Chapman v. Barney
9 S. Ct. 426, 1889 U.S. LEXIS 1718, 129 U.S. 677 (1889)
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Rule of Law:
For the purpose of establishing diversity jurisdiction in federal court, an unincorporated joint-stock company is treated as a partnership, and its citizenship is determined by the citizenship of all its individual members, not by its state of organization.
Facts:
- The United States Express Company, a joint-stock company organized under New York law, entrusted $14,000 in cash to Herman B. Chapman.
- Chapman was tasked with delivering the money to a company in La Salle, Illinois.
- The United States Express Company alleged that Chapman converted the money to his own use instead of delivering it.
- Herman B. Chapman is a citizen of Illinois.
- Ashbel H. Barney, the president of the United States Express Company, is a citizen of New York.
- New York law authorizes the company to bring lawsuits in the name of its president.
Procedural Posture:
- The United States Express Company filed an action of assumpsit against Herman B. Chapman in the U.S. Circuit Court for the Northern District of Illinois.
- Chapman filed an answer asserting two defenses.
- The court granted the company's motion for leave to amend its declaration, changing the cause of action to trover and substituting its president, Ashbel H. Barney, as the named plaintiff.
- Before Chapman could file a plea to the amended declaration, he was imprisoned on an unrelated state conviction.
- In Chapman's absence and without a plea having been filed, the circuit court held a jury trial, which resulted in a verdict for the plaintiff for $14,000.
- The circuit court entered a judgment on the verdict against Chapman.
- After being released from prison, Chapman prosecuted a writ of error to the U.S. Supreme Court to seek reversal of the judgment.
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Issue:
Does an allegation that a joint-stock company was organized under the laws of a state and is a citizen of that state sufficiently establish diversity of citizenship for federal court jurisdiction?
Opinions:
Majority - Justice Lamar
No. An allegation that a joint-stock company is a citizen of its state of organization is insufficient to establish diversity jurisdiction. The court raised the issue of jurisdiction sua sponte, noting that federal jurisdiction must be affirmatively and distinctly shown in the record. For diversity purposes, a joint-stock company is not a corporation but a partnership. Unlike a corporation, which is deemed a citizen of its state of incorporation, a joint-stock company's citizenship is determined by the citizenship of all its individual members. The amended declaration only stated the citizenship of the company's president, Barney, and the defendant, Chapman. Since the citizenship of every member of the United States Express Company was not alleged, and it was not shown that all members were citizens of states other than Illinois, the record failed to establish the complete diversity required for the circuit court to exercise jurisdiction.
Analysis:
This decision solidifies the distinction between corporations and unincorporated associations for purposes of federal diversity jurisdiction. By treating joint-stock companies as partnerships, the court significantly limited their access to federal courts, requiring them to demonstrate the citizenship of every member. This precedent, known as the 'complete diversity' rule for unincorporated associations, creates a substantial practical barrier for large, multi-state partnerships and associations seeking to sue or be sued in federal court based on diversity of citizenship, a rule that remains in effect today.
