 382 U.S. 145, reiterated that "the doctrinal wall of Chapman v. Barney," id., at 151, would not be breached.

The one exception to the admirable consistency of our jurisprudence on this matter is Puerto Rico v. Russell & Co., 288 U.S. 476 (1933), which held that the entity known as a sociedad en comandita, created under the civil law of Puerto Rico, could be treated as a citizen of Puerto Rico for purposes of determining federal-court jurisdiction. The sociedad 's juridical personality, we said, "is so complete in contemplation of the law of Puerto Rico that we see no adequate reason for holding that the sociedad has a different status for purposes of federal jurisdiction than a corporation organized under that law." Id., at 482. Arkoma fairly argues that this language, and the outcome of the case, "reflect the Supreme Court's willingness to look beyond the incorporated/unincorporated dichotomy and to study the internal organization, state law requirements, management structure, and capacity or lack thereof to act and/or sue, to determine diversity of citizenship." Brief for Respondent 14. The problem with this argument lies not in its logic, but in the fact that the approach it espouses was proposed and specifically rejected in Bouligny. There, in reaffirming "the doctrinal wall of Chapman v. Barney," we explained Russell as a case resolving the distinctive problem "of fitting an exotic creation of the civil law . . . into a federal scheme which knew it not." 382 U.S., at 151. There could be no doubt, after Bouligny, that at least common-law entities (and likely all entities beyond the Puerto Rican sociedad en comandita) would be treated for purposes of the diversity statute pursuant to what Russell called "the tradition of the common law," which is "to treat as legal persons only incorporated groups and to assimilate all others to partnerships." 288 U.S., at 480.*fn2 Arkoma claims to have found another exception to our Chapman tradition in Navarro Savings Assn. v. Lee, 446 U.S. 458 (1980). That case, however, did not involve the question whether a party that is an artificial entity other than a corporation can be considered a "citizen" of a State, but the quite separate question whether parties that were undoubted "citizens" (viz., natural persons) were the real parties to the controversy. The plaintiffs in Navarro were eight individual trustees of a Massachusetts business trust, suing in their own names. The defendant, Navarro Savings Association, disputed the existence of complete diversity, claiming that the trust beneficiaries rather than the trustees were the real parties to the controversy, and that the citizenship of the former and not the latter should therefore control. In the course of rejecting this claim, we did indeed discuss the characteristics of a Massachusetts business trust -- not at all, however, for the purpose of determining whether the trust had attributes making it a "citizen," but only for the purpose of establishing that the respondents were "active trustees whose control over the assets held in their names is real and substantial," thereby bringing them under the rule, "more than 150 years" old, which permits such trustees "to sue in their own right, without regard to the citizenship of the trust beneficiaries." Id., at 465-466. Navarro, in short, has nothing to do with the Chapman question, except that it makes available to respondent the argument by analogy that, just as business reality is taken into account for purposes of determining whether a trustee is the real party to the controversy, so also it should be taken into account for purposes of determining whether an artificial entity is a citizen. That argument is, to put it mildly, less than compelling.

B

As an alternative ground for finding complete diversity, Arkoma asserts that the Fifth Circuit correctly determined its citizenship solely by reference to the citizenship of its general partners, without regard to the citizenship of its limited partners. Only the general partners, it points out, "manage the assets, control the litigation, and bear the risk of liability for the limited partnership's debts," and, more broadly, "have exclusive and complete management and control of the operations of the partnership." Brief for Respondent 30, 36. This approach of looking to the citizenship of only some of the members of the artificial entity finds even less support in our precedent than looking to the State of organization (for which one could at least point to Russell). We have never held that an artificial entity, suing or being sued in its own name, can invoke the diversity jurisdiction of the federal courts based on the citizenship of some but not all of its members. No doubt some members of the joint stock company in Chapman, the labor union in Bouligny, and the limited partnership association in Great Southern exercised greater control over their respective entities than other members. But such considerations have played no part in our decisions.

To support its approach, Arkoma seeks to press Navarro into service once again, arguing that just as that case looked to the trustees to determine the citizenship of the business trust, so also here we should look to the general partners, who have the management powers, in determining the citizenship of this partnership. As we have already explained, however, Navarro had nothing ...


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