Court clarifies jurisdictional issue
on Nov 29, 2005 at 10:02 am
The Supreme Court — in the only decision of the day — ruled unanimously on Tuesday that a lawsuit filed in state court may be shifted to federal court if all of those named on each side of the case are from different states — with emphasis on actually being named, and not potentially involved. Justice Ruth Bader Ginsburg wrote the Court’s opinion in Lincoln Property v. Roche (04-712), reversing the Fourth Circuit.
The Court stressed that those who are sued have no duty to prove that there is no other defendant who, if made a part of the case, would destroy the diversity of the named parties and thus deprive the federal court of authority to decide the case.
A second question raised in the case was not decided Tuesday. That was whether a firm that operates through a complex structure, doing business in several states, must be determined to be a citizen of any state in which one of its entities was located. “That question is not live for adjudication,” the Court said.
The ruling came in a case involving a lawsuit by a Fairfax County, Va., couple after they discovered a toxic mold in their apartment. They sued in Virginia state court, claiming breach of warranty of habitability, negligence, conversion of property, and landlord-tenant law violations. They named Lincoln Property Co., one unit of which managed the apartment project. They also sued the owner of the apartments.
The companies sued promptly moved the case to federal court, claiming diversity of citizenship. Lincoln Property is a Texas corporation based in Dallas, and the apartment owner is a Wisconsin firm. The couple sought to have the case returned to state court, arguing that the Lincoln Property unit that actually managed the apartment project was a Virginia corporation.
The Fourth Circuit agreed with the couple, finding that the Lincoln unit, not Lincoln itself, was the real party in interest, so diversity had been destroyed because of the common citizenship in Virginia.
That is the ruling the Supreme Court overturned Tuesday. The Circuit Court, Justice Ginsburg wrote, “erred in insisting that some other party affiliated with Lincoln should have been joined as a co-defendant and that it was Lincoln’s obligation to name that entity and show that its joinder would not destroy diversity….It was not incumbent on Lincoln to propose as additional defendants persons” that the couple might have joined in their lawsuit but did not.
