Court Opinion

ID: 8909708
Source: CourtListenerOpinion
Date Created: 2022-11-27 02:30:25.403672+00
Date Added: 2024-06-11T17:08:25.737889
License: Public Domain

SEITZ, Chief Judge,
concurring.
I concur in the result reached by the majority because I believe language used by the Supreme Court in prior cases seems to require that the real party in interest inquiry followed here is to be applied to both the eleventh amendment and diversity issues. Were I free to decide the latter issue on a clean slate, however, I would hold that this suit, in which agencies of the State of New Jersey have been named as necessary and indispensable parties in accordance with state law and in the outcome of which the state has considerable interests, is not within the grant of diversity jurisdiction.
As an initial matter, I observe that although the Supreme Court has framed both the question whether a suit is barred by sovereign immunity and the question whether a state’s presence in a suit destroys diversity in terms of whether the state is a real party in interest, the two inquiries have been held to be, at least in some respects, distinct. See Krisel v. Duran, 386 F.2d 179, 181 (2d Cir. 1967) (“The issue of whether or not the instrumentality of a state is a citizen of that state for diversity purposes is separate and distinct from the *1309issue of sovereign immunity.”). That there should be a distinction is not surprising given that the purpose of the eleventh amendment is to bar those actions from federal court that seek to impose a “retroactive award which requires the payment of funds from the state treasury,” Quern v. Jordan, --- U.S. ---, ---, 99 S.Ct. 1139, 1148, 59 L.Ed.2d 358 (1979), while it has been held that the grant of diversity jurisdiction does not extend to actions in which a state is a party in interest simply because “a state cannot in the nature of things, be a citizen of any state,” Stone v. South Carolina, 117 U.S. 430, 433, 6 S.Ct. 799, 800, 29 L.Ed. 962 (1886).
It is surprising, however, given the divergent principles underlying the two inquiries, that the only distinction between them to have received judicial recognition to date is that the state may waive its eleventh amendment sovereign immunity but is unable to waive the lack of subject matter jurisdiction if diversity does not exist in a given suit. See State Highway Commission of Wyoming v. Utah Construction Co., 278 U.S. 194, 199-200, 49 S.Ct. 104, 73 L.Ed. 262 (1929); Harris v. Pennsylvania Turnpike Commission, 410 F.2d 1332, 1333 n.1 (3d Cir. 1969). Thus, even though the New Jersey Attorney General and the cemetery board did not join in asserting the eleventh amendment defense, and even though they have adopted, throughout the course of this litigation, a neutral position with respect to the impact of this action on New Jersey’s sovereign immunity, those facts are immaterial to the question whether the district court has subject matter jurisdiction of this suit.
I begin my examination of the latter question with the observation that relevant state law should be accorded some deference, particularly in a diversity action where the only federal interest is in providing a neutral forum. It is true, of course, that whether the State of New Jersey is a party to this action, such that diversity of citizenship is unavailable as a basis for subject matter jurisdiction, is a question of federal law. But, in analogous situations, we have found state law to be relevant, and at times dispositive, on issues concerning the role of the state and state agencies in federal litigation. See Skehan v. Board of Trustees of Bloomsburg State College, 538 F.2d 53, 62 (3d Cir.) (en banc), cert. denied, 429 U.S. 979, 97 S.Ct. 490, 50 L.Ed.2d 588 (1976). In the typical case in which the eleventh amendment is raised as a defense, such as Skehan, the plaintiff is asserting federal constitutional rights. In this action, where Ramada Inns’ substantive claim is based on state contract law, I see no reason for not according an equivalent or greater degree of deference to applicable state law.
I next turn to the question whether the State of New Jersey is a party to this action, and, if so, whether that fact precludes Ramada Inns from bringing this action in federal court on the basis of diversity of citizenship. The New Jersey Cemetery Act clearly provides that “[t]he Attoiney General and the cemetery board shall be necessary and indispensable parties to any litigation involving or pertaining to a cemetery company.” N.J.Stat.Ann. § 8A:3-21. Moreover, the parties to this lawsuit, including a Deputy Attorney General, stipulated to the addition of the Attorney Genera] and the cemetery board as parties-defendant, stating that they “are necessary and indispensable parties to this action involving or pertaining to a cemetery company pursuant to N.J.S.A. 8A:3-21.” See Appendix at 47.
Even prior to the passage of the present version of the Cemetery Act in 1971, New Jersey courts had recognized that a cemetery company “functions as a quasi-public charitable trust.” Frank v. Clover Leaf Park Cemetery Association, 29 N.J. 193, 148 A.2d 488, 496 (1959). For that reason, New Jersey courts have long held that “[whenever the charge is made that the managers or trustees [of a cemetery company] are violating their duty or exceeding the pow*1310ers granted, the Attorney General, as the principal legal representative of the public charged with the protection of the common interest in the trust, is a necessary party to the litigation.” Id. In codifying that common law principle, the New Jersey legislature evidently adopted the view that the Attorney General and the newly-created cemetery .board should be joined as parties representing the public’s interest in all litigation involving New Jersey cemetery companies.
None of the parties to this action has questioned that by naming the Attorney General and cemetery board as defendants, Ramada Inn has, in fact, named the State of New Jersey as a party. Recently, the Supreme Court has twice had occasion to reaffirm the view that a state is not a citizen for purposes of diversity jurisdiction, while recognizing “that a political subdivision of a State, unless it is simply ‘the arm or alter ego of the State,’ is a citizen of the State for diversity purposes.” Moor v. County of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 1800, 36 L.Ed.2d 596 (1973), quoting State Highway Commission of Wyoming, supra at 199, 49 S.Ct. 104. Accord Illinois v. City of Milwaukee, 406 U.S. 91, 97 & n.1, 92 S.Ct. 1385, 31 L.Ed.2d 712 (1972). In my view there can be no question but that for purposes of this lawsuit, and actions involving New Jersey cemetery companies generally, the Attorney General and cemetery board represent the State of New Jersey and act as its “arm or alter ego.” See Glenmede Trust Co. v. Dow Chemical Co., 384 F.Supp. 423, 430-32 (E.D.Pa.1974) (where the Pennsylvania Attorney General was named as a party to an action involving a charitable trust, he performed a uniquely governmental function concerning public rights, and removal on the basis of diversity was impossible, the state being considered a party to the suit).
Although I believe that the Attorney General and cemetery board are participating in this lawsuit as the alter ego of the State of New Jersey, that does not end the inquiry. The Supreme Court has made it clear that not every action in which the state, or an agency acting on its behalf, is named as a party is outside the diversity jurisdiction of the federal courts. The majority correctly reads the relevant Supreme Court precedent as adopting a “real party in interest” test as the standard to be applied in determining whether the presence of the state as a nominal party will preclude diversity jurisdiction. I believe that that test, as it has been applied by the Court, is too rigid in failing to account for the type of interest New Jersey has in the outcome of this lawsuit.
Ordinarily when diversity jurisdiction is challenged on the ground that some nondiverse defendants have been named, the district court may drop such defendants and retain jurisdiction if the dropped parties are not “indispensable.” See Riverside Memorial Mausoleum, Inc. v. UMET Trust, 581 F.2d 62, 66 (3d Cir. 1978); Girardi v. Lip-sett, Inc., 275 F.2d 492, 494 n.1 (3d Cir.) (Goodrich, J.), cert. denied, 364 U.S. 821, 81 S.Ct. 56, 5 L.Ed.2d 50 (1960). It seems curious that the applicable inquiry would change from indispensability to a real party in interest test when the nondiverse defendant is a state rather than a citizen of the same state as the plaintiff. The Supreme Court, however, clearly applied the latter test in Missouri, Kansas & Texas Railway Co. v. Missouri Railroad & Warehouse Commissioners, 183 U.S. 53, 22 S.Ct. 18, 46 L.Ed. 78 (1901).
In Missouri Railway the Court held that the State of Missouri was not the real party plaintiff in an action brought by the state railroad commission to enjoin an out of state railway company from charging excessive and illegal rates for travel over a bridge. Thus, the Court reversed a state court judgment that had denied the railway company’s petition for removal on the basis that the presence of the state as a party destroyed diversity jurisdiction. The Court concluded that the interested parties in the action were the railway company and those *1311members of the public who used the bridge, and noted that the action was not one “to recover any money for the state,” and that “[i]ts results will not enure to the benefit of the state as a state in any degree.” 183 U.S. at 59, 22 S.Ct. at 21. Missouri’s general “governmental interest in the welfare of all its citizens,” was deemed insufficient to render the state “as an organized political community” a party in interest to the railroad commission’s suit. Id. 60, 22 S.Ct. 21.
I am not certain that the result reached in Missouri Railway, or the analysis there applied, would be reaffirmed by a majority of the Court today. Nonetheless, I find no evidence in later decisions of the Court signalling a retreat from Missouri Railway. To be sure, in Ex parte Nebraska, 209 U.S. 436, 28 S.Ct. 581, 52 L.Ed. 876 (1908), Chief Justice Fuller framed the applicable inquiry in a case in which the state was named as a party to the suit as whether the state was a “necessary and indispensable party” such that diversity jurisdiction would not lie:
If this case is one wherein there was a controversy wholly between citizens of different States, to the complete determination of which other parties to the record were not indispensable or necessary, then the removal being properly sought on that ground, the Federal court had jurisdiction. If the State of Nebraska was not an indispensable party by reason of its interest in the controversy, its presence on the record as a plaintiff would not defeat the jurisdiction of the Federal court.
209 U.S. at 444, 28 S.Ct. at 584. Nonetheless, Ex parte Nebraska expressly reaffirmed the decision in' Missouri Railway, and Chief Justice Fuller’s language indicated that he was of the view that the real party in interest inquiry was interchangeable with and identical to an inquiry as to whether the state was a necessary and indispensable party. Thus, he stated “that the mere presence on the record of the State as a party plaintiff, will not defeat the jurisdiction of the Federal court when it appears that the State has no real interest in the controversy.” Id.
Some federal courts have used an indispensability inquiry when confronted with the issue presented in this case. For example, in Fifty Associates v. Prudential Insurance Co., 446 F.2d 1187, 1192 (9th Cir. 1970), where a state tax commission was named as a defendant, the Court of Appeals remanded the case to the district court for a determination as to whether the commission could be dismissed as a party not indispensable to the action and the lawsuit proceed. Of course, if a like inquiry were to be applied here, a determination that the state defendants could be dropped from this lawsuit as not indispensable to its maintenance would come into obvious conflict with the contrary judgment of the New Jersey legislature. That conflict never surfaces in the majority opinion in this case because this action is not, in the words of Missouri Railway, one “to recover any money for the state,” and “[i]ts results will not enure to the benefit of the state as a state in any degree.”
If the question were open I would base my decision as to whether the state’s presence in this lawsuit precludes the exercise of diversity jurisdiction not only on the direct effects that a decree in this action might have on the state, but also on the more general interests of the state in the outcome of the suit. As I have already noted, the New Jersey legislature has here determined that the state Attorney General and cemetery board are necessary and indispensable parties to any litigation involving cemetery companies. That determination is based on state substantive law involving the need to protect the common interest in quasi-public charitable trusts, and hence is not merely a codification of the state’s general governmental interest in the welfare of all its citizens that was deemed insufficient to deprive the federal courts of diversity jurisdiction in Missouri Railway. See Glenmede Trust, supra (finding that a state law rule requiring the joinder of the state attorney general as parens patriae in all actions involving charitable trusts renders impossible removal of such an action on the basis of diversity jurisdiction). Moreover, an examination of the nature of the proceedings here reveals that there is reason to credit *1312the legislature’s judgment that the State of New Jersey has an interest in the outcome of this lawsuit.
As the majority notes, New Jersey has a potential interest in “insuring that Rose-mount make the mandatory contribution to its trust fund should the sale to Ramada ever be consummated.” at 1307. More importantly, however, the .purpose of New Jersey’s pervasive regulation of cemetery companies is to insure that those companies will maintain the financial stability needed for their continued future service to the public. See, e. g., N.J.Stat.Ann. § 8A:4-1 (“It is hereby declared to be the public policy of this State that a primary obligation of each cemetery company shall be the creation of an adequate fund for the permanent maintenance and preservation of the cemetery.”); id. § 8A:5-11 (exempting the trust funds and income therefrom from taxation and assessment, seizure or sale by execution on any judgment against the cemetery company). The relief requested in this lawsuit by Ramada and by the intervening real estate broker certainly implicates the state’s interest in preserving Rose-mount’s financial stability. Ramada’s complaint seeks not only the return of its deposit on the land that was to be purchased, but also requests the recovery of its engineering expenses, legal fees and other costs incidental to the alleged breach of contract. J. I. Kislak Realty Corporation, the broker, seeks a judgment against Rose-mount for its lost commission, in the amount of $75,000.00 plus interest, if the court determines that the cemetery company breached its sales agreement with Ramada.
The state’s interest in the outcome of this suit is also apparent in other ways. For example, Ramada asks that a lien be imposed upon the cemetery company’s premises for the amount found by the court to be due. New Jersey law would seem to prohibit the imposition of such a lien upon lands dedicated for cemetery purposes, but the Cemetery Act does provide that the state Superior Court may sequester the rents, issues, profits, income and revenues derived from those lands in order to satisfy a judgment recovered against a cemetery company in the state courts. See N.J.Stat. Ann. §§ 8A:5-12 & 5-13. These statutory provisions lend further support to the view that New Jersey’s interest in litigation involving cemetery companies is not the general governmental interest that any state may assert on behalf of the welfare of all its citizens.
Viewing the nature of these proceedings as a whole, I conclude that the State of New Jersey has a real interest in the outcome of this suit. Although that interest is not of the sort that implicates the state’s eleventh amendment sovereign immunity, I believe it should be sufficient to prevent the exercise of diversity jurisdiction in this case. Where the judgment of a state legislature that its agencies are necessary and indispensable parties to an action is supported by a common law tradition and by the practicalities of the relief requested in a given case, I would credit that judgment. Because I believe, however, that language used by the Supreme Court in prior opinions leads to a contrary conclusion, I concur in the majority’s holding that the state defendants in this lawsuit may be considered as nominal parties having no effect on the jurisdiction of the district court.