Unanimous Supreme Court Upholds Diversity of Citizenship Jurisdiction

 Diversity Jurisdiction is Not Dependent on The Non-existence of Potential Affiliates

In a unanimous decision, the U.S. Supreme Court held that defendants may remove an action based on diversity if there is complete diversity among all named plaintiffs and defendants.  In Lincoln Property Co. v. Roche, 126 S. Ct. 606 (2005) (Lincoln), the tenants sued Lincoln, the property manager, in Virginia state court for health problems and property damage they claimed they suffered because of “toxic” mold inside their apartment.  Lincoln is a corporation chartered in, and having its principal place of business in, the State of Texas. Lincoln removed the case from state court to federal district court under the diversity of citizenship jurisdictional provisions of 28 U.S.C. § 1441.  Under this statute, removal to federal court is permissible if none of the served defendants is a citizen of the state where plaintiffs brought the action.  The district court entered summary judgment in Lincoln’s favor.  The Fourth Circuit, however, reversed and remanded with instructions that the case should be returned to state court because Lincoln failed to carry its burden of proof with respect to its diverse citizenship. 

The Plaintiffs appealed to the U.S. Court of Appeals for the Fourth Circuit. The Fourth Circuit found that a limited partnership business entity affiliated with Lincoln, although not named as a party defendant, was involved in the management of the property, and that because the affiliated entity conducted significant business activities in the Plaintiff's home state (Virginia), that activity established a "substantial nexus" to Virginia, thereby defeating diversity.

Lincoln petitioned the Supreme Court for review contending the Fourth Circuit erred in denying diversity jurisdiction when the court looked beyond the named defendants in the complaint to an entity not named in the complaint to determine whether complete diversity existed. 

The Supreme Court granted certiorari to resolve the split among the Circuit Courts of Appeal on the question “whether an entity not named or joined as a defendant can nonetheless be deemed a real party in interest whose presence would destroy diversity.”  On November 29, 2005, a unanimous Supreme Court held that it is not incumbent on the named defendants to negate the existence of a potential defendant whose presence in the action would destroy diversity.  Further, the Court ruled that the Fourth Circuit “erred in insisting that some other entity affiliated with Lincoln should have been joined as a codefendant, and that it was Lincoln’s obligation to name that entity and show that its joinder would not destroy diversity.”  In reversing and remanding the Fourth Circuit’s decision, the Court emphasized, “the Fourth Circuit had no warrant in this case to inquire whether some other person might have been joined as an additional or substitute defendant.”  Moreover, the Supreme Court’s decision preserves the mold verdict in the underlying case.

For the Lincoln Property decision, please click on the link to the Supreme Court's opinion at: http://a257.g.akamaitech.net/7/257/2422/29nov20051100/www.supremecourtus.gov/opinions/05pdf/04-712.pdf [ return to top ]