Wednesday, September 10, 2008
Ind. Decisions - 7th Circuit decides one Indiana case today
In Craig and Craig v. Ontario Corp. (SD Ind., Judge McKinney), a 9-page opinion, Judge Wood writes:
Charles Craig worked for Ontario Corporation and participated in its employee stock option plan. Under the plan, he was entitled to transfer some of the shares of the stock he acquired to his wife Barbara, and he did so. The plan also provided for a bonus distribution of stock shares upon the participant’s retirement. When Craig retired in 2001, he offered to sell his shares back to Ontario. Ontario accepted, but it paid with three promissory notes rather than cash.
By their terms, these notes were subject to “Standby and Subordination Agreements,” which subordinated the Craigs’ rights to those of certain senior creditors (Fifth Third Bank and First Merchants Bank). By December 2003, Ontario was facing difficulties in meeting its financial obligations. Eventually it reached an agreement with the Craigs to suspend principal payments until December 2004. The agreement was not renewed, however, and the Craigs sent Ontario a notice of default and sued in the district court for the Southern District of Indiana, to recover on the notes. They contended that their case fell within the district court’s diversity jurisdiction, * * *
Subsequently, however, Ontario discovered facts that draw the district court’s subject-matter jurisdiction into question. It appears that the parties may not be of diverse citizenship. Ontario moved under FED. R. CIV. P. 60(b)(4) for relief from the judgment on this basis . . . , but the district court held that it had no jurisdiction to rule on the motion because the case was before this court on appeal. The court further held that it had no jurisdiction even to conduct a hearing or to review new filings while the appeal was pending. under 28 U.S.C. § 1332(a) and (c). * * *
The district court was mistaken that it had lost all authority to do so when the motion under Rule 60(b)(4) was presented to it. We therefore vacate the court’s judgment on the merits in No. 06-4409 and reverse the court’s order denying the Rule 60(b)(4) motion in No. 08-1013 and remand for an evidentiary hearing on subject matter jurisdiction. * * *
Enough of a challenge to the district court’s power to adjudicate was presented that it should have assured itself that its jurisdiction was proper. We therefore remand the case for an evidentiary hearing on the question whether the parties are properly diverse. At this hearing, the Craigs bear the burden of proving that they were citizens of Arizona at the time the suit was filed.
III. As a final note, we observe that several thorny issues may arise once the question of citizenship is opened up. What happens if Charles Craig is properly diverse, but Barbara Craig is not? She is named on some of the notes, but it is not clear whether she is a party who must be joined. Another complication arises from the fact that Arizona is a community property state, but Indiana is not. It is possible, even if Charles Craig turns out to be a citizen of Arizona and Barbara Craig has remained a citizen of Indiana, that a non-diverse party may have a onehalf interest in the notes.
These are questions that the district court must answer first. Ontario properly called the problem to the district court’s attention, and the court had the power to consider the motion under Rule 60(b), even though an appeal had already been filed. Indeed, it is under a continuing obligation to assure itself of subject-matter jurisdiction, no matter how the issue is raised. We VACATE the judgment on the merits in No. 06-4409, REVERSE the denial of Ontario’s second Rule 60(b) motion in No. 08-1013 and REMAND for further proceedings in accordance with this opinion.
Posted by Marcia Oddi on September 10, 2008 01:36 PM
Posted to Ind. (7th Cir.) Decisions