Ramada Inns, Inc. v. Rosemount Memorial Park Ass'n

OPINION OF THE COURT ALDISERT, Circuit Judge. This diversity case involving a contract dispute over a proposed sale of land by a private cemetery to a hotel chain requires us to decide if the state of New Jersey is a real party in interest to this controversy. Section 8A:3-21 of the New Jersey Statutes makes the Attorney General of New Jersey and the state cemetery board necessary and indispensable parties to any litigation involving a cemetery within the state. The district court held that because of this statute New Jersey was a real party in interest and therefore the Eleventh Amendment barred suit in federal court. It dismissed the complaint and plaintiff has appealed. [1305] Because we decide that § 8A:3-21 does not make New Jersey a real party in interest to every action brought against a private cemetery located within its borders, we reverse, I. Ramada Inns, a Delaware corporation, instituted this contract action against Rose-mount Memorial Park Association, a nonsectarian cemetery located in Newark and Elizabeth, New Jersey. Jurisdiction was based on diversity of citizenship. The relief sought was cancellation of a contract to purchase a tract of vacant land suitable for the construction of a motor inn, and return of $75,000 which Ramada had deposited with Rosemount. Rosemount counterclaimed for specific performance of the contract or, alternatively, for damages. By stipulation of the parties the Attorney General of New Jersey and the New Jersey Cemetery Board were joined as parties defendant pursuant to N.J.Stat.Ann. § 8A:3-21, which provides: “The Attorney General and the cemetery board shall be necessary and indispensable parties to any litigation involving or pertaining to a cemetery company.” 1 Following a mistrial, Rosemount moved to dismiss the action. In granting the motion, the district court noted that the state had no direct interest in the outcome of the litigation, but concluded that it was a real party in interest on the basis of New Jersey’s statutory scheme for the regulation of cemeteries. The district court found particularly persuasive the requirements embodied in N.J.Stat.Ann. § 8A:4-1 et seq., that each cemetery create an irrevocable trust fund for the permanent maintenance and preservation of the cemetery and that all trust funds be supervised by the state cemetery board. Ramada has appealed. II. Ramada argues that this is a contract dispute between two private parties and that the state cannot be considered a real party in interest because the attorney general and the cemetery board are only nominal parties to this action. Appellee urges us to accept the district court’s reasoning that the inescapable effect of § 8A:3-21 is to make the state of New Jersey a real party in interest, and that Ramada’s claim should therefore be barred by the Eleventh Amendment.2 Before reaching the constitutional implication of this question, however, we must decide whether the district court properly had subject matter jurisdiction over this claim based on diversity of citizenship. Section 1332(a) of Title 28, United States Code, sets out the diversity jurisdiction of the federal courts. (a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs, and is between— (1) citizens of different States; (2) citizens of a State, and foreign states or citizens or subjects thereof; and [1306] (3) citizens of different States and in which foreign states or citizens or subjects thereof are additional parties. Diversity jurisdiction, like all federal jurisdiction, is limited in nature, and it is well settled that a state is not a citizen within the meaning of the diversity statute. Moor v. Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 36 L.Ed.2d 596 (1973); Minnesota v. Northern Securities Co., 194 U.S. 48, 63, 24 S.Ct. 598, 48 L.Ed. 870 (1904). An action brought by a citizen of one state against another state is not cognizable under § 1332 and may only be brought if the proceeding “arises under the Constitution, laws or treaties of the United States.” Postal Telegraph Cable Co. v. Alabama, 155 U.S. 482, 487, 15 S.Ct. 192, 194, 39 L.Ed. 231 (1894); see also State Highway Commission v. Utah Construction Co., 278 U.S. 194, 200, 49 S.Ct. 104, 73 L.Ed. 262 (1929). Thus, if we were to conclude for purposes of this appeal that the state of New Jersey is a real party in interest, the district court would be without power to entertain this action under the diversity statute. For the reasons set forth below, however, we determine that the Attorney General of New Jersey and the cemetery board are only nominal parties to this dispute, so that New Jersey is not a real party in interest. Accordingly, Ramada’s claim against Rosemount is cognizable under § 1332. III. Whether a particular case involves a question of diversity jurisdiction,3 or Eleventh Amendment prohibition,4 the initial inquiry is the same: is the state a real party in interest to the litigation? That a state, a state agency, or its officers may have been named as parties defendant in an action is not dispositive of this question because such a determination can only be derived from the “essential nature and effect of the proceeding.” Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 464, 65 S.Ct. 347, 350, 89 L.Ed. 389 (1945). See In re Ayers, 123 U.S. 443, 8 S.Ct. 164, 31 L.Ed. 216 (1887); Pennsylvania Turnpike Commission v. Welsh, 188 F.2d 447, 450 (3d Cir. 1951). Conversely, even though the state, a state agency, or its officers have not been named as parties, the state may nonetheless be the real party in interest against which relief is sought. Quern v. Jordan, - U.S. -, - n. 17, 99 S.Ct. 1139, 59 L.Ed.2d 358 (1979); In re Ayers, supra, at 506, 8 S.Ct. 164. Because the question whether a state is the real party in interest will turn on factors widely variant from case to case, see Pennsylvania Turnpike Commission, supra, at 450, an examination of the cases which have considered the question will aid our determination. In actions seeking recovery of money damages which will be paid from public funds in a state treasury, the state has been found to be a real party in interest. Edelman v. Jordan, 415 U.S. 651, 663, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974); Quern v. Jordan, supra. Likewise, in proceedings for equitable relief where, in effect, granting the relief will require some affirmative act by the state, the state has been considered the real party in interest. Hagood v. Southern, 117 U.S. 52, 66-67, 6 S.Ct. 608, 29 L.Ed. 805 (1887); In re Ayers, supra, at 502-03, 8 S.Ct. 164. In a suit against a state agency or its officers, an assessment must be made as to the degree of autonomy which the agency exercises over its own functions. Where no claim is made, or could successfully be made, that the agency or officers are personally liable, then they are held to be acting in their capacity as the “alter ego” of the state and the state is a real party in interest. See, e. g., State Highway Commission v. Utah Co., 278 U.S. 194, 199, 49 S.Ct. 104, 73 L.Ed. 262 (1929). [1307] Another relevant factor is the stake, if any, which the state has in the outcome of the litigation beyond a general desire that its laws be enforced. If a federal judgment will have no effect other than to implicate the state’s general “governmental interest in the welfare of all its citizens . . and in securing compliance with all its laws,” Missouri, Kansas & Texas Ry. Co. v. Missouri R. R. & Warehouse Commissioners, 183 U.S. 53, 60, 22 S.Ct. 18, 21, 46 L.Ed. 78 (1901), then the state is not a real party in interest. IV. Applying this analysis, we note that no relief is sought from the state either in Ramada’s complaint or Rosemount’s counterclaim. No possible outcome of this suit could result in an award of damages which will be paid out of the state treasury or in equitable relief which must be satisfied by the state. Ramada requests only that the money which it deposited with appellee be returned, and Rosemount asks that Ramada be ordered to honor the contract. Regardless of whose request prevails, the state will not be affected in any substantial way. Furthermore, neither the attorney general nor the cemetery board has raised the Eleventh Amendment defense. In fact, “the State [has] elected not to take an adversarial position as regards the application of the Eleventh Amendment to this case,” State’s Brief at 8, and the state has remained completely neutral concerning the outcome of the suit. All of this, we think, indicates that the state is not a real party in interest to this litigation. The district court found that New Jersey did have a pecuniary interest in this litigation based, on the requirements of N.J. Stat.Ann. §§ 8A:4-2 and 4-15.5 These sections direct every cemetery company located in New Jersey to create a trust fund for the maintenance and preservation of the cemetery under the supervision of the state cemetery board. The court reasoned that the state had a pecuniary interest in seeing that the funds were adequately financed. We believe, however, that any interest which these statutes may arguably create in the state is merely contingent and too speculative to be implicated by a federal judgment in this case. New Jersey has only the potential interest of insuring that Rose-mount make the mandatory contribution to its trust fund should the sale to Ramada ever be consummated. Such a possibility is not sufficient to make the state the real party in interest in this controversy for purposes of the Eleventh. Amendment.6 [1308] The district court also reasoned that because N.J.Stat.Ann. § 8A:4-15 requires board approval before a cemetery may sell land, definite action on the part of the board to approve or disapprove the proposed sale would have to be ordered if Rosemount’s counterclaim for specific performance were to be granted. The district court’s characterization misconceives the present posture of the controversy. Neither the state nor the cemetery board is a party to the contract. The board’s approval or disapproval of the sale is separate and completely distinct from the contract dispute between Rosemount and Ramada. Rosemount has counterclaimed for certain relief which will be determined by a proper interpretation of its contract with Ramada. Whether specific performance is ordered might well depend on whether or not the board has approved the sale, but such approval is no part of the relief sought by the parties to this contract. The district court cannot properly order board approval because the board is not a party to the contract which is the subject matter of this case. V. Although New Jersey has seen fit to regulate the affairs of cemeteries within its borders, it does not follow that this regulation compels, or even warrants, a conclusion that New Jersey is a real party in interest to this contract dispute involving one of its citizens which happens to be a cemetery association. As the Court said in Missouri, Kansas & Texas Ry. Co., supra, 183 U.S. at 60, 22 S.Ct. at 21: It is true that the state has a governmental interest in the welfare of all of its citize'ns, in compelling obedience to the legal orders of all its officials, and in securing compliance with all its laws. But such general governmental interest is not that which makes the State, as an organized political community, a party in interest in the litigation, for if that were so the State would be a party in interest in all litigation; because the purpose of all litigation is to preserve and enforce rights and secure compliance with the law of the State, either statute or common. We hold that the Eleventh Amendment does not bar Ramada’s claim against Rose-mount because the state of New Jersey is not a real party in interest to this litigation. Accordingly, we will reverse the judgment of the district court and remand for further proceedings. Footnotes [1] See also N.J.Stat.Ann. § 8A:2-3 which provides: In any action or proceeding affecting or instituted by any cemetery company the Attorney General and the New Jersey Cemétery Board shall be served with notice thereof in.the same manner as any necessary party and shall take such steps in the action or proceeding as may be deemed necessary to protect the public interest. [2] The Eleventh Amendment states: The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State. [3] See State Highway Commission v. Utah Construction Co., supra, 278 U.S. at 199-200, 49 S.Ct. 104. [4] Quern v. Jordan, - U.S. -, 99 S.Ct. 1139, 59 L.Ed.2d 358 (1979). [5] Section 8A:-4-2 provides in relevant part: There shall be established, by each and every cemetery operating within this State under certificate of authority issued therefor by the New Jersey Cemetery Board, a special, irrevocable trust fund for the purpose of continuous maintenance and preservation of the cemetery. The fund shall be called the Maintenance and Preservation Fund. The creation, perpetuation and operation of the fund shall be supervised by the cemetery board pursuant to the provisions of this act. The said board may make such rules and promulgate such regulations as it deems necessary to insure proper and effective compliance with the purpose of this chapter. N.J.Stat.Ann. § 8A:4-15 provides: A cemetery company may sell free from any dedication for cemetery purposes, subject to prior approval of the board, any land or interest in land which is not, in the judgment of the cemetery company, necessary or suitable for interment purposes, providing no interment has been made therein. As a further condition of any such sale, the deed of conveyance shall be required to include a perpetual prohibition on the use of the premises so conveyed for any of the purposes or uses in which cemetery companies are, by the terms of this act (N.J.S. 8A:5-3), specifically prohibited from engaging. Not less than 15% of the proceeds of said sale shall be deposited in the maintenance a'nd preservation fund. [6] Our conclusion that New Jersey has no immediate pecuniary interest in this fund is consistent with the position taken by the attorney general. At oral argument before the trial judge he stated: The maintenance and preservation fund is really not affected until such time as the [1308] contract is consummated and the funds are due to be deposited therein. So our interest at this present time is somewhat speculative. And that’s why the State has taken a very neutral position. Appendix at 115a.