Court rules for apartment owner.

On Nov. 29, the U.S. Supreme Court ruled unanimously in favor of Lincoln Property Co. in an important case that could have seriously undermined the value of limited partnerships to conduct business in multiple jurisdictions, manage liability and avoid frivolous litigation (Roche v. Lincoln Property Co. et al., 373 F.3d 619 (4th Cir. 2004), (Supreme Court No. 04-712)). At issue is whether firms that are headquartered in one state and do business in another through affiliated entities, including partnerships, can continue to move cases to federal courts under federal "diversity of jurisdiction provisions" or whether they must defend themselves in state and local courts. Diversity jurisdiction exists when two parties to a legal dispute are from different states, and it allows a lawsuit to be moved from state court to federal court to protect against bias in the plaintiff's home state.

The case involves a Virginia couple who filed a suit in Virginia state court alleging that they suffered personal injury and damage because of exposure to mold in their Virginia apartment, which was managed by an entity in which Texas-based Lincoln Property Co. was a partner. Lincoln successfully moved the suit to federal court by arguing that the Texas company, and not a Virginia subsidiary, was the real party of interest to the suit. However, the Fourth Circuit Court of Appeals overturned the transfer and broke with legal precedent by determining citizenship on the basis of where the firm was doing business and not on the basis of the "citizenship" of its partners. This decision would have forced limited partnerships and other affiliated entities to litigate in state court every time a state court deemed its activities in the state to meet an amorphous test of "substantial nexus."

NAA/NMHC persuaded the real estate industry to support Lincoln Property's efforts to seek Supreme Court review of the erroneously decided case (which was granted) and then, prior to oral arguments on Oct. 11, NAA/NMHC submitted an authoritative brief to the Supreme Court on the proper interpretation of "diversity jurisdiction" and the right of removal to federal court. The Supreme Court's opinion protects and preserves access to federal courts through "removal," prevents unnecessary and costly litigation in state courts and allows multifamily housing and other real estate organizations to continue using limited partnerships and other affiliated organizations for sound and legitimate business reasons.