Fellowes Inc. v. Changzhou Xinrui Fellowes Office Equip. Co., No. 12-3124 (7th Cir. 2014)

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Justia Opinion Summary

Fellowes filed a breach-of-contract suit against Changzou Fellowes, a business established in China, under the international diversity jurisdiction, 28 U.S.C. 1332(a)(2). Without discussing subject-matter jurisdiction, the district court entered a preliminary injunction in favor of Fellowes, despite the court’s assumption that Changzhou Fellowes had not been served with process. The Seventh Circuit vacated, reasoning that diversity jurisdiction is proper only if Changzhou Fellowes has its own citizenship, independent of its investors or members. Deciding whether a business enterprise based in a foreign nation should be treated as a corporation for the purpose of section 1332 can be difficult. Given the parties’ agreement that Changzhou Fellowes is closer to a limited liability company than to any other business structure in the U.S., it does not have its own citizenship and it does have the Illinois citizenship of its member Hong Kong Fellowes, which prevents litigation under the diversity jurisdiction.

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In the United States Court of Appeals For the Seventh Circuit ____________________   No.  12-­ 3124   FELLOWES,  INC.,   Plaintiff-­ Appellee,   v.   CHANGZHOU   XINRUI   FELLOWES   OFFICE   EQUIPMENT   COMPANY   LTD.,   Defendant-­ Appellant.   ____________________   Appeal  from  the  United  States  District  Court  for  the   Northern  District  of  Illinois,  Eastern  Division.   No.  11  C  6289    Ronald  A.  Guzmán,  Judge.   ____________________   ARGUED  APRIL  2,  2014    DECIDED  JULY  22,  2014   ____________________   Before  EASTERBROOK,  MANION,  and  SYKES,  Circuit  Judges.   EASTERBROOK,   Circuit   Judge.   This   suit   presents   a   claim   that   defendant   (Changzhou   Fellowes   for   short),   a   business   established   under   the   law   of   China,   broke   a   promise   to   plaintiff   (Fellowes   for   short).   As   the   names   suggest,   the   businesses   are   related.   One   investor-­ member   of   Changzhou   Fellowes  is  Hong  Kong  Fellowes,  which  despite  its  name  has   its   principal   place   of   business   in   Illinois.   Fellowes   filed   this   2   No.  12-­ 3124   breach-­ of-­ contract   suit   under   the   international   diversity   ju-­ risdiction,  28  U.S.C.  §1332(a)(2),  a  step  that  is  proper  only  if   Changzhou  Fellowes  has  its  own  citizenship,  independent  of   its  investors  or  members.  If  it  is  a  limited  liability  company,   by   contrast,   then   it   has   the   citizenship   of   each   member,   see   Cosgrove  v.  Bartolotta,  150  F.3d  729  (7th  Cir.  1998),  and  the  Il-­ linois   citizenship   of   its   member   Hong   Kong   Fellowes   pre-­ vents   the   complete   diversity   necessary   to   the   use   of   §1332,   for  Fellowes  also  is  a  citizen  of  Illinois.   Corporations  are  persons  with  two  citizenships,  which  28   U.S.C.   §1332(c)(1)   specifies   as   the   jurisdiction   of   incorpora-­ tion  plus  the  principal  place  of  business.  (Section  1332(c)  was   amended  in  2012;  we  apply  the  prior  version,  see  Mas  Capi-­ tal,   Inc.   v.   Biodelivery   Sciences   International,   Inc.,   524   F.3d   831   (7th   Cir.   2008),   because   the   amended   text   applies   only   to   suits   begun   after   January   5,   2012.   Nothing   turns   on   the   dif-­ ference,  for  both  versions  impute  Illinois  citizenship  to  both   Fellowes  and  Hong  Kong  Fellowes.)   Other   collective   entities   have   the   citizenship   of   each   member  or  equity  investor.  See,  e.g.,  Carden  v.  Arkoma  Asso-­ ciates,   494   U.S.   185   (1990).   That   norm   was   established   in   Chapman  v.  Barney,  129  U.S.  677  (1889)  (a  joint  stock  company   has   the   citizenship   of   every   investor),   and   reiterated   in   Steelworkers  v.  R.H.  Bouligny,  Inc.,  382  U.S.  145  (1965)  (a  labor   union  has  the  citizenship  of  every  member).  This  approach  is   often   stated   as   the   rule   that   only   a   corporation   has   citizen-­ ship  determined  independently  of  the  investors  citizenship.   Without   discussing   subject-­ matter   jurisdiction,   the   dis-­ trict   court   entered   a   preliminary   injunction   in   favor   of   Fel-­ lowes and  this  despite  the  court s  assumption  that  Chang-­ zhou   Fellowes   has   yet   to   be   served   with   process.   2012   U.S.   No.  12-­ 3124   3   Dist.   LEXIS   115708   (N.D.   Ill.   Aug.   16,   2012).   Changzhou   Fel-­ lowes   contends   that   the   district   court   lacks   both   subject-­ matter   jurisdiction   over   the   case   and   personal   jurisdiction   over  it.  We  start  and  end  with  subject-­ matter  jurisdiction.   Deciding   whether   a   business   enterprise   based   in   a   for-­ eign   nation   should   be   treated   as   a   corporation   for   the   pur-­ pose  of  §1332  can  be  difficult.  See,  e.g.,  White  Pearl  Inversiones   S.A.   (Uruguay)   v.   Cemusa,   Inc.,   647   F.3d   684   (7th   Cir.   2011).   Businesses   in   other   nations   may   have   attributes   that   match   only  a  subset  of  those  that  in  the  United  States  distinguish  a   corporation a  business  with  indefinite  existence,  person-­ hood  (the  right  to  contract  and  litigate  in  its  own  name),  lim-­ ited   liability   for   equity   investors,   and   alienable   shares,   among  other  features from  forms  such  as  the  limited  liabil-­ ity  company,  the  limited  partnership,  and  the  business  trust.   Fellowes s   complaint   calls   Changzhou   Fellowes   a   lim-­ ited  liability  company .  Changzhou  Fellowes  describes  itself   that   way   too.   The   parties   agree   that   it   has   members   (like   an   LLC   or   partnership   in   the   United   States)   rather   than   shareholders,  and  that  memberships  are  not  alienable.  It  is   like  a  general  partnership  in  the  latter  respect.  It  is  unneces-­ sary   to   consider   its   other   attributes,   because   Fellowes   has   greatly  simplified  the  task  by  pinning  its  entire  argument  on   a   single   proposition:   That   every   juridical   person that   is,   every  entity  that  can  own  property,  make  contracts,  transact   business,   and   litigate   in   its   own   name is   a   corporation   for   the   purpose   of   §1332   no   matter   what   other   attributes   it   has   or   lacks.   If   this   proposition   is   wrong,   then   the   suit   must   be   dismissed  for  lack  of  subject-­ matter  jurisdiction.   The   proposition   is   indeed   wrong.   It   is   inconsistent   with   Carden,  which  held  that  a  limited  partnership  is  not  a  corpo-­ 4   No.  12-­ 3124   ration  under  §1332  even  though  it  has  all  the  properties  of  a   juridical  person.  It  is  inconsistent  with  Cosgrove,  which  held   that   a   limited   liability   company   is   not   a   corporation   under   §1332  even  though  it  has  all  the  properties  of  a  juridical  per-­ son.  It  is  inconsistent  with  Indiana  Gas  Co.  v.  Home  Insurance   Co.,   141   F.3d   314,   rehearing   denied,   141   F.3d   320   (7th   Cir.   1998),  which  held  that  a  syndicate  underwriting  insurance  at   Lloyd s   of   London   is   not   a   corporation   under   §1332   even   though  it  has  all  the  properties  of  a  juridical  person.   Fellowes   locates   its   juridical   entity   principle   in   Puerto   Rico   v.   Russell   &   Co.,   288   U.S.   476   (1933),   which   held   that   a   sociedad   en   comandita   created   under   the   law   of   Puerto   Rico   could   litigate   in   federal   court   as   an   entity.   The   Court   ex-­ plained  that  it  reached  that  conclusion  in  large  measure  be-­ cause   Puerto   Rico   recognized   the   sociedad   en   comandita   as   a   juridical   person.   288   U.S.   at   481.   Our   opinion   in   Auto-­ cephalous  Greek-­ Orthodox  Church  v.  Goldberg  and  Feldman  Fine   Arts,   Inc.,   917   F.2d   278,   285   (7th   Cir.   1990),   concluded   that   anything   that   qualifies   as   a   single   entity   under   Russell   has   only  its  own  citizenships  for  the  purpose  of  the  diversity  ju-­ risdiction.   This   meant   that   a   church   based   in   Cyprus   was   a   corporation   in   part   because   Cyprus   treated   it   as   a   juridical   entity   able   to   make   contracts   and   sue   in   its   own   name.   So   there  is  certainly  support  for  the  argument  that  Fellowes  has   staked  out.  But  it  is  wrong  nonetheless.   Autocephalous   Greek-­ Orthodox   Church   did   not   mention   ei-­ ther   Chapman   or   Bouligny,   even   though   Bouligny   had   con-­ fined   Russell   to   its   facts.   Nor   did   it   mention   Carden,   which   discussed  Russell  at  length.  Here s  what  the  Court  had  to  say   in  Carden,  494  U.S.  at  189 90:   No.  12-­ 3124   5   The  one  exception  to  the  admirable  consistency  of  our  jurispru-­ dence   ¦  is  Puerto  Rico  v.  Russell  &  Co.,  288  U.S.  476  (1933),  which   held  that  the  entity  known  as  a  sociedad  en  comandita,  created  un-­ der   the   civil   law   of   Puerto   Rico,   could   be   treated   as   a   citizen   of   Puerto   Rico   for   purposes   of   determining   federal-­ court   jurisdic-­ tion.  The  sociedad s  juridical  personality,  we  said,   is  so  complete   in   contemplation   of   the   law   of   Puerto   Rico   that   we   see   no   ade-­ quate   reason   for   holding   that   the   sociedad   has   a   different   status   for  purposes  of  federal  jurisdiction  than  a  corporation  organized   under   that   law.   Id.   at   482.   Arkoma   fairly   argues   that   this   lan-­ guage,  and  the  outcome  of  the  case,   reflect  the  Supreme  Court s   willingness  to  look  beyond  the  incorporated/unincorporated  di-­ chotomy   and   to   study   the   internal   organization,   state   law   re-­ quirements,  management  structure,  and  capacity  or  lack  thereof   to  act  and/or  sue,  to  determine  diversity  of  citizenship.  Brief  for   Respondent   14.   The   problem   with   this   argument   lies   not   in   its   logic,  but  in  the  fact  that  the  approach  it  espouses  was  proposed   and   specifically   rejected   in   Bouligny.   There,   in   reaffirming   the   doctrinal   wall   of   Chapman   v.   Barney,   we   explained   Russell   as   a   case   resolving   the   distinctive   problem   of   fitting   an   exotic   crea-­ tion  of  the  civil  law   ¦  into  a  federal  scheme  which  knew  it  not.   382   U.S.   at   151.   There   could   be   no   doubt,   after   Bouligny,   that   at   least   common-­ law   entities   (and   likely   all   entities   beyond   the   Puerto  Rican  sociedad  en  comandita)  would  be  treated  for  purpos-­ es   of   the   diversity   statute   pursuant   to   what   Russell   called   the   tradition  of  the  common  law,  which  is   to  treat  as  legal  persons   only  incorporated  groups  and  to  assimilate  all  others  to  partner-­ ships.  288  U.S.  at  480.   In  other  words,  Russell  and  its  juridical-­ entity  approach  cov-­ er  the  sociedad  en  comandita  and  nothing  else.  Russell  does  not   mean   that   limited   liability   companies organized   within   or   outside  the  United  States have  their  own  citizenships.  Hav-­ ing   held   in   Cosgrove   that   an   American   LLC   has   the   citizen-­ ship  of  every  member-­ investor,  we  are  not  about  to  establish   a  different  rule  for  functionally  identical  entities  established   under  other  nations  laws.   6   No.  12-­ 3124   Given  the  parties  agreement  that  Changzhou  Fellowes  is   closer  to  a  limited  liability  company  than  to  any  other  busi-­ ness  structure  in  this  nation,  it  does  not  have  its  own  citizen-­ ship and  it  does  have  the  Illinois  citizenship  of  its  member   Hong   Kong   Fellowes,   which   prevents   litigation   under   the   diversity  jurisdiction.  We  need  not  decide  today  whether  to   overrule   Autocephalous   Greek-­ Orthodox   Church,   in   which   the   juridical-­ entity  reasoning  was  an  alternative  ground  of  deci-­ sion.  It  should  be  understood,  however,  that  the  case  cannot   be   generalized   to   entities   other   than   religious   bodies   orga-­ nized  under  the  law  of  Cyprus.   The  judgment  of  the  district  court  is  vacated,  and  the  case   is  remanded  with  instructions  to  dismiss  for  want  of  subject-­ matter  jurisdiction.