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Third Circuit holds that, for federal subject matter jurisdiction to exist, Plaintiff with dual U.S. and foreign citizenship (1) may not rely upon her foreign nationality while living abroad as basis for alienage jurisdiction and (2) cannot rely on diversity clause, since Plaintiff was unable to show that she is domiciled in U.S. state diverse from that of all Defendants
Plaintiff Merlene Frett Smith was born in the British Virgin Islands (BVI), raised in the U.S. Virgin Islands (USVI), and became a naturalized U.S. citizen in 1975. After attending college in Virginia, she moved to Atlanta, Georgia, and then to Miami, Florida, before moving back to the USVI in 1990. In 1998, a light fixture at Plaintiff’s place of employment fell upon her causing injuries. In 2000, she brought a § 1332 suit there against the parties who had installed the light, Vanterpool Enterprises Inc., and Builder’s Emporium, Inc. (jointly Defendants).
Alleging that she was a citizen and resident of the BVI and that Defendants were citizens and residents of the USVI, Plaintiff successfully asserted diversity jurisdiction under 28 U.S.C. § 1332(a)(2). After a trial, the jury returned a Plaintiff’s verdict for over $1.2 million.
Defendants then moved to dismiss the action for lack of subject matter jurisdiction. They contended that Plaintiff was a U.S. citizen living abroad in the BVI, and as such, could not invoke diversity jurisdiction even if she were also a citizen of the BVI. Plaintiff responded that, even so, she was entitled to invoke diversity of state citizenship jurisdiction under 28 U.S. C. § 1332(a)(1). Plaintiff argued that she had changed her domicile from the USVI to Florida in December of 1998 when she traveled there for treatment of her injuries. In the alternative, Plaintiff claimed that she had not given up her Florida domicile in 1990 when she had moved back to the USVI.
In dismissing Plaintiff’s suit, the court ruled that Plaintiff was either a resident of the BVI or a domiciliary of the USVI, neither of which would support a suit under § 1332. Despite Plaintiff’s appeal, the U.S. Court of Appeals for the Third Circuit affirms.
The Court addresses two issues: (1) whether Plaintiff can invoke “alienage”� jurisdiction under 28 U.S.C. §1332(a)(2) if she possesses dual citizenship; (2) whether the District Court committed clear error when it found that Plaintiff was not a domiciliary of Florida for purposes of § 1332(a)(1).
Deciding a jurisdictional issue of first impression in the Circuit, the Court explains its affirmance. “A number of our sister Courts of Appeals have already held that, for a dual national citizen, only the American nationality is relevant for purposes of diversity under 28 U.S. C. § 1332.”�
“These courts [also] agree that “�diversity jurisdiction may be properly invoked only when a dual citizen’s domicile, and thus his [state] citizenship, is in a state diverse from that of adverse parties.’ [Cites]. Thus, an American national, living abroad, cannot sue or be sued in federal court under § 1332(a)(2). The only way … is under § 1332(a)(1) if that national is a citizen, i.e., domiciled, in one of the fifty U.S. states.[Cite.].”� [Slip op. 4]
The Court agrees with its sister circuits. “Because [Plaintiff] is a U.S. citizen, her initial reliance on alienage jurisdiction was in error. Furthermore, if [Plaintiff] was domiciled abroad at the time her Complaint was filed, she would not be a citizen of any [U.S.] state and diversity jurisdiction under § 1332(a)(1) would also fail. …”� [Slip op. 4]
On Plaintiff’s claimed domicile in Florida, the Circuit Court has this to say. “The District Court found that [Plaintiff] did abandon her Florida domicile in 1990 when she moved to the USVI. This finding is supported by the evidence of record indicating that [Plaintiff] established a residence in the USVI, obtained employment there, filed USVI tax returns, and relinquished her Florida driver’s license to obtain a USVI driver’s license.”�
“Indeed, by her own admission, [Plaintiff] confirmed that she did not consider Florida her home until, “�in December of 1998, [she testified], I moved to Miami, Florida and began considering it my home from that point forward.’ Thus, we cannot consider clearly erroneous the District Court’s finding that [Plaintiff] “�became a domiciliary of the [USVI] when she moved there in 1990.’ …”�
“The District Court also rejected [Plaintiff's] contention that she abandoned the USVI as her domicile when she went to Florida in December of 1998, and established a new domicile in Florida that she maintained at the time she filed her Complaint in 2000.”� [Slip op. 5]
The Court looked at the evidence suggesting that Plaintiff was, at the time of filing, a domiciliary and resident of Tortola in the BVI. It reasoned that it could not construe as clearly erroneous the lower court’s finding that, at the relevant time, [Plaintiff] was either a resident of Tortola BVI, or a domiciliary of the [USVI].
“If, on [her filing date of] May 3, 2000, [Plaintiff] was a resident of Tortola BVI, she cannot maintain this action. [Plaintiff] is a U.S. citizen, and therefore, she may not utilize her foreign nationality while living abroad for the jurisdictional purposes of § 1332(a)(2).”�
“Further, if [Plaintiff] was domiciled in the BVI [in 2000], she would not [have been] a citizen of any [U.S.] state for purposes of diversity jurisdiction under § 1332(a)(1). [Plaintiff] must be a “�citizen,’ i.e., domiciled in a particular state of the U.S., [diverse from] that of [all Defendants] in order to confer subject matter jurisdiction on the District Court under § 1332. Because it is undisputed that the [Defendants] are citizens of the USVI and [Plaintiff's] claim that she is a domiciliary of a different state fails, we will affirm the District Court’s order [of dismissal].”� [Slip op. 7]
Citation: Frett Smith v. Vanterpool, 2008 WL 43721, No. 06 4169 (3rd Cir. 2008).
Filed in: 2008 International Law Update, Issue 1
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In contract suit in federal court based on alienage jurisdiction, U.S. Supreme Court holds that British Virgin Islands corporations are “citizens or subjects of a foreign state” within meaning of 28 U.S. C. s. 1332(a)(2) on subject matter jurisdiction
Traffic Stream (BVI) Infrastructure Ltd. (TSI) is a corporation organized under the laws of the British Virgin Islands (BVI), an Overseas Territory of the United Kingdom. In 1998, JP Morgan, at that time known as Chase Manhattan Bank (Chase), decided to provide financial support to certain TSI projects involving the building and operating of toll roads in China. Under their contract, New York law was to be the applicable law and TSI consented to submit to the personal jurisdiction of the U.S. District Court for the Southern District of New York. Some time later, Chase sued TSI in that court, claiming that the latter had failed to live up to its contractual duties.
As to subject matter jurisdiction, the Court relied upon the alienage diversity provisions of 28 U.S.C. s. 1332. Subdivision (a)(2) grants district courts jurisdiction over civil actions where the controversy, inter alia, is “between citizens of a State and citizens or subjects of a foreign state.” Chase moved for summary judgment and the Court granted the motion. The U.S. Court of Appeals for the Second Circuit reversed. It concluded sua sponte that, as a citizen of an “Overseas Territory,” TSI’s relationship to an independent foreign state was too “attenuated” to meet the demands of the jurisdictional statute.
The U.S. Supreme Court granted certiorari (1) because the ruling below conflicted with rulings in the Third, Fourth and Seventh Circuits, and (2) because it implicated “serious issues of foreign relations.” The Court unanimously reverses and remands (with one opinion concurring only in the judgment), holding that TSI’s citizenship was enough to bring the BVI corporation within Section 1332(a)(2).
The Court first notes that a corporation organized under the laws of a foreign state is a “subject” of that state for jurisdictional purposes. It is true that the U.S. Executive Branch does not recognize the British Virgin Islands as an independent foreign state. This Court, however, has never expressly read Section 1332(a)(2) as limited to citizens of a formally recognized state but not to those residents of a state’s legal dependency. Indeed, this distinction is not meaningful under the alienage jurisdiction statute.
The British Crown, the Court notes, had established the BVI Constitution. Moreover, the United Kingdom wields extensive power over the BVI. For example, the British Monarch may annul any statute enacted by the BVI government and itself may legislate for the BVI. In addition, the Crown represents the BVI in its international relations.
“The Crown’s representatives have not slept on their powers, which have recently been exercised to impose laws and international obligations upon the territory, as in the Caribbean Territories (Abolition of Death Penalty for Murder) Order 1991, and the Merchant Shipping (Salvage Convention) (Overseas Territories) Order 1997, the latter of which brought the BVI into compliance with the International Convention on Salvage, 1989. In a very practical sense, then, the statutes that permit incorporation in the BVI, see BVI Companies Act (CAP.285); BVI International Business Companies Act (CAP.291), are laws enacted in the exercise of the political authority of the United Kingdom, and it seems fair to regard a BVI company as a citizen or subject of this ultimate political authority.” [N/A]
Whether a federal statute should apply to an Overseas Territory turns upon its goal. “Both during and after the Revolution, state courts were notoriously frosty to British creditors trying to collect debts from American citizens, and state legislatures went so far as to hobble British debt collection by statute, despite the specific provision of the 1783 Treaty of Paris that creditors in the courts of either country would ‘meet with no lawful impediment’ to debt collection. Definitive Treaty of Peace, United States Great Britain, Art. IV, 8 Stat. 82. [Cite] Ultimately, the States’ refusal to honor the treaty became serious enough to prompt protests by the British Secretary of State, particularly when irked by American demands for treaty compliance on the British side. See 31 Journals of the Continental Congress, 1774 1789, pp. 781 784 (J. Fitzpatrick ed. 1934).” [N/A]
This historical context explains why the Framers included jurisdiction based on alienage in Article III of the Constitution. The First Congress implemented Article III by statute. In 1875, congress amended this provision to track the language of Article III. The relationship between the British Crown and the powers of the BVI government over corporations noted above brings the United Kingdom within the scope of the concerns that animated Article III and Section 1332(a)(2).
In supporting the inapplicability of Section 1332(a)(2), TSI made two further contentions. First, it pointed to the fact that the U. K. does not treat BVI residents as full-fledged U. K. citizens or subjects. Secondly, it argued that, in any event, corporations are legally nothing more than a group of shareholders who happen to live in the BVI.
The Court rejects both submissions as flawed. For one thing, the modern notion of a corporation is clearly that of a free-standing legal entity distinct from its shareholders. Nor is the U.K.’s treatment of BVI residents decisive since U.S. federal statutory law — not British law — governs the jurisdiction of federal courts. Thus, TSI’s status under U. K. law does not disable it from qualifying it as a “citizen or subject of a foreign state” under governing U.S. jurisdictional law. Nothing in Section 1332 hints that the members of a polity under a sovereign’s authority are not “subjects” merely because their laws confer fewer rights on them, e.g., than on English citizens. Finally, TSI has admitted that BVI citizens are U. K. “nationals.” Thus, it does not matter whether the law of the U. K. may set up differing rights of abode for persons in its territories.
Citation: JP Morgan Chase Bank v. Traffic Stream (BVI) Infrastructure Ltd., 2002 Daily Journal D. A. R. 6353, 2002 WL 1270591 (U.S. Sup. Ct. June 10, 2002).
Filed in: 2002 International Law Update, Issue 6
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District of Columbia’s highest court rules that its courts lack subject matter jurisdiction over civil actions brought against diplomats since 28 U.S.C. s. 1651 grants exclusive jurisdiction over such suits to federal courts
In February 1995, James Slater (plaintiff) and Gloria Biehl (defendant) got into a two-car accident in the District of Columbia. Biehl’s automobile bore diplomatic tags. About three years later, plaintiff sued defendant in the D. C. Superior Court claiming Biehl’s negligence caused the accident. In March 1998, defendant filed an answer to plaintiff’s complaint denying each and every allegation in it. It did not, however, challenge the court’s jurisdiction. Three months later, the Assistant chief of Protocol of the U.S. State Department issued a Certificate of Diplomatic Status with respect to defendant.
Based on the Certificate, defendant promptly moved to dismiss the case for lack of jurisdiction over her as a diplomat. After a hearing, the trial court dismissed the case for lack of subject matter jurisdiction under 28 U.S.C. s. 1351. That Section provides that “[t]he district courts shall have original jurisdiction, exclusive of the courts of the States, of all civil actions and proceedings against (1) consuls or vice consuls of foreign states; or (2) members of a mission or members of their families (as such terms are defined in section 2 of the Diplomatic Relations Act [22 U.S.C. Section 254a].” [emphasis added by Court].
Plaintiff appealed to the District of Columbia Court of Appeals. In affirming the lower court, that Court defines the central question for decision as whether Section 1351 refers to the subject matter jurisdiction of a state court or merely to that court’s personal jurisdiction over a diplomat. In plaintiff’s view, the statute relates only to personal jurisdiction over defendant and defendant had waived that defense by omitting to timely raise it in her first pleading. [N.B. The appellate court assumes that the District of Columbia is a "state” within the meaning of Section 1351, neither party having contended otherwise.]
Axiomatically, a court of first instance cannot act without jurisdiction over the person and the subject matter. On the one hand, personal jurisdiction is a privilege of the defendant, waived if not properly invoked. Jurisdiction of the subject matter, on the other hand, is an absolute limitation on the power of a court to decide a particular type of case and cannot be waived. The D. C. Superior Court has subject matter jurisdiction over any civil action brought in the District of Columbia unless Congress has vested exclusive jurisdiction in a federal court.
The Court finds the language of the statute plain and unambiguous. In unqualified terms, it limits the power to hear and decide civil actions against the family members of a diplomatic mission to the federal courts alone.
In speaking of the powers of the D. C. Superior Court, D.C. Code s. 11-921 (2001) (b) states the corollary principle that “The Superior Court does not have jurisdiction over any civil action or other matter (1) over which exclusive jurisdiction is vested in a Federal court.”
One notable exception pointed out by the Court is that of domestic relations law over which the federal courts do not otherwise have statutory jurisdiction. See Ohio ex rel. Popovici v. Agler, 280 U.S. 379, 382 383 (1930) (provisions granting federal district courts original jurisdiction, exclusive of courts of several states, over all suits against consuls and vice consuls, should not be construed as granting to District Court or denying to state courts, jurisdiction over suits for divorce and alimony).
As the State Department’s Certificate of Diplomatic Status declared, defendant is the wife of the Chilean Ambassador to the United States. “Courts generally accept as conclusive the views of the State Department as to the fact of diplomatic status. [Cite] Under 22 U.S.C. Section 254 a(2), which is specifically referenced in § 1351, the term ‘family’ means ‘the members of the family of a member of a mission … who form part of his or her household if they are not nationals of the United States … within the meaning of Article 37 of the Vienna Convention.’”
“Article 37 of the Vienna Convention on Diplomatic Relations provides that “[t]he members of the family of a diplomatic agent forming part of his household shall, if they are not nationals of the receiving state, enjoy the privileges and immunities specified….” Vienna Convention on Diplomatic Relations, April 18, 1961, art. 37(1), 23 U.S.T. 3227, 3244, 500 U.N.T.S. 96, 116 (“Vienna Convention”) (entered into force with respect to the United States on December 13, 1972). ‘A ‘diplomatic agent’ is the head of the mission or a member of the diplomatic staff of the mission.’ Id., art. 1(e), 23 U.S.T. at 3231, 500 U.N.T.S. at 98. Heads of mission are divided into three classes, and include ambassadors. Id., art. 14(1)(a), 23 U.S.T. at 3235, 500 U.N.T.S. at 104.” [1272-73] Her failure to challenge subject matter jurisdiction at first instance is immaterial.
In 1875, a codifier left out the predecessor of Section 1351 without explanation, thus allowing state courts to exercise concurrent jurisdiction over cases against consuls. “Exclusive federal jurisdiction over cases against consuls was reinstated in 1911, [Cites] in order to ‘correct[] a mistake of omission on the part of Congress on the occasion of the former [1875] revision.’ 46 Cong. Rec. 1538 (1911) (statement of Sen. Heyburn); [Cite]. In 1948, Title 28 of the United States Code, including Section 1351, was enacted. [Cite] At that time, 28 U.S.C. Section 1351 provided that ‘[t]he district courts shall have original jurisdiction, exclusive of the courts of the States, of any civil action against consuls or vice consuls of foreign states.’ Congress amended Section 1351 in 1978 to include ‘members of a mission or members of their families (as such terms are defined in section 2 of the Diplomatic Relations Act).’ See Pub.L. No. 95 393, 92 Stat. 810 (1978). The foregoing history, including the span of thirty six years during which state and federal courts did have concurrent subject matter jurisdiction over cases against consuls, belies any argument that Section 1351 refers to personal jurisdiction.” [1373]
In addition, plaintiff’s arguments based on cases involving diplomatic immunity are inapposite. First, a court must have subject matter jurisdiction over the suit against a diplomat to empower it to decide whether or not immunity applies. Secondly, unlike subject matter jurisdiction, diplomatic immunity is waivable but only by the state or government the defendant represents.
Citation: Slater v. Biehl, 793 A.2d 1268 (D. C. Ct. App. 2002).
Filed in: 2002 International Law Update, Issue 5
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Fifth Circuit rules that in rem action brought by an Ambassador in representative capacity does not constitute an action “against” Ambassador so that federal court lacks jurisdiction
In 1992, a Boeing 727-200 aircraft, registered in the Cayman Islands and owned by Rifaat Al Assad (father of the president of Layale Enterprises, S.A.) of Syria was transported to Jordan where it underwent repairs and service. The estimated cost of repairs was more than $2,000,000. After these estimates were made, Al Assad gifted the aircraft to Jordan.
Jordan then conveyed the aircraft to Prince Talal bin Mohammed and Princess Ghida Talal, both members of Jordan’s royal family and diplomats assigned to the U.S. In the months before obtaining the registration the alleged owners entered into an operating agreement with “Arab Wings” and later into a lease agreement with HMS Aviation. According to the lease agreement the alleged owners agreed to provide the aircraft to HMS which in turn agreed to take care of all repairs and enhancements of the aircraft. Pursuant to the agreement, HMS brought the aircraft to the U.S. for servicing. In 1996 Jordan issued the alleged owners a temporary registration for the aircraft.
While in the United States, Layale Enterprises sued in Texas state court, claiming ownership of the aircraft. HMS Aviation removed the case to federal court based on federal question jurisdiction. The state court ruled that HMS Aviation was not subject to its personal jurisdiction, but that the court did have in rem jurisdiction over the aircraft. HMS filed an interlocutory appeal contesting such jurisdiction.
While the interlocutory appeal was pending, the government of Jordan intervened to assert foreign sovereign immunity as a absolute jurisdictional bar. According to Jordan, the aircraft is operated by Jordan’s wholly-owned instrumentality, Arab Wings. Jordan then removed the case to federal court, and concurrently filed a motion to dismiss. In early 1999, the district court remanded sua sponte to state court because it lacked original jurisdiction for such an action “against” a foreign state, noting that Layale’s petition did not name Jordan as a party and therefore the action was not “against” a sovereign.
The district court eventually dismissed this case for lack of subject matter jurisdiction, based on its conclusions that neither the Declaratory Judgment Act, nor any other federal statute such as 28 Sections 1251, 1330, 1351, or the Foreign Sovereign Immunities Act (FSIA), provided federal subject matter jurisdiction.
The U.S. Court of Appeals for the Third Circuit affirms. The Court first assesses why Jordan’s argument for subject matter jurisdiction fails. Jordan first claims that 28 U.S.C. Section 1251 confers jurisdiction for the purposes of this case. The Court, however, points out that the relevant section addresses only the Supreme Court’s original jurisdiction. The language does not confer jurisdiction on a federal district court.
Jordan also cites Section 1351, stating that: “The district courts shall have original jurisdiction, exclusive of the courts of the States, of all civil action and proceedings against members of a mission.” The Court finds that the language of the statute contemplates a case involving an ambassador in his individual, not in his representative, capacity.
Finally, Jordan further asserts that “the FSIA, as well as the federal common law of foreign relations, present the court with cognizable federal questions for which subject matter jurisdiction is conferred by 28 U.S.C. Section 1331 for cases or controversies arising under the laws of the United States.” [Slip op. 25]
The Court holds, however, that Jordan did not raise the issue in district court, thus precluding it from doing so at this juncture. The Court thus declines to address the matter and affirms the dismissal of the action.
Citation: In Re B-727 Aircraft Serial No. 21010, Hashemite Kingdom of Jordan v. Layale Enterprises, S.A., No. 00-11018 (5th Cir. October 31, 2001).
Filed in: 2001 International Law Update, Issue11
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In action by Norwegian oil drilling company against service providers in North Sea, Fifth Circuit concludes that Sherman Act and FTAIA did not apply to foreign conduct because domestic effect of anticompetitive conduct did not “give rise” to antitrust claim
Den Norske Stats Oljeselskap AS (Statoil) is a Norwegian oil company that owns oil and gas drilling platforms and conducts business solely in the North Sea. In December 1998, it brought an action under U.S. antitrust laws against Heeremac Vof and others. These companies are among the handful of heavy-lift barge companies in the world which can hoist and transport off-shore drilling platforms.
Statoil alleged that defendants agreed to fix bids and allocate customers, territories, and projects between 1993 and 1997. As a result of this conspiracy, Statoil had to charge higher prices for crude oil exports to the U.S., and companies paid higher prices for heavy-lift services in the Gulf of Mexico. In December 1997, the U.S. Department of Justice had filed a criminal complaint against HeereMac who had pled guilty and paid fines of $49 million. Many companies later filed civil suits in the U.S. courts seeking redress.
The district court found that defendants’ activities had little or no effect on U.S. domestic commerce, and dismissed Statoil’s case for lack of subject matter jurisdiction. Statoil appealed. A majority of the U.S. Court of Appeals for the Fifth Circuit affirms.
The Sherman Act prohibits conduct that constitutes an unreasonable restraint of trade. See 15 U.S.C. Section 1. American antitrust laws, however, do not apply to non-import commerce with foreign nations unless the activity at issue has a “direct, substantial, and reasonably foreseeable effect” on domestic commerce and “such effects gives[sic] rise to a claim under” the antitrust laws. See the 1982 Foreign Trade and Antitrust Improvements Act (FTAIA) (15 U.S.C. Section 6(a)).
The Court notes that U.S. antitrust laws do not regulate the competitive conditions of other nations’ economies, citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 582 (1986). The Court agrees with Statoil that the defendants’ alleged anti-competitive conduct had a direct, substantial and reasonably foreseeable effect on the U.S. market. Statoil fails to show, however, that this effect on U.S. commerce “gives rise” to its antitrust claim.
“Based on the language of Section 2 of the FTAIA, the effect on United States commerce — in this case, the higher prices paid by United States companies for heavy-lift services in the Gulf of Mexico — must give rise to the claim that Statoil asserts against the defendants. … We find no evidence that this requirement is met here. The higher prices American companies allegedly paid for services provided by [one defendant] in the Gulf of Mexico does [sic] not give rise to Statoil’s claim that it paid inflated prices for [the other defendants'] services in the North Sea. … [W]hile we recognize that there may be a connection and an interrelatedness between the high prices paid for services in the Gulf of Mexico and the high prices paid in the North Sea, the FTAIA requires more than a ‘close relationship’ between the domestic injury and the plaintiff’s claim; it demands that the domestic effect ‘gives rise’ to the claim” [Slip op. 19-20]
Furthermore, the legislative history supports the interpretation that the FTAIA excludes purely foreign transactions. Finally, any other interpretation would open U.S. courts to global claims on a scale never intended by Congress. Therefore, the plaintiff cannot present its antitrust claims in U.S. courts.
In a dissenters view, if there are adverse effects in the U.S., not only U.S. companies but also foreign companies should have access to a U.S. court for filing an antitrust action. Therefore, the dissenter would not impose the requirement that the injury to the plaintiff be tied to the effect on U.S. commerce.
“With respect to my colleagues, I fear that their reading of the FTAIA will hinder its purposes and reduce the effectiveness of the antitrust laws. Nothing in the text of the FTAIA, or the Export Trading Company Act of 1982 as a whole, or its legislative history, casts doubt on the importance of deterring restraints of trade that affect United States commerce. The Supreme Court has repeatedly recognized that the accent of the Sherman and Clayton Acts is deterrence, requiring violators to pay full, treble damages, even if some plaintiffs gain a windfall or are foreigners.” [Slip op. 44-45]
Citation: Den Norske Stats Oljeselskap AS v. Heeremac Vof, No. 99-20763 (5th Cir. February 5, 2001).
Filed in: 2001 International Law Update, Issue 2
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Second Circuit affirms lack of subject matter jurisdiction under Alien Tort Claims Act over private company that later acquired government-seized property; Court notes that international comity might suggest that court decline to exercise its diversity jurisdiction
Raphael Bigio and other members of his family (jointly “the Bigios”) brought this action against the Coca-Cola Company and one of its subsidiaries to recover damages for the seizure of their assets in Egypt in 1962. The defendants allegedly knew about the seizure when they took possession of the premises in 1993.
The Bigio’s alleged jurisdiction (1) under the Alien Tort Claims Act (28 U.S.C. Section 1350) (ATCA) and alternatively (2) based on diversity of citizenship under 28 U.S.C. Section 1332. The district court granted the defendants’ motion to dismiss for lack of subject matter jurisdiction. The U.S. Court of Appeals for the Second Circuit, however, reverses and remands because the district court clearly has subject matter jurisdiction based on diversity of citizenship (see 28 U.S.C. Section 1332(a)(2)). The Court expresses some doubt as to whether international comity might suggest that the U.S. court decline to exercise its jurisdiction.
First, ACTA provides that “[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” Here, the plaintiffs failed to allege that the defendants had taken part in the actions of the Egyptian government. Even though certain forms of individual conduct can violate the “law of nations,” such as the bans on genocide and war crimes, the plaintiffs would have to show here that the defendants had worked hand-in-hand “under the color of law” with the Egyptian government in seizing the property. This does not come about simply by buying property from the government. Therefore, the defendants did not violate the law of nations and the district court therefore had no subject matter jurisdiction over their ATCA claim.
Second, the Court finds that international comity might justify a discretionary abstention from exercising the court’s diversity jurisdiction in this case. ” … [Comity] may take the form of ‘a discretionary act of deference by a national court to decline to exercise jurisdiction in a case properly adjudicated in a foreign state.’ … When a court dismisses a complaint in favor of a foreign forum pursuant to the doctrine of international comity, it declines to exercise jurisdiction it admittedly has. …”
“The questions that would be addressed by the district court in this case would appear to include (1) whether the plaintiffs’ property in Egypt was wrongfully seized by the Egyptian government during the early 1960s, at which time the plaintiffs were living in Egypt, and (2) whether the plaintiffs have rights to that property. … This lawsuit’s connection to Egypt is therefore undeniably strong. By contrast, the only connection between this lawsuit and the United States … is the identity of the defendants as United States corporations. Under these circumstances and on the basis of the information before us, we cannot say that retention of jurisdiction would be the only possible course of action for the district court.” [Slip op. 40-43]
Citation: Bigio v. The Coca-Cola Co., No. 98-9058 (2d Cir. December 7, 2000).
Filed in: 2000 International Law Update, Issue 12
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In dispute over letters of credit issued to Mexican companies by foreign bank headquartered in New York, Second Circuit holds that, even if foreign corporation maintains its principal place of business in U.S. State, presence of alien party on other side defeats diversity jurisdiction
Two Mexican garment manufacturers (“plaintiffs”) sued Mashreqbank PSC (incorporated in the United Arab Emirates) and Mashreqbank New York (jointly “defendant”) for alleged failure to honor two irrevocable letters of credit issued by the defendant on behalf of buyers of plaintiffs clothing.
The defendant claimed that the case did not meet the statutory requirements for diversity of 28 U.S.C. Section 1332(a)(2) because all parties were foreign with principal places of business outside the U.S.
The district court dismissed the action for lack of subject matter jurisdiction on these grounds, and this appeal ensued. The U.S. Court of Appeals for the Second Circuit, in a per curiam opinion, affirms.
First, the Court agrees with the district court that diversity under Section 1332(a)(2) is lacking. That the defendant has (in other proceedings) claimed to have its principal place of business in the U.S. is immaterial because estoppel does not apply to questions of subject matter jurisdiction. Even if its principal place of business were in the U.S., it would not create diversity jurisdiction in this case.
“The district court apparently assumed that if, as the plaintiffs argue, the defendant’s principal place of business were in New York, then diversity jurisdiction would exist by virtue of the bank’s corporate citizenship in that State … This ignores our line of cases holding that ‘even if a corporation organized under the laws of a foreign nation maintains its principal place of business in a State, and is considered a citizen of that State, diversity is nonetheless defeated if another alien party is present on the other side of the litigation.’ …” [Slip Op. 6]
Here, plaintiffs are Mexican companies while the defendant’s New York foreign bank license indicates that the parent company is incorporated in the United Arab Emirates. Thus, there is no need to address the question of the defendant’s principal place of business.
Citation: Creaciones con Idea, S.A. v. Mashreqbank PSC, No. 00-7011 (2d Cir. November 8, 2000).
Filed in: 2000 International Law Update, Issue 11
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In dispute between U.S. and Hong Kong communications companies, Tenth Circuit rejects claim that forum-selection or choice-of-law issues implicate court’s subject matter jurisdiction
In 1993, The Wharf (Holdings) Limited (Wharf), a Hong Kong company, won a franchise to operate a cable television system in Hong Kong. During the preparation of its bid, Wharf needed a partner with experience in the cable industry and negotiated separately with two U.S. companies, United International Holdings, Inc. (UIH) and NYNEX Network Systems Company (NYNEX), so that it could present them as experienced partners in the endeavor. UIH agreed to provide technical expertise for Wharf’s bid and in return expected to receive 10% of the shares of the Hong Kong cable television system.
After Wharf won the bid, its board of directors stalled UIH’s participation and informed UIH that it “is not ready to entertain your investment at this time.” UIH brought an action in federal court premised on Section 10(b) of the Securities and Exchange Act of 1934 and Colorado law. The jury found in favor of UIH and awarded $67 million in compensatory and $58.5 million in punitive damages. Wharf noted an appeal.
The U.S. Court of Appeals for the Tenth Circuit affirms. One of Wharf’s arguments on appeal was that Hong Kong law governed the relationship between Wharf and UIH. Since it barred the application of U.S. federal securities law, it prevented the exercise of federal jurisdiction. Wharf pointed to several documents that the parties had drafted “� but never signed “� that provided that Hong Kong law governed and that the parties would submit to the non-exclusive jurisdiction of Hong Kong courts.
The Court finds the unsigned documents insufficient to constitute binding forum-selection and choice-of-law provisions. Moreover, the Court disagrees with the premise underlying Wharf’s argument, i.e., that forum-selection or choice-of-law issues implicate a court’s subject matter jurisdiction.
“Forum selection issues raise concern not of subject matter jurisdiction but of improper venue or failure to state a claim on which relief may be granted. … Choice of law issues are equally unrelated to subject matter jurisdiction; state and federal courts routinely apply to [sic] the law of other states, even of other countries. … Although a district court applying foreign law might find it appropriate to exercise its discretion and either transfer venue or dismiss a case on grounds of forum non conveniens, the court here denied Wharf’s motion to dismiss for forum non conveniens, a ruling that Wharf does not separately appeal.” [Slip op. 30-31]
In addition, Wharf failed to present any choice-of-law issue regarding UIH’s Rule 10b-5 claim. Here, it is enough that the 1934 Act reaches Wharf’s conduct. It prohibits fraud in the sale of securities where significant conduct occurs in the U.S. or where the conduct has substantial effects in the U.S.
Finally, Wharf failed to identify any international comity or international choice-of-law rule that would require the court to decline jurisdiction in this case. The Tenth Circuit has stated that it will not consider an international-comity or choice-of-law issue unless there is a “true conflict” between U.S. and foreign law. A true conflict exists only when a person subject to the laws of two countries cannot comply with both. Here, a true conflict would exist only if Hong Kong law required Wharf to follow a course of action that amounted to securities fraud under the 1934 Act.
Citation: United Int’l Holdings, Inc. v. The Wharf (Holdings) Ltd., No. 97-1421 & 98-1002 (10th Cir. April 28, 2000).
Filed in: 2000 International Law Update, Issue 5
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In case of first impression, New York district court holds that federal courts should now consider Hong Kong as part of “foreign state,” i.e., China and therefore its citizens may invoke alienage jurisdiction under 28 U.S.C. Section 1332(a)(2)
In Matimak Trading Co. v. Khalily, 118 F.3d 76 (2d Cir. 1997), cert. denied, 522 U.S. 1091 (1998), the Second Circuit held that Hong Kong, while a British dependent territory, was not itself a “foreign state” for purposes of 28 U.S.C. Section 1332(a)(2) [U.S. District Courts have original jurisdiction over civil actions between "citizens of a State and citizens or subjects of a foreign state."]
The plaintiff in this case, Favour Mind Ltd., is a Hong Kong corporation. The defendant, Robert Czwartacky, is a citizen of South Carolina who operates two New York corporations. Czwartacky allegedly breached a sales agreement between the parties. Favour Mind brought suit, basing jurisdiction on 28 U.S.C. Section 1332(a)(2) and alleging that it had shipped garments to Czwartacky’s companies on several occasions but never received any payments.
Czwartacky moved to dismiss pursuant to Matimak because Favour Mind, as a Hong Kong corporation, is not a “citizen or subject of a foreign state” under Section 1332(a)(2) and therefore cannot maintain an action in federal court. The U.S. District Court for the Southern District of New York denies the motion.
The court expressly limits the holding in Matimak to the period during which Hong Kong was a British territory. The Second Circuit had “expressed no view” as to the status of Hong Kong corporations “following Great Britain’s transfer of sovereignty” to the People’s Republic of China on July 1, 1997.
The Second Circuit had established the doctrine of “de facto” recognition of foreign states for purposes of Section 1332(a)(2) in Murarka v. Bachrack Bros., Inc., 215 F.2d 547 (2d Cir. 1954). In that case, the Court recognized India as a “foreign state” prior to the U.S.’ formal recognition of India because the U.S. had already taken significant steps towards such recognition. In Matimak, the Court refused to recognize Hong Kong as ration may assert alienage jurisdiction in federal court after Hong Kong’s reversion to China.
In this case, both the U.S. Department of State and the Hong Kong Special Administrative Region (SAR) filed amicus curiae briefs arguing that Favour Mind is a citizen of the “foreign state” of China. Also, the Basic Law” of Hong Kong established a regime of “one country/two systems.” This allows Hong Kong to retain its separate commercial and legal institutions though becoming part of China.
Most importantly, a diplomatic note from the Chinese Government declared that: “Hong Kong is an inalienable part of the People’s Republic of China. The Hong Kong SAR is a local administrative region of the People’s Republic of China, which shall enjoy a high degree of autonomy. Companies established in the Hong Kong SAR in accordance with its laws and decrees therefore enjoy the nationality of the People’s Republic of China.” [9/9/99 Diplomatic Note from Embassy of People's Republic of China to Department of State, No. CE 118/99.]
Finally, the district court notes that the principles underlying alienage jurisdiction support the finding that Hong Kong is part of a “foreign state.” China considers the treatment of its citizens, including Hong Kong companies, a very important matter. To deny that Hong Kong corporations are citizens of China would frustrate the interests of every concerned government “� the U.S., China and the Hong Kong SAR. It would also antagonize recognized foreign powers — the harm that alienage jurisdiction was mainly designed to prevent.
Citation: Favour Mind Ltd. v. Pacific Shores, Inc., 98 Civ. 7038 (SAS) (S.D.N.Y. December 7, 1999).
Filed in: 2000 International Law Update, Issue 1
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In federal litigation between foreign corporations over enforcement of arbitration clause, Second Circuit concludes that New York Arbitration Convention and Federal Arbitration Act grant federal jurisdiction regardless of whether U.S. is “center of gravity” for parties or transactions
[For the preliminary facts, see CHOICE OF LAW above.] In July 1998, SCI filed a suit in the Dominican courts against SECLP, Enron International C.V., Enron Development Corp., ER, ACF, and Travamark. The following month, SECLP and Euron petitioned a New York federal court to compel arbitration of the dispute with SCI and to enjoin SCI from prosecuting the Dominican lawsuit. The district court granted the petition and an appeal ensued. The U.S. Court of Appeals for the Second Circuit affirms.
SCI’s threshold contention on appeal is jurisdictional. He maintained that, pursuant to the New York Convention [The Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958], the district court lacked jurisdiction over plaintiffs’ suit.
Both sides agree that Chapter II of the FAA is the only basis for federal jurisdiction here. Section 203 of the Act declares that “[a]n action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States.”
“The Convention and the implementing provisions of the FAA set forth four basic requirements for enforcement of arbitration agreements under the Convention: (1) there must be a written agreement; (2) it must provide for arbitration in the territory of a signatory of the convention; (3) the subject matter must be commercial; and (4) it cannot be entirely domestic in scope.” [Slip op. 4]
Though this case seems to fit the four demands of the Convention and the FAA, SCI argued for an added “center of gravity” test. By this it apparently meant that some key element of the arbitration must lie in a state party to the Convention. This is not the case here. SCI and SECLP are incorporated in the British Virgin Islands and in the Turks and Caicos Islands respectively, and the power plant is in the Dominican Republic. None of these states is a party to the Convention.
The Court first notes that, in referring to the “Contracting State,”� Article II of the Convention only denotes the situs of the court where a party seeks recognition of an arbitral award. It does not require that the enforcing court otherwise have jurisdiction over one or more of the parties.
“Similarly, the FAA in 9 U.S.C. Section 202 makes no mention of a requirement that the arbitration involve parties subject to the jurisdiction of Contracting States or that the location of the dispute be ‘centered’ in such a State. While 9 U.S.C. Section 202 explicitly excludes domestic disputes from Chapter Two of the FAA, it does not make any distinctions among foreign disputes or foreign parties.” [Slip op. 5]
Moreover, the Convention’s traveaux preparatoires show an intent to remedy several of the shortcomings found in the prior Geneva Convention of 1927. “Most importantly, the Convention eliminated the requirement in the Geneva Convention that the parties be subject to the jurisdiction of Contracting States. (Cits.) Under Article II of the Convention, the citizenship of the parties to the agreement and the location of the disputed subject matter are not controlling.” [id.]
SCI also relies on the reservation allowed by Article I(3) of the Convention. It provides that “any State may on the basis of reciprocity declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Contracting State.”
The Court, however, sees no trace of a “center of gravity” test in this provision. “All that the reciprocity provision requires is that the award be granted in a ‘Contracting State.’ In this case, the arbitration agreements between SCI and Enron contemplated arbitration in the United States a signatory to the Convention. If the arbitration results in an award, it will have been granted in a signatory State and will be enforceable either here or in another Contracting State.” [Slip op. 6]
The present controversy met the four standard elements noted above, hence no further test need apply. In the Court’s view, the lower court did have jurisdiction under both the Convention and Chapter Two of the FAA.
Citation: Smith/Enron Cogeneration Limited Partnership, Inc. v. Smith Cogeneration International, Inc., 1999 WL 1114706 (2nd Cir.(N.Y.)).
Filed in: 1999 International Law Update, Issue 12
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