Opinion
Civil Action No. 99-0608 (DRD)
September 26, 2000
Andrew John Calcagno, Esq., CALCAGNO GARRUTO, Nutley, N.J., Attorney for Plaintiff.
O P I N I O N
Plaintiff Daily News, L.P. ("Daily News") has requested the Clerk of this Court to enter judgment by default in Daily News's favor under Federal Rule of Civil Procedure 55(a) and (b)(1). This Court cannot proceed to the merits of Daily News's request because potentially fatal defects of subject-matter jurisdiction appear on the face of, and lie implicit within, Daily News's complaint. Further, the Court cannot, on the record before it, decide whether subject-matter jurisdiction has attached or is wanting. Accordingly, the Court grants Daily News leave to amend its complaint in order to make appropriate jurisdictional allegations that include the name, the state or other place of domicile, and the country of citizenship of each and every partner, limited or general, in Daily News, L.P. The Court further grants Daily News leave to amend its complaint in order to make appropriate jurisdictional allegations that address, in the event complete diversity is lacking between Daily News and any or all of the defendants, whether the putative liability of the defendants is joint or joint and several. Such allegations, if made, must be grounded in the terms of contracts between Daily News and any or all of the defendants. In this connection, Daily News must annex to any amended complaint it files with the Clerk of the Court true and complete copies of each and every contract between Daily News and any or all of the defendants named in the complaint.
Though the Court cannot and will not reach the merits of Daily News's request for entry of judgment by default at this time, the Court notes that if it has diversity jurisdiction over the instant case, it will need these contracts to determine whether Daily News's request may be granted by the Clerk of the Court under Federal Rule of Civil Procedure 55(b)(1) or, alternatively, must be entertained by this Court under Rule 55(b)(2) .
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Daily News filed its complaint in the above-captioned and -styled civil action with the Clerk of this Court on February 10, 1999. The complaint comprises three counts: one for breach of contract against defendant Rubin Periodical Group ("Rubin Group"); one for breach of contract against the remaining eleven defendants, whom Daily News alleges to be subsidiaries of Rubin Group; and, one for an account stated between Daily News and all twelve defendants. Daily News's Complaint, filed 2/10/99, ¶¶ 6; 18-27; 28-38; 39-42.Daily News alleges that in the course of its business, it sells its publication, the newspaper the Daily News, to distributors and wholesalers for resale to customers who, in turn, resell the Daily News to readers at large. Compl. ¶ 4. More specifically, Daily News alleges that from June 28, 1998 through December 31, 1998, it delivered numerous shipments of the Daily News to Rubin Group and its eleven putative subsidiary companies, for which shipments the defendants allegedly failed to pay. Id. ¶¶ 6, 21. Daily News further alleges the defendants' failure to pay for delivered newspapers constituted breaches of a contract or contracts between Daily News and Rubin Group and between Daily News and the eleven putative subsidiaries of Rubin Group. Id. ¶¶ 6; 20, 22-24, 26, 27; 35, 38.
Daily News prays for $163,062.46 in money damages against Rubin Group on Count I, plus prejudgment interest from December 31, 1998, reasonable attorney's fees, court costs, and disbursements necessary to collect the allegedly unpaid amount. Id. ¶ a. Daily News also prays for the same amount in money damages against the remaining eleven defendant putative subsidiaries of Rubin Group on Count II; it seeks to recover this amount jointly and severally from these eleven defendants, plus prejudgment interest from December 31, 1998, reasonable attorney's fees, court costs, and disbursements necessary to collect the allegedly unpaid amount. Compl. ¶ b. Daily News also prays for the same amount in money damages against all twelve defendants on Count III; it seeks to recover this amount jointly and severally from these twelve defendants, plus prejudgment interest from December 31, 1998, reasonable attorney's fees, court costs, and disbursements necessary to collect the allegedly unpaid amount. Id. ¶ c.
Daily News alleges that this Court "has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. § 1322(a)(1) because of the diversity of citizenship of the parties and because the matter in controversy exceeds the sum of $75,000.00." Compl. ¶ 1. To this end, it alleges that it is "a limited partnership organized and existing under the laws of the State of Delaware[,] with its principal place of business at 125 Theodore Conrad Drive, Jersey City, New Jersey. . . ." Id. ¶ 3.
Daily News also makes the following jurisdictional allegations about the defendants: Rubin Group "is a corporation organized and existing under the laws of the State of New York, with its principal place of business at 634 South Avenue, Rochester, New York" ( id. ¶ 5); Great Northern Distributors Corp. ("Great Northern") "is a corporation organized and existing under the laws of Delaware . . . with its principal place of business at 935 North Washington Avenue, Scranton, Pa." (Compl. ¶ 7); Len Transition, Inc., f/k/a Lake Erie News, Inc. d/b/a Lake Erie News ("Len Transition"), "is a corporation organized and existing under the laws of the State of New York, with its principal place of business at 575 Kenedy Road, Cheektowaca, N.Y." ( id. ¶ 8); Manson News International, d/b/a Manson News Distributors ("Manson News"), "is a corporation organized and existing under the laws of the State of New York, with its principal place of business at P.O. Box 1211, Rochester, N.Y." ( id. ¶ 9); 800 Pre-emption Road, Inc., f/k/a Seneca News Agency, Inc. d/b/a Seneca News Agency Inc. ("Preemption Road"), "is a corporation organized and existing under the laws of the State of New York, with its principal place of business at P.O. Box 631, Geneva, N Y" ( id. ¶ 10); Rutland News Company Inc. "is a corporation organized and existing under the laws of the State of Vermont, with its principal place of business at 207 N. Main Street, Rutland, Vermont" ( id. ¶ 11); Schaeffer News Company "is a corporation organized and existing under the laws of the State of New York, with its principal place of business at 23-25 Wall Street, Auburn, N.Y." ( id. ¶ 12); Stroup News Agency Corporation "is a corporation organized and existing under the laws of the State of New York, with its principal place of business at P.O. Box 388, Troy, N.Y." ( id. ¶ 13); Batavia Group Distributors Inc. "is a corporation organized and existing under the laws of the State of New York, with its principal place of business at 610 E. Main Street, P.O. Box 821, Batavia, N.Y." ( id. ¶ 15); Fulmont News Distributing Co., Inc. "is a corporation organized and existing under the laws of the State of New York, with its principal place of business at P.O. Box 389, Amsterdam, N.Y." (Compl. ¶ 16); and, Lindsay News Co., Inc. "is a corporation organized and existing under the laws of the State of New York, with its principal place of business at MPO [sic] Box 948, Niagra [sic] Falls, N.Y." ( id. ¶ 17).
The caption of Daily News's complaint, which is substantively identical to the caption above, denominates Manson News International as " a/k/a Manson News Distributors." See supra page 1 (emphasis added).
These jurisdictional allegations are patently defective, and may be latently defective. Daily News must amend its complaint lest its case be dismissed for want of subject-matter jurisdiction.
DISCUSSION
The United States Constitution extends the judicial power of the United States to controversies between citizens of different states. U.S. Const. art. III, § 2. Pursuant to this extension of judicial power, Congress has prescribed the diversity jurisdiction of the federal district courts in section 1332 of Title 28 of the United States Code. This section reads, in pertinent part, as follows:
(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between —
(1) citizens of different States. . . .
(c) For the purposes of this section and section 1441 of this title —
(1) a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the state where it has its principal place of business,. . . .28 U.S.C. § 1332 (1948, as amended).
A case falls within the federal district court's original diversity jurisdiction "only if diversity of citizenship among the parties is complete, i.e. only if there is no plaintiff and no defendant who are citizens of the same State." Wis. Dep't of Corr. v. Schacht, 524 U.S. 381, 388, 118 S.Ct. 2047, 2052, 141 L.Ed.2d 364 (1998) (citing Carden v. Arkoma Assocs., 494 U.S. 185, 187, 110 S.Ct. 1015, 1016-17, 108 L.Ed.2d 157 (1990); Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 267, 2 L.3d 436 (1806)). Where the district court's original jurisdiction lies solely in diversity, the Supreme Court of the United States "has held that one [plaintiff's] claim against one nondiverse defendant destroys that original jurisdiction." Schacht, 524 U.S. at 389, 118 S.Ct. at 2053 (citing Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 829, 109 S.Ct. 2218, 2221, 104 L.Ed.2d 893 (1989)). Indeed, this destruction of original jurisdiction is automatic; no party need assert, and no party can waive, the fatal defect of lack of diversity. Ibid. Nor can a court ignore this defect, which goes to the heart of its subject-matter jurisdiction; a court that becomes aware of a potential lack of diversity must raise and address the matter sua sponte. Ibid.
Daily News has met the $75,000 amount-in-controversy requirement. E.g. Dardovitch v. Haltzman, 190 F.3d 125, 135 (3rd Cir. 1999).
"This complete diversity requirement is based on the diversity statute, not on Article III of the Constitution." Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 829 n. 1, 109 S.Ct. 2218, 2221 n. 1, 104 L.Ed.2d 893 (1989) (citing State Farm Fire Cas. Co. v. Tashire, 386 U.S. 523, 530-31, 87 S.Ct. 1199, 1203-04, 18 L.Ed.2d 270 (1967)).
An exception to this rule obtains if there exists "an independent basis of federal jurisdiction over the nondiverse respondent." Romero v. Int'l Terminal Operating Co., 358 U.S. 354, 381, 79 S.Ct. 468, 3 L.Ed.2d 368 (1959). Daily News has alleged no facts in its complaint that would yield an independent basis of federal jurisdiction over any of the twelve named defendants, and so the Romero exception does not obtain in this case.
Daily News's Jurisdictional Allegations Are Patently Defective
"In a diversity action, the plaintiff must state all parties' citizenships such that the existence of complete diversity can be confirmed." Chem. Leaman Tank Lines, Inc. v. Aetna Cas. Sur. Co., 177 F.3d 210, 222 n. 13 (3rd Cir. 1999). "The plaintiff has the burden of pleading the existence of the court's jurisdiction." Ibid.; Fed.R.Civ.P. 8(a)(1) (1937, as amended). Daily News's allegations of its own citizenship are patently defective; Daily News must amend its complaint lest it fail to meet its burden of pleading and face dismissal of its case for want of subject-matter jurisdiction.
As noted above, see supra page 3, Daily News alleges that it is "a limited partnership organized and existing under the laws of the State of Delaware[,] with its principal place of business at 125 Theodore Conrad Drive, Jersey City, New Jersey. . . ." Id. ¶ 3. These allegations would pass jurisdictional muster if Daily News were a corporation. See 28 U.S.C. § 1332(c)(1); Official Form 2. But Daily News is not a corporation — it is, by its own account, a limited partnership.
A limited partnership has no citizenship of its own for diversity-jurisdiction purposes. Carden, 494 U.S. at 187-92, 110 S.Ct.at 1017-1019. To determine the plaintiff's citizenship, the Court must consult the citizenship of each and every general and limited partner in Daily News, L.P. Id., 494 U.S. at 195-96, 110 S.Ct. at 1021; Trent Realty Assocs. v. First Fed. Sav. and Loan Ass'n, 657 F.2d 29, 31-32 (3rd Cir. 1981). This the Court cannot now do, given the complete absence of any such allegations in Daily News's complaint. In this regard, Daily News's jurisdictional allegations must be amended lest Daily News's case be dismissed for want of subject-matter jurisdiction.
"Defective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts." 28 U.S.C. § 1653 (1948). Section 1653 "addresses only incorrect statements about jurisdiction that actually exists, and not defects in the jurisdictional facts themselves." Newman-Green, 490 U.S. at 831; 109 S.Ct. at 2222; Field v. Volkswagenwerk Aktiengesellschaft, 626 F.2d 293, 306 (3rd Cir. 1980). With the case in its present posture, it is appropriate to grant Daily News leave to amend its complaint so that it may properly and completely allege the citizenship of all the partners in Daily News, L.P. in service of its attempts to establish this Court's diversity jurisdiction.
The Court notes the citizenship of any partner who is a natural person is determined by her domicile. "[D]omicile is established by physical presence in a place in connection with a certain state of mind concerning one's intent to remain there." Miss. Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48, 109 S.Ct. 1597, 104 L.Ed.2d 29 (1989) (citing Texas v. Florida, 306 U.S. 398, 424, 83 L.Ed. 817, 59 S.Ct. 563 (1939)). Domicile should not be confused with residence. Ibid.
Daily News's Jurisdictional Allegations May Be Latently Defective
Based upon Daily News's properly made (though not necessarily well-founded or ultimately correct) jurisdictional allegations regarding the defendants' citizenzhip, see supra pages 4-5, the defendants are presumptively citizens of the following states: New York, Delaware, Pennsylvania, and Vermont. See 28 U.S.C. § 1332(c)(1). If any of Daily News, L.P.'s general or limited partners is a citizen of any of these four states, complete diversity is lacking. If complete diversity is lacking, Daily News's jurisdictional allegations in the complaint are latently defective.The complete-diversity rule of Strawbridge v. Curtiss would seem on its face to require this Court to dismiss Daily News's case if complete diversity is lacking between Daily News and one or more of the defendants. However, this rule is not irrefragable. "The authority of a district court to drop nondiverse parties whose presence is not essential to the suit in order to preserve and perfect its diversity jurisdiction is well-established." Field, 626 F.2d at 296 (citing Horn v. Lockhart, 84 U.S. (17 Wall.) 570, 21 L.Ed. 657 (1873); other citations omitted)). "Whether a party may be dropped depends on whether the party is 'indispensable' to a just and meaningful litigation of the claims remaining in the suit." Id. at 297.
The Court notes in passing that 28 U.S.C. § 1367, entitled "Supplemental jurisdiction," is unavailing to Daily News if complete diversity is lacking. Section 1367(a) provides, in pertinent part, that "in any civil action of which the district courts have original jurisdiction , the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." 28 U.S.C. § 1367(a) (1990) (emphasis added). Since a plaintiff's claim against even a single nondiverse defendant destroys the district court's original diversity jurisdiction, Schacht, 524 U.S. at 389, 118 S.Ct. at 2053, when complete diversity is lacking, there can be no claims "within such original jurisdiction," 28 U.S.C. § 1367(a), to which any other claims may be said to be "related" and over which the district court can assert supplemental jurisdiction. Schacht, 524 U.S. at 388-91, 118 S.Ct. at 2052-53.
[T]he question always is, or should be, when objection is taken to the jurisdiction of the court by reason of the citizenship of the parties, whether to a decree authorized by the case presented, they are indispensable parties, for if their interests are severable and a decree without prejudice to their rights can be made, the jurisdiction of the court should be retained and the suit dismissed as to them. Horn v. Lockhart, 84 U.S. (17 Wall.) at 579, quoted in ibid.; quoted and followed in Newman-Green, 490 U.S. at 835, 109 S.Ct. at 2224 (holding that federal courts of appeals have the authority to dismiss dispensable nondiverse parties).
"[T]he primary factors to be considered in determining whether a party is indispensable are listed in Fed.R.Civ.P. 19,. . . ." Field, 626 F.2d at 297.
"The factors to be considered by the court include: first, to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.
Though Federal Rule of Civil Procedure 19 has been held to inform the indispensability analysis, the Court's power to dismiss dispensable nondiverse parties to preserve and perfect its diversity jurisdiction "long predates the enactment of the Federal Rules." Newman-Green, 490 U.S. at 834, 109 S.Ct. at 2223 (describing the power of federal appellate courts to dismiss dispensable nondiverse parties). Furthermore, though Rule 21 provides that "[m]isjoinder of parties is not ground for dismissal of an action," Fed.R.Civ.P. 21(1937), and that "[p]arties may be dropped or added by order of the court on motion of any party or of its own initiative at any stage of the action and on such terms as are just," ibid., and though courts have routinely stated that Rule 21 grants the federal courts the "authority" to dismiss dispensable nondiverse parties, e.g. Newman-Green, 490 U.S. at 833, 109 S.Ct. at 2223; Field, 626 F.2d at 297 n. 5; Publicker Indus., Inc. v. Roman Ceramics Corp., 603 F.2d 1065, 1068 (3rd Cir. 1979), this formulation is infelicitous. The Federal Rules of Civil Procedure do not give federal district courts (or any other federal courts, for that matter) "authority . . . to enlarge or diminish the jurisdiction of federal courts." United States v. Sherwood, 312 U.S. 584, 590, 61 S.Ct. 767, 771, 85 L.Ed. 1058 (1941); 28 U.S.C. § 2072(b) (1988, as amended) (prescribing that the Federal Rules of Civil Procedure "shall not abridge, enlarge or modify any substantive right"); Fed.R.Civ.P. 82 (1937, as amended) ("These rules shall not be construed to extend or limit the jurisdiction of the United States district courts or the venue of actions therein."); Port Drum Co. v. Umphrey, 852 F.2d 148, 150 (5th Cir. 1988) (following Sherwood, and applying § 2072(b) and Rule 82). The Court's authority to dismiss dispensable nondiverse parties from the instant civil action derives not from the Federal Rules of Civil Procedure but from the common law.
Fed.R.Civ.P. 19(b) (1937, as amended).
The Court will not, at this time, apply the facts of this case to each of these factors and assay them in the indispensability calculus. Suffice it to say that indispensability will ultimately turn on whether the named defendants are joint obligors, in which case all are indispensable parties, e.g. Moss v. Jones, 93 N.J. Super. 179, 184, 225 A.2d 369, 371 (App.Div. 1966) (declaring that all joint obligors must be sued in one action, but conflating the term "necessary" with the term "indispensable") — or, instead, on whether they are joint and several obligors, in which case none of them is indispensable. Newman-Green, 490 U.S. at 838, 109 S.Ct. at 2226; Camp v. Gress, 250 U.S. 308, 316-17, 39 S.Ct. 478, 482, 63 L.Ed. 997 (1919); Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 408, 410-11 (3rd Cir. 1993); Bank of Am. Nat'l Trust and Sav. Ass'n v. Hotel Rittenhouse Assocs., 844 F.2d 1050, 1054 (3rd Cir. 1988); accord Bio-Analytical Servs., Inc. v. Edgewater Hosp., Inc., 565 F.2d 450, 453 (7th Cir. 1977); Jett v. Phillips Assocs., 439 F.2d 987, 990 n. 3 (10th Cir. 1971).
Daily News alleges in its complaint that Rubin Group "is the parent company and owner of the eleven (11) other corporations and/or companies named in the above-captioned action," Compl. ¶ 6; that Rubin Group "was in control of and responsible for the purchasing and paying of [ sic] all newspapers purchased from the Daily News by its eleven (11) subsidiary companies . . .," id. ¶ 19; that Rubin Group "agreed to pay [Daily News] for the newspapers received by the Rubin Group and its subsidiaries," id. ¶ 20; that Rubin Group "breached the parties' agreement by failing to pay for the newspapers sold, delivered and accepted by the Rubin Group," id. ¶ 24; that the remaining eleven defendants besides Rubin Group have breached some contract, express or implied, by failing to pay Daily News for newspapers they were shipped and which they accepted, id. ¶¶ 33, 37, 38; that the eleven putative subsidiaries are liable jointly and severally to Daily News for the claimed damages, id. ¶ c; and, that Rubin Group and the eleven putative subsidiaries are liable jointly and severally to Daily News for the claimed damages, id. ¶ d.
"Under the current version of Rule 19, the conclusion as to whether a party should or must be joined is governed by federal law[;] but, in diversity suits, the standard to be applied must be derived from[,] and defined by[,] the status of the parties [as it] exist[s] under state law." Wolgin v. Atlas United Fin. Corp., 397 F. Supp. 1003, 1012 (E.D.Pa. 1975); see Janney Montgomery Scott, 11 F.3d at 405-06; see generally 28 U.S.C. § 1652 (1948); Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).
It is unclear from Daily News's scanty, latently ambiguous allegations, and from its having omitted to annex to its complaint or other filings with the Court those contracts it claims Daily News and its eleven putative subsidiaries have breached, whether Daily News had express written contracts with any of the defendants, and, if so, whether the terms of those contracts, as interpreted or construed under New Jersey law or other appropriate state law (i.e. the law chosen by the parties in a choice-of-law provision or the law governing the contract after application of the appropriate conflict-of-laws rule), would render the defendants jointly or jointly and severally liable to Daily News.
It is also unclear whether the eleven defendants besides Daily News are in fact and at law its subsidiaries, and, if so, whether they are wholly-owned by Daily News. The defendants' status may affect the nature of the defendants' liability — and, in turn, the defendants' indispensability — for New Jersey law countenances the corporate-law principles that a parent and its wholly-owned subsidiary are "different legal entities," In re Maple Contractors, Inc., 172 N.J. Super. 348, 354-55, 411 A.2d 1186, 1189 (Law Div. 1979), and that "[e]ven in the case of a parent corporation and its wholly-owned subsidiary, limited liability normally will not be abrogated." New Jersey Dep't Env't Prot. v. Ventron Corp., 94 N.J. 473, 500, 468 A.2d 150, 164 (1983). Cf. Janney Montgomery Scott, 11 F.3d at 405 n. 5 (deemphasizing the effect of the parent-subsidiary relationship between the named defendant and its unnamed parent, and focussing instead on whether the contract at hand impose joint and several liability on the named subsidiary and unnamed parent). Upon its receipt of Daily News's amended complaint, with contracts annexed, the Court will be determine if and how these New Jersey corporate-law principles, or those of another state, affect the nature of the defendants' liability. Any amended complaint Daily News may file must allege whether the eleven putative subsidiaries of Rubin Group are or are not wholly owned by Rubin Group.
CONCLUSION
For the foregoing reasons, the Court cannot at this time rule on Daily News's request for entry of judgment by default. The Court grants Daily News leave to amend its complaint in order to make appropriate jurisdictional allegations that include the name, the state or other place of domicile, and the country of citizenship of each and every partner, limited or general, in Daily News, L.P. The Court further grants Daily News leave to amend its complaint in order to make appropriate jurisdictional allegations that address, in the event complete diversity is lacking between Daily News and any or all of the defendants, whether the putative liability of the defendants is joint or joint and several. Such allegations, if made, must be grounded in the terms of contracts between Daily News and any or all of the defendants. In this connection, Daily News must annex to any amended complaint it files with the Clerk of the Court true and complete copies of each and every contract between Daily News and any or all of the defendants named in the complaint. The amended complaint must be filed within twenty (20) days of Daily News's receipt of the order implementing this decision.
The Court shall file an appropriate order.