Carden v. Arkoma Associates
494 U.S. 185 (1990)
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Rule of Law:
For the purposes of establishing federal diversity jurisdiction, the citizenship of a limited partnership is determined by the citizenship of all of its members, including both general and limited partners.
Facts:
- Arkoma Associates, a limited partnership, was organized under the laws of Arizona.
- Arkoma Associates entered into a contract with C. Tom Carden and Leonard L. Limes, who were citizens of Louisiana.
- A dispute arose concerning the contract, leading Arkoma to initiate a lawsuit.
- At the time the lawsuit was filed, at least one of Arkoma Associates' limited partners was a citizen of Louisiana, the same state as the defendants.
- Magee Drilling Company also became involved in the contractual dispute and legal proceedings against Arkoma.
Procedural Posture:
- Arkoma Associates sued C. Tom Carden and Leonard L. Limes in the U.S. District Court for the Eastern District of Louisiana, asserting federal diversity jurisdiction.
- The defendants moved to dismiss for lack of diversity jurisdiction, arguing that one of Arkoma's limited partners was a Louisiana citizen.
- The District Court, a trial court, denied the motion to dismiss.
- After a bench trial, the District Court entered a judgment in favor of Arkoma Associates.
- Carden and Limes, the defendants, appealed the judgment to the U.S. Court of Appeals for the Fifth Circuit, an intermediate appellate court.
- The Fifth Circuit affirmed the trial court's decision, holding that for a limited partnership, only the citizenship of the general partners should be considered for diversity purposes.
- The U.S. Supreme Court granted certiorari to review the Fifth Circuit's jurisdictional ruling.
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Issue:
For the purpose of establishing federal diversity jurisdiction, is the citizenship of a limited partnership determined by the citizenship of all its members, including its limited partners, or only by the citizenship of its general partners?
Opinions:
Majority - Justice Scalia
Yes. For purposes of federal diversity jurisdiction, a court must consider the citizenship of all members of a limited partnership, including its limited partners. The Court has consistently held that while a corporation is treated as a citizen of its state of incorporation and principal place of business, other unincorporated entities are treated as a collection of their members. Therefore, diversity jurisdiction in a suit involving such an entity depends on the citizenship of all its members. The Court refused to extend the special treatment for corporations to limited partnerships, citing precedent like Chapman v. Barney and Steelworkers v. Bouligny which declined to do so for joint-stock companies and labor unions. The Court reasoned that any change to this long-standing rule to accommodate modern business structures is a policy decision that should be made by Congress, not the judiciary.
Dissenting - Justice O'Connor
No. The citizenship of limited partners should not be counted for purposes of diversity jurisdiction. The dissent argues that the Court should apply the 'real party to the controversy' test, which focuses on which parties have control over the litigation and the business's assets. Under this test, only the general partners, who actively manage the partnership, should be considered. Limited partners are passive investors with no control, similar to the trust beneficiaries in Navarro Savings Assn. v. Lee, whose citizenship was not considered for diversity purposes. The majority's rigid rule ignores the practical realities of business organization and improperly deviates from the 'real party' analysis that has been a benchmark of the Court's jurisdiction jurisprudence.
Analysis:
This decision solidifies a bright-line, formalistic rule for determining the citizenship of unincorporated business associations for diversity jurisdiction purposes. By rejecting a functional or control-based test, the Court significantly limits the access of entities like limited partnerships and LLCs to federal courts, as the presence of a single member with non-diverse citizenship destroys complete diversity. The opinion firmly places the responsibility on Congress to update the diversity statute to reflect modern commercial realities, signaling the Court's unwillingness to judicially expand diversity jurisdiction beyond the established exception for corporations. This has created a lasting distinction in federal practice between incorporated and unincorporated business forms.
