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NATIONAL BANK OF WASHINGTON v. MALLERY

September 2, 1987

The National Bank of Washington, Plaintiff,
v.
Gary Mallery, Defendant



The opinion of the court was delivered by: RICHEY

 INTRODUCTION

 In the spring of 1984, plaintiff funded a promissory note, issued to Columbia Data Products, in the amount of $ 9.5 million. Complaint at para. 19. Plaintiff alleges that it relied on financial statements prepared by the accounting firm of Deloitte, Haskins and Sells ("Deloitte") when it decided to fund that $ 9.5 million note. Id. at para. 20. Plaintiff now claims that those statements were materially misleading and as a result has brought this action against defendant Mallery, who is sued both individually and as a representative of a putative defendant class consisting of Deloitte partners. *fn1" Plaintiff has brought this suit in diversity, pursuant to 28 U.S.C. § 1332, as it has not alleged any claims under federal law or the Constitution.

 Now before the Court is defendant's motion to dismiss this action or to transfer it to the United States District Court for the District of Maryland. Defendant first claims that the Court lacks subject matter jurisdiction over this suit. Defendant also claims that the suit must be dismissed because the Court lacks personal jurisdiction over defendant Mallery. Finally, he argues in the alternative that the United States District Court for the District of Maryland is the most appropriate and convenient forum for this action.

 The Court has carefully considered defendant's motions, the supporting and opposing legal memoranda, the entire record in this case, and the underlying law. The Court has concluded that it must deny all of defendant's motions, but it will deny the motions to dismiss for want of subject matter jurisdiction and for transfer of this suit without prejudice to renewal, if appropriate, under conditions set forth in this Opinion and the accompanying Order.

 THIS COURT HAS SUBJECT MATTER JURISDICTION OVER THIS ACTION.

 Defendant has challenged this Court's subject matter jurisdiction over this action. The exact nature of defendant's argument is somewhat difficult to discern. If he is attempting to argue that the members of a partnership cannot be treated as a class, he is obviously in error. Fed. R. Civ. P. 23.2 explicitly provides that unincorporated associations, a broad category that includes partnerships, may sue or be sued as a class; *fn2" case law has added a gloss to this Rule so that it now appears that an unincorporated association may sue or be sued as a class only where state law does not allow suit by or against the group as an entity. See, e.g., Lumbermen's Underwriting Alliance v. Mobil Oil Corp., 612 F. Supp. 1166, 1171-72 (D. Id. 1985); Federal Practice and Procedure : Civil at § 1861. As District of Columbia law does not permit an unincorporated association to sue or be sued as an entity, see Day v. Avery, 179 U.S. App. D.C. 63, 548 F.2d 1018 (D.C. Cir. 1976), cert. denied, 431 U.S. 908, 52 L. Ed. 2d 394, 97 S. Ct. 1706 (1977), plaintiff is not barred from suing the members of the partnership as a class.

 The Court ordinarily has subject matter jurisdiction over a diversity suit brought as a class action when there is diversity of citizenship between the class representatives and every opposing party; the citizenship of class members who are not designated "representatives" is irrelevant to the jurisdictional inquiry. Snyder v. Harris, 394 U.S. 332, 340, 22 L. Ed. 2d 319, 89 S. Ct. 1053 (1969); Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 356, 65 L. Ed. 673, 41 S. Ct. 338 (1921); Federal Practice and Procedure : Civil at § 1755. By naming defendant Mallery, a citizen of Maryland, the representative of the putative defendant class, plaintiff, a citizen of the District of Columbia, has complied with that rule. Id.

 Courts in other jurisdictions have interpreted Rule 23.2 precisely as plaintiff has done; for purposes of diversity jurisdiction, they look only to the citizenship of the member of the unincorporated association who was named as class representative. See, e.g., Kerney v. Fort Griffin Fandangle Association, Inc., 624 F.2d 717 (5th Cir. 1980); Lumbermen's Underwriting Alliance v. Mobil Oil Corp., 612 F. Supp. 1166 (D. Id. 1985); see also Federal Practice and Procedure : Civil at § 1861; J. Moore and J. Kennedy, Moore's Federal Practice para. 23.2.02. Defendant, however, argues that, for the purposes of determining whether the Court has diversity jurisdiction over a class consisting of partners, the Court must find that every partner has diverse citizenship from the opposing party. As the issue appears to be one of first impression in this Circuit, the Court cannot rest on foreign case law and scholarly comment but must explore the arguments in some detail.

 If defendant were correct, and the citizenship of each Deloitte partner relevant to the diversity question, the Court would not have jurisdiction over this action. The four Deloitte partners who are citizens of the District of Columbia would destroy the complete diversity necessary to sustain jurisdiction. See Great Southern Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 456, 44 L. Ed. 842, 20 S. Ct. 690 (1900); Anchorage-Hynning & Co. v. Moringiello, 225 U.S. App. D.C. 114, 697 F.2d 356, 357 n.1 (D.C. Cir. 1983); see also C.A. Wright and A. Miller, Federal Practice and Procedure : Jurisdiction at § 3630. But defendant's reading of the law is not correct.

 Defendant's argument hinges on the Advisory Committee Note to Fed. R. Civ. P. 23.2. That Note states:

 
Although an action by or against representatives of the membership of an unincorporated association has often been viewed as a class action, the real or main purpose of this characterization has been to give 'entity treatment' to the association when for formal reasons it cannot sue or be sued as a jural person under Rule 17(b).

 Note to Rule 23.2, reprinted in Federal Civil Judicial Procedure and Rules (1987 edition), at 68. Relying on this statement, defendant contends that Rule 23.2 was designed only to extend a form of "entity status," rather than treatment of litigants as a class, to unincorporated associations that otherwise could not be sued in a federal forum.

 At base, this amounts to a contention that Fed. R. Civ. P. 23.2 demands that a suit against a class consisting of the members of an unincorporated association be treated as if it were a suit against the entity. But capacity to sue or be sued as an entity is determined not by federal law but by the law of the forum state. See Fed. R. Civ. P. 17(b); see also Day v. Avery, 179 U.S. App. D.C. 63, 548 F.2d 1018 (D.C. Cir. 1976), cert. denied, 431 U.S. 908, 97 S. Ct. 1706, 52 L. Ed. 2d 394 (1977). If the Court were to treat a suit against the partnership class as if it were a suit against the entity of the Deloitte partnership, despite the District of Columbia's decision to deny the partnership the status of a jural person, the Court would effectively negate the District's decision not to extend entity treatment to the partnership. Both Rule 17(b) and the commands of the Erie doctrine forbid this denigration of the laws of the sovereign states (a category that, for this purpose, includes the District of Columbia). See Erie Railroad v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938).

 Nor can defendant legitimately suggest that the class suit is improper because, by the artful choice of class representative, plaintiff can "create" diversity of citizenship when there actually are non-diverse members of the defendant class. By looking only to the citizenship of the class representative, the law permits, if not encourages, parties to choose representatives in order to ensure that diversity jurisdiction will lie. See, e.g., Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 356, 65 L. Ed. 673, 41 S. Ct. 338; Kerney v. Fort Griffin Fandangle Association, Inc., 624 F.2d 717, 720 (5th Cir. 1980) (class composed of members of unincorporated association); Federal Practice and Procedure : Civil, at § 3606.

 Thus, the Court must conclude that plaintiff has not acted impermissibly by seeking to sue defendants as a class and by naming as class representative a Deloitte partner whose citizenship is diverse from plaintiff's. The Court therefore will find that it has subject matter jurisdiction over this action and it will deny defendant's motion to dismiss this suit. The Court will, however, deny the motion without prejudice to renewal by defendant should the Court deny plaintiff's motion for class certification. If the Court does not certify the class, defendant may renew the instant motion either if plaintiff attempts to sue the individual Deloitte partners or if defendant can show that plaintiff's failure to sue all Deloitte partners is a sham perpetrated in order to ensure existence of subject matter jurisdiction.

 THE COURT HAS PERSONAL JURISDICTION OVER DEFENDANT MALLERY.

 Under Fed. R. Civ. P. 4(e), the Court may exercise personal jurisdiction over non-resident defendant Mallery if the Court can obtain jurisdiction over him under the long-arm statute of the District of Columbia, D.C. Code § 13-423 (1981), and if the exercise of that jurisdiction would be consistent with the constraints of the due process clause. See, e.g., Reuber v. United States, 242 U.S. App. D.C. 370, 750 F.2d 1039, 1049 (D.C. Cir. 1984). Defendant Mallery argues that neither the long-arm statute nor the commands of due process permit the Court to exercise jurisdiction over him. The Court disagrees.

 Two provisions of the District's long-arm statute provide over non-resident defendants charged with commission of a ...


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