# Opinion — Puerto Rico v. Russell & Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opinion
- **Published:** January 1, 1933
- **Citation:** 288 U.S. 476

## Text

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
3

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,

—— : | i -

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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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.

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