Fourth Circuit allows do-over in products case

In South Carolina Department of Disabilities and Special Needs v. Hoover Universal, an action was commenced alleging damages resulting from Hoover’s sale to the state of defective trusts and sheathing that were incorporated into public buildings in the 1970s. The District Court entered summary judgment in favor of Hoover based on South Carolina Statute of Repose and Statutes of Limitations. The Plaintiff’s, who chose to file in Federal District Court, then brought a motion under Rule 60 asserting they were not citizens for diversity purposes and therefore the District Court never had subject matter jurisdiction. The District Court granted the Motion to Vacate finding that the Plaintiffs were alter-egos of the State of South Carolina and therefore not citizens for diversity purposes.

The Fourth Circuit recognized that it would be inequitable to allow the Plaintiffs to prosecute an action in Federal Court and then get a “do over” in State Court. But, because the subject matter jurisdiction goes to the very power of the court to act the Fourth Circuit had no choice but to affirm the District Court. The Court noted that it is well established that the purposes of diversity jurisdiction of state is not a citizen. A public entity created under state law, which is an arm or alter-ego of the state, is likewise not a citizen for purposes of diversity jurisdiction.