Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-87-02599/USCOURTS-ca10-87-02599-0/pdf.json

Parties Involved:
Penteco Corporation Limited Partnership - 1985A
Appellee
Union Gas System, Inc.
Appellant

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEAL§:.. . F I L E D "tJruted States Court of Appeals 

FOR THE TENTH CIRCUIT Tenth Circuit 

PENTECO CORPORATION LIMITED 

PARTNERSHIP - 1985A, an 

Oklahoma limited partnership, 

Plaintiff-Appellee,· 

v. 

UNION GAS SYSTEM, INC., 

a Kansas corporation, 

Defendant-Appellant. 

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APR 15 1991 

ROBERT L. HOECKER 

Clerk 

Nos. 87-2599 

87-2808 

ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF OKLAHOMA 

(D. C •. No. 85-C-1076-B) 

Michael D. Davis of Doyle & Harris, Tulsa, Oklahoma (Steven M. 

Harris of Doyle & Harris, Tulsa, Oklahoma, with him on the brief), 

for Plaintiff-Appellee. 

Bob W. Storey of Cogswell and Storey, Topeka, Kansas (William F. 

Smith of Blackstock Joyce Pollard & Montgomery, Tulsa, Oklahoma, 

with him on the brief), for Defendant-Appellant. · 

Catherine c. Cook, General Counsel, Jerome M. Feit, Solicitor, 

Joel M. Cockrell, Attorney, filed a brief for the Federal Energy 

Regulatory Commission as amicus curiae. 

Before BOLLONAY, Chief Judge, WRIGHT* and BALDOCK, Circuit Judges. 

HOLLOWAY, Chief Judge. 

* The Honorable Eugene A. Wright of the Ninth Circuit, sitting by 

designation. 

Appellate Case: 87-2599 Document: 01019299006 Date Filed: 04/15/1991 Page: 1 
The plaintiff below, Penteco Corporation Limited Partnership1985A ("Penteco") brought this action against the defendant Union 

Gas Systems, Inc. ("Union"), a Colorado corporation with its 

principal place of business in Kansas, in the United States 

District Court, Northern District of Oklahoma. Penteco alleged a 

state law breach of contract claim against Union, asserting that 

Union had failed to abide by the take provisions of a natural gas 

purchase contract which Penteco had acquired by assignment from 

East Central Gas & Pipeline Corporation ("East Central"). 

Diversity of citizenship and claims in excess of the statutory 

minimum were alleged. 

Following a bench trial, the district court entered judgment 

in favor of Penteco in the amount of $185,711.08, plus costs and 

interest, and further awarded Penteco attorney fees of $82,937.50, 

plus interest. Union appeals from these judgments asserting 

several claims of error, including lack of diversity of the 

parties. 

We 

before 

conclude that we cannot reach the merits of this appeal 

the question of the district court's subject matter 

jurisdiction is resolved by further proceedings. A jurisdictional 

defect may exist in that the citizenship of Penteco's partners was 

never pled or established. As a result, the record lacks 

sufficient information to determine whether the court below had 

diversity jurisdiction. Accordingly, we must remand. 

I 

As this court noted in Tuck v. United Services Automobile 

Ass'n, "[t]he Federal Rules of Civil Procedures [sic] direct that 

'[w]henever it appears by suggestion of the parties or otherwise 

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Appellate Case: 87-2599 Document: 01019299006 Date Filed: 04/15/1991 Page: 2 
that the court lacks jurisdiction of the subject matter, the court 

shall dismiss the action.'" 859 F.2d 842, 844 (lOth Cir. 

1988)(quoting Fed.R.Civ.P. 12(h)(3)), cert. denied, 489 U.S. 1080 

(1989). Moreover, "[a] court lacking jurisdiction cannot render 

judgment but must dismiss the cause at any stage of the proceedings in which it becomes apparent that jurisdiction is lacking." 

Basso v. Utah Power & Light Co., 495 F.2d 906, 909 (lOth Cir. 

1974) (emphasis in original). Nor may lack of jurisdiction be 

waived or jurisdiction be conferred by "consent, inaction or 

stipulation." Id. Since federal courts are courts of limited 

jurisdiction, there is a presumption against our jurisdiction, and 

the party invoking federal jurisdiction bears the burden of proof. 

Id. And "[s]tatutes conferring diversity jurisdiction are to be 

strictly construed." Crowley v. Glaze, 710 F.2d 676, 687 (lOth 

Cir. 1983). 

To determine whether a party has adequately presented facts 

sufficient to establish federal diversity jurisdiction, appellate 

courts must look to the face of the complaint, see Whitelock v. 

Leatherman, 460 F.2d 507, 514 (lOth Cir. 1972), ignoring mere 

conclusory allegations of jurisdiction, see Groundhog v. Keeler, 

442 F.2d 674, 677 (lOth Cir. 1971). The party seeking the 

exercise of jurisdiction in his favor "must allege in his pleading 

the facts essential to show jurisdiction." McNutt v. General 

Motors Acceptance Corp., 298 u.s. 178, 189 (1936). Where the 

pleadings are found wanting, an appellate court may also review 

the record for evidence that diversity does exist. See Sun 

Printing & Publishing Ass'n v. Edwards, 194 U.S. 377, 382 (1904). 

3 

Appellate Case: 87-2599 Document: 01019299006 Date Filed: 04/15/1991 Page: 3 
Penteco's complaint adequately asserted the requisite $10,000 

amount in controversy required by the general federal diversity 

statute, 28 u.s.c. § 1332(a)(1976), when the action was commenced. 

However, Penteco failed to plead facts sufficient to establish the 

necessary citizenship of a limited partnership for diversity 

purposes. In its complaint, Penteco simply describes itself as a 

limited partnership, organized under the laws of Oklahoma, with 

its principal place of business in Tulsa. Although Penteco correctly pleads the citizenship of Union, alleging it is a corporation organized under the laws of Colorado, with its principal 

place of business in Kansas, there are no further factual allegations of diversity made. Instead, Penteco's complaint merely 

claims subject matter jurisdiction pursuant to§ 1332(a), with a 

conclusory statement that "[t]here is complete diversity of 

citizenship between the parties." See Complaint at 1111 1-3. Other 

than diversity, the complaint indicates no other basis for federal 

jurisdiction. 

The district court purported to find jurisdiction pursuant to 

§ 1332(a). See Findings of Fact and Conclusions of Law ("FF" and 

"CL" respectively) at CL No. 1. The court noted that the 

jurisdictional amount was present and, following Penteco's theory 

of treating the partnership like a corporation, it concluded that 

the parties were "diverse in citizenship." Id. As did the 

complaint, the court defined Penteco's citizenship in the 

following terms: "The Plaintiff, [Penteco] ... , is a limited 

partnership organized under the laws of the State of Oklahoma, 

having its principal place of business in Tulsa County, Oklahoma." 

Id. at FF No. 1. Significantly, the district court also found 

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Appellate Case: 87-2599 Document: 01019299006 Date Filed: 04/15/1991 Page: 4 
that: 

On September 1, 1985, East Central assigned an undivided 

75% interest in the Contract . . . to Penteco, for valuable consideration. East Central contributed the 

rema~n~ng 25% interest it retained [in the Contract] to 

Penteco in exchange for a 25% interest as a nonmanaging 

general partner. 

Id. at FF No. 8 (emphasis added). 

Although not challenged below, Union now contests diversity 

jurisdiction, asserting that the above factual finding, coupled 

with Penteco's failure to plead the citizenship of each of its 

partners, shows a defect in the district court's subject matter 

jurisdiction. 1 We agree there may be a defect but the appearance 

of the possible defect does not dictate dismissal of the federal 

suit at this juncture, and instead we remand. 2 We will first 

1 

Although we are aware of the apparent "injustice" in permitting a defendant to attack jurisdiction after final judgment has 

been rendered, federal courts are at all times constrained by the 

scope of the jurisdictional grants. See Basso, 495 F.2d at 910. 

Moreover, Penteco is the party chargeable with knowledge of a 

potentially non-diverse partner or partners and it must accept the 

limitations imposed by its choice of forum. See, e.g., Owen 

Equipment & Erection Co. v. Kroger, 437 u.s. 365, 376 

(1978)(plaintiff who selected forum may not complain that court's 

jurisdiction does not encompass his claims). 

The parties have both moved for sanctions, faulting their 

opponent for delay in raising this jurisdictional issue. However, 

because the record is void of any evidence of bad faith by either 

party, we deny these requests. Cf. Basso, 495 F.2d at 911 (assessing costs and attorney fees against defendant for bad faith 

refusal to seek dismissal before appeal). 

2 

We deny appellant Union's motion to supplement the record 

with a state court petition filed before the instant action began. 

This petition purportedly shows that East Central identified its 

principal place of business as Kansas. Although such evidence, if 

uncontested, could defeat Penteco's diversity allegation, we leave 

such proffers for the district court. Nor, as Union requests, can 

we use judicial notice to fill in the omitted facts. "If the 

court could take judicial notice of such matters there would be no 

necessity at all for alleging diversity of citizenship between 

. . . parties in Federal court since as a general rule, what may 

(Footnote continued on next page) 

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Appellate Case: 87-2599 Document: 01019299006 Date Filed: 04/15/1991 Page: 5 
consider a significant intervening decision of the Supreme Court. 

II 

During the pendency of these appeals, the Supreme Court 

decided Carden v. Arkoma Assoc., u.s. --' 110 s.ct. 101s 

( 1990) . In Carden, plaintiff Arkoma Associates, an Arizona 

limited partnership, filed suit in federal court against 

defendants Carden and Limes, both citizens of Louisiana, alleging 

diversity jurisdiction. In the district court the defendants 

disputed diverse citizenship, arguing that Arkoma had limited 

partners domiciled in Louisiana. The district court denied a 

motion to dismiss and on appeal, following a judgment for Arkoma, 

the Fifth Circuit affirmed, reasoning that a limited partnership's 

citizenship is determined only by reference to its general, not 

limited, partners. 

The Supreme Court reversed. The Court analyzed its previous 

diversity rulings and noted that "[w]hile the rule regarding the 

treatment of corporations as 'citizens' has become firmly 

established, we have . . . just as firmly resisted extending that 

treatment to other entities." Id. at 1018. Moreover, the Court 

explained that its previous rulings had "never held that an 

artificial entity, suing or being sued in its own name, can invoke 

the diversity jurisdiction of the federal courts based on the 

citizenship of some but not all of its members." Id. at 1019-20. 

Accordingly, the Court held that for entities other than corporations (and sometimes trusts), "diversity jurisdiction in a suit by 

(Footnote continued): 

be judicially noticed need not be pleaded." Buell v. Sears, 

Roebuck & Co., 321 F.2d 468, 471 (lOth Cir. 1963). In any event, 

jurisdiction is to be determined by facts existing at the time of 

filing suit. 

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Appellate Case: 87-2599 Document: 01019299006 Date Filed: 04/15/1991 Page: 6 
or against the entity depends on the citizenship of 'all the 

members,' ... , 'the several persons composing such association,' ... , 'each of its members[.]'" Id. at 1021 (citations omitted). 

Both the Carden rule, and our own above-cited jurisdictional 

rulings, show the need to remand this case. In its brief Penteco 

contests the sufficiency of the evidence supporting the district 

court's finding that East Central is a general partner of Penteco, 

although not contesting that East Central is some type of member 

in the partnership. Under Carden, then, the failure to establish 

East Central's citizenship is a necessary jurisdictional hurdle 

yet unsurmounted. But unlike the situation in Carden, resort to 

the instant complaint and record is inadequate to resolve the 

diversity question presented here. Significantly, the complaint 

and record do not show whether there are any other Penteco 

partners, general or limited, whose Kansas citizenship would 

destroy diversity jurisdiction. As an appellate court, we are in 

no position to make the necessary evidentiary rulings needed here. 

As provided in 28 u.s.c. § 1653 (1976): "Defective allegations of jurisdiction may be amended, upon terms, in the trial or 

appellate courts." See also Newman-Green, Inc. v. AlfonsoLorrain, 490 u.s. 826, 827 (1989)(appellate court may dismiss 

dispensable party whose presence destroys diversity under 

Fed.R.Civ.P. 21). Although mindful of the presumption against 

jurisdiction, where, as here, the action has resulted in a final 

judgment in the district court, despite an unnoticed potential 

jurisdictional defect, we believe the interests of justice, fairness and judicial economy require some additional opportunity to 

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"cure" such pleading defects, if possible. See Tuck, 859 F.2d at 

846; Local No. 1 (ACA) v. Int'l Brotherhood of Teamsters, 614 

F.2d 846, 853 (3d Cir. 1980). Here we do so by remand. 

Although we might, on appeal, permit Penteco to amend its 

complaint to add omitted jurisdictional facts under either § 1653 

or the holding of Newman-Green, we decline to do so. As pointed 

out by Union, the record contains evidence suggesting that East 

Central may be domiciled in Kansas: the firm's letterhead lists 

its address, and its post office box, in Kansas; the firm's 

business correspondence has been sent to that state; the firm has 

executed local gas purchase contracts there; and its president, 

Ron McGinnis, resides there. See Defendant's Exhibit 19; 

Plaintiff's Exhibits 40, 41, 47, 49, 50, and TR Vol. II at 88. 

Moreover, we also note Union's intent to proffer the state 

court petition, mentioned in footnote 2, as further evidence to 

defeat jurisdiction. Naturally, to save the substantial judgment 

Penteco has already obtained, we would expect it to vigorously 

press its own case for diversity. As an appellate court, however, 

we feel it preferable not to address such a possible evidentiary 

dispute. The district court is the proper forum to determine if a 

curative amendment can be made. See Tuck, 859 F.2d at 845-47. 

On remand, the district court should determine the 

citizenship of all members of the Penteco partnership, and all 

other parties, to ascertain whether diversity jurisdiction exists. 

If proper, amendment of Penteco's complaint to reflect or preserve 

diversity should be permitted. However, should diversity be 

lacking, the case must be dismissed. 

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The cause is REMANDED for further proceedings in accord with 

this opinion, further findings, conclusions and a further ruling 

on the diversity issue, which shall be certified as a supplemental 

record to this court; otherwise this court retains jurisdiction 

of these appeals. 

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