Opinion ID: 156015
Heading Depth: 2
Heading Rank: 1

Heading: jurisdiction

Text: 11 St. Paul challenges both the basis on which the district court determined plaintiffs' citizenship for diversity purposes and the court's decision that the nondiverse trustee was not an indispensable party under Fed.R.Civ.P. 19 and could be dismissed to preserve diversity under Rule 21. The first issue goes to subject matter jurisdiction, and we review the district court's determination de novo. See FDIC v. Hulsey, 22 F.3d 1472, 1479 (10th Cir.1994). The other issues--whether a party is indispensable and whether a dispensable party may be dismissed to maintain diversity--depend on the district court's careful exercise of discretion, and we review the court's determinations on those issues for abuse of discretion. See Rishell v. Jane Phillips Episcopal Mem'l Med. Ctr., 94 F.3d 1407, 1410-11 (10th Cir.1996) (indispensability under Rule 19(b)), cert. denied, --- U.S. ----, 117 S.Ct. 1427, 137 L.Ed.2d 536 (1997); Jett v. Phillips & Assocs., 439 F.2d 987, 989 (10th Cir.1971) (dismissal under Rule 21). 12 St. Paul contends that ERISA plans are unincorporated associations rather than trusts. Because the citizenship of unincorporated associations is based on the citizenship of all association members, see, e.g., Tuck v. United Servs. Auto. Ass'n, 859 F.2d 842, 844-45 (10th Cir.1988), and plaintiffs have not even attempted to show that all plan participants are diverse from it, St. Paul contends that the complete diversity required for jurisdiction under § 1332 did not exist. 13 In Navarro, the case on which the district court relied, the Court addressed an argument somewhat similar to St. Paul's--that a trust, in that case, a business trust, was actually an unincorporated association and that its citizenship should be based on the citizenship of its shareholders rather than its trustees. See 446 U.S. at 461-62, 100 S.Ct. at 1782. The Court began its discussion by recognizing that 14 [e]arly in its history, this Court established that the citizens upon whose diversity a plaintiff grounds jurisdiction must be real and substantial parties to the controversy. Thus, a federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy. 15 id. at 460-61, 100 S.Ct. at 1781-82 (citations omitted). The Court then noted that a trust may resemble an association or even a corporation, but stated that the trust at issue is an express trust, and the question is whether its trustees are real parties to this controversy for purposes of a federal court's diversity jurisdiction. Id. at 462, 100 S.Ct. at 1782. The Court concluded that 16 a trustee is a real party to the controversy for purposes of diversity jurisdiction when he possesses certain customary powers to hold, manage, and dispose of assets for the benefit of others. The trustees in this case have such powers. At all relevant times, [the trust] operated under a declaration of trust that authorized the trustees to take legal title to trust assets, to invest those assets for the benefit of the shareholders, and to sue and be sued in their capacity as trustees. [The trustees] filed this lawsuit in that capacity.... [The trust's beneficial shareholders] can neither control the disposition of this action nor intervene in the affairs of the trust except in the most extraordinary situations. 17 We conclude that these respondents are active trustees whose control over the assets held in their names is real and substantial. That the trust may depart from conventional forms in other respects has no bearing on this determination.... [The trustees] have legal title; they manage the assets; they control the litigation. In short, they are the real parties to the controversy. 18 Id. at 464-65, 100 S.Ct. at 1783-84 (footnotes omitted). 19 We agree with the district court that Navarro controls this case, and we find St. Paul's efforts to distinguish Navarro unpersuasive. 2 As in Navarro, the trustees brought suit in their own name in their capacities as trustees of an express trust. St. Paul contends that ERISA plans are not trusts because [t]rusts are entities typically created under state law[, but] ERISA plans are governed by a complex set of federal statutes. Appellant's Br. at 8. Regardless of what law applies, we cannot see how it can seriously be argued that an employee benefit plan under ERISA is not an express trust. Compare, e.g., Restatement (Second) Trusts § 2 (defining express trust generally as a fiduciary relationship with respect to property), with 29 U.S.C. §§ 1101-1114 (describing fiduciary responsibilities with respect to ERISA plans including, inter alia, requirements that named fiduciaries have authority to manage and control plans ( § 1102(a)(1)) and that with limited exception all plan assets be held in trust ( § 1103(a))). Moreover, there is no question--indeed, St. Paul does not even attempt to argue to the contrary--that the trustees here possess the customary powers to hold, manage, and dispose of assets for the benefit of others, Navarro, 446 U.S. at 464, 100 S.Ct. at 1783. St. Paul also argues that the fact that 29 U.S.C. § 1132(a) allows plan participants and the plan itself as well as the trustees to initiate suits somehow means that ERISA plans cannot be trusts. We cannot see how the power of participants or the plans themselves to initiate civil actions in limited circumstances can deprive an ERISA plan of its status as a trust. 20 St. Paul cites three post-Navarro cases in which courts have considered ERISA plans as unincorporated associations for diversity purposes. See Laborers Local 938 Joint Health & Welfare Trust Fund v. B.R. Starnes Co., 827 F.2d 1454 (11th Cir.1987); Xaros v. U.S. Fidelity & Guar. Co., 820 F.2d 1176 (11th Cir.1987); Recreation Servs., Inc. Defined Benefit Plan v. Utah Mortgage Co., 735 F.Supp. 856 (N.D.Ill.1990). We find these cases distinguishable or unpersuasive. In Xaros, in which the plaintiffs were apparently plan trustees, the court concluded that the trust funds appear to be voluntary unincorporated associations, and noted that the funds did not allege[ ] facts negativing their existence as voluntary unincorporated associations. 820 F.2d at 1181 (emphasis added). Significantly, the court did not cite Navarro, did not explain why the funds were not trusts, and declined to consider, without explanation, the argument that diversity may be properly alleged by naming the trustees as representatives of the employee benefit plans. See id. at 1182. The other two cases simply followed Xaros without analysis. See Laborers Local 938, 827 F.2d at 1457; Recreation Servs., 735 F.Supp. at 859. In addition, the plaintiffs in these two cases were the ERISA plans themselves, not the trustees. Because these cases failed to address the diversity issue under Navarro where the trustees bring suit in their own name on behalf of the ERISA plans, we decline to follow them. 3 21 St. Paul also contends that this case is controlled not by Navarro but by Carden v. Arkoma Assocs., 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990), which addressed the citizenship of a limited partnership for diversity purposes. The Court reject[ed] the contention that to determine, for diversity purposes, the citizenship of an artificial entity, the court may consult the citizenship of less than all of the entity's members. We adhere to our oft-repeated rule that diversity jurisdiction in a suit by or against the entity depends on the citizenship of 'all the members.'  Id. at 195, 110 S.Ct. at 1021 (citation omitted). Carden, however, distinguished Navarro by stating that it did not involve the question whether a party that is an artificial entity other than a corporation can be considered a 'citizen' of a State, but the quite separate question whether parties that were undoubted 'citizens' (viz., natural persons) were the real parties to the controversy. Id. at 191, 110 S.Ct. at 1019. Were the ERISA plans here the named plaintiffs, St. Paul's reliance on Carden might be justified. That is not the situation. The trustees are the named plaintiffs, and we find this case indistinguishable from Navarro. 4 22 We thus conclude that the district court correctly looked to the citizenship of the trustees for diversity purposes here. All of the trustees here are diverse from St. Paul save one--John Wallner, a trustee of the Bricklayers and Allied Craftsmen International Health Fund and the Bricklayers and Trowel Trades International Pension Fund. The question now is whether the district court was correct in dismissing Wallner under Rule 21 to preserve diversity. 23 [I]t is well-settled that Rule 21 invests district courts with authority to allow a dispensable nondiverse party to be dropped at any time [to preserve diversity jurisdiction], even after judgment has been rendered. Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 832, 109 S.Ct. 2218, 2223, 104 L.Ed.2d 893 (1989); see also Tuck, 859 F.2d at 845. Rule 21 allows the court to dismiss parties on such terms as are just, thus granting considerable discretion to the district court. See Jett, 439 F.2d at 989-90; Moore's Federal Practice § 21.02 (3d ed.1997). That discretion is circumscribed, however, by Rule 19(b) because the court cannot proceed without indispensable parties. See Newman-Green, 490 U.S. at 832, 109 S.Ct. at 2222-23; Jett, 439 F.2d at 990. Whether a party is indispensable, considering the factors required under Rule 19(b), is a matter left to the district court's discretion. See Navajo Tribe of Indians v. New Mexico, 809 F.2d 1455, 1471 (10th Cir.1987). 5 24 St. Paul contends that if the citizenship of the ERISA plans is determined by the citizenship of the trustees, then all of the trustees must be considered at all times, relying on the Court's statement in Carden that [w]e have 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, 494 U.S. at 192, 110 S.Ct. at 1019. Because all of the trustees were not diverse at the outset of the litigation, St. Paul contends the district court was prohibited from dismissing the nondiverse trustee to preserve diversity. Otherwise, trusts could forum shop by selectively choosing which of its trustees to name as plaintiffs in a particular action. Alternatively, it argues that Trustee Wallner must be considered indispensable because there would be nothing to stop him from filing a state court action if the other trustees do not prevail in this case. 25 Again, we find Carden inapposite because this case does not involve an artificial entity suing or being sued in its own name. 6 We also reject St. Paul's argument that all trustees must be indispensable under Rule 19(b) and that a trustee is therefore not susceptible to dismissal under Rule 21. St. Paul cites no authority supporting what would amount to a categorical, technical rule that all trustees are always indispensable parties; the only case addressing a similar situation of which we are aware is to the contrary. See Prescription Plan Serv. Corp. v. Franco, 552 F.2d 493, 497 (2d Cir.1977) (affirming dismissal of two ERISA plan trustees to preserve diversity under Rule 21 where interests of trustees remaining in case were identical to dismissed trustees). Such a rule would be inconsistent with the pragmatic considerations that guide the analysis under Rule 19(b). See HB General Corp. v. Manchester Partners, L.P., 95 F.3d 1185, 1191 (3d Cir.1996) (In contrast to Carden 's jurisdictional rule, which the Supreme Court acknowledged to be technical, precedent-bound, and unresponsive to policy considerations, whether a person is indispensable depends on pragmatic considerations.) (quotations and citations omitted); Curley v. Brignoli, Curley & Roberts Assocs., 915 F.2d 81, 88-92 (2d Cir.1990). Instead of being based on application of categorical rules, [t]he decision whether to dismiss (i.e., the decision whether the person missing is 'indispensable') must be based on factors varying with the different cases, some such factors being substantive, some procedural, some compelling by themselves, and some subject to balancing against opposing interests. Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 118-19, 88 S.Ct. 733, 742-43, 19 L.Ed.2d 936 (1968). 26 St. Paul's concern with abusive forum shopping can be addressed through the analysis of indispensability. See id. at 111, 88 S.Ct. at 738-39 (noting that Rule 19(b) takes into account interest of the courts and the public in complete, consistent, and efficient settlement of controversies); Prescription Plan Serv., 552 F.2d at 497 n. 5 (noting that representative parties should not be manipulated to obtain diversity jurisdiction). The analysis and equities may differ somewhat depending on whether the issue arises early in the litigation under a Rule 12(b)(7) motion, for example, or later under a Rule 21 motion. Possible forum shopping may be more critical early in the litigation while judicial economy may take on greater importance if the question does not arise until later in the litigation. But the ultimate concerns of the district court in either situation are whether in equity and good conscience the action should proceed among the parties before it, the absent person being thus regarded as indispensable, Rule 19(b), and whether dismissal of a dispensable party is just, Rule 21. And these turn on pragmatic rather than technical considerations. 27 As the party seeking dismissal for inability to join an allegedly indispensable party, St. Paul has the burden of persuasion. See Rishell, 94 F.3d at 1411. To determine whether a party is indispensable, a court must consider 28 first, to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder. 29 Rule 19(b). St. Paul addresses only the first of these factors, contending that it could be prejudiced by Wallner filing a separate state court action should the trustees fail to prevail in this action. This contention, however, fails to consider the res judicata effect of a judgment against the other trustees, since all trustees would be suing in their representative capacities and almost certainly be found to be in privity with each other. Moreover, under the second factor, the court could avoid any possible prejudice by fashioning relief to require the party trustees to bind the trust, and consequently the other trustee, to the judgment rendered in this case. The third factor, which includes public and judicial interests in complete and efficient resolution of disputes, see Provident Tradesmens Bank, 390 U.S. at 111, 88 S.Ct. at 738-39, also favors a finding of dispensability. The fact of Trustee Wallner's nondiversity and the issue of whether or not he was indispensable did not arise until two years after plaintiffs filed their complaint. The district court concluded that plaintiffs were not guilty of any shenanigans in picking and choosing the named plaintiffs in an attempt to manipulate federal court jurisdiction, see Appellants' Br., Ex. B at 4-5, and St. Paul does not argue to the contrary. The fourth factor, the availability of an alternate forum if the action is dismissed, which we presume would be the situation here, is not a sufficient reason by itself for dismissing an action for nonjoinder. See Rishell, 94 F.3d at 1413. 30 We therefore conclude that the district court did not abuse its discretion in dismissing Wallner as dispensable to preserve diversity and hold that the court had subject matter jurisdiction.