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MONTH-IN-BRIEF (Feb 2019)

Business Litigation

Partnership Deemed Dispensable Party for Complete Diversity Requirement in Subject-Matter Jurisdiction Challenge

By Kathleen M. Howard, Greensfelder, Hemker &Gale, P.C

In Moss v. Princip, 913 F.3d 508 (5th Cir. 2019), the United States Court of Appeals for the Fifth Circuit affirmed a district court’s ruling that a non-diverse partnership was a dispensable party, thereby preserving the district court’s subject-matter jurisdiction.  In this case, two partners in a four-person partnership brought several causes of action against the two other partners.  When plaintiffs moved for entry of judgment, however, defendants moved to dismiss the case for lack of subject-matter jurisdiction.  Defendants argued that while the four individual partners in the litigation were citizens of different states, there was incomplete diversity because the partnership was included as a defendant and destroyed complete diversity.  The Fifth Circuit analyzed Federal Rule of Civil Procedure 19, which requires a court to determine whether a party is “merely necessary” to the litigation, or “indispensable.”  If a party is indispensable, courts are required to join the party, even if such an action would destroy complete diversity.  The Fifth Circuit acknowledged though that Rule 19 “requires courts to be flexible and pragmatic in evaluating a party’s indispensability.”  In analyzing various other Circuits’ rulings on this issue, the Fifth Circuit ultimately found that the partnership would not be prejudiced were it found to be dispensable because its interests were fully represented by each of its partners, who were parties to the litigation.  This outcome is especially noteworthy for corporate attorneys seeking to bring a partnership case in federal court while simultaneously seeking to maintain proper subject-matter jurisdiction.

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