Lincoln Property Co., et al. v. Roche, Christopher, et ux. (11/29/2005)

Questions presented: (1) Whether an entity not named or joined as a defendant in the lawsuit can nonetheless be deemed a "real party in interest" to destroy complete diversity of citizenship in a case removed from state court under 28 U.S.C. " 1441(b)? (2) Whether a limited partnership's citizenship for diversity subject-matter jurisdiction purposes is determined not by the citizenship of its partners but by whether its business activities establish a "very close nexus" with the state?

BY ADRIENNE N. KITCHEN, MEDILL NEWS SERVICE

Christopher and Juanita Roche found mold in their Fairfax County, Virginia, apartment. After being relocated by Lincoln Property, a limited partnership real estate company that manages the apartment building, they returned to their apartment and found some of their belongings had been either misplaced or stolen. They also determined the mold had made them sick, citing memory loss, headaches, and respiratory ailments. Tests for Juanita Roche showed she was allergic to molds.

On Aug. 22, 2002, the Roches filed suit in state court in Virginia against the limited partnership and the State of Wisconsin Investment Board, from whom the Roches leased the apartment, alleging violations of Virginia's landlord-tenant act.

Lincoln Property has holdings in Virginia, but the property is a subsidiary of Lincoln's Texas parent corporation. Because of this multiple-state existence, Lincoln argued the case belonged in federal not state court, and moved to remove the case to federal court. Companies that cross state borders can have their cases heard in federal court to avoid prejudicial treatment in the state in which they are being sued.

The federal trial court ruled in favor of Lincoln Property, and the Roches appealed to the 4th Circuit Court of Appeals.

On June 30, 2004, a 4th Circuit panel held unanimously that the federal courts did not have jurisdiction over the case because Lincoln failed to prove its diverse citizenship, and remanded the case to the state court in Virginia.

Judge Roger Gregory wrote, "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."

The opinion also said, "The partnership filings in the record, however, do not disclose the identity or citizenship of any of EQR/Lincoln Limited Partnership's partners. Thus, we can not know whether any of them is a Virginia citizen."

Basically, the 4th Circuit reasoned that the papers Lincoln gave the federal trial court failed to say where any of Lincoln's partners operate, so the court could not decide if there was citizenship in multiple states, and Lincoln could not argue for removal based solely on the citizenship of its parent corporation.

The 4th Circuit opinion noted that Lincoln has a regional office in Virginia, maintains rental properties in Virginia, and all correspondence in the Roche's case occurred in Virginia.

On Aug. 28, 2004, the U.S. Supreme Court agreed to hear the case.

"The subject matter of jurisdiction in federal court is a very important matter," said Jerry M. Phillips, the Roches' attorney. "There's a notion that diverse parties should be able to have access to federal courts. There's also a notion that federal courts should be reserved for more important constitutional matters. The Supreme Court is wrestling with how much jurisdiction they should allow."

Phillips added, "I'm arguing facts, they're arguing law. They're arguing that the 4th Circuit applied the wrong standard. I'm arguing that that's irrelevant; that they did not meet their burden."

David C. Frederick, attorney for Lincoln Property, said, "The 4th Circuit decision creates massive uncertainty for the business community."

Not knowing what state court might hear a business' case leads to confusion about state- or federal-based applicable laws.

This uncertainty concerns a large number of real estate firms. "We had amica support from a large number of real estate development corporations that talk about how this decision negatively affects them." Frederick said.

"These entities [real estate development and management businesses] need to have clear rules about where jurisdiction exists." said Gregory Garre, attorney for amicus Real Estate Round Table. "The 4th Circuit opinion would generate enormous uncertainty and confusion."

"The federal courts, including the Supreme Court, have long held that when one removes a case from the state court to the federal court that you carry the burden of proof [in citizenship]." Phillips said. "In this case they haven't proven it. My belief is there is no new theory that the 4th Circuit used."

He added, "This is a garden-variety type of tort case. It shouldn't be in federal court."

On Nov. 29, 2005, a unanimous Court agreed, and in reversing, held that defendants may remove an action on the basis of diversity of citizenship if there is complete diversity between all of the named parties. Writing for the Court, Justice Ruth Bader Ginsburg reasoned that it's not incumbent on a party to negate the existence of a co-party whose involvement in the case might undermine diversity.