State of Louisiana v. Union Oil Co of CA

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED JULY 31, 2006
IN THE UNITED STATES COURT OF APPEALS July 25, 2006
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
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No. 05-30488
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STATE OF LOUISIANA; SCHOOL BOARD VERMILION PARISH,

Plaintiffs–Appellants,

v.

UNION OIL COMPANY OF CALIFORNIA, also known as Unocal Exploration
Corp., also known as Union Exploration Partners,

Defendant–Appellee.

Consolidated With
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No. 05-30489
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STATE OF LOUISIANA; SCHOOL BOARD VERMILION PARISH,

Plaintiffs–Appellants,

v.

CHEVRON USA INC., also known as Texas Co., also known as Texaco
Exploration and Production Inc., formerly known as Texaco Inc.,
also known as Texaco Producing Inc.; EXXONMOBIL CORP., also known
as Humble Oil & Refining Co., formerly known as Exxon Corp.; BETA
OPERATING COMPANY LLC; HILCORP ENERGY CO.,

Defendants–Appellees.

Consolidated With
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No. 05-30492
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STATE OF LOUISIANA; SCHOOL BOARD VERMILION PARISH,

Plaintiffs–Appellants,

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 v.

EXXONMOBIL CORP., also known as Humble Oil & Refining Co.,
formerly known as Exxon Corp.,

Defendant–Appellee.

Consolidated With
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No. 05-30493
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STATE OF LOUISIANA; SCHOOL BOARD VERMILION PARISH,

Plaintiffs–Appellants,

v.

SHELL OIL CO.; SWEPI LP, formerly known as Shell Western E&P
Inc.,

Defendants–Appellees.

Appeals from the United States District Court
for the Western District of Louisiana

Before DeMOSS, BENAVIDES, and PRADO, Circuit Judges.

EDWARD C. PRADO, Circuit Judge:

The State of Louisiana and the Vermillion Parish School

Board (collectively “VPSB”) brought suit against Union Oil Co. of

California, Chevron USA Inc., ExxonMobil Corp., and Shell Oil Co.

(collectively “Unocal”) in Louisiana state court for alleged

breach of contract, negligence, strict liability and trespass

arising out of oil and gas exploration activities conducted by

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Unocal on Section 16 lands.1 Unocal removed to federal court in

the Western District of Louisiana based on diversity jurisdiction

under 28 U.S.C. § 1332. The VPSB filed motions to remand,

arguing that diversity jurisdiction does not exist because the

State is a plaintiff. The district court denied the motions to

remand because it concluded that the State is a nominal party

with no real interest in the controversy.

The district judge certified its order denying remand for

interlocutory appeal. The controlling question of law, as stated

by the district court, is: “Is the State of Louisiana a real

party in interest for purposes of determining diversity removal

jurisdiction in a suit for damages to Sixteenth Section school

lands filed in the name of the State pursuant to the authority

granted to Louisiana School Boards in Louisiana Revised Statutes

41:961 through 965?”

“This court’s jurisdiction derives from the district court’s

certification of its interlocutory order denying the motion to

remand as suitable for appeal under 28 U.S.C. § 1292(b). . . . A

district court’s denial of a motion to remand is reviewed de

novo.” Ard v. Transcon. Gas Pipe Line Corp., 138 F.3d 596, 600

1
In Louisiana, “Section 16 lands are public lands
consisting of the sixteenth sections of various townships that
parish school boards are entitled to use to support education.”
Terrebonne Parish Sch. Bd. v. Mobil Oil Corp., 310 F.3d 870, 873
(5th Cir. 2002). In other words, the townships allow oil
companies to conduct exploration activities on section 16 lands,
the revenues from which support schools.

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(5th Cir. 1998).

The District Courts have original jurisdiction of
controversies between citizens of different states; and
when in any suit brought in a state court, there is a
controversy, which is wholly between citizens of
different states, and which can be fully determined as
between them, a defendant interested in such controversy
may remove the suit to the proper District Court of the
United States. . . . Jurisdiction cannot be defeated by
joining formal or unnecessary parties.

Salem Trust Co. v. Mfrs.’ Fin. Co., 264 U.S. 182, 189

(1924)(internal citations omitted).

Ordinarily “[i]n an action where a state is a party, there

can be no federal jurisdiction on the basis of diversity of

citizenship because a state is not a citizen for purposes of

diversity jurisdiction.” Texas Dep’t of Hous. & Cmty. Affairs v.

Verex Assurance, Inc., 68 F.3d 922, 926 (5th Cir. 1995).

However, if the State is a nominal party with no real interest in

the dispute, its citizenship may be disregarded. See Wolff v.

Wolff, 768 F.2d 642, 645 (5th Cir. 1985) (“In determining

diversity jurisdiction, the citizenship of the real parties in

interest is determinative, and the citizenship of nominal or

formal parties who have no real interest in the dispute before

the court may be disregarded, even though they may be required by

law or court order to join in the lawsuit.”); see also Navarro

Sav. Ass'n v. Lee, 446 U.S. 458, 461 (1980) (“Thus, a federal

court must disregard nominal or formal parties and rest

jurisdiction only upon the citizenship of real parties to the

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controversy.”).

“Whether a party is [formal or] ‘nominal’ for removal

purposes depends on whether, in the absence of the [party], the

Court can enter a final judgment consistent with equity and good

conscience, which would not be in any way unfair or inequitable.

. . .” Acosta v. Master Maint. & Constr. Inc., –- F.3d –-, 2006

WL 1549959, at *4 (5th Cir. 2006)(internal quotations omitted).

An alternate articulation of the test is whether or not a named

party’s “role in the law suit is that of a depositary or

stakeholder.” Tri-Cities Newspapers, Inc. v. Tri-Cities Printing

Pressmen & Assistants’ Local 349, Int’l Printing Pressmen &

Assistants’ Union of N. Am., 427 F.2d 325, 327 (5th Cir.

1970)(internal quotations omitted). We take practical

considerations into account in making this determination. See

Shaughnessy v. Pedreiro, 349 U.S. 48, 54 (1955)(“Our former cases

have established a policy under which indispensability of parties

is determined on practical considerations.”); Stonybrook Tenants

Ass’n v. Alpert, 194 F.Supp. 552, 557 (D. Conn.

1961)(“Determination of whether a party is necessary or

indispensable for jurisdictional purposes is to be made ‘on

practical considerations.’”)(quoting Shaughnessy, 349 U.S. at

54).

We conclude that the State of Louisiana is a real party in

interest in this suit, the presence of which defeats diversity

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jurisdiction. The State owns the land, see Terrebonne Parish,

310 F.3d at 873, and the Vermillion Parish School Board brings

its trespass claims on the State’s behalf. LA. REV. STAT. ANN. §

41:961 (“The school boards of the various parishes of the state

may contract with and employ on the part of the State of

Louisiana, attorneys at law, to recover for the state, damages

for trespass to the sixteenth section known as school lands the

title to which is still in the state.”)(emphasis added). Because

the State is the fee title owner of the Section 16 lands involved

in this law suit, the State has more than a “nominal” interest in

property it owns. See generally, McLaughlin v. Miss. Power Co.,

376 F.3d 344, 354 (5th Cir. 2004) (stating that landowners are

indispensable or necessary parties in a suit to condemn real

property).

Not only does Louisiana own the land, it has a continuing

obligation to ensure that any monies the Vermillion Parish School

Board may obtain as a result of the suit are used for school

purposes. See LA. REV. STAT. ANN. § 41:965.

The history of the sixteenth section lands reveals that
the Federal Government set aside and dedicated them for
the use of public education, and it was not until many
years after this State [of Louisiana] was admitted into
the Union that the title to the lands was finally
determined. If it be conceded that the title to these
sixteenth sections is in the State, there is a moral, if
not a clear legal obligation, resting upon the State to
dedicate the revenues derived from such lands to public
education.

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State v. Humble Oil & Ref. Co., 197 So. 140, 143 (La. 1940). The

State of Louisiana is a real party in interest to this suit, not

a mere depositary, due to its ongoing “moral obligation.”

The order of the district court is REVERSED and REMANDED to

the district court with instructions to remand the entire case to

state court.

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