Roche v. Lincoln Property Co

Certiorari granted, February 28, 2005
Reversed and Remanded by Supreme Court, December 30, 2005
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
CHRISTOPHER ROCHE; JUANITA ROCHE, 
Plaintiffs-Appellants,
v.
LINCOLN PROPERTY COMPANY; SWIB
INVESTMENT COMPANY,  No. 03-2064
Defendants-Appellees,
and
INVESCO INSTITUTIONAL,
Defendant.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Gerald Bruce Lee, District Judge.
(CA-02-1390-A)
Argued: May 5, 2004
Decided: June 30, 2004
Before WIDENER and GREGORY, Circuit Judges, and
C. Arlen BEAM, Senior Circuit Judge of the
United States Court of Appeals for the Eighth Circuit,
sitting by designation.
Reversed in part, vacated in part, and remanded by published opinion.
Judge Gregory wrote the opinion in which Judge Widener and Senior
Judge Beam joined.
2 ROCHE v. LINCOLN PROPERTY CO.
COUNSEL
ARGUED: Jerry M. Phillips, PHILLIPS, BECKWITH & HALL,
Fairfax, Virginia, for Appellants. Connie Nora Bertram, VENABLE,
L.L.P., Washington, D.C., for Lincoln Property Company; Richard
Alan Dean, TUCKER, ELLIS & WEST, L.L.P., for SWIB Investment
Company.
OPINION
GREGORY, Circuit Judge:
Plaintiffs discovered evidence of toxic mold in their Fairfax
County, Virginia apartment. They notified the property management
office in Virginia and an inspection was ordered, mold was found,
and abatement was required. During the mold remediation process
Plaintiffs were relocated and their personal belongings were left in the
care of the property management firm and the mold treatment firm.
After treatment had been completed, Plaintiffs determined that certain
of their valuables had been misplaced or stolen. They also learned
from their treating physician that the mold had caused and exacer-
bated certain medical conditions. Plaintiffs brought suit in state court
alleging breach of implied warranty of habitability, negligence, con-
version and violations of Virginia’s landlord-tenant act. Defendants
removed the matter to federal court relying on diversity of citizenship.
In support of removal, Defendants contended that the Texas parent
corporation named in the state complaint created diversity of citizen-
ship. Plaintiffs contended that there was not complete diversity
because the property was managed by a Virginia subsidiary of the
Texas parent. The district court denied Plaintiff’s motion to remand
for lack of diversity jurisdiction and granted summary judgment for
the defendants. Plaintiffs now appeal the jurisdictional issues and
summary judgment. We conclude that Defendants failed to carry their
burden of proof with respect to their allegedly diverse citizenship.
The judgment of the district court is therefore reversed as to jurisdic-
tion, the remainder is vacated, and this case is remanded with instruc-
tions to remand to state court pursuant to 28 U.S.C. § 1447(c).
ROCHE v. LINCOLN PROPERTY CO. 3
I.
On August 22, 2002, Plaintiffs Christopher and Juanita Roche (the
"Roches" or "Plaintiffs") filed a Motion for Judgment against Lincoln
Property Company ("Lincoln"), the State of Wisconsin Investment
Board ("SWIB"), and Invesco Institutional ("Invesco") in the Virginia
Circuit Court for Fairfax County, claiming personal injury and prop-
erty damage sustained as a result of their exposure to toxic molds at
the Westfield apartments. The Motion for Judgment named as defen-
dants: "Lincoln Property Company t/a Lincoln Property Company
ECW, Inc.," "INVESCO Institutional (N/A Inc.) Institutional Divi-
sion of AMVESCAP a/k/a Invesco Realty Advisors," and "SWIB
Investment Company State of Wisconsin Investment Board Lincoln
Property Company." On September 17, 2003, Defendants filed a
Notice of Removal pursuant to 28 U.S.C. § 1441, on the basis of
diversity of citizenship. Defendants then filed a motion to dismiss
under Rule 12(b)(6) of the Federal Rules of Civil Procedure, which
was granted with leave for Plaintiffs to file an amended complaint.
Plaintiffs amended their complaint and a jury trial was scheduled for
May 3, 2002.
On April 22, 2003, Plaintiffs filed a Motion to Remand challenging
diversity with respect to Lincoln. The motion was later expanded to
include an additional claim of lack of subject matter jurisdiction on
the basis that defendant SWIB was an arm of the State of Wisconsin
and, therefore, not a citizen for diversity purposes. On May 2, 2003,
the Plaintiffs filed a Rule 60(b) motion for relief from an order or
judgment that is void for lack of jurisdiction.
On July 11, 2003, the district court denied Plaintiffs’ motions to
remand and for relief. On August 21, 2003, Plaintiffs filed their
Notice of Appeal. On September 3, 2003, the district court denied
Plaintiffs’ motion for reconsideration.
II.
We review a denial of a motion to remand to state court de novo.
See Mayes v. Rapoport, 198 F.3d 457, 460 (4th Cir. 1999) (citing
Mansfield, Coldwater & Lake Michigan Ry. Co. v. Swan, 111 U.S.
379, 384 (1884); Tillman v. Resolution Trust Corp., 37 F.3d 1032,
4 ROCHE v. LINCOLN PROPERTY CO.
1034 (4th Cir. 1994) (reviewing de novo denial of motion to dismiss
for lack of subject matter jurisdiction); see also Burden v. General
Dynamics Corp., 60 F.3d 213, 216 (5th Cir. 1995) (reviewing de novo
denial of motion to remand)).
Federal courts have jurisdiction over controversies between "Citi-
zens of different States" by virtue of 28 U.S.C. § 1332(a)(1) and U.S.
Const., Art. III, § 2. Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 460
(1980).1 Early in its history, the Supreme Court "established that the
‘citizens’ upon whose diversity a plaintiff grounds jurisdiction must
be real and substantial parties to the controversy." Id. at 460-61
(quotations and citations omitted) (emphasis added). "Thus, a federal
court must disregard nominal or formal parties and rest jurisdiction
only upon the citizenship of real parties to the controversy." Id. (cita-
tions omitted) (emphasis added).
The early cases held that only "persons" could be real parties to the
controversy. Artificial or "invisible" legal creatures were not citizens
of any State. Id. (citing Bank of United States v. Deveaux, 5 Cranch
61, 86-87, 91, 3 L. Ed. 38 (1809)).2 Corporations suing in diversity,
1
In Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806), the Supreme
Court concluded that the precursor to 28 U.S.C. § 1332(a)(1) required
that "each distinct interest should be represented by persons, all of whom
are entitled to sue, or may be sued, in the federal courts." Id. As the
Supreme Court later noted, however, the requirement of complete diver-
sity is derived from "the words of the act of Congress," and not the Con-
stitution. State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 531
(1967). Article III of the Constitution requires only minimal diversity.
Id.; Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 492 n. 18
(1983). However, it is axiomatic that the jurisdiction of the inferior
courts—meaning the court of appeals and the district court—is deter-
mined by Congress. N. Pipeline Constr. Co. v. Marathon Pipe Line Co.,
458 U.S. 50, 57-60, 67 (1982) (plurality opinion) (Brennan, J.); Murray’s
Lessee v. Hoboken Land & Improvement Co., 59 U.S. (18 How.) 272,
284 (1855); see also Yang v. INS, 109 F.3d 1185, 1197 (7th Cir. 1997)
(Easterbrook, J.) ("The power to establish the inferior federal courts
under Article III § 1 permits Congress to determine their jurisdiction.").
Thus, we must exercise our jurisdiction in a manner that is strictly con-
sistent with the plain language of the removal statute and congressional
intent.
2
The Navarro Court noted:
Although overruled in Louisville, C., & C. R. Co. v. Letson, 2
ROCHE v. LINCOLN PROPERTY CO. 5
however, have long been "deemed" citizens in modern jurisprudence.
See id.3 The "real and substantial party in interest standard," however,
applies nonetheless. Id. Nearly all federal circuit courts have applied
the "real party in interest standard" when determining whether true
diversity of citizenship exists. See e.g., Sid Richardson Carbon &
Gasoline Co. v. Interenergy Res., Ltd., 99 F.3d 746, 752-53 (5th Cir.
1996) (applying real party in interest standard on review of motion to
remand for lack of diversity); Rockwell Int’l Credit Corp. v. U.S. Air-
craft Ins. Group, 823 F.2d 302 (9th Cir. 1987) (same), overruled on
other grounds by Partington v. Gedan, 923 F.2d 686 (9th Cir. 1991);
Hughes-Bechtol, Inc. v. West Virginia Bd. of Regents, 737 F.2d 540,
543-44 (6th Cir. 1984) (same); Nuclear Eng’g Co. v. Scott, 660 F.2d
241, 250 (7th Cir. 1981) (same and noting that real party in interest
is to be determined by "essential nature and effect of the proceed-
ing").
Moreover, this Court has also applied the "real and substantial
party in interest" standard when determining the propriety of exercis-
ing diversity jurisdiction. See, e.g., Koehler v. Dodwell, 152 F.3d 304,
308 (4th Cir. 1998) (citing Navarro, 446 U.S. at 460-61 and Ross v.
Bernhard, 396 U.S. 531, 538 (1970) (observing that the corporation,
not the shareholder, is the real party in interest in a shareholder’s
How. 497, 11 L. Ed. 353 (1844), Deveaux was resurrected by
Marshall v. Baltimore & Ohio R. Co., 16 How. 314, 14 L. Ed.
953 (1854). Marshall held that an artificial entity cannot be a cit-
izen, but that the persons who "act under [corporate] faculties . . .
and use [the] corporate name" are presumed to reside in the State
of incorporation. Id., at 328; see St. Louis & S. F. R. Co. v.
James, 161 U.S. 545, 562 (1896). This view endured until 1958,
when Congress amended the diversity statute to provide explic-
itly that "a corporation shall be deemed a citizen of any State by
which it has been incorporated and of the State where it has its
principal place of business." Act of July 25, 1958, § 2, 72 Stat.
415 (codified at 28 U.S.C. § 1332(c)).
Navarro, 446 U.S. at 461 n.7.
3
Under 28 U.S.C. § 1332(c) a corporation is deemed a citizen of its
state of incorporation and of the state where it has its principal place of
business.
6 ROCHE v. LINCOLN PROPERTY CO.
derivative suit)); see also authorities cited in note 4, infra, (applying
real party in interest standard to determine whether assignments were
collusive to obtain or destroy diversity jurisdiction). And, it is firmly
settled that a corporate parent and its subsidiaries may not manipulate
federal diversity jurisdiction by litigating cases in the name of the
other where the real party in interest is not diverse. See Simpson v.
Alaska State Comm’n for Human Rights, 608 F.2d 1171, 1174 (9th
Cir. 1979) ("We acknowledge that assignments of Causes of action
between parents and subsidiaries are presumptively ineffective to
create diversity jurisdiction.") (citing Prudential Oil Corp. v. Phillips
Petroleum Co., 546 F.2d 469, 475 (2d Cir. 1976) and Green & White
Constr. Co. v. Cormat Constr. Co., 361 F. Supp. 125, 127-28 (N.D.
Ill. 1973)).4
Thus, in diversity cases, the general rule is that the citizenship of
the real parties in interest is determinative for purposes of diversity
jurisdiction. The citizenship rule testing diversity in terms of the real
party in interest is grounded in notions of federalism. It is based upon
the principle that a primarily local controversy should be tried in the
appropriate state forum and that nominal or formal parties, who do
not have a significant interest in the outcome of the litigation, should
4
See also, e.g., Toste Farm Corp. v. Hadbury, Inc., 70 F.3d 640, 642,
646 (1st Cir. 1995) (merger of corporation into another corporate shell
ineffective to create diversity jurisdiction); Airlines Reporting Corp. v. S
& N Travel, Inc., 58 F.3d 857, 859, 861-62 (2d Cir. 1995) (twenty-nine
air carriers "real and substantial parties" because collection agency was
"mere conduit for a remedy owing to others"); Nike, Inc. v. Comercial
Iberica de Exclusivas Deportivas, N.A., 20 F.3d 987, 991, 993 (9th Cir.
1994) (assignment by wholly-owned corporate subsidiary of its rights to
parent corporation ineffective to create diversity jurisdiction); Yokeno v.
Mafnas, 973 F.2d 803, 809-11 (9th Cir. 1992) (for real party in interest
determination, assignment between corporation and director presump-
tively collusive and on remand could only be overcome with proof of
legitimate business reason and consideration of several other factors);
J.F. Pritchard & Co. v. Dow Chem. of Canada, Ltd., 331 F. Supp. 1215,
1220, 1222 (W.D. Mo. 1971) (whether assignment by wholly owned cor-
porate subsidiary, who was real party in interest, of its rights to parent
corporation was collusive presented "very close question of fact and
law"; claim dismissed on forum non conveniens ground), aff’d, 462 F.2d
998 (8th Cir. 1972).
ROCHE v. LINCOLN PROPERTY CO. 7
not be able to use the federal courts. See C. Wright & A. Miller, 6A
Federal Practice & Procedure Civ. 2d § 1556, at 419-22 (West 2004).
Diversity of citizenship, therefore, is determined not by reference to
the formal or nominal parties but, rather, there must be complete
diversity between the real and substantial parties in interest. See 28
U.S.C. § 1332(a); see also Nolan v. Boeing Co., 919 F.2d 1058, 1063
(5th Cir. 1990) (observing that removal jurisdiction is "based on the
citizenship of the real parties in interest rather than their appointed
representatives" or nominal parties). But cf. Plains Growers, Inc. v.
Ickes-Braun Glasshouses, Inc., 474 F.2d 250, 252 (5th Cir. 1973)
("The citizenship of one who has an interest in the lawsuit but who
has not been made a party to the lawsuit by plaintiff cannot be used
by plaintiff on a motion to remand to defeat diversity jurisdiction.").5
III.
Congress has resolved that, "[i]f at any time before final judgment
it appears that the district court lacked subject matter jurisdiction, the
case shall be remanded." 28 U.S.C. § 1447(c). And, it is well-settled
that courts strictly construe the removal statute and resolve all doubts
in favor of remanding the case to state court. Shamrock Oil & Gas
Corp. v. Sheets, 313 U.S. 100, 108-09 (1941); Dixon v. Coburg Dairy,
___ F.3d ___, Slip. Op. at 6 (4th Cir. 2004) (en banc) ("We are
obliged to construe removal jurisdiction strictly because of the ‘sig-
nificant federalism concerns’ implicated. Therefore, ‘[i]f federal juris-
diction is doubtful, a remand [to state court] is necessary.’") (citations
omitted). Likewise, it is equally well-settled that the parties’ charac-
5
The Court of Appeals for the Fifth Circuit relied upon Provident
Tradesmens Bank & Trust Co., Adm’r v. Patterson, Adm’r, 390 U.S. 102
(1968) and Saint Paul Mercury Indemn. Co. v. Red Cab Co., 303 U.S.
283 (1938). Both of those cases dealt with the joinder (or failure to join)
an insurance company who had, at best, a tangential interest in the pend-
ing claim. Applying Fed. R. Civ. P. 19, the Supreme Court concluded in
Provident that the citizenship of the insurer was not to be considered for
diversity purposes because, under Rule 19, it was not a necessary and
indispensable party—the insurer was only obligated to pay the claim up
to policy limits and its absence did not affect the substantial rights of the
parties. In this case, however, the Roches contend that Lincoln’s Virginia
entity is the real and substantial party in interest, without whom they can-
not be made whole. And, Lincoln has been made a party to the lawsuit.
8 ROCHE v. LINCOLN PROPERTY CO.
terization of themselves or their claims is not determinative for fed-
eral jurisdiction purposes. Id. at 140.6
The Roches moved for remand arguing that the district court lacked
subject matter jurisdiction insofar as Defendant Lincoln is not a Texas
corporation, but rather is not a corporation at all and, instead, is a
partnership with a partner who is a Virginia resident. J.A. at 1973.7
According to the district court, the Roches based their motion for
remand on the following uncontroverted8 evidence:
(1) the deposition of Fred E. Chaney, Lincoln’s Rule
30(b)(6) designee, who allegedly stated that Lincoln
was a partnership and not a company;
(2) the deposition of John LeBeau, vice president of the
Mid-Atlantic Regional Division of Lincoln, who iden-
tified Jeff Franzen as a Senior Vice President, and
"partner," in Lincoln Property Company;
(3) Lincoln’s corporate website identifying Jeff Fransen
as a "partner";
(4) certificates from the Virginia State Corporation Com-
mission certifying that Lincoln Property Company is
neither authorized nor registered to conduct business in
Virginia, and certifying that EQR/Lincoln Limited
6
As the Sheets Court noted, "decision turns on the meaning of the
removal statute and not upon the characterization of the suit or the parties
to it by state statutes or decisions." 313 U.S. at 140 (citing Mason City
& Ft. Dodge Ry. Co. v. Boynton, 204 U.S. 570 (1907)). And, as the
Supreme Court noted in Carden v. Arkoma Assocs., "the nature of the
named party does not settle the question of who are the real parties to the
controversy" for jurisdictional purposes. 494 U.S. 185, 204 (1990) (citing
Navarro, 446 U.S. at 464-66).
7
Plaintiffs also contended that Lincoln misrepresented its state of citi-
zenship in the Notice of Removal.
8
Other than the district court’s own analysis, the court cited no con-
trary evidence offered by Defendants.
ROCHE v. LINCOLN PROPERTY CO. 9
Partnership is an authorized and registered "partner-
ship" in Virginia; and
(5) the Fairfax County Tax Assessment Office records
demonstrating that Jeff Franzen is a resident of Fair-
fax County, Virginia.
J.A. at 1974 (emphasis added).
If diversity jurisdiction is challenged, the burden of proof remains
on the party invoking federal court jurisdiction, and the citizenship of
each real party in interest must be established by a preponderance of
the evidence. Mas v. Perry, 489 F.2d 1396 (5th Cir. 1974); Janzen v.
Goos, 302 F.2d 421 (8th Cir. 1962). If this burden is not met, the fed-
eral court must dismiss the action. Kenrose Mfg. Co. v. Fred Whitaker
Co., 512 F.2d 890 (4th Cir. 1972); see also Fed. R. Civ. P. 12(h)(3).
A party’s mere allegation of diversity cannot satisfy its burden of
establishing the district court’s jurisdiction. "In a properly pleaded
diversity action between corporations the plaintiff will not only allege
that there is diversity of citizenship, but will also advert to the factors
set out by § 1332(c) that establish corporate citizenship." District of
Columbia ex rel. Am. Combustion, Inc. v. Transamerica Ins. Co., 797
F.2d 1041, 1043-44 (D.C. Cir. 1986)). The court must then examine
those factors and the facts in the record and determine whether diver-
sity exists.9 When jurisdiction is challenged, courts generally do not
accept the carte blanche naked allegations of diverse citizenship or
9
"To determine whether a party has adequately presented facts suffi-
cient to establish federal diversity jurisdiction, appellate courts must look
to the face of the complaint, ignoring mere conclusory allegations of
jurisdiction." Penteco Corp. Ltd. P’ship—1985A v. Union Gas Sys., Inc.,
929 F.2d 1519, 1521 (10th Cir. 1991) (citations omitted). Because fed-
eral courts are courts of limited jurisdiction, there is a presumption
against its existence, and the party invoking federal jurisdiction bears the
burden of proof when diversity is challenged. Basso v. Utah Power &
Light Co., 495 F.2d 906, 909 (10th Cir. 1974); see also Whitelock v. Lea-
therman, 460 F.2d 507, 514-15 (10th Cir. 1972) (allegations of mere res-
idence may not be equated with citizenship for the purposes of
establishing diversity and where the pleadings are found wanting, an
appellate court may review the record for evidence that diversity exists).
10 ROCHE v. LINCOLN PROPERTY CO.
bald assertions of jurisdictional facts. See, e.g., Coburg, Slip Op. at
4, (requiring Plaintiff to state a substantial federal claim and declining
to base jurisdiction upon an allegation that his employer violated "his
constitutional rights"); Axel Johnson, Inc. v. Carroll Carolina Oil Co.,
Inc., 145 F.3d 660, (4th Cir. 1998) (declining to accept conclusory
allegations of residence as prima facie proof of citizenship for diver-
sity purposes and collecting cases on similar points); cf. Bufalino v.
Michigan Bell Tel. Co., 404 F.2d 1023, 1029 (6th Cir. 1968)
("Jurisdiction is not conferred on a federal court in a non-diversity
case by mere conclusory allegations that one’s constitutional or civil
rights have been violated."); Powder Power Tool Corp. v. Powder
Actuated Tool Co., 230 F.2d 409, 414 (7th Cir. 1956) ("The rule is
firmly settled that the mere allegation of the jurisdictional amount
when challenged as it was here is not sufficient and that the burden
is upon the plaintiff to substantiate its allegation." (citation omitted)).
Indeed, "[w]here the pleadings are found wanting, an appellate court
may also review the record for evidence that diversity does exist."
Penteco, 929 F.2d at 1521 (citing Sun Printing & Publ’g Ass’n v.
Edwards, 194 U.S. 377, 382 (1904)); see also McNutt v. General
Motors Acceptance Corp., 298 U.S. 178 (1936); F & S Constr. Co.
v. Jensen, 337 F.2d 160 (10th Cir. 1964); Buell v. Sears, Roebuck &
Co., 321 F.2d 468 (10th Cir. 1963).
The district court, however, denied the Roches’ motion for remand,
concluding that Lincoln Property Company was a citizen of Texas
based upon its incorporation and principal place of business there.
J.A. at 1974. The court also concluded that "Lincoln Property Com-
pany is not a citizen of Virginia since the company is not registered
to conduct business in Virginia." Id. The court did not determine the
citizenship of the real parties in interest. The court did recognize,
however, that "Lincoln operates under many different structures and
that [Jeff Franzen, a Virginia citizen,] is a partner in new deals." Id.
(emphasis added). And, while acknowledging that Lincoln’s "corpo-
rate website" designates Jeff Franzen as a "partner" but "does not
specify the partnership to whom Mr. Franzen belongs," the court con-
cluded that "this evidence fails to demonstrate that Mr. Franzen was
a partner in either Defendant Lincoln or its subsidiary EQR." J.A. at
1975. The burden of demonstrating diversity, however, is not on the
Roches; the burden is on Lincoln. Burden, 60 F.3d at 216. Thus, the
district court erred by weighing the evidence in favor of Lincoln.
ROCHE v. LINCOLN PROPERTY CO. 11
By its own admission, Lincoln operates under many different struc-
tures and Jeff Franzen and Fred E. Chaney are both "partner[s]" of
some Lincoln entity related to this action. J.A. at 1601, 1605-06.
Indeed, Lincoln’s 30(b)(6) deponent, in his deposition as spokesper-
son for Lincoln, indicated that "we’re a partnership" with "multiple
structures that we operate under." And, Jeff Franzen is a Lincoln
"partner" and a resident of Virginia.10 Only after Lincoln’s 30(b)(6)
deponent testified that Franzen was a "Senior Vice President/Partner"
did Franzen file a self-serving affidavit contending that he is "referred
to as a ‘Partner’ because [he is] a partner in several Texas limited
partnerships that are involved in the acquisition and development of
properties." J.A. at 1608. Curiously, he never identifies those other
limited partnerships, nor is there any evidence as to how they are dis-
tinct or uninvolved in Lincoln’s Virginia business enterprises and
many Virginia property holdings, nor does Franzen identify any of his
partners.
Nonetheless, at oral argument and in its briefs, Lincoln admitted
that "the entity that receives the management fees for Westfield Vil-
lage Apartments" is "EQR/Lincoln Limited Partnership." J.A. at 1531.
Lincoln also concedes that the citizenship of a limited partnership is
determined by reference to all of its partners. See J.A. at 1556 (citing
Camden, 494 U.S. at 192-93). But, Lincoln fails to carry its burden
of demonstrating that each of its partners are not Virginia citizens. In
its casual attempt to demonstrate diversity, Lincoln discloses the
names of only two "general partners" in EQR/Lincoln Limited Part-
nership: (1) Lincoln Management Corporation, a Texas Corporation
with its principal place of business in Dallas, Texas; and (2) Lincoln
Placeholder Limited Partnership, which is allegedly "a Texas partner-
ship." See, e.g., J.A. at 1562, 1574.
10
John LeBeau, who is an executive officer of Lincoln, testified that
Jeff Franzen is the "highest ranking officer" in Lincoln’s Herndon Vir-
ginia regional office and that he is "Senior Vice President, partner." J.A.
at 1606 (emphasis added). When pressed farther, LeBeau could not (or
would not) identify precisely the entity of which Jeff Franzen was a
"partner." Indeed when asked whether "[h]e is a partner in Lincoln Prop-
erty Company," LeBeau responded, "I don’t know what he is a partner
of." Id. In light of Lincoln’s burden of establishing diversity, this
ambiguity—created by Lincoln—surely cannot be resolved in favor of
finding diversity.
12 ROCHE v. LINCOLN PROPERTY CO.
Nowhere in its brief, its declarations of its general counsel, nor in
the various foreign state corporation records appended to the record,
has Lincoln disclosed the identity of any of its limited partners.
Indeed, the Certificate of Limited Partnership certified by the Dela-
ware Secretary of State discloses only the name of EQR/Lincoln Lim-
ited Partnership’s "general partners," to wit: Lincoln Eastern
Management Corporation and Lincoln Placeholder Limited Partner-
ship. J.A. at 1574. As, Lincoln no doubt concedes, however, the citi-
zenship of a limited partnership is determined by the citizenship of all
of its partners, both limited and general. J.A. at 1556 (D.C. Op.) (cit-
ing Camden, 494 U.S. at 192-93). And, a limited partnership has, at
minimum, one or more general partners and one or more limited
partners. See, e.g., Newport Ltd. v. Sears, Roebuck and Co., 941 F.2d
302, 306 n.6 (5th Cir. 1991) (discussing modern partnership codes
and citing Tex. Rev. Civ. Stat. Ann. art. 6132a-1 (limited partnerships
have one or more general partner and one or more limited partner));
6 Del. Cd. § 17-101(9) (defining a "limited partnership" as "a partner-
ship formed by 2 or more persons under the laws of the State of Dela-
ware and having 1 or more general partners and 1 or more limited
partners"). The partnership filings in the record, however, do not dis-
close the identity or citizenship of any of EQR/Lincoln Limited Part-
nership’s limited partners.11 Thus, we can not know whether any of
them is a Virginia citizen.
11
Lincoln’s business structure is quite confusing, and nowhere in the
record documents pertaining to this issue did we find the names of the
limited partners in any of these limited partnerships. For example, the
original certificate of limited partnership for EQR/Lincoln Limited Part-
nership was filed November 13, 1997, designating both Lincoln Eastern
Management Corp. and Lincoln Placeholder Limited Partnership as
"general partner[s]." J.A. 1573-74. No limited partners were disclosed.
That certificate was later corrected on November 19, 1997, only to state
that "the sole General Partner is Lincoln Eastern Management Corpora-
tion, a Texas corporation. . . ." J.A. at 1575. The Limited Partnership
Agreement, effective November 13, 1997, however, designates Lincoln
Eastern Management Corporation as both general and limited partner of
EQR/Lincoln Limited Partnership. J.A. 1576-77. However, a limited
partner generally may not be a general partner. See, e.g., Unger v. C.I.R.,
936 F.2d 1316, 1318 (D.C. Cir. 1991) (noting that general partners are
managers of partnership and that "a limited partner may not participate
ROCHE v. LINCOLN PROPERTY CO. 13
Ultimately, therefore, given the affirmative evidence in the record
(that Jeff Franzen, a Virginian, is a Lincoln "partner" and that Lincoln
has a "partnership" that is "authorized and registered in Virginia"),
and the lack of sufficient evidence to the contrary, we cannot say that
Lincoln has met its burden of establishing diversity.12 Indeed, the fur-
in the active management of the enterprise"); Magneson v. C.I.R., 753
F.2d 1490, 1498 (9th Cir. 1985) ("limited partner may not actively par-
ticipate in running the business" as a general partner). And, Lincoln
Placeholder Limited Partnership’s general partner is Lincoln Eastern
Management Corporation and its limited partner is Lincoln E.C.W. Prop-
erty Management, Inc. J.A. at 1591.
12
Another reason jurisdiction may be lacking stems from the Roches’
conversion claim. In their original state complaint, Supp. J.A. at 63, and
in their amended federal complaints, J.A. at 198-199, the Roches contend
that their personal property was "dispossess[ed,]" without their consent,
"destroy[ed]," "wrongfully withheld," "converted," and "lost or stolen."
Thus, the Roches contend, as was made clear at oral argument, that Lin-
coln and Barco (the Virginia environmental company hired by Lincoln
to perform mold remediation) were "bailees" of their property. In its
defense, Lincoln contended at oral argument that Barco, not Lincoln, was
the bailee and that, under a bailment theory, Lincoln could not be liable
for conversion of the Roches’ property because their property was bailed
only to Barco. Indeed, it was Lincoln’s position that SWIB and Barco are
the real parties in interest with respect to the conversion claim. And, as
Wright and Miller have noted: "As a result of looking at the citizenship
of the real party in interest and because of express reference to them in
the second sentence of Rule 17(a) [requiring cases to be litigated in name
of real parties in interest, including executors, administrators, bailees,
etc.], federal courts have held that the citizenship of an executor, admin-
istrator, guardian, bailee, or trustee is determinative in measuring the
court’s jurisdiction." Wright & Miller, 6A Fed. Pract. & P. Civ. 2d
§ 1556 at 422-23 (emphasis added) (citing, with regard to bailees, Brad-
ley v. St. Louis Terminal Warehouse Co., 189 F.2d 818 (8th Cir. 1951));
see also Kidwell ex rel. Penfold v. Meikle, 597 F.2d 1273, 1287 (9th Cir.
1979) (finding no jurisdiction under any basis because Rule 17(a)
requires cases to be litigated in name of real party in interest, who was
not joined or did not consent to litigation); cf. Certain Interested Under-
writers at Lloyd’s, London, 26 F.3d 39, 43 n.1 (6th Cir. 1994) (noting
that Supreme Court observed in Navarro, supra, that "Rule 17(a) fre-
quently overlaps with the jurisdictional rule that diversity jurisdiction
14 ROCHE v. LINCOLN PROPERTY CO.
ther we look the more dubious the diversity of citizenship inquiry
becomes. In this case, the citizenship of the real parties in interest
escapes us because of the confusing structure of the Lincoln group of
enterprises; but mostly, Lincoln’s failure to disclose all of the neces-
sary jurisdictional facts. The negative inferences resulting from these
obscurities, however, must be borne by Lincoln, who created them,
not the Roches and not the federal courts.13
IV.
The present controversy is a classic landlord-tenant dispute, which
most often is litigated in state court and is far less often the proper
subject of federal jurisdiction. Indeed, we have been reluctant to get
involved in local disputes over land and property. Cf. Sylvia Dev.
Corp. v. Calvert County, 48 F.3d 810, 828-29 (4th Cir. 1995)
("Resolving the routine land-use disputes that inevitably and con-
stantly arise among developers, local residents, and municipal offi-
cials is simply not the business of federal courts . . . . Accordingly,
federal courts should be extremely reluctant to upset the delicate
political balance at play in local land-use disputes."). There is ample
record evidence that the property at issue is located in Virginia, the
mold abatement services contracted for were performed in Virginia
by a Virginia company, Lincoln maintains several rental properties in
Virginia other than the one at issue here, Lincoln has a regional office
in Virginia,14 and all of the correspondence and communication
depends on the citizenship of the real parties to the controversy, but ‘the
two rules serve different purposes and need not produce identical out-
comes in all cases.’" (citation omitted)). We shall nonetheless defer fur-
ther consideration of this concern, seeing that the more crucial dispute
concerns the citizenship of Lincoln and its relevant enterprises.
13
An additional reason for employing the real party in interest test
when construing the diversity statute is, aside from federalism, is "to
avoid burdening the federal court system with cases that do not present
a federal question or a threat of prejudice. . . ." Wright & Miller, 6A Fed.
Pract. & P. § 1556 at 422.
14
Most of the communications between the Roches and Lincoln were
directed to and received by Lincoln Property Company at "115 Herndon
Parkway, Suite 100 Herndon, VA 20170" and responses from Lincoln
were sent from "Westfield Village Apts. 5115 Woodmere Dr. #103, Cen-
treville, VA 20120." J.A. at 670-686.
ROCHE v. LINCOLN PROPERTY CO. 15
related to this controversy occurred in Virginia. See J.A. at 669-691.
Moreover, Lincoln’s Texas office is rarely, if at all, referenced in the
record. See, e.g., id. All of this militates in favor of finding that the
real and substantial party in interest is the Lincoln entity (partnership
or not); probably, EQR/Lincoln Limited Partnership, which "is an
authorized and registered partnership in Virginia." J.A. at 1974
(emphasis added).
The obvious and elementary policy behind diversity jurisdiction is
that an out-of-state defendant should be entitled to a federal forum if
he decides that he cannot receive a fair trial in a state court due to
local prejudice. Asher v. Pacific Power & Light Co., 249 F. Supp.
671, 674 (N.D. Cal. 1965). As the Court of Appeals for the Third Cir-
cuit recognized in Dresser Indus., Inc. v. Underwriters at Lloyd’s of
London, 106 F.3d 494 (3d Cir. 1997), the purpose of diversity juris-
diction is to provide a tribunal free from local prejudice. See id. at
499. Thus, the Dresser Court reasoned:
If diversity jurisdiction exists because of a fear that the state
tribunal would be prejudiced towards the out-of-state plain-
tiff or defendant, that concern is understandably allayed
when that party is joined with a citizen from the forum state.
Indeed, when members from the forum state are present on
both sides of the controversy, it becomes more difficult to
imagine that a state tribunal would favor one side based
upon biases in favor of its own citizens.
Id. at 499 (citations omitted).
In this case, the concerns upon which diversity jurisdiction are
founded are easily allayed. Even though the nominal party and ulti-
mate parent company, Lincoln Property Company, is a Texas citizen,
it is certainly not an alien to Virginia. From the record, it appears that
the real and substantial party in interest is the Virginia subsidiary, be
it a partnership, corporation or otherwise, rather than the Texas par-
ent. Moreover, the real party in interest owns land and operates a sub-
stantial part of its business in Virginia, thus establishing a very close
nexus with the Commonwealth, which is much stronger than any
nexus to Texas made apparent by the record.15 Thus, to be accurate,
15
We also note that, although the Roches sued the Texas parent com-
pany, they effected service of process upon Lincoln’s registered agent in
Virginia.
16 ROCHE v. LINCOLN PROPERTY CO.
both the Texas parent and the Virginia sub-"partnership" should be
parties to the instant action.16 Whether both are joined, or the action
is maintained against the Virginia real party(ies) in interest, complete
diversity would not exist and the case should be remanded. See 28
U.S.C. § 1447(e).17 In any event, the citizenship of the nominal parties
listed on the Complaint is in no way dispositive of a subject matter
jurisdiction challenge. Because the parties may not waive or consent
to federal subject matter jurisdiction—indeed we must raise it sua
sponte if jurisdiction appears questionable—the nominal parties can-
not provide a valid basis for finding jurisdiction. See State v. Ivory,
906 F.2d 999, 1001 n.2 (4th Cir. 1990) (noting that subject matter
jurisdiction may not be waived and we have authority to raise the
matter, even sua sponte).
Neither in the removal petition nor in the record is there sufficient
indicia—by a preponderance of the evidence—that one member of
the Lincoln group of companies doing business in Virginia is not a
citizen of the Commonwealth. Seeking removal, Lincoln had the bur-
den of establishing diversity. Aetna Cas. & Sur. Co. v. Hillman, 796
F.2d 770, 775 (5th Cir. 1986). As the burden has not been met, federal
jurisdiction does not exist. Strawbridge v. Curtiss, 7 U.S. (3 Cranch)
267 (1806); see also Ivory, 906 F.2d at 1001 (noting that "we may
properly consider on appeal whether jurisdiction exist[ed] at the time
of judgment" and concluding it did not exist) (internal quotation
16
Given the manner in which Lincoln conducts business (using many
different structures) and the confusion which is created thereby, it is not
surprising that Plaintiffs named the parent company ab initio rather than
engaging in a confounding wild goose chase—it has even confused this
Court—to determine the real party in interest.
17
28 U.S.C. § 1447(e) provides the district court with two options: "If
after removal the plaintiff seeks to join additional defendants whose join-
der would destroy subject matter jurisdiction, the court may deny joinder,
or permit joinder and remand the action to the State court." Since joinder
of the "real party in interest" would be required under Rule 17(a), the dis-
trict court’s options would likely be limited to remand; the court does
retain some discretion, though. We have held that: "These are the only
two options for a district court faced with a post-removal attempt to join
a nondiverse defendant; the statute does not allow a district court to
retain jurisdiction once it permits a nondiverse defendant to be joined in
the case." Mayes v. Rapoport, 198 F.3d 457, 462 (4th Cir. 1999).
ROCHE v. LINCOLN PROPERTY CO. 17
marks omitted) (citing Grubbs v. General Elec. Credit Corp., 405
U.S. 699, 702 (1972); Rockwell Int’l Credit Corp. v. U.S. Aircraft Ins.
Group, 823 F.2d 302, 304 (9th Cir. 1987) (burden on party seeking
federal jurisdiction to establish diversity of real parties in interest);
Colonial Realty Corp. v. Bache & Co., 358 F.2d 178, 183 (2d Cir.
1966) (addressing subject matter jurisdiction, even though defendant
did not seek leave to appeal district court’s denial of its motion to dis-
miss on the ground that plaintiff and limited partner of defendant gen-
eral partnership were not diverse).
V.
At the end of the day, the burden of establishing diversity remained
upon Lincoln. And, Lincoln failed to carry its burden. Thus, we are
left only to conclude that our lack of confidence in the allegedly
diverse citizenship of Lincoln’s real party in interest precludes our
jurisdiction. 28 U.S.C. § 1331(a). If this were a different case, where
Defendants merely inadvertently failed to present evidence of diver-
sity, we might be sympathetic and consider remanding this case back
to the district court for further proceedings so as to allow Defendants
an opportunity to cure their inadvertence. See, e.g., Clephas v. Fagel-
son, Shonberger, Payne & Arthur, 719 F.2d 92, 94 (4th Cir. 1983)
(noting that "it was a mere inadvertence that led the plaintiff to omit
allegation and proof" of diversity and that "provided that we were per-
suaded that the plaintiff’s case had merit, would view sympathetically
a motion to enter an order remanding this case to the district court to
permit the plaintiff belatedly to allege and prove such diversity of citi-
zenship"). The issue of diversity jurisdiction, however, was exten-
sively litigated below. Thus, this case is not one of inadvertence and
we, therefore, would not be sympathetic to a motion of the kind dis-
cussed in Clephas, supra.
Consequently, the present record is insufficient to sustain the juris-
diction of the court below or the jurisdiction of this court except for
the application of jurisdictional limitations. Finding that we lack sub-
ject matter jurisdiction, we can not address the merits of the case.
Rather, we reverse the judgment of the district court on the issue of
subject matter jurisdiction, we vacate the remainder of the court’s
judgment, and we remand the case back to the district court with
18 ROCHE v. LINCOLN PROPERTY CO.
instructions to remand the case to the Virginia Circuit Court for Fair-
fax County.
REVERSED IN PART, VACATED IN PART,
AND REMANDED