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Carlsberg Resources Corp. v. Cambria Savings and Loan Association

argued: February 22, 1977.

CARLSBERG RESOURCES CORPORATION, A CORPORATION TRADING AS CARLSBERG MOBILE HOME PROPERTIES, LTD.-'72, A LIMITED PARTNERSHIP, APPELLANT
v.
CAMBRIA SAVINGS AND LOAN ASSOCIATION, A STATE SAVINGS AND LOAN ASSOCIATION; WILLIAM P. DEEMER, AN INDIVIDUAL; ANNE H. HENDERSON, AN INDIVIDUAL; FOREST ENTERPRISES, INC., A CORPORATION; GEORGE B. HENDERSON, AN INDIVIDUAL, AND RONALD N. ELLER, AN INDIVIDUAL, TRADING AS FOREST PARK, A GENERAL PARTNERSHIP



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA.

Biggs, Adams and Hunter, Circuit Judges. Hunter, Circuit Judge, dissenting.

Author: Adams

Opinion OF THE COURT

ADAMS, Circuit Judge

This case poses an intriguing problem concerning the diversity jurisdiction of the federal courts. Specifically, we must ascertain whether an identity of citizenship between a number of limited partners of a plaintiff partnership and the defendants precludes an exercise of diversity jurisdiction.*fn1

I.

The present lawsuit was initiated on behalf of Carlsberg Mobile Home Properties, Ltd. - ' 72, a partnership, by Carlsberg Resources Corporation, the sole general partner in such partnership. Basically, the plaintiff seeks damages from defendant Cambria Savings and Loan Association for alleged negligence in the manner in which Cambria disbursed construction development loans to the developers of a trailer park. Damages also are claimed because the other defendants, the developers, purportedly conspired to procure loan proceeds prior to the schedule contemplated in the loan program, funds that the developers would be unable to repay. As a result of a chain of events set into motion by the alleged improprieties, the trailer park property, owned by the plaintiff partnership but subject to a priority mortgage held by Cambria, was sold at a foreclosure sale.

Subsequent to the inception of the litigation, the district court directed that Carlsberg produce documents listing its limited partners and their addresses. These materials revealed that some of the limited partners and all of the defendants were citizens of Pennsylvania. By contrast, the sole general partner, Resources, was a California corporation. Because of the identity of citizenship between Carlsberg's limited partners who reside in Pennsylvania and the defendants, the trial judge dismissed the complaint for want of diversity jurisdiction.*fn2

The present appeal then ensued.

II.

At the onset of our inquiry, we note that the defendants themselves did not raise the issue of diversity jurisdiction during the proceedings in the district court. Consonant with such a posture, defendant Cambria maintains on appeal, as does the Carlsberg partnership, that the trial judge erred when he dismissed the action for a lack of jurisdiction.*fn3

Despite the failure of any party to address the jurisdictional question at hand, the district court properly confronted such matter sua sponte. And this Court should refuse to accede to any attempt by litigants, collusive or otherwise, to waive a jurisdictional defect on appeal. This is so because the federal courts are without power to adjudicate the substantive claims in a lawsuit, absent a firm bedrock of jurisdiction. When the foundation of federal authority is, in a particular instance, open to question, it is incumbent upon the courts to resolve such doubts, one way or the other, before proceeding to the disposition of the merits.

In so stating, we take heed of the admonitions of both the Supreme Court and this Court on previous occasions. For example, in Thomas v. Board of Trustees,*fn4 the Supreme Court declared:

"It is . . . well established that when jurisdiction depends upon diverse citizenship the absence of sufficient averments or of facts in the record showing such required diversity of citizenship is fatal and cannot be overlooked by the court, even if the parties fail to call attention to the defect, or consent that it may be waived."*fn5

Likewise, Judge Biggs, writing for a unanimous panel, stated in Underwood v. Maloney :*fn6 "the issue of jurisdiction is always open and should be determined in limine by a trial court." It follows that this Court should not circumvent jurisdictional problems such as are present in the case at bar, merely because parties urge that we do so.

The theoretical underpinnings of the precept that a prime duty of the federal courts is to address any jurisdictional issues are not difficult to perceive. Without the resolution of such questions, federal judges may conduct protracted litigations which are not properly before them and which ultimately may be dismissed summarily by a reviewing tribunal for lack of the requisite jurisdictional predicate. Not only may an improper exercise of judicial authority by the federal courts, in contravention of constitutional and statutory dictates, disrupt the carefully crafted and balanced system of federalism designed by the framers of the Constitution, but unnecessary proceedings would certainly require the expenditure of valuable judicial resources as well. Given these considerations, it is not surprising that jurisdictional issues should be dealt with as promptly and as fully as possible.

In our view, the concerns of judicial economy and of due respect for the principles of federalism are most apposite where, as here, matters of diversity jurisdiction are implicated.*fn7 To ignore the constitutional and statutory strictures regarding such jurisdiction would impose additional burdens on a federal judicial system which already strains to process cases that are necessarily lodged with it. Relaxation of diversity requirements, intentional or otherwise, inevitably will increase access to the federal courts by litigants now confined to state courts, thereby augmenting the volume of business of the federal tribunals. Such an occurrence also may postpone or even forestall the vindication of the rights of litigants - criminal and civil - who are properly in the federal courts.*fn8

Even more serious would be the disservice rendered to the cardinal precepts of federalism should judges abdicate their responsibility to determine whether diversity truly exists whenever such jurisdiction is invoked. By its very nature, the diversity jurisdiction of the federal courts interferes with the autonomy of state tribunals by diverting litigation, ordinarily handled by such courts, to federal forums.*fn9 Although the rule of Erie R.R. v. Tompkins,*fn10 requiring that state law be applied in diversity cases, operates to ameliorate the dislocative impact of such diversion, the fact remains that diversity jurisdiction prevents the states from adjudicating and resolving important matters that they otherwise would handle. Since conflict resolution constitutes one of the core public functions of state government,*fn11 the exercise of diversity jurisdiction necessarily encroaches, in some fashion, on the ability of the states to engage in this traditional activity.

These considerations of judicial economy and federalism lead inescapably to two factors which may serve to frame our inquiry here. We already have made reference to the first - namely, that the federal courts should resolve any questions that they may have as to the existence of the requisite diversity jurisdiction before proceeding to a decision on the merits. The second factor derives quite naturally from the above discussion: that federal tribunals should be demanding in evaluating whether diversity jurisdiction subsists. In view of the possibly deleterious consequences of a failure to adhere meticulously to the constitutional and statutory standards governing diversity jurisdiction, access to the federal courts, on the ground of the diverse citizenship of the parties, should be granted only where clearly appropriate and only to the ...


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