Opinion — Puerto Rico v. Russell & Co.

PPCORRECTED COPY

SUPREME COURT OF THE UNITED STATES.

No. 492.—Octoser Term, 1932.

The People of Puerto Rico, Petitioner,

vs.

Russell & Co., Suers., S. En C., Horace

Havemeyer, Frank A. Dillingham,

et al.

On Writ of Certiorari to

the United States Cir-

cuit Court of Appeals

for the First Circuit.

[March 13, 1933.]

Mr. Justice Stone delivered the opinion of the Court.

The People of Perte Rico, the petitioner, brought this suit in the

Insular District Court of San Juan, P Rico, against the re-

spondent, Russell & Co., a sociedad en comandita organized under

aws of Puerts Kico

/

.

ars Gee ee to recover certain assessments *

levied on lands of Russell & Cé., under an act of the legislature

of pee Rico. The individual respondents, members of the socie-

dad, none of whom are citizens of Parte Rico or domiciled there,

were not named as defendants. They appeared specially in the

Insular Court and removed the cause to the United States Dis-

trict Court for Perto Rico. That court denied a motion to re-

mand and gave its decree for respondents on the ground, first

raised by the answer, that the assessments sued for were levied in

violation of § 2 of the Organie Act of P ico, March 2, 1917,

¢e. 145, 39 Stat. 951, forbidding the enactment of any law impair-

ing the obligation of contract. On appeal the Court of Appeals

for the First Circuit affirmed, 60 F. (2d) 10; this Court granted

certiorari. — U.S. —.

Section 41 of the Organic Act confers on the United States Dis-

trict Court for P. ico ‘‘jurisdiction of all cases cognizable

in the district courts of the United States’’, and also ‘‘juris-

diction of all controversies where all of the parties on either side

of the controversy are citizens of a foreign State or States, or citi-

zens of a State, Territory or District of the United States not domi-

ciled in PALE Rico, wherein the matter in dispute exceeds, exclu-

sive of interest or cost the sum or value of $3,000’. By § 42

Seema. —

“2b

2 Poste Rico vs. Russell & Co., et al.

“the laws of the United States relating to . . . removal of

causes, and other matters or proceedings as between the courts of

the United States and the courts of the several States, shall govern

in such matters and proceedings as between the district court of

the United States and the courts of eG ee See

suits arising under the Constitution or laws of the United States

are within the jurisdiction of the District Court for Rico

(§ 24, Judicial Code; 28 U. S. C., § 41), and civil suits begun in the

Insular Court over which the federal court has original jurisdic-

tion may be removed in accordance with the provisions of § 28 of

the Judicial Code (28 U. 8. C., § 71).

Admittedly, if the individual members of the sociedad are “‘par-

ties’’ within the meaning of the Organic Act, § 41, supra, the suit

is one within the jurisdiction of the District Court because of their

non-residence, diversity of citizenship being unnecessary. See

P ico Ry. Light & Power Co. v. Mor, 253 U.S. 345. And if

the non-residence of the individual members would confer jurisdic-

tion upon the federal court in a suit against the sociedad originally

instituted there we will assume, for present purposes, that it would

also suffice to justify removal by the individuals, even though the

Insular Court refuses to recognize them as parties. Compare Mc-

Laughlin v. Hallowell, 228 U. S. 278, 290. The petitioner argues,

nevertheless, that the suit was not removable because of citizenshi

for the reason that the sociedad is a juridical entity under pat

Rican law and, as in the case of a corporation, its domicil rather

than that of its members determines citizenship for purposes of

federal jurisdiction. If the petitioner's contention is sound, the

District Court was without jurisdiction unless the suit was, as the

respondents argue, one arising under the laws of the United States.

The questions raised by these contentions must therefore first be

answered.

For almost a century, in ascertaining whether there is the requl-

site diversity of citizenship to confer jurisdiction on the federal

courts, we have looked to the domicil of a corporation, not that

of its individual stockholders, as controlling. Louisville R. R. Co.

v. Letson, 2 How. 497; Rundle v. Delaware and Raritan Canal Co.,

, 14 How. 80; Marshall v. Baltimore & Ohio R. R., 16 How. 314;

. Lafayette Insurance Co. v. French, 18 How. 404; Covington Draw-

F bridge Co. v. Shepherd, 20 How. 227; St. Louis & San Francisco Ry.

4 Co. v. James, 161 U. S. 545; Patch v. Wabash Ry., 207 U. S. 277.

. In its final form this rule of jurisdiction was stated in terms of 4

a

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Povto Rico vs. Russell & Co., et al. 3

‘conclusive presumption’’ that the stockholders are citizens of the

state of the corporate domicil, see Marshall v. Baltimore & Ohio

R. B., supra, 328; Covington Drawbridge Co. v. Shepherd, supra,

233; St. Louis & San Francisco Ry. Co. v. James, supra, 554, but

even those who formulated the rule found its theoretical justifica-

tion only in the complete legal personality with which corpora-

tions are endowed. Fictitious that personality may be, in the

sense that the fact that the corporation is composed of a plurality

of individuals, themselves legal persons, is disregarded, but ‘‘it is

a fiction created by law with intent that it should be acted on as

if true’. Klein v. Board of Supervisors, 282 U. S. 19, 24. This

treatment of the aggregate for other purposes as a person distinct

from its members, with capacity to perform all legal acts, made it

possible and convenient to treat it so for purposes of federal juris-

diction as well. But status as a unit for purposes of suit alone, as

in the case of a joint stock company, see Chapman v. Barney, 129

U. 8S. 677, 682; Levering & Garrigues v. Morrin, 61 F. (2d) 115,

117, or a limited partnership, not shown to have the other attri-

butes of a corporation, Great Southern Fireproof Hotel Co. v.

Jones, 177 U. 8. 449; compare Thomas v. Board of Trustees, 195

U. 8. 207, has been deemed a legal personality too incomplete;

what was but an association of individuals for so many ends and

a juridical entity for only a few, was not easily to be treated as if

it were a single citizen.

The tradition of the common law is to treat as legal persons only

incorporated groups and to assimilate all others to partnerships.

Chapman v. Barney, supra; Great Southern Fireproof Hotel Co. v.

Jones, supra. fhe tradition of the civil law, as expressed in the

Code of P Rico, is otherwise... Therefore to call the so-

ciedad en comandita a limited partnership in the common law

1Compare the decision of the United States and Chilean Claims Commission,

established by virtue of the Convention of May 24, 1897, in Chauncey v.

The Republic of Chile, No. 3, that a claim by a society en comandita, or-

ganized by citizens of the United States under Chilean law was not a claim

by ‘‘corporations, companies or private individuals, citizens of the United

States.’’ And see Pic, Sociétés Commerciales (2d ed. 1925), v. 1, pp. 107, 118,

137, 194, 216; Lastig, Die Aecomendatio (1907), viii, xi, xviii, 165; Gold-

schmidt, Universalgeschichte des Handelsrechts (1891), 257 ff.; Gierke, Die

Genossenschaftstheorie (1887), 51; Young, Foreign Companies and other Cor-

porations (1912), 114; compare Saleilles, Etude sur l’histoire des Sociétés en

Commandite, Annales de Droit Commercial, v. 9 (1895), pp. 10, 49.

ERLE MAAS A aR he 248

4 Pesto Rico vs. Russell & Co., et al.

sense, as the respondents and others have done, is to invoke

a false analogy. In the law of its creation the soctedad is

consistently regarded as a juridical person. It may contract,

own property and transact business, sue and be sued in its

own name and right. Civil Code (1930), §§ 27 to 30; Code of

Commerce (1930), §§ 95, 97, 123, 124. Its members are not

thought to have a sufficient personal interest in a suit brought

against the entity to entitle them to intervene as parties de-

fendant. See People v. Rivera Zayas, 29 P. R. 423, 430. It is

created by articles of association filed as publie records. Code of

Commerce, §§ 95, 98; compare Civil Code, §§ 1558, 1560. Where

the articles so provide, the sociedad endures for a period prescribed

by them regardless of the death or withdrawal of individual mem-

bers. Civil Code, §§ 1591, 1596, 1598; Code of Commerce, § 141.

Powers of management may be vested in managers designated by

the articles from among the members whose participation is un-

limited, and they alone may perform acts legally binding on the

sociedad. Civil Code, §§ 1583, 1589; Code of Commerce, §§ 102,

106, 125. Its members are not primarily liable for its acts and

debts (Code of Commeree, § 156), and its creditors are preferred

with respect to its assets and property over the creditors of in-

dividual members, although the latter may reach the interests of

the individual members in the common capital. Civil Code, § 1590;

see Quintana Bros. & Co. v. S. Ramirez & Co., 22 P. R. 707, 716.

Although the members whose participation is unlimited are made

: contingently liable for the debts of the sociedad in the event that

its assets are insufficient to satisfy them (Code of Commerce, §§ 125,

156; see Sucrs. of M. Lamadrid & Co. v. Torrens, Mortorell & Co.,

28 P. R. 824), this liability is of no more consequence for present

purposes than that imposed on corporate stockholders by the stat-

utes of some states. Compare Louisville R. R. Co. v. Letson, supra,

557, 558; Liverpool Insurance Co. v. Massachusetts¢10 Wall. 566,

575. These characteristics under the Codes of P Rico give con-

tent to their declaration that the sociedad is a juridical person.

That personality is so complete in contemplation of the law of Porte

Rico that we see no adequate reason for holding that the sociedad

has a different status for purposes of federal jurisdiction than a

corporation organized under that law. In neither case may non-

residents of P ico, who have taken advantage of its laws to

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Shite asa

Pavto Rico vs. Russell & Co., et al. 5

organize a juridical entity for the purpose of carrying on business

there, remove from the Insular Courts controversies arising under

local law.

Respondents’ contention that the suit is one arising under the

laws of the United States, and therefore removable, irrespective :

of the citizenship of the defendant, rests upon two grounds: first, 4

that the suit was brought pursuant to an Act of Congress of April

23, 1928, 45 Stat. 447, and, second, that the plaintiff in the District

Court, The People of ico, derives its power as a sovereign

political entity from the Organie Act, under which the Insular

government was organized.

The Act of Congress first mentioned was adopted as a result of

earlier litigation with respect to the present tax. Respondent and

others originally brought suits in the Federal District Court of

P. Rico to enjoin collection of the tax, pending which, Congress,

by Act of March 4, 1927, 44 Stat. 1421, forbade the mai enance

of any suit in the United States District Court for P. ico to

restrain the collection of any tax imposed by the laws of Porto Rico.

Following that prohibition, this Court, in Smallwood v. Gallardo,

275 U. S. 56, held that all such injunction cases then pending in the

federal courts, were abated by the statute and the suit brought by

respondents was accordingly dismissed. Gallardo v. H avemeyer, 21

F. (2d) 1012. Subsequently, Congress passed the law of April 23,

1928, by which it was provided that in cases where the taxpayer

had by such suits obtained an injunction restraining collection of

the tax, the Treasurer of Péeto Rico should “‘enforce the collection

of the tax so enjoined . . , by a suit at law instead of by

attachment, embargo, distraint or any other form of summary

administrative proceeding .’’. Respondents argue that as

the authority to recover the tax by suit rather than by attachment

or other summary method was conferred by act of Congress, the

suit is one arising under the laws of the United States.

We do not stop to examine the answering contention of peti-

tioner that the Act of Congress was not an enabling act, but oper-

ated only to preclude resort by the Insular government to the

summary remedies otherwise available for the collection of the

tax. For we think that even though petitioner derived its author-

ity to maintain the suit from the Act of Congress, it did not arise

under the laws of the United States within the meaning of the

jurisdictional statutes,

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Ce eee eo eines - . -

ae

6 Porte Rico vs. Russell & Co., et al.

The suit was brought to recover assessments levied under the

Act of the Pérte Rican legislature, but not to enforce a right

created by a law of the United States. No question of interpre-

tation or enforcement of the federal statute appears upon the face

of the complaint. Federal jurisdiction may be invoked to vin-

dicate a right or privilege claimed under a federal statute. It may

not be invoked where the right asserted is non-federal, merely be-

cause the plaintiff’s right to sue is derived from federal law,

or because the property involved was obtained under federal

statute. The federal nature of the right to be established is de-

eisive—not the source of the authority to establish it. Shoshone

Mining Co. v. Rutter, 177 U. 8. 505; Blackburn v. Portland

Gold Mining Co., 175 U. 8. 571; Gold-Washing & Water Co.

v. Keyes, 96 U. 8. 199, 203; see M *Goon v. Northern Pacific Ry.

Co., 204 Fed. 998, 1001; compare Swafford v. Templeton, 185 U. 8.

487. The case is analagous to those involving rights to land

granted under laws or treaties of the United States. Where the

complaint shows only that such was the source of the plaintiff’s

title, the case is not one within the jurisdiction of the federal

courts. Barnett v. Kunkel, 264 U. S. 16, 20; Shulthis v. McDougal,

225 U. 8. 561; Devine v. Los Angeles, 202 U. S. 313, 337; compare

Hopkins v. Walker, 244 U. 8. 486, 489; Lancaster v. Kathleen Ol

Co., 241 U. 8. 551; Wilson Cypress Co. v. Del Pozo, 236 U. 8. 635,

643: Northern Pacific Ry. Co. v. Soderberg, 188 U.S. 526.

For similar reasons,the case stands in no different aspect because

The People of P ico is a political entity, recognized as sueh

by the Act of Congress under which its government is organized.

A state brought into the federal Union by act of Congress is like-

wise a political entity, and although not a citizen of the United

States within the meaning of the statutes conferring jurisdiction

on federal courts, Stone v. South Carolina, 117 U. 8. 480; Postal

Telegraph Cable Co. v. Alabama, 155 U. S. 482; see Arkansas V.

Kansas & Texas Coal Co., 183 U. 8. 185, a suit brought by it pre-

senting a federal question is within the jurisdiction of the district

courts. Railroad Co. v. Mississippi, 102 U. 5. 135, 140; Ames V.

Kansas, 111 U. S. 449; Southern Pacific R. R. Co. v. California,

118 U. S. 109. But, a suit does not arise under the Constitution

or laws of the United States merely because a state is the plaintiff,

though the state derives its authority to maintain the suit from the

Federal Constitution and laws. Postal Telegraph Cable Co. V.

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aeateennenas —

Porto Rico vs, Russell & Co., et al. 7

Alabama, supra, 487; Minnesota v. Northern Securities Co., 194

U.S. 48; Germania Insurance Co. v. Wisconsin, 119 U. 8. 473, 475;

Arkansas v. Kansas & Texas Coal Co., supra; see Missouri, Kansas

& Texas Railway Co. v. Commissioners, 183 U. 8. 53, 58; Stone v.

South Carolina, supra, 433.

We do not overlook the point that a suit by a corporation organ-

ized under an act of Congress has been held to be within the juris-

diction of the federal courts as one arising under the laws of the

United States. Osborn v. Bank of United States, 9 Wheat 738;

Pacific Railroad Removal Cases, 115 U. S. 1. Whether or not these

cases are distinguishable from others on the ground, usually urged

in their support, that a corporation has no powers and ean incur

no obligations except as authorized by federal law, Osborn v. The

Bank, supra, 823; see Pacific Railroad Removal Cases, supra,

13, their doctrine has not been extended to other classes of cases and

has been restricted by successive statutes (Act of July 12, 1882, e.

290, § 4, 22 Stat. 162, 163, 28 U. 8. C. A., § 41 (16); Act of Janu-

ary 28, 1915, ¢. 22, § 5, 38 Stat. 803, 804; Act of February 13, 1925,

¢, 229, § 12, 43 Stat. 936, 941, 28 U. S. C. A., § 42), the last of

which limits it to cases of government owned corporations alone.

We should fly in the face of this legislative policy and disregard

precedents which we think controlling were we to extend the doc-

trine now.

The judgment below will be reversed and the cause remanded

with instructions to remand it to the Insular Court from which

it was removed.

Reversed.

A true copy.

Test :

Clerk, Supreme Court, U. 8.