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

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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. GuzmÃ¡n, 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.

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