RANDALL, Circuit Judge:
Joan F. Carlton brought this diversity suit to void a fraudulent conveyance of real property under Texas law. Before trial, defendant Herbert M. Shelton, the transferor of the property, sought relief under Chapter 7 of the Bankruptcy Code, which, because of the Code's automatic stay, halted the proceedings in the district court. The bankruptcy court lifted the stay, however, and authorized the trustee of Shelton's estate to intervene in this suit. On the first day of trial, an amended petition was filed adding the trustee as a party-plaintiff. A jury found that Shelton fraudulently conveyed the property in question and the court entered judgment vesting title to the property in the trustee. The transferors and transferees of the property, defendants below, bring this appeal.
At oral argument, we raised the issue of subject matter jurisdiction sua sponte. Specifically, we inquired whether the trustee's joinder destroyed diversity. We received supplemental briefs on the issue and now hold that, although the jurisdictional allegations of the pleadings are defective, the district court properly exercised subject matter jurisdiction of this suit. Therefore, we grant appellees' motion, which accompanied their supplemental brief, for leave to amend the jurisdictional allegations of their complaint. On the merits, we affirm the district court's judgment.
To frame the jurisdiction issue, we briefly recount the significant events that have occurred in this suit thus far. William Carlton died in October of 1978. Soon thereafter, Joan F. Carlton ("Carlton"), his wife, commenced for herself and her children a wrongful death suit in federal court against Shelton and another defendant. In January of 1980, Shelton allegedly conveyed some real property (the "property") to a corporation formed by his children. In expectation of recovering judgment in the wrongful death action, Carlton commenced this separate suit to void the conveyance under Texas law as a fraud on Shelton's creditors. In September of 1982, Carlton in fact obtained a substantial wrongful death judgment against Shelton, which we have since affirmed on appeal. See Carlton v. Shelton, 722 F.2d 203 (5th Cir.), cert. denied, ___ U.S. ___, 104 S.Ct. 2389, 81 L.Ed.2d 347 (1984).
Pretrial matters in this suit proceeded until early February of 1983. At that time, Shelton filed for Chapter 7 relief, and proceedings herein were automatically stayed. See 11 U.S.C. § 362. In late April of 1983, Carlton filed with the bankruptcy court an Original Complaint to Lift Stay seeking permission to continue prosecution of this
Carlton is a citizen of California; all defendants are citizens of Texas. Diversity jurisdiction was therefore properly invoked when this suit was initially filed. See 28 U.S.C. § 1332; Strawbridge v. Curtiss, 7 U.S. 267, 2 L.Ed. 435 (1806). The general rule, of course, is that diversity is determined at the commencement of the lawsuit; subsequent occurrences will not normally divest the court of subject matter jurisdiction. See, e.g., Rosado v. Wyman, 397 U.S. 397, 405 n. 6, 90 S.Ct. 1207, 1214 n. 6, 25 L.Ed.2d 442 (1970) ("[A] federal court does not lose jurisdiction over a diversity action which was well founded at the outset even though one of the parties may later change domicile or the amount recovered falls short of $10,000."); Mas v. Perry, 489 F.2d 1396, 1399 (5th Cir.) (same), cert. denied, 419 U.S. 842, 95 S.Ct. 74, 42 L.Ed.2d 70 (1974). This rule is not limited, however, to cases involving an existing plaintiff or defendant who changes domicile while the lawsuit is pending; under certain circumstances, non-diverse parties may be joined after commencement of the lawsuit without destroying jurisdiction. See, e.g., Rogers v. Aetna Casualty and Surety Co., 601 F.2d 840, 843 n. 4 (5th Cir.1979) (Rule 14 impleader of non-diverse third-party defendant; ancillary jurisdiction); Ransom v. Brennan, 437 F.2d 513, 516 (5th Cir.) (Rule 25 substitution of non-diverse representative following death of original party), cert. denied, 403 U.S. 904, 91 S.Ct. 2205, 29 L.Ed.2d 680 (1971); Gaines v. Dixie Carriers, Inc., 434 F.2d 52, 54 (5th Cir.1970) (Rule 24(a) intervention as of right by one other than Rule 19(b) indispensable party). If, however, an amendment to the pleadings alters the nature of the action or adds a party without whom the case cannot continue, jurisdiction must be reassessed at the time of the change. See, e.g., Lewis v. Odell, 503 F.2d 445 (2d Cir.1974); Grady v. Irvine, 254 F.2d 224 (4th Cir.), cert. denied, 358 U.S. 819, 79 S.Ct. 30, 3 L.Ed.2d 60 (1958); 13B C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure: Jurisdiction 2d § 3608. As an initial matter, therefore, we must determine whether Shelton's bankruptcy made the trustee an essential party to this action or otherwise altered the nature of the case.
Shelton's bankruptcy clearly had a profound impact on this action. In In re Mortgageamerica Corp., 714 F.2d 1266 (5th Cir.1983), we examined the effect of the transferor's intervening bankruptcy on a creditor's state-law attempts to void a fraudulent transfer. We held that property that the debtor has fraudulently conveyed remains "property of the estate," see 11 U.S.C. § 541(a)(1): "The automatic stay under [11 U.S.C.] section 362(a) thus applies and prevents a creditor from continuing to pursue a cause of action under the Texas Fraudulent Transfers Act after a petition for bankruptcy has been filed [by the transferor]." Id. at 1275. Thus, Shelton's bankruptcy, standing alone, barred prosecution of this lawsuit.
Bankruptcy did not, however, forever extinguish the right to recover property that Shelton may have fraudulently conveyed. Bankruptcy simply caused that right to vest in the trustee and placed the future of this lawsuit within the control of the bankruptcy court. See In re Mortgageamerica Corp., 714 F.2d at 1275 (citing Glenny v. Langdon, 98 U.S. 20, 30, 25 L.Ed. 43 (1878)). Of course, the bankruptcy court has the authority "for cause" to lift the automatic stay and to allow creditors to continue actions against the debtor and his property. See 11 U.S.C. § 362(d)(1). The Code also gives the trustee a series of avoidance powers through which he can recapture property of the estate. Among these is section 544(b) which allows the trustee, as statutory successor
All parties apparently concede that, in light of the automatic stay and the bankruptcy court's order authorizing intervention, the trustee became the only party who could prosecute this lawsuit.
Since diversity is the only basis for jurisdiction asserted in the pleadings, we must consider the citizenship of the trustee. The parties have referred us to cases presenting a choice, for diversity purposes, between the citizenship of representative parties and the citizenship of those they represent. We find these cases inapposite. On the authority of Messer v. American Gems, Inc., 612 F.2d 1367 (4th Cir.) (citizenship of non-diverse administratrix who has no stake in suit does not control), cert. denied, 446 U.S. 956, 100 S.Ct. 2927, 64 L.Ed.2d 815 (1980), appellees ask us to hold that the trustee is a nominal party whose citizenship should be ignored; Carlton, according to appellees, is the true beneficiary of this action and her diverse citizenship should control. This argument, which we reject, ignores the fact that the trustee in an avoidance action acts on behalf of the estate for the benefit of all creditors. E.g., In re Mortgageamerica Corp., 714 F.2d at 1275. On the authority of Navarro Savings Ass'n v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980) (citizenship of active trustees of business trust controls), appellants ask us to hold that, since he has active powers of management and control, the trustee's citizenship is determinative.
Appellees now assert, however, that, notwithstanding the failure of the jurisdictional basis asserted in their pleadings, subject matter jurisdiction exists because the trustee was acting pursuant to avoidance powers granted to him by the Bankruptcy Code. We agree. Section 1334 of Title 28, as amended by the Bankruptcy Amendments and Federal Judgeship Act of 1984 (the "1984 Act"),
We realize that the 1984 Act authorizes the district courts to refer matters within
The Western District's order of reference does not, however, preclude the district judges of that district from exercising section 1334 jurisdiction. A referral from the district court to a bankruptcy judge does not forever divest the district court of original subject matter jurisdiction.
To recapitulate, we hold that: (1) appearance of Shelton's trustee effectively transformed this lawsuit into a section 544(b) action arising under title 11; (2) although the trustee's citizenship destroyed diversity, the district court had subject matter jurisdiction of the case under section 1334; and (3) although the Western District of Texas has referred core proceedings like this one to bankruptcy judges for final disposition, the district court was free, under section 157(d), to accept the bankruptcy judge's invitation, expressed in the order lifting the stay and authorizing intervention, to withdraw referral of this particular aspect of Shelton's bankruptcy case and to exercise subject matter jurisdiction of this proceeding.
Although we have concluded that the district court had subject matter jurisdiction of this case, our analysis is not complete. It is axiomatic that a federal complaint must state "the grounds upon which the court's jurisdiction depends." Fed.R.Civ.P. 8(a); 5 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 1214 (failure to plead jurisdiction "normally will result in a dismissal of the complaint
On the merits, we affirm. See Loc.R. 47.6.
The motion for leave to amend is GRANTED and the judgment is AFFIRMED.
Adversary complaint no. 5-83-0685T seeks relief from the stay with respect to appeal of the wrongful death judgment. It is not relevant to this appeal.
Record Vol. II at 17 (emphasis supplied). In this ambiguous statement, the court indicated that the trustee need not be joined as a party and, at the same time, that any judgment entered for plaintiffs would be in favor of the trustee. The docket sheet entry describing this pretrial conference indicates that leave was in fact granted to file the amended complaint.
The trustee was introduced to the jury as a party to the lawsuit during voir dire. Record Vol. II at 49. The final judgment entered in this case lists the trustee as a party: "Plaintiff, Claiborne B. Gregory, Jr., Trustee for the Bankruptcy of the Estate of HERBERT M. SHELTON, appeared in person and through his attorneys." Record Vol. I at 231. The judgment, in fact, vests the trustee with legal title to the land involved and orders him to sell the land for the benefit of Shelton's creditors.
Notwithstanding the ambiguity created by the court's comments at the pretrial conference, we conclude that the trustee was in fact joined as a party to this lawsuit.
H.R.Rep. No. 595, 95th Cong., 2d Sess. 445-46 (emphasis supplied), reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 6401.