Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-85-02770/USCOURTS-ca10-85-02770-0/pdf.json

Parties Involved:
Dorothy Tuck
Appellee
Leroy Tuck
Appellee
United Services Automobile Association
Appellant

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

LEROY TUCK, Administrator of ) 

the Estate of JOHNNY L. TUCK, ) 

Deceased, LEROY TUCK, ) 

individually, and DOROTHY ) 

TUCK, individually, ) 

) 

Plaintiffs-Appellees, ) 

) 

V • ) 

) 

UNITED SERVICES AUTOMOBILE ) 

ASSOCIATION, a corporation, ) 

) 

Defendant-Appellant. ) 

F1IlilDD 

United St.ates Court 0f Appeab 

Tenth Circuit 

OCT 1 41988 

ROBERT L. HOECKER 

Clerk 

No. 85-2770 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF OKLAHOMA 

(D.C. NO. 83-C-175-C) 

Patrick E. Carr, Carr & Carr, Tulsa, Oklahoma, for PlaintiffsAppellees. 

Linda G. Alexander, Niemeyer, Noland & Alexander, Oklahoma City, 

Oklahoma, for Defendant-Appellant. 

Before. ANDERSON and BALDOCK, Circuit Judges, and PARKER,* District 

Judge. · 

ANDERSON, Circuit· Judge. 

* Hon. James A. Parker, U.S. District Court, New Mexico, sitting 

by designation. 

Appellate Case: 85-2770 Document: 010110025012 Date Filed: 10/14/1988 Page: 1 
( United Services Automobile Association (USAA) appeals from an 

adverse judgment, claiming, among other things, that the judgment 

was entered without subject matter jurisdiction. We remand to the 

district court for further consideration of the jurisdictional 

question. 

I • 

In May 1982, Marine Corps Captain Johnny L. Tuck was killed 

in an automobile accident caused by an uninsured motorist. 1 

Captain Tuck was insured by appellant USAA. Captain Tuck's 

parents, Leroy and Dorothy Tuck, appellees here, sought benefits 

under the uninsured motorist provision of the USAA policy. Their 

claim was effectively denied by USAA, and the Tucks brought this 

action under the diversity jurisdiction of the federal courts 

alleging (1) breach of contract; (2) breach of the implied 

covenant of good faith and fair dealing; and (3) intentional 

infliction of emotional distress. The case was tried before a 

jury in the Distri~t Court for the Northern District of Oklahoma. 

The jury returned a verdict for the Tucks on all three claims. 

The jury awarded $100,000.00 as damages for breach of the 

insurance contract, $200,000.00 in actual damages and $500,000.00 

in punitive damages for bad faith breach of the insurance 

contract, and $50,000.00 actual damages and $50,000.00 punitive 

damages for intentional infliction of emotional distress. After 

trial, USAA filed .a motion for judgment notwithstanding -the 

l Tpe uninsured motorist later pleaded guilty to a charge of 

negligent homicide and was not a party to this action. 

-2-

Appellate Case: 85-2770 Document: 010110025012 Date Filed: 10/14/1988 Page: 2 
I 

' 

verdict, or in the alternative, for a new trial. The district 

court denied both motions, but did reduce the actual damage award 

for the bad faith claim to $75,000.00. 

USAA filed a timely notice of appeal from the judgment. 

Several months after the appeal _was filed, USAA filed with this 

court a motion to dismiss the action based on a lack of subject 

matter jurisdiction. USAA argued that there was a lack of 

complete diversity between the parties, requiring dismissal of the 

Tucks' action by this court. This was the first time that USAA 

had raised the question of subject matter jurisdiction. 

The Tucks' complaint alleged that USAA was a "foreign 

corporation." R. Vol. I, Tab 1. USAA's answer admitted that 

allegation. Id. at Tab 6. The pretrial order incorporated those 

jurisdictional findings. Id. at Tab 37. On appeal, USAA 

revealed, for the first time, that it was not a corporation, but 

rather an unincorporated association organized under the insurance 

laws of the state of Texas. USAA correctly argued that the 

membership of an unincorporated association, for purposes of 

diversity jurisdiction, is the citizenship of all of its members. 

See Arbuthnot v. State Automobile Ins. Ass'n, 264 F.2d 260, 261-62 

(10th Cir. 1959), Because some members of USAA are citizens of . Oklahoma, the home of the Tucks, USAA urged that complete 

diversity was lacking, and the federal courts had no power to hear 

this case. See Owen Equip. and Erection Co. v. Kroger, 437 U.S. 

365, 373-74 (1978) (requirement of complete diversity). 

-3-

Appellate Case: 85-2770 Document: 010110025012 Date Filed: 10/14/1988 Page: 3 
II. 

The Federal Rules of Civil Procedures direct that "[w]henever 

it appears by suggestion of the parties or otherwise that the 

court lacks jurisdiction of the subject matter, the court shall 

dismiss the action." Fed. R. Civ. P. 12(h)(3). "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 (10th Cir. 1974) (emphasis in original). "If the 

parties do not raise the question of lack of jurisdiction, it is 

the duty of the federal court to determine the matter sua sponte. 

Therefore, lack of jurisdiction cannot be waived and jurisdiction 

cannot be conferred upon a federal court by consent, inaction or 

stipulation." ·Id. (citations omitted). 2 See Insurance Corp. of 

Ireland, Ltd. v. Campagnie Des Bauxites De Guinee, 456 U.S. 694, 

702 (1982) ("[N]o action of the parties can confer subject-matter 

jurisdiction upon a federal court ...• [A] party does not waive 

the requirement by failing to challenge jurisdiction early in the 

proceedings."). 

2 The appellees ask that we follow Ferguson v. Neighborhood 

Housing Services, 780 F.2d 549, 551 (6th Cir. 1986) where the 

court held that there was a "distinction between an admission that 

federal subject matter jurisdiction exists, and an admission of 

facts serving in part to establish federal subject matter jurisdiction." Even were we to agree with this reasoning, it would be 

of no avail to the Tucks here because the jurisdictional allegations in the complaint were defective on their face. The Tucks 

failed to allege either a place of incoYporation or a principal 

place of business for USAA. USAA can hardly be deemed to have 

admitted facts that were never alleged. See also Fi tz·gerald v. 

Seaboard System R.R., Inc., 760 F.2d 1249, 1251 (11th Cir. 1985); 

Basso, 495 F.2d at 909-10. 

-4-

Appellate Case: 85-2770 Document: 010110025012 Date Filed: 10/14/1988 Page: 4 
"[F]or purposes of diversity jurisdiction, the citizenship of 

an unincorporated association is the citizenship of the individual· 

members of the association." Jett v. Phillips & Associates, 439 

F.2d 987, 990 (10th Cir. 1971); see United Steelworkers of America 

v. Bouligny, In~., 382 U.S. 145 (1965); see generally 13B c. 

Wright, A. Miller, E. Cooper, Federal Practice & Procedure§ 3630 

(2d ed. 1984). This rule has been frequently criticized because 

often, as in this case, an unincorporated association is, as a 

practical matter, indistinguishable from a corporation in the same 

business. See Bouligny, 382 U.S. at 149-53; Arbuthnot, 264 F.2d 

at 262; see also 3A J. Moore & J. Lucas Moore's Federal Practice, 

~ 17.25, at 17-209 (1987 rev.) (''Congress should remove the one 

remaining anomaly and provide that where unincorporated associations have entity status under state law, they should be treated 

as analogous to corporations for purposes of diversity jurisdiction."). Unfortunately, while we may not like this requirement, 

-and the results which sometimes follow, we do not have the power 

to change it. 

This is not the first time that USAA has faced this problem. 

In Baer v. United Services Automobile Ass'n, 503 F.2d 393 (2d Cir. 

1~74), plaintiff Baer appealed a judgment in favor of USAA to the 

Second Circuit. The Court of Appeals raised the question of 

jurisdiction sua sponte, and after a careful evaluation of USAA's 

status under Texas law, determined that, for diversity purposes, 

USAA was properly .considered a citizen "of each and every state in 

which [it] has members." Id. at 395. The Tucks offer nothing 

-5-

Appellate Case: 85-2770 Document: 010110025012 Date Filed: 10/14/1988 Page: 5 
' ' .<, '' ' ~ • I;. • 

that persuades us to depart from the holding in Baer. 3 Accordingly, we are forced to conclude that, as the case now stands, 

there is not complete diversity among the parties and subject 

matter jurisdiction is lacking. 

We are not prepared, however, to grant USAA's motion to dismiss the action, for it is well-settled that nondiverse parties 

may be dismissed in order to preserve diversity jurisdiction. 

Miller v. Leavenworth-Jefferson Elec. Coop., Inc., 653 F.2d 1378, 

1382 (10th Cir. 1981); Jett, 439 F.2d at 989-90; see Harris v. 

Illinois-California Express, Inc., 687 F.2d 1361, 1369 (10th Cir. 

1982) ("a non-diverse party whose presence is not essential under 

Rule 19, •.. may be dropped to achieve diversity"); 7 C. Wright, 

A. Miller & M. Kane, Federal Practice and Procedure, § 1685, at 

3 Adding to the confusion is the fact that USAA has appeared in 

federal courts under their diversity jurisdiction, even after the 

decision in Baer, both as plaintiff and defendant, and the question of USAA~orporate status and citizenship was apparently not 

considered. See,~, Gill v. Rollins Protective Services Co., 

836 F.2d 194 (4th Cir. 1987) (USAA as plaintiff); Moore v. United 

Services Automobile Ass'n, 819 F.2d 101 (5th Cir. 1987) (USAA as 

defendant); Boardman v. United Services Automobile Ass'n, 742 F.2d 

847 (5th Cir. 1984) (USAA as defendant-appellee); United Services 

Automobile Ass'n v. Royal-Globe Ins. Co., 511 F.2d 1094 (10th Cir. 

1975) (USAA as plaintiff-appellee); Allen v. United States, 668 F. 

Supp. 1242 (W.D. Wis. 1987) (USAA as defendant); United Services 

Automobile Ass'n v. Creger, 617 F. Supp. 1053 (N.0:-Ill. 1985) 

(USAA as plaintiff). A few of these cases even recite erroneous 

findings regarding USAA's diversity status. See,~_, Allen, 668 

F. Supp. at 1245 (USAA "is a Texas insurance corporation with its 

principal place of business in the State of Texas."). Of course, 

the fact that USAA has improperly appeared as a party in diversity 

actions before does not affect our decision here, but it helps to 

explain why the Tucks did not discover the jurisdictional problem. 

Because USAA has apparently "rediscovered" Baer, however, and 

asked us to dismiss this action for lack of subject matter 

jurisdiction, we expect it to make similar motions in all pending 

diversity litigation. Moreover, we do not expect to see USAA 

before this court again under similar circumstances. 

-6-

Appellate Case: 85-2770 Document: 010110025012 Date Filed: 10/14/1988 Page: 6 
.. ',,.,''' 

457 (2d ed. 1986) ("Courts frequently employ Rule 21 to preserve 

diversity jurisdiction over a case by dropping a nondiverse party 

if his presence in the action is not required under Rule 19."). 

"The court may dismiss a nondiverse party in order to achieve 

diversity even after judgment has been entered." Publicker 

Indust., Inc. v. Roman Ceramics Corp., 603 F.2d 1065, 1069 (3d 

Cir. 1979); see Long v. District of Columbia, 820 F.2d 409, 416 

(D.C. Cir. 1987). Moreover, several circuits have held that 

·courts of appeals may preserve diversity jurisdiction by dismissing nondiverse parties on appeal. See Long, 820 F.2d at 417; 

Continental Airlines, Inc. v. Goodyear Tire & Rubber Co., 819 F.2d 

1519, 1523-24 (9th Cir. 1987); Jaser v. New York Property Ins. 

Underwriting Ass'n, 815 F.2d 240, 243 (2d Cir. 1987); but see 

Newman-Green, Inc. v. Alfonzo-Larrain, 854 F.2d 916 (7th Cir. 

1988) (en bane) (appeals court has no power to dismiss nondiverse 

party; remanded to district court). 

Relying on these cases, the Tucks have filed in this court a 

motion to dismiss those members of USAA who are Oklahoma citizens. 

After a careful review of the Tucks' motion and the applicable 

law, however, we have determined that even if we have the power to 

dismiss nondiverse parties on appeal, the question is more 

appropriately remanded to the district court. 

There are several factors which complicate the Tucks' belated 

effort to perfect diversity and require the attention of the 

district court. First, the suit was filed against USAA as an 

-7-

Appellate Case: 85-2770 Document: 010110025012 Date Filed: 10/14/1988 Page: 7 
entity, not against the individual members of the association. 4 

Therefore, a motion to dismiss the nondiverse members is not 

sufficient to create complete diversity because USAA, with its 

ubiquitous citizenship, remains a party to the action. Cf. Kaplan 

Co. v. Industrial Risk Insurers, 86 F.R.D. 484, 486 & n.5 (E.D. 

Penn. 1980) (District court concluded that "plaintiff may proceed 

in the absence of the association qua association and those of its 

members whose presence would destroy diversity."). It appears to 

us that the Tucks must now move to dismiss USAA from the suit and 

then add the diverse members of the association as defendants. 5 

Therein lies the second problem, for the district court must 

determine if the Tucks, at this stage, may amend the complaint to 

add USAA's diverse members under Rule 19, and whether that amendment relates back to the filing of the complaint pursuant to Rule 

i5(c). See Jaser, 815 F.2d at 244 (service. upon association 

constitutes service on all the individual members providing 

sufficient notice so that the amended complaint related back for 

statute of limitations purposes); see also Anderson v. Deere & 

Co., 852 F.2d 1244, 1247 (10th Cir. 1988); Trombino v. Transit 

4 The capacity of an unincorporated association to be sued in 

its own name is generally "determined by the law of the state in 

which the district court is held." Fed. R. Civ. P. 17(b). An 

unincorporated association may be sued under Oklahoma law. Okla. 

Stat. Ann. tit. 12, § 2017(B) (Supp. 1988). 

5 We stress that this is our view of the limited jurisdictional 

record on appeal, but we do not intend to foreclose the district 

court from reviewing this question. The district court should 

determine' whether or not the members of USAA may current-ly be 

considered parties to this action and whether the Tucks may 

proceed against only the diverse members. If the members are 

already parties to the suit, then a motion to dismiss USAA and the 

nondiverse members may be sufficient to create complete diversity. 

-8-

Appellate Case: 85-2770 Document: 010110025012 Date Filed: 10/14/1988 Page: 8 
Casualty Co., 110 F.R.D. 139, 141-43 (D.R.I. 1986); Kaplan, 86 

F.R.D. at 491. The district court may also be required to determine if USAA, as an entity, may be dropped from the suit as a 

party that is not indispensable and whether the Oklahoma members 

of USAA are indispensable parties who must be joined. See Fed. R. 

Civ. P. Rules 19, 21; cf. Jaser, 815 F.2d at 243; Prescription 

Plan Serv. Corp. v. Franco, 552 F.2d 493, 49~-98 (2d Cir. 1977); 

Grand Sheet Metal Products Co. v. Aetna Casualty and Surety Co., 

500 F. Supp. 904, 906 (D. Conn. 1980); Kaplan, 86 F.R.D. at 489-

91. 

Fairness and the need to conserve judicial resources all 

weigh in favor of allowing the Tucks to amend the complaint so 

that this action may reach a conclusion in federal court. As the 

District of Columbia Circuit commented in similar circumstances: 

"we can see no reason to respond to the jurisdictional error by 

throwing out Long's entire suit and erasing nearly four years of 

litigation. 'Judicial economy, convenience and fairness to 

litigants' all counsel the opposite course." Long, 820 F.2d at 

417 (citation omitted); see Newman-Green, Inc., 854 F.2d at ---

(Easterbrook, J., dissenting). While we can offer little detailed 

guidance to the district court in this matter, the most important 

inquiry is a practical one: If the Tucks could have originally 

framed this action against USAA in such a way as to properly 

invoke diversity jurisdiction, it seems pointless to dismiss the 

suit and force a refiling at_this stage, provided, of course, that 

USAA is not prejudiced by allowing the Tucks to amend their 

pleadings. 

-9-

Appellate Case: 85-2770 Document: 010110025012 Date Filed: 10/14/1988 Page: 9 
We fully understand, however, that the Tucks and the district 

court may not be able to find a way out of this particular 

jurisdictional quagmire, forcing dismissal of the action. Should 

that occur, we direct the district court to consider the need for 

sanctions against USAA and/or its attorneys for allowing an action 

which they should have known to be improper to proceed, and the 

enormous waste of judicial time and resources. See Basso, 495 

F.2d at 911; see also Rockwell Int'l Credit Corp. v. United States 

Aircraft Ins. Group, 823 F.2d 302, 305 (9th Cir. 1987); Eisler v. 

Stritzler, 535 F.2d 148, 152 (1st Cir. 1976); Itel Containers 

Int'l Corp. v. Puerto Rico Marine Management, Inc., 108 F.R.D. 96, 

102-06 (D.N.J. 1985). 

III. 

USAA raises an alternative jurisdictional argument that we 

can dismiss from further consideration. USAA argues that 

diversity jurisdiction is precluded by 28 U.S.C. § 1332(c), which 

provides in pertinent part: 

"[I]n any direct action against the insurer of a policy 

or contract of liability insurance, whether incorporated 

or unincorporated, to which action the insured is not 

joined as a party-defendant, such insurer shall be 

deemed a citizen of the State of which the insured is a 

citizen." 

We have reviewed the decisions applying this provision carefully and conclude that it is not applicable to the Tucks' claims 

against USAA. As the Eleventh Circuit recently explained: 

"[This] section was enacted by Congress in order to 

eliminate the basis for diversity jurisdiction in states 

that allow an injured third-party claimant to sue an 

insurance company for payment of a claim without joining 

the company's insured as a party, where the insured 

-10-

Appellate Case: 85-2770 Document: 010110025012 Date Filed: 10/14/1988 Page: 10 
would be a nondiverse party, even though the party 

insurance company would otherwise be diverse. But where 

the suit brought either by the insured or by an injured 

third party is based not on the primary liability 

covered by the liability insurance policy but on the 

insurer's failure to settle within policy limits or in 

good faith, the section 1332(c) direct action proviso 

does not preclude diversity jurisdiction." 

Fortson v. St. Paul Fire and Marine Ins. Co., 751 F.2d 1157, 1159 

(11th Cir. 1985). In an action similar to that filed by the 

Tucks, the Ninth Circuit adopted a similar application of the 

statute, holding that "unless the cause of action urged against 

the insurance company is of such a nature that the liability 

sought to be imposed could be imposed against the insured, the 

action is not a direct action." Beckham v. Safeco Ins. Co. of 

America, 691 F.2d 898, 902 (9th Cir. 1982) (quoting Walker v. 

Firemans Fund Ins. Co., 260 F. Supp. 95, 96 (D. Mont. 1966)). As 

in Beckham, this is clearly not a direct action since the Tucks 

are not seeking to impose liability on USAA for the negligence of 

any party insured by USAA. 6 See also McGlinchey v. Hartford 

Accident and Indemnity Co., 666 F. Supp. 70, 71 (E.D. Pa. 1987) 

(direct action provision doesn't bar suit under uninsured motorist 

provision); Irvin v. Allstate Ins. Co., 436 F. Supp. 575, 576-77 

(W.D. Okla. 1977) (same); 13B Federal Practice & Procedure, 

§ 3629, at 674-75 (direct action provision not applicable to suits 

under uninsured motorist provisions or for bad faith refusal to 

6 There appears to be some dispute between the parties as to 

whether the Tucks are themselves "insured" under the USAA policy. 

We do not address this question; but in either case, the direct 

action statute is not a bar to this suit, for "[t]he general rule 

has always been that the direct action proviso does not affect 

suits brought by an insured against his own insurer." Bowers v. 

Continental Ins. Co., 753 F.2d 1574, 1576 (11th Cir.), cert. 

denied, 473 U.S. 906 (1985). 

-11-

Appellate Case: 85-2770 Document: 010110025012 Date Filed: 10/14/1988 Page: 11 
settle claims). Moreover, USAA offers no authority to suggest 

that the direct action provision of the diversity statute would be 

applicable to this case. 

For the reasons explained above, we REMAND this action to the 

district court for appropriate motions by the plaintiffs and 

further proceedings consistent with this opinion. 

-12-

Appellate Case: 85-2770 Document: 010110025012 Date Filed: 10/14/1988 Page: 12