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The courts of appeals have the authority to dismiss a dispensable nondiverse party, but such authority should be exercised sparingly. In each case, the appellate court should carefully consider whether the dismissal of a nondiverse party will prejudice any of the parties in the litigation. It may be that the presence of the nondiverse party produced a tactical advantage for one party or another. If factual disputes arise, it might be appropriate to remand the case to the district court, which would be in a better position to make the prejudice determination. The court declines to erect a per se rule that the district court must first make such a determination in every case.
Petitioner, an Illinois corporation, invoking jurisdiction under § 1332(a)(3), brought a state-law contract action in the District Court against a Venezuelan corporation and, as joint and several guarantors of royalty payments due under the agreement, four Venezuelan citizens and one Bettison, a United States citizen domiciled in Venezuela. After several years of litigation, the District Court, inter alia, granted partial summary judgment for the guarantors. A Court of Appeals panel found that Bettison's status as a United States citizen not domiciled within a State destroyed § 1332(a)(3) jurisdiction, but granted petitioner's motion to dismiss him from the suit, thereby producing complete diversity under § 1332(a)(2). The court then decided the merits. The Court of appeals en banc reversed, concluding that neither 28 U. S. C. § 1653 – which provided that “defective allegations of jurisdiction may be amended in the trial or appellate courts” – nor Federal Rule of Civil Procedure 21 – which provided that a court may add or drop parties at any stage of the action on such terms as were just – empowered appellate courts to dismiss a dispensable party who spoiled statutory diversity jurisdiction. However, recognizing that Rule 21 permitted district courts to drop dispensable nondiverse parties, the court remanded the case to the District Court for a determination whether it would be prudent to drop Bettison from the litigation.
Did the appellate courts have the power to dismiss dispensable parties?
On certiorari, the United States Supreme Court reversed and remanded. The Court held that although a United States Court of Appeals has no authority under 1653 to grant a motion to dismiss a dispensable party whose presence spoiled statutory federal diversity jurisdiction, a Court of Appeals has the authority to grant such a motion by virtue of Rule 21. Under the circumstances of the case, it was appropriate for the Court of Appeals panel to grant the motion to dismiss the nonalien defendant, since the practicalities weighed heavily in favor of granting the motion, and none of the parties would be harmed by the dismissal.