argued as amended december 7 1966.: January 6, 1966.
Biggs, Ganey and Freedman, Circuit Judges.
This diversity action*fn1 is grounded on a default judgment, obtained in the Superior Court of Puerto Rico for $10,100 by Americana of Puerto Rico, Inc., against Samuel R. Kaplus and J. Kaplus & Sons, Inc.*fn2 The defendants appeal from a summary judgment rendered on the ground that the courts of the Commonwealth of Puerto Rico are entitled to full faith and credit under 28 U.S.C. Section 1738 and also from an order denying their cross-motion to dismiss for lack of jurisdiction. The cross-motion was based on the theory that 28 U.S.C. Section 1332(d) was inapplicable to Puerto Rican residents in that Congress could not extend the diversity jurisdiction to them. See 240 F. Supp. 854 (D.C.1965).
We will consider the jurisdictional question first. Congress created the lower federal courts and prescribed their jurisdiction by the Judiciary Act of 1789. The Act stated that "The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of * * * [now $10,000 then $500] and is between -- (1) citizens of different States * * *" The construction of this section came before the Supreme Court in 1805 in Hepburn and Dundas v. Ellzey, 6 U.S. (2 Cranch) 445, 2 L. Ed. 332. Mr. Chief Justice Marshall held that a District of Columbia resident could not maintain a suit in the federal district court under the diversity clause. Since Congress copied the constitutional phrase in haec verba, Mr. Chief Justice Marshall, seeking to ascertain the intent of Congress, concluded that the District of Columbia was not within the purview of the word "State". He added, however: "It is true, that as citizens of the United States and of that particular district which is subject to the jurisdiction of congress, it is extraordinary, that the courts of the United States, which are open to aliens, and to citizens of every state in the union should be closed upon them. But this is a subject for legislative, not judicial consideration." Id. at 453.
Hepburn remained the law for more than 135 years. In 1940, Congress expanded the diversity jurisdiction of the courts to include controversies between "citizens of different States, or citizens of the District of Columbia, the Territory of Hawaii or Alaska and any State or Territory." 54 Stat. 143. Constitutional power for this enactment was found in 1949. See National Mutual Insurance Company of Dist. of Col. v. Tide-water Transfer Co., 337 U.S. 582, 69 S. Ct. 1173, 93 L. Ed. 1556. The plaintiff in this case was a corporation in the District of Columbia. A majority of five Justices agreed that Congress had the sanction of the Constitution, i.e., that a source of constitutional power supported the enactment. A majority could not agree on the nature of that source. Two Justices of the majority of five reached their conclusion by a broad interpretation of the word "State". Three other Justices in an opinion by Mr. Justice Jackson denied that rationale and based their conclusion on Article I, Section 8, giving Congress power to make rules and regulations for the District of Columbia. In 1956, Congress added residents of the Commonwealth of Puerto Rico to the group eligible to sue under the diversity jurisdiction. 70 Stat. 658. This is the statutory amendment under consideration. Assuming arguendo that the Commonwealth of Puerto Rico is not a "State" within the meaning of Article III, two further problems must be resolved. Is the Commonwealth of Puerto Rico a Territory within the meaning of Article IV, Section 3 of the Constitution which directs Congress to make Rules and Regulations for United States Territories? And if so, does Article IV, Section 3 provide the requisite constitutional directive for the 1956 amendment?
There is no doubt that prior to 1952, Puerto Rico was considered a territory of the United States. See e.g., People ex rel. Kopel v. Bingham, 189 N.Y. 124, 81 N.E. 773 (1907); aff'd 211 U.S. 468, 29 S. Ct. 190, 53 L. Ed. 286 (1909); Detres v. Lions Building Corp., 234 F.2d 596 (7th Cir. 1956). Puerto Rico came to the United States by cession from Spain under the Treaty of Paris of December 10, 1898,*fn3 30 Stat. 1754, 1755 (1899), as an aftermath of the Spanish-American War. For a short period of time it was under military government. By the Foraker Act, 31 Stat. 77, April 12, 1900, Congress established a temporary civil government for Puerto Rico to administer local affairs and to provide revenue. The inhabitants of Puerto Rico were declared to be citizens of Puerto Rico and entitled to the protection of the Constitution and laws of the United States.
The Foraker Act was superseded by the Organic Act of 1917, 39 Stat. 951, 48 U.S.C.A. Section 731 et seq., which granted further local legislative powers to the government of Puerto Rico. By this Act of 1917 all inhabitants of Puerto Rico, with certain minor exceptions, were declared to be citizens of the United States. Many rights of local autonomy were enjoyed by the Puerto Ricans under the Organic Act which, as amended from time to time, remained the governing force in Puerto Rico until 1950. On July 3, 1950, the President approved Public Law 600, an Act "To provide for the organization of a constitutional government by the people of Puerto Rico." 64 Stat. 319, 48 U.S.C.A. Sections 731b-731e. This Act offered Puerto Rico "a compact so that the people of Puerto Rico * * * [could] organize a government pursuant to a constitution of their own adoption."*fn4 The "compact" was approved by the voters of Puerto Rico on June 4, 1951; a constitutional convention was convened, and the constitution drafted by it was ratified by the people of Puerto Rico on March 3, 1952, 48 U.S.C.A. Section 731d note. The President submitted it to Congress which, with minor amendments, approved it by Joint Resolution of Congress, 66 Stat. 327, on July 3, 1952. The Governor of Puerto Rico proclaimed the constitution of the Commonwealth of Puerto Rico to be in force on July 25, 1952.
Prior to the adoption of the Puerto Rican constitution and the establishment of the Commonwealth in 1952, the Island was organized and governed in a manner similar to that of the other territories of the United States. While its legislature was given considerable power over matters of local concern, the framework of government was prescribed by Congress, and the Organic Act of 1917 served as the constitution of Puerto Rico. It was clear that at this time Puerto Rico qualified as a "Territory" for purposes of acts of Congress which included the territories. People of Puerto Rico v. Shell Co., 302 U.S. 253, 58 S. Ct. 167, 82 L. Ed. 235 (1937); People ex rel. Kopel v. Bingham, 211 U.S. 468, 29 S. Ct. 190, 53 L. Ed. 286 (1909); Crespo v. United States, 151 F.2d 44 (1 Cir. 1945), cert. dismissed 327 U.S. 758, 66 S. Ct. 520, 90 L. Ed. 991 (1946). As the Supreme Court stated in the Kopel case, supra, 211 U.S. at 475, 29 S. Ct. at 192, the status of the Island conformed to one of the common definitions of a territory as a "portion of the country not included within the limits of any state, and not yet admitted as a state into the Union, but organized under the laws of Congress with a separate legislature, under a territorial governor and other officers appointed by the President and Senate of the United States."
In Detres v. Lions Building Corporation, supra, 234 F.2d at 600 the court stated: "The mere change of the name of Puerto Rico to the Commonwealth of Puerto Rico did not change Puerto Rico from a territory to a commonwealth unless its actual form of government was so changed as to actually make it a commonwealth." The defendants agree with this statement but assert that the fact is that Puerto Rico's form of government was drastically changed in 1952 and some of those changes are of a character having special impact on the question of whether Congress intended Puerto Rico to remain a territory for the purposes of Section 1332(d). Under the Act of July 3, 1950, Public Law 600, 64 Stat. 319, 48 U.S.C.A. Section 731b et seq., the people of the new Commonwealth were invested with powers of self government not characteristic of the sovereignty exercisable by citizens of a territory. They were enabled thereby to decide exclusively upon the number of branches of government, the extent of the powers of each branch, the method of election or appointment of personnel in each branch, the duration of terms of office of members of each branch, and the division of power as between each of the said branches.
There can be no doubt that as a matter of political and legal theory, and practical effect, Puerto Rico enjoys a very different status from that of a totally organized but unincorporated territory, as it formerly was. The government of the Commonwealth derives its powers not alone from the consent of Congress, but also from the consent of the people of Puerto Rico. However, under the terms of the "compact" the people of Puerto Rico, do not exercise the full sovereignty of an independent nation, since they do not have control of their external relations with other nations. Further, as United States citizens the citizens of Puerto Rico are assured that their right to due process of law is protected by the federal Constitution.
The legislative history of the Act of July 3, 1950, Public Law 600 offers strong support for the plaintiff's position that Puerto Rico, insofar as the issues at bar are concerned, may be deemed to have a status analogous to that of a territory. The House Committee Report stated, "It is important that the nature and general scope of S. 3336 [now 64 Stat. 319] be made absolutely clear. The bill under consideration would not change Puerto Rico's fundamental political, social, and economic relationship to the United States. Those sections of the Organic Act of Puerto Rico pertaining to the political, social, and economic relationship of the United States and Puerto Rico concerning such matters as the applicability of United States laws, customs, internal revenue, Federal Judicial jurisdiction in Puerto Rico, Puerto Rican representation by a Resident Commissioner, etc., would remain in force and effect, and upon enactment of S. 3336 would be referred to as the Puerto Rican Federal Relations Act." H.R.Rep. No. 2275, 81st Cong., 2d Sess. (1950), in 2 U.S. Code Cong. Serv., pp. 2681, 2682 (1950).*fn5
When the Detres case was decided the diversity section, as we have previously stated, contained no specific reference to the Commonwealth of Puerto Rico. Significantly, congressional action, in the wake of the Detres decision, gives legislative approval to this interpretation. In amending Section 1332 to include the Commonwealth of Puerto Rico the Senate Committee stated, "The Seventh Circuit Court of Appeals held that even though the 1952 constitution refers to the 'Commonwealth of Puerto Rico,' at the same time it is within the meaning of the term 'Territory' in section 1332. The court indicates that there was no intention on the part of Congress to affect the status of Puerto Rico as far as the application of section 1332 was concerned when the new constitution was authorized. To remove any doubts, the House Judiciary Committee favorably reports H.R. 9038 to expressly include the Commonwealth of Puerto Rico in the coverage of section 1332 of title 28 of the United States Code." S.Rep. No. 2605, 84th Cong.2d Sess. (1956), in 2 U.S. Code Cong. and Adm. News, pp. 3557, 3558 (1956). Yet the actual passage of the amendment to Section 1332, indicates doubt as to the legal status of Puerto Rico as a Commonwealth. The Senate report also states that "H.R. 9038 fills an obvious gap in the law resulting from the change in status of Puerto Rico from a Territory to a Commonwealth."
Legal conclusions respecting the status of Puerto Rico as a commonwealth have varied from one extreme to the other. Chief Judge Magruder, long a student of Puerto Rican affairs, has commented that under certain statutes the Commonwealth may fall within the meaning of the word "State." He pointed out that, "The word 'State' may in the context of a particular act of Congress have a broader connotation than a state in the federal Union." Mora v. Mejias, 206 F.2d 377 (1 Cir. 1953). In Mora v. Mejias, Judge Magruder called attention to the provisions of 28 U.S.C. Section 2281, which requires the convening of a three-judge court whenever a suit is brought to restrain the "enforcement, operation or execution of any State statute * * * upon the ground of the unconstitutionality of such statute. * * *" Although pointing out that the Supreme Court had ruled that Section 2281 did not apply to the territory of Hawaii, Stainback v. Mo Hock Ke Lok Po, 336 U.S. 368, 69 S. Ct. 606, 93 L. Ed. 741 (1949), he suggested a different result as to Puerto Rico. In analyzing the commonwealth status of Puerto Rico and the use of the word "State" in Section 2281, he found that Puerto Rico might well be considered a state now ...