The Limits of Complete Diversity for Federal Jurisdiction

Lincoln Property Co. v. Roche

The Roches lived in an apartment containing toxic mold and suffered for it. They brought a suit against three different companies from three other states. The case was tried in federal court by way of the federal court's jurisdiction over cases with "complete diversity between all named plaintiffs and all named defendants." After the Roches lost to a motion for summary judgment in favor of the defendants, but before the final judgment was entered, the Roches moved to remand the case to state court, arguing that one of the companies was in a partnership that destroyed complete diversity. The court denied the motion. It had been this company ("Lincoln") that had moved for federal jurisdiction, and because it is the partner of a subsidiary which the Court of Appeals found to be "the real and substantial party in interest" Lincoln had not met its burden of proof.

It is then necessary to determine who is a "real party to the controversy." Rule 17(a) requires that "[e]very action shall be prosecuted in the name of the real party in interest," referring only to plaintiffs, not defendants (as Lincoln is). The Court then cites a rule that “Ordinarily, a court will not interfere with the consequences of a plaintiff's selection in naming parties, unless the plaintiff has impermissibly manufactured diversity or used an unacceptable device to defeat diversity.” On the other hand, the Court notes, "A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court.”

Since Lincoln is incorporated in only one state, for the purposes of diversity of the parties, its subsidiary in another state has no effect. The plaintiffs could have chosen to attempt to make this subsidiary a defendant, but Lincoln was not required to do so.