## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it

____________ N os. 06

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- 1013 C HA RLES A. C RAI G a nd B ARBA RA J. C RAIG , P la intif fs-A pp ellees , v. O NT A R I O C OR PO RA T I ON, D ef endant-Appellant.

____________ Appeals from the United St ates District Court fo r the S outhernDi stricto f Indian a, Indian apolisDiv isi on. No . 1:05- cv-861- LJM-J MS

—L arry J . M cKinn ey, Judg e.

____________ A RG UE D M AY 16, 2008

— D ECI DE D S EP TE MBE R 10, 2008

____________
Befo re B AUER, P OSNER, an d W OO D , C ircu it Judges. W OO D , C ircu it Judge. C h ar les C ra i g w or ke d for O n ta rio Corpor ati on a nd part i ci pated i n i ts em plo yee st ock opti on pl an. U nd erthe p lan , he was e nti tl ed to tr ansfer som e of th e sha res of th e stock h e acq uired to his w ife B arbara , and he d id so. T he plan als o p r ovide d f or a bon us distribu t ion of stock share s up on th e pa rtici p an t’s re ti re m ent. W h en C ra i g r eti re d i n 200 1, he o ffer ed to2 N os. 06

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- 1013

se ll his sh ar es ba c k t o O n ta rio. O n ta rio a c c e p te d , bu t it pai d wi ththr ee pr o m i ss o r y no te s r athe r tha n c as h. By the i r te r m s, the se not es w er e s ubj ec t t o “S ta ndbya nd S ubo r di na ti o n Agr ee m en ts , ” whi chs ubo r di na te d the Crai gs’ r i ghts to thos e o fcer tai n senior cre dit or s ( Fi fth Thir d Bank and F i rs t M er chants Bank). By Decem ber20 03, Ontari o w as f aci ng di ffi cul ti es i n m eet i ng i ts fi nanci al o bl i g at i o ns . Ev en tu al l y i t r ea ch ed ana g r ee m en t wi ththe Crai gs to suspend p ri nci pal paym ents unti l Decem ber 20 04
. The a g r eem entwas no t r en ewe d, ho wev er, a nd the Cr ai g s se nt Ont ar i o a no ti ce o f def au l t an d su ed in the dist ri ct c ourt fo r the S outher n Dis tr i ct o fI nd i ana, to re cove r on the not es. They c onte nd ed that thei r case fel l wi th i n the di st r i ctcou rt ’ s di ve r si tyj ur i sdi ct i o n, un d er 28 U
. S. C
. § 1332(a) and ( c). The Crai gs w er e no t the o nl y credito rs tr yi ng to ge t m oneyfro m Ont ar io. Fi fth Thi rd se nt Ontar i o a no ti ce o fde f au l t; tha t cl ai m was s et tl ed i n J une 2 00 6. F i r stM erchants al so ass erted thatOntari o had defaul ted o n i ts note s, but as ofthe ti m e thi s ca se re ached the dist ri ct cour t, i ts cl ai m was sti l l o utsta nd i ng. The dis tr i ct c ourten te re d j ud gm ent forthe Crai gs on the no tes , st ati ng tha t e ven though the term s se em to preve nt any p aym ent t o them , theydo notbarthe Crai gs from redu cing th eir claim to j ud gm en t. T h e d is trict court d en ied a m ot ion for re lief fro m j u d g m e n t b y O n ta rio i n N ove m ber20 06, and the fi rs t app ealbefor e us ( N o. 06- 4409 ) chal l enges thatr uling. Subse quentl y, however, Ontari o disc ove red fa cts that draw the dist ri ct c ourt ’ s s ubj ect- m att erj uri sdic tio n i ntoN os. 06

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- 1013 3 questi on. I t a pp ear s that the par ti es m ay not be ofdi ver se c it iz e n sh ip. O nt ario m oved un d er F ED . R. C IV . P. 60 ( b) ( 4) f o r r el i effrom the j udg m en t o n thi s ba si s ( i ts s ec o nd m oti on under Rul e 6 0, but that d et aili s uni m port ant f or o urpur po se s) , b utthe di st r i ctc o ur t he l d that it ha d no j uri sdic ti on to ru le o n the m oti on be cause the c ase was bef or e thi s co urt on a pp eal. The co urt furtherhel d that i t had no j uri sdic ti on e ven t o conduct a hear i ng o r to r e v i e w ne w fi l i ng s whi l e the a pp e a l wa s pe nd i ng . That rul i ng l ed to a second noti ce o fappeal, N o. 08

- 1013 , whi chwe ha ve c o ns o l i dat ed f o r di spo si ti on w i ththe fi rs t o ne. N atur al l y, the fi rs t quest i on we m ust co nfr ont is that o f j ur i sdi ct i o n. Her e we pa us e to no te an o ddi tyi n the j u ris d ict ion al st at em en t t h at th e C ra igs filed in t h eir br i efb efo r e th i s co ur t. Appel l ant Ont ar i o , whi chi s co nte st i ngj ur i sdi ct i o n, a ss er ts i n i ts j ur i sdi ct i o na l s ta te m en t that the Cra i gs had sai d at the o utset o f the l i ti gat i on th at th ey w er e “ re sid en ts ” o f A riz on a, an d th at O n ta rio i s a n I nd i ana co rpor ati on with i ts pri nci pal pl ace of busi ness i n I nd i ana. In f act, Ontari o continues, i t has un cove red f acts l ead ing it to beli eve th at th e C raigs are ci ti ze ns o fI ndi an a. I t th us c ha l l en g es the a utho r i tyo fthe federa l co urts to hearthi s ca se at al l
. W hen w e l oo ked to th e C r a i g s ’ b r i e ft o s e e wh a tr e s p o n s e t he y h a d , a l l we f ound w as th at they “st ate thatthe J uri sdic ti onalS tat em en t in A p p ella n t’s B ri e fis co m p let e a n d co rre c t.” T h is see m ed l i ke a co ncessi on e i therthatthe re quir em ents ofd ive rsi ty j uri sdic ti on have notbee n sat i sfi ed, o r at a m i ni m um a conces si on that a heari ng i s nec ess ar y t o get to the b ott om o fthi s.4 N os. 06

- 4409 , 08

- 1013 W h et h er or n otth er e w as s u c h a c on c es sio n, On ta rio i s co rr ect that th e f acts r el ati ng to subj ect- m att erj uri sdict i on m ust be e x p lor ed her e. The di str i ct c ourtwas m i st ak entha t i t ha d l o sta l l aut hor i tyt o do s o whenthe m oti on und er Rule 60(b) ( 4) was pres ented t o i t. W e there

f or e v acat e the co urt’ s j ud gm ent on the m er i ts i n N o. 06 -44 09 an d rev er se th e c ou rt ’s o rd er d en yi n g t h e R u le 60 ( b) ( 4) m o ti o n i n No. 0 8- 10 13 a nd r emand f o r a n e vi den

ti ar y he ar i ngo n s ubj ec t m at te r j ur i sdi ct i o n.
I A fteran a pp ealhas been fi led , the di str i ct c ourtm ay stil l con side r a m otion for reli ef from j ud gm en t un d er F ED . R. C IV . P
. 60 ( b)
. S ee Grae f e nhai n v . Pabs tBr e win g Co. , 87 0 F. 2d 1198 , 12 11 ( 7th Ci r. 19 89)
. I n gene ra l, i fthe m oti on l acks m er i t, the cour t s houl d rul e pr om ptl y a nd deny i t; ifthe cou rt find s som e m er it , i t shou ld issue a short m emor an dum s o tha t th e cour t o fa ppea l s ca n b e i nf or m ed ofi ts vi ew s a nd ta ke appropri ate act ion
. S ee 7 TH C IR . R ULE 57 ; Boyko v. Ande rs on , 185 F.3d 672 , 675 (7th C ir. 1999 ). H er e, the dis tr i ct courtdecl i ned to express any tenta ti ve vi ew o fthe m er i ts. I t expli ci tl y di scl ai m ed j uri sdic ti on “ to c on d u c t a h ea r i n g or to rev iew n ew filing s w h ile th is m at te r p en d s o n ap p ea l.” T h e C ra igs so m eh ow find in th i s st at ementa n i ndi ca ti o n tha t th e di st r i ctco ur t th o ug ht that i t di d have j uri sdic ti on o verthe case and w as i nti m ati ng a negat i ve vi ew o fthe m ot ion , but w e s ee nothi ng o f t h e s o rt. Th e d istri ct cou rt w as aw are of Boyko, but it thought that Boyko wa s l i mi t e d t o hab e a s co r pu s p r o c e e d-N os. 06

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- 1013 5 ings. Th e w ord ing of Boyko do es not, howev er, suppo r t an y su c h lim ita tio n ; in fac t, Boyko ci tes a w i de va rie ty ofcas es f orthe propos i ti on that a d istr i ct c ourthas j uri sdic ti on to consi der o r deny, but not gr ant, a Rule 60(b) m oti on. S ee i d. at6 7 5 ( c o l l e c t i ngc a s e s a nd di s c us s i ngthe b e s tp r oce du re ) ; se e a l so B ronis z v. A shcroft, 78 F. 3d 632 ( 7th C i r. 20 04) (ap ply i ng Boyko in im m igr at ion co n te x t); Wi l l i a ms o n v. Indiana U niversi ty, 3 45 F
. 3d 45 9 ( 7th Ci r . 2 00 3) ( m en ti o ni ng “the pro ce dur e we appr o ve d i n Boyko ” i n a n e m pl o y m en t case ). This l i m i ted powe r is a l l the m or e i m port ant when su bj ec t- m at te r j urisdi ct i o n i s ats ta k e. “ [ I ] t ha s be enthe vi rtual l y uni ver sa lly acce pted practi ce o fthe federa l cour ts to perm i t a ny par ty to chal l enge or, i nd eed, to ra i se s ua spontethe s ubj ec t- m atter j ur i sdi ct i o n o fthe c ou rtatan y t im e a n d atan y s ta ge of th e p ro c ee d in gs .” Sa da t v. M ertes , 6 15 F
. 2d 11 76 , 1 18 8 ( 7th Ci r . 1 98 0)
. The Fe d er al R u les of C ivil P r oc ed u re are n o les s in sis te n t: “If the co ur tde t e r mi ne s a ta nyt i me tha ti tl a c k s s ubj e c tm att erj uri sdic ti on, the cour t m ust di sm i ss the a cti o n. ” F ED . R. C IV . P. 12( h)( 3)
. S ubj ect- m att erj uri sdic ti on i s s o cen tral to th e d istri ct cou r t’s pow er to i ssu e any orders w hatso eve r that i t m ay be inquir ed i nto at any t i m e, with o r wi th o uta mot i o n, b y any pa r tyo r b y the c o ur t i ts el f
. The or der denyi ng O n tar i o’ s s eco nd m oti on f orr el i efwas ther ef or e in er ro r, and the di str i ct c ourtsho uld have tak en up the i ssue.6 N os. 06

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- 1013 II T he only thing th at m ight ha ve j us tified th e c o u r t’s dec i si o n t o pa ss on th e j ur i sdi ct i o na l c ha l l en g e i s i fOntar i o’ s show i ng w er e so i nconsequenti alas to be fri vol ous. Bu t i t was not
. I nd eed, as we und er sta nd the proffer ed f a c t s , th e r e i s a s e r i o u s j u r i s d i c t i o n a l p r o b l e m h e r e . On Ontari o’ s s i de, the f acts that or i gi nal l y w er e al l ege d are not conte ste d: i t i s a n In d i ana co rpor ati on with i ts pri nci pal pla ce o fbusi ness i n I nd i an a. M att er s a re f arl ess cl earo n the Crai gs’ si de. They cl ai m to be “r esi dents” of A rizo na

— ani na dequa te j ur i sdi ct i o na l c l ai m t o b eg i n wi th, as w e r epeate dlyhave r em i nd ed l i ti gants and dis tr i ct j u d ge s, se e, e.g., Cam i co M ut
. Ins . Co. v. Ci t iz ens Bank, 474 F. 3d 989, 99 2 ( 7th Ci r. 20 07) ; M eyerso n v . Ha rrah ’s E a st Chic ago Casi no, 29 9 F.3d 61 6, 61 7 (7 th C ir. 20 02 ); M cM ahon v. B un n-O -M a tic C o rp., 1 50 F
. 3d 65 1, 6 53 ( 7th Ci r . 1 99 8)
. But ev eni fthe y ha d pr o per l y a l l eg ed th atthe y wer e ci ti ze ns of A riz on a, th ey are in t r o u b l e . On ta rio p re se n te d ev idence thattheym ay i n f act be c i ti zens ofI nd i ana. It w as n ot u n til th e C ra igs be ga n effo rt s t o c olle c t o n th eir j ud gm ent that Ontari o disc ove re d som e di sturbi ng pi eces ofev i dence. I t co rr ectl y pr ese nted thi s in form ati on t o th e d istri ct cou rt i n its secon d m otion for reli ef:

• The 2005 and 200 6 p ro pertytax re cor ds f orthe Crai gs’ p rop ertyi n Ar i zo na

— w h ich w as u se d to alleg e t h eir reside nc e the re

— l i st ed anI ndi an a addr es s i n the “t ax pay eri nf o r m at i o n” s ec ti o n.

• The Cr ai g s pur ch as ed a se co nd I ndi an a pr o per ty (the

“ We n t wo r th P r o p e r t y ” ) r i g h tb e f o r e fi l i n gth e i r c o mpl aint( F eb r ua r y 2 00 5) , a nd s o l d a no th ero ne ( th eN os. 06

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“ Hi c k o r y H i l l s P r o p e r t y ” ) r i g h ta ft e r fi l i n gth e c o mp lai nt (July 2005).

• B arb ar a C ra ig h a s r em ain ed reg ist er ed to vo te in I ndiana, a nd di d s o i n pe r so n i n 2 00 6. UnderI ndi an a l aw , a perso n m ust be r esi dent i n a pr eci nct f or30 days p rior to th e e lec tio n in o rd er to vo te th er e, I ND . C ODE § 3- 7- 13- 1, and i f a vot er m ove s to anothe r st at e w ith th e i nt en ti o n t o e st ab l ish resi den cythe r e, the n h e o r s he i s no l o ng erc o ns i der ed a n I ndi an a r es i den t for vo tin g p u rp os es , I ND . C OD E § 3

- 5- 5- 8.

• I n A pri l 2 005, the Crai gs re cei ved the I nd i ana ho m este ad tax cr edi t for the W entworth Pr oper ty, wh i ch th eyco nt i nue d t o r ec ei ve i n 2 00 6 an d 2 00 7. F o r the p urp oses of the cred it, a hom estea d i s “an i nd ivi d ua l’ s p rin c ip al p lac e o f res id en c e w h ich
. . . is loc a t ed in I nd i ana . . . . ” I ND . C OD E § 6

- 1. 1- 20. 9- 1( 2)
. Bef or e 2 005, th e Cr ai g s ha d r ec ei ve d the ho m es te ad cr edi t o n the H i cko ryH i l l s Pr oper ty. Princi pal pl ace ofr esidence, ordom i ci l e, i s ce ntra l to deter m i ni ng ci ti zenshi p. S ee G a lva Fo un dry C o . v. Heiden , 9 2 4 F
. 2 d 7 2 9 , 7 3 0- 31 ( 7th C ir. 1991). Al l o fthe s e f a c t s c a l l i nt o qu e s t i o n the Cr a i g s ’ c i t i z e ns hi p, w hich i s th ei r b ur dent o pr o ve a s th e l i ti g an ts c l ai m i ng th e r i g htt o t he fede r alf o r um . The y c o m pl ain tha t th e j u ris d ict ion al c rit icis m s w er e n otsu p p or te d by ad m iss ible e v i d e n c e , b u t th i s p u t s th e s h o e o n th e wr o n g f o o t : t he Crai gs, as the pl ai nti ff s, have al w ays had the burden of p roving fed eral j urisd iction. T he y cite m an y cases requ irin g a h eig h te n ed sh ow in g for a R u le 6 0(b ) m ot io n , b u t in al l o ftho se the Rul e 6 0( b) m ovant al so had the bur den of p ro of on the i ssue ra i sed. W here j uri sdic ti on i s in8 N os. 06

- 4409 , 08

- 1013 que st i o n, the pa r tya ss er tinga r i gh t t o a fede r alf o r um ha s th e bur den o f pr o o f, r eg ar dl es s o f who r ai ses th e j uri sdic ti onalchal l en ge and w ho pre sents the m oti on und erRule 60 ( b)
. S ee Graf on Corp
. v. Haus e r m ann , 602 F
. 2d 78 1, 78 3 ( 7th Ci r . 1 97 9)
. Ont ar i o ha s r ai se d a s er i o us q u e s t i o n ab o u tt he Cr a i g s ’ t r u e c i t i z e n s h i p a tth e t i me thi s ca se w as fi l ed ( J une 8, 20 05) , and the Crai gs now ha v e the o b l i g a t i o n t o r e s po nd
. The Crai gs’ las t ar gum ent i s a curi ous o ne. Per haps not und er sta nd i ng the fund am entali m port ance o fsubj ectm att erj uri sdic tion o r the b an o n advi sor y o pini ons, they c on te n d th at th i s c o u rtsh ou ld rea c h th e m er its ev en if it d ecid es to rem an d the ca se to the district cou rt fora hear i ng o n j uri sdic ti on. They t h in k that B row n v . U nited Sta tes , 976 F .2 d 1 10 4 (7 th C ir. 19 92 ), su p p or ts th is m et h od of p ro c ee d in g. B u t itd oe s n ot ; B r own w as a case i n whi cha t ax pay er, f ac ed wi ththe pr o spe cto fb eing w hi psaw ed by differ ent c re d itors afterl osing to o ne o n su m m ar y jud gm en t, m ov ed fo r re lief u n d er R u le 6 0(b ). A ll th e co ur t di d was t o r ul e o n Br o wn’ s appe alfr o m the und er l yi ng j ud gm en t and r em and the Rul e 6 0( b) m atter

— w hi ch had nothi ng to do with subj ect-m att erj uri sdict i on

— to the di st r i ctc o ur t. Nothingi n Br own i nd i cate d that subj ect- m att erj uri sdic ti on coul d o r shoul d be t re ate d th e s am e w ay . Th e ch alle n ge p re se n te d h er e g oe s d ire c tly to the di st r i ctc o ur t’ s fu nda m en ta l po wert o he arthe c as e a t a ll: if th e p ar tie s a re n o t d ive rs e, th en an en tir ely differ ent s ove re i gn wil l be adj ud i cating the cas e. En ough o fa chal l enge to the dis tr i ct c ourt ’ s power t o adj ud i cate was pres ented th at i t s houl d have a ssur ed itselfthat i ts j urisd iction w as p rop er. W e the reforeN os. 06

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- 1013 9

re m and the ca se f oran evi denti ar y hearing o n the questi on w hethert h e p arti es ar e pr oper l y di ver se. A t thi s hea ri ng, th e C raigs bear the b u r d en of p roving th at th ey w ere c i t i z e ns o fAr i z o na a tthe t i me the s ui twa s fi l e d.

III A s a fi nal not e, we obse rv e tha t s eve ra l tho rny i ssues maya r i s e o nc e the que s ti o n o fc i t i z e ns hi p i s o pe ne d u p. W ha t ha ppen s i fCharl es Cr ai gi s pr o per l y di ve r se , b ut Ba rb ar a C ra i g i s no t? S he i s nam ed on s om e o fthe note s, but i t is notcl earwh ethershe i s a party who m ust be j oi ned. A notherco m pli cati on ar ises fro m the f act that A riz on a is a c om m u n ity p ro p er ty st at e, bu t In d ian a is not. I t i s pos sibl e, ev en i fCharl es Crai g turns o ut to be a c i t i z e n o fAr i z o na a nd Ba rb a r a Cr a i gh a s r em ai ned a ci ti zen ofIndi ana, that a non- dive rs e par ty m ay have a o nehal fi nter esti n the note s. Th ese ar e quest i ons that the di str i ct c ourtm ust a nsw er fi rs t. Ontari o proper l y c alled the pro bl em to the dist ri ct co ur t’ s at te nt i o n, a nd the c o ur t ha d the po wert o c o nsi der the m oti on under Ru l e 60( b) , ev en tho ugh an appeal ha d a l r ea dy be enfi l ed. I nde ed, it is unde r a c o nt i nui ng o bl i g at i o n to as su r e i ts el fofsubj ec t- m at te r j ur i sdi ct i o n, no m att erhow the i ssue i s r ai sed. W e V ACATE th e j udg m en t on th e m er its in N o. 06 -4 4 09 , R EVER S E th e den i alo fOnta r i o ’ s se co nd Rul e 60 ( b) mot i o n in N o . 0 8- 10 13 a nd R EMA ND f orfu rther proce edi ngs in acco rdance w i th th i s o pi ni o n.

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