                                                                                                                           Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


4-3-2007

Xi v. Lu
Precedential or Non-Precedential: Non-Precedential

Docket No. 06-2812




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"Xi v. Lu" (2007). 2007 Decisions. Paper 1363.
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                                                        NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT


                                       No. 06-2812


                                      HAIYING XI,
                                                Appellant

                                            v.

                         SHENGCHUN LU; CHEN YI YANG;
                            LI XIAO LI; SCOF USA INC.


                    On Appeal From the United States District Court
                       For the Eastern District of Pennsylvania
                             (D.C. Civ. No. 05-cv-05305)
                              District Judge: Marvin Katz


                       Submitted Under Third Circuit LAR 34.1(a)
                                  November 13, 2006

           BEFORE: BARRY, CHAGARES and ROTH, CIRCUIT JUDGES

                                  (Filed: April 3, 2007)


                                        OPINION




PER CURIAM

       Pro se appellant Haiying Xi appeals an order of the United States District Court for

the Eastern District of Pennsylvania sua sponte dismissing his case for lack of subject
matter jurisdiction. We will vacate and remand for further proceedings.

                                              I.

       Xi, a citizen of Pennsylvania, filed in the District Court a breach of contract action

against SCOF USA, Inc., and three of its “shareholders”: Shengchun Lu, president and

chief operating officer; Chen Yi Yang, assistant president; and Li Xiao Li, public affairs

director. The action arose out of an agreement in which Xi was given a partial ownership

interest in SCOF USA, Inc. in return for contributing capital used to purchase liquor from

China. Lu, Yang, and Li, co-signers of the agreement, represented the “interest of SCOF

USA as a whole.” Xi alleged that SCOF USA, Inc. was a New York corporation, that Lu

and Yang were citizens of New York, and that Li was a Pennsylvania citizen.

       The District Court sua sponte dismissed the complaint for lack of jurisdiction,

holding that complete diversity of the parties was lacking because both Xi and Li were

citizens of Pennsylvania. See Xi v. Lu, 428 F.Supp.2d 339, 341 (E.D. Pa. 2006).

Concluding that Li was an indispensable party, the District Court declined to drop her

from the case to preserve jurisdiction. See id. at n.3. Xi filed a timely motion for

reconsideration, arguing that Li was not indispensable and that her absence would not

leave the other parties subject to inconsistent obligations. The District Court denied the

motion. Xi appealed.

                                             II.

       In order to have subject matter jurisdiction, a District Court must be able to

exercise either diversity jurisdiction or federal question jurisdiction. 28 U.S.C.

                                              2
§§ 1331-1332. Because Xi’s complaint does not arise under the Constitution, laws, or

treaties of the United States, he may proceed in District Court only if he proves facts by

which diversity jurisdiction could be sustained. See Quaker State Dyeing and Finishing

Co. v. ITT Terryphone Corp., 461 F.2d 1140, 1142-43 (3d Cir. 1972). Diversity

jurisdiction exists if “the matter in controversy exceeds the sum or value of $75,000,

exclusive of interest and costs, and is between . . . citizens of different States.” 28 U.S.C.

§ 1332(a)(1). To establish federal subject matter jurisdiction based on diversity of

citizenship, diversity must be complete; that is, no plaintiff can be a citizen of the same

state as any of the defendants. Midlantic Nat’l Bank v. Hansen, 48 F.3d 693, 696 (3d Cir.

1995). Xi’s complaint states that both he and Li are citizens of Pennsylvania. Thus, we

agree that Li’s presence in the suit destroyed diversity.

       The District Court considered whether to preserve jurisdiction by removing Li

from the case. “Parties may be dropped or added by order of the court on motion of any

party or of its own initiative at any stage of the action and on such terms as are just.” Fed.

R. Civ. P. 21. Under Rule 21, District Courts have the authority to retain jurisdiction by

dropping a non-diverse party, provided that the party is not indispensable to the suit under

Federal Rule of Civil Procedure 19. See Newman-Green Inc. v. Alfonzo-Larrain, 490

U.S. 826, 832 (1989). Parties are indispensable if “‘in the circumstances of the case

[they] must be before the court.’” Steel Valley Authority v. Union Switch and Signal

Division, 809 F.2d 1006, 1011 (3d Cir. 1987) (quoting 3A J. Moore, Moore’s Federal

Practice ¶ 19.02). In other words, indispensable parties are “‘[p]ersons who not only have

                                              3
an interest in the controversy, but an interest of such a nature that a final decree cannot be

made without either affecting that interest, or leaving the controversy in such a condition

that its final termination may be wholly inconsistent with equity and good conscience.’”

Id. (quoting Shields v. Barrow, 58 U.S. (17 How.) 130, 139 (1854)).

                                             III.

       The District Court found that Li could not be dismissed because she was

indispensable to the case. In support of this conclusion, the District Court noted that Li

co-signed the contract, that she agreed to refund Xi’s money if the contract went unfilled,

and that the other defendants would be subject to the risk of incurring inconsistent

obligations in her absence. See Fed. R. Civ. P. 19. These factors, however, are

insufficient to support a finding of indispensability; indeed, the District Court’s analysis

omits several essential considerations, and does not provide us with a sufficient basis

upon which to perform adequate appellate review.

       The mere fact that Li signed the contract and agreed to refund Xi’s money does

not, by itself, make Li an indispensable party. Furthermore, contrary to the District

Court’s suggestion, the possibility that the diverse defendants may bear the whole loss if

found liable is not the type of “inconsistent obligation” contemplated in Federal Rule of

Civil Procedure 19. See Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d

399, 412 (3d Cir. 1993). The District Court also failed to discuss whether the agreement

between the parties is controlled by the law of Pennsylvania or New York, how the

agreement should be characterized under that state’s law (i.e., as contract for goods

                                              4
related to liquor sales, as a joint venture, or as a partnership agreement), and, perhaps

most significantly, whether such an agreement provides for joint and several liability.

See id. at 406 (declaring that “if the Agreement in question can be construed or

interpreted as a contract imposing joint and several liability on its co-obligors, . . .

complete relief may be granted in a suit against one of them.”).

       The determination of whether a party is indispensable is governed by pragmatic

and equitable considerations. See AT&T Communications v. BellSouth

Telecommunications Inc., 238 F.3d 636, 658 (5th Cir. 2001). The District Court,

however, did not address why, in “equity and good conscience,” the case could not

proceed in Li’s absence. See Fed. R. Civ. P. 19(b). In fact, the District Court made no

reference to the factors listed in Rule 19(b) for determining whether a party is

indispensable. Those factors are: (1) to what extent will a judgment rendered in the

party’s absence be prejudicial to the party or to those who remain; (2) to what extent will

protective measures in the judgment ameliorate or avoid any such prejudice; (3) to what

extent will a judgment rendered in the party’s absence be adequate; and (4) to what extent

will the plaintiff have an adequate remedy if the action is dismissed due to the absence of

the party. See Rule 19(b); see also HB General Corp. v. Manchester Partners, L.P., 95

F.3d 1185,1191 (3d Cir. 1996).

       In sum, because the District Court failed to make the findings necessary for

meaningful appellate review, we will vacate the District Court’s order and remand the

matter for a redetermination concerning whether Li is an indispensable party and for any

                                               5
further action as may be appropriate.




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