Will the Real Real Party in Interest PleaseStand Up?: Applying the Capacity to SueRule in Diversity Cases

I. IntroductionOne of the most commonly litigated issues in federal diversity jurisdiction cases is liability arising from car accidents. If the injured party and the negligent party are from different states and the amount-in-controversy requirement is met, diversity jurisdiction exists. On the other hand, if the two parties are from the same state, the matter must be heard in state court. What if the parties are from the same state, but the injured party's insurance company-which is from another state-sues the negligent driver to recover the proceeds it paid to the injured driver? What if the injured driver is a nondiverse minor, but the suit is brought by a diverse guardian? How does the diversity analysis change if the guardian was selected solely to create diversity? Does it matter whether the diverse party is a real party in interest, such as the driver, or whether he merely has the legal capacity to bring the suit, such as the insurer? Should it matter? Two scholars, surveying the courts' handling of such disputes, noted:The ultimate determination would in most cases be the same, whether one adopts a capacity or real party in interest criteria. Therefore, there seems to be little reason to delve Pandora-like into new juristic linguistic variations on an old theme. It suffices to say that the various text commentaries, law review excursions, and the case precedents predominantly speak in terms of real party in interest with emphasis on capacity as an important element in determining who is the real party in interest; there seems little reason to stir otherwise calm waters.1Over fifty years ago, when this observation was written, its premise was probably true. The quoted passage concerns the issue of whether, in deciding whose citizenship controls for the purposes of diversity jurisdiction, the court should merely require that a party have the capacity to sue or should require the party be a real party in interest. Fifty years ago, most courts would look to whether a party was the real party in interest in determining whether to use that party's citizenship.2 More recently though, federal courts have divided over whether to use the real party in interest criteria.3 Opponents argue that the less demanding capacity to sue rule is sufficient to protect against fraud, while at the same time furthering the purposes of diversity jurisdiction.4 Different circuits have varied.5Diversity jurisdiction turns on the citizenship of the parties. While a determination of whether two parties are sufficiently diverse seems easy, a great deal of litigation surrounds the issue. Much of the litigation arises in cases where one party has a subrogated or assigned claim from another party.6 If the citizenship of the assignee and assignor is the same, the question is simple.7 If, however, the assignor and the defendant have the same citizenship, but the assignee has a different citizenship, the defendant may dispute the right of the assignee to sue him in federal court on diversity grounds.The inquiry of whose citizenship controls in a lawsuit raises many questions. For instance: Under what circumstances did the claim get assigned or subrogated? Does the assignee have the legal capacity to bring the lawsuit? Who is the real party in interest? Have the parties colluded to create or defeat diversity? Are the parties properly aligned? Would the exercise of jurisdiction by the district court uphold or defeat the original reasons behind the congressional creation of diversity jurisdiction? Taking into consideration all these issues, the federal courts of appeals have split on whether the agent's citizenship controls if he merely has the capacity to sue, or whether he actually must be the real party in interest. To date, the Fifth8 and the Third9 Circuits advocate using the agent's citizenship if he has the capacity to sue, while the Eighth10 and the second11 Circuits rely on the real party in interest rule. The Supreme Court has faced these situations several times, but its decisions have been anything but enlightening on which rule should prevail. …