Court Opinion

ID: 2994516
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:15:10.121615+00
Date Added: 2024-06-11T15:02:51.139264
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

Nos. 99-3393 & 99-3565

CCC INFORMATION SERVICES, INCORPORATED,
a Delaware corporation,

Plaintiff-Appellee,

v.

AMERICAN SALVAGE POOL ASSOCIATION,
a Florida non-profit corporation,

Defendant-Appellant.

Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
Nos. 97 C 8634 & 98 C 4535--David H. Coar, Judge.

Argued April 4, 2000--Decided September 22, 2000

  Before COFFEY, ROVNER and DIANE P. WOOD, Circuit
Judges.

  ROVNER, Circuit Judge. We are presented in this
case with a purely jurisdictional question
regarding member corporations and diversity
jurisdiction. The district court found that the
members had a direct interest in the litigation
and that therefore their citizenship, as the real
parties in interest, should control in
determining whether complete diversity existed.
Because we believe that the corporation itself is
the real party in interest, we reverse and
remand.

I.

  CCC Information Services, Inc. ("CCC")
contracted with the American Salvage Pool
Association ("ASPA") to share information. ASPA
is a Florida not-for-profit corporation with its
principal place of business in Arizona. Because
it is a not-for-profit corporation, ASPA does not
have shareholders but rather has members. Its
members are 210 automobile salvage businesses
that store and sell automobile salvage. CCC is a
Delaware corporation with its principal place of
business in Illinois. CCC is in the business of
collecting automobile-related information,
processing that data and then selling it to
insurance companies. Under the contract, ASPA
agreed that its participating members would
provide CCC with information about automobile
salvage, including, for each vehicle: make, model
and year; selling price; sale date; mileage; and
other useful information. CCC would, in turn, use
this data to create average salvage valuations,
which it would then sell to insurance companies.
The contract provided, in relevant part, that
ASPA owned the data, and that CCC had the right
to use the ASPA name and any ASPA trademarks or
trade names in selling the compiled information.
The contract also provided that CCC would not
compete with ASPA or its members in the
automobile salvage business.

  In 1997, CCC notified ASPA that it was
terminating the agreement. CCC planned to create
a new subsidiary that would engage in the
business of brokering salvage, a business that
arguably violated the non-compete provision in
the contract. CCC also wished to create a new
information product using ASPA’s data, but the
agreement did not allow this particular use of
the data. CCC filed a declaratory judgment action
in federal court, seeking a declaration that its
new brokerage business would not violate the non-
compete agreement, or in the alternative that the
non-compete agreement was unenforceable. CCC also
sought a declaration of the value of the ASPA
data that it was using without authorization.
ASPA filed a three-count counterclaim for breach
of contract, for a declaration that the non-
compete provision was enforceable, and for
violations of the Illinois Trade Secret act. In
its prayer for relief, ASPA sought compensatory
and punitive damages, an order enjoining CCC from
violating the non-compete provision, a
declaration that the non-compete was enforceable,
an order requiring CCC to return all of ASPA’s
proprietary information, and an order enjoining
CCC from using ASPA’s name and trademark in the
promotion of CCC’s information products. At
approximately the same time that ASPA filed its
counterclaim in federal court, ASPA’s largest
member, Insurance Auto Auctions, Inc. ("IAA"),
filed suit against CCC in the chancery division
of the Circuit Court of Cook County, Illinois.
IAA is an Illinois corporation with its principal
place of business in Illinois. In the state court
suit, IAA alleged trade secret claims and breach
of contract. At CCC’s request, the Illinois court
added ASPA as an indispensable party to the state
court suit, and allowed CCC to file a
counterclaim against ASPA. IAA then voluntarily
dismissed its claims in state court and ASPA
sought to remove CCC’s counterclaim to federal
court. The state court action was subsequently
removed to federal court and consolidated with
the federal case initiated by CCC.
  Following discovery and only six weeks before
the trial date set by the district court, CCC
moved to dismiss the federal suit for lack of
subject matter jurisdiction. CCC contended that,
in the course of discovery, it had determined
that ASPA’s members were the real parties in
interest. Because some of the members, including
IAA, are Illinois citizens, and CCC is also an
Illinois citizen, CCC contended that the
requirement of complete diversity was not met,
and the action should be dismissed. The district
court agreed. Remarking that the real party in
interest was the person who possessed the
contractual right to be enforced, the district
court found that the contract gave ASPA members
a direct interest in the litigation of the non-
compete clause. Because the ASPA members were at
the "front line" of the litigation, the court
found that the members were real parties in
interest, and that their citizenship should
therefore control for diversity purposes. The
court therefore granted CCC’s motion to dismiss.
ASPA appeals.

II.

  ASPA contends on appeal that when a corporation
itself has a direct interest in the controversy,
the corporation’s citizenship should control for
purposes of diversity, without regard to the
citizenship of the members. ASPA cites the
general rule that when a corporation is a party,
the court should rely on the citizenship of the
corporation alone when determining whether
complete diversity exists. See 28 U.S.C. sec.
1332(c). According to ASPA, this Court’s
exception to that rule, carved out in National
Association of Realtors v. National Real Estate
Association, 894 F.2d 937 (7th Cir. 1990)
("NAR"), is limited to those situations where the
named corporate party has no interest in the
outcome of the litigation. Because this case
involves ASPA’s contractual rights, ASPA
maintains that it is the real party in interest,
and the court should consider only its corporate
citizenship and not the citizenship of its
members. ASPA also advocates a bright line
analysis for diversity jurisdiction, and urges us
to find that a rule focusing on the citizenship
of the corporation even when the members have an
inchoate interest in the litigation is more
consistent with precedent. In response, CCC
attempts to turn our attention to ASPA’s request
for injunctive relief, and specifically to the
request to enjoin CCC from competing with ASPA’s
members. CCC contends that the members are the
real parties in interest because it is the
members and not the corporation that will suffer
any financial loss from CCC’s misappropriation of
the data, and it is the members who will suffer
if CCC begins to conduct business in the auto
salvage field. Indeed, CCC argues, because ASPA
itself does not engage in the auto salvage
business, CCC could not breach the non-compete
unless it was competing with the members
themselves. CCC cites every reference in the
contract to the members, and points to ASPA’s
prayer for relief which includes requests that
CCC be enjoined from competing with ASPA’s
members.

  We review de novo the district court’s
dismissal for lack of subject matter
jurisdiction. Sapperstein v. Hager, 188 F.3d 852,
855 (7th Cir. 1999). We look first to the
complaint to determine whether subject matter
jurisdiction is established, accepting as true
all well pleaded allegations and the inferences
that may be reasonably drawn from those
allegations. Id. When evidence pertinent to
subject matter jurisdiction has been submitted,
the court may look beyond the jurisdictional
allegations of the complaint to determine whether
subject matter jurisdiction exists. Id.
Ordinarily, we look only to the citizenship of
the named parties and not to the citizenship of
the persons being represented by a named party in
order to determine whether complete diversity
exists. F. & H.R. Farman-Farmaian Consulting
Engineers Firm v. Harza Engineering Co., 882 F.2d
281, 284 (7th Cir. 1989), cert. denied, 497 U.S.
1038 (1990). This is the general rule for
corporations as well as natural persons. See 28
U.S.C. sec. 1332 (c)(1). With certain exceptions
that are not relevant here, that section provides
that a corporation is deemed a citizen of the
State in which it was incorporated and of the
State where it has its principal place of
business. ASPA was incorporated in Florida and
has its principal place of business in Arizona,
and therefore it is a citizen of those states.
The fact that ASPA is a not-for-profit member
corporation rather than a corporation with
shareholders is irrelevant to this determination.
See NAR, 894 F.2d at 939 (the general rule that,
for diversity purposes, the relevant citizenship
is that of the corporation rather than the
shareholders applies equally to member
corporations); Cote v. Wadel, 796 F.2d 981, 983
(7th Cir. 1986) ("for purposes of diversity
jurisdiction a corporation is a corporation is a
corporation.").

  A corollary of the general rule we just stated
is that the citizenship of the real party in
interest is determinative when deciding whether
the district court has diversity jurisdiction.
Navarro Savings Association v. Lee, 446 U.S. 458,
460-61 (1980); Wilsey v. Eddingfield, 780 F.2d
614, 615 (7th Cir. 1985), cert. denied, 475 U.S.
1130 (1986). This is because a party who has no
real interest in the outcome of the litigation
should not be able to use its citizenship to
transform a local controversy into a federal
case. Id.; see also Northern Trust Co. v. Bunge
Corp., 899 F.2d 591, 595 (7th Cir. 1990) (where
a corporation acts only as a representative for
a group of individuals and has no interest itself
in the outcome of the litigation, the citizenship
of the represented parties controls for diversity
purposes). This is the principle that determined
the outcome in NAR, a case both parties agree is
important to the outcome here.

  NAR was an Illinois not-for-profit corporation
that functioned as a national association of real
estate agents. Like ASPA, NAR was a member
corporation, and the real estate agents were the
members. The defendant in that case, NREA, was an
Ohio not-for-profit corporation that also served
as a national association of real estate agents.
NAR sued NREA for fraud, negligent
misrepresentation, violations of the Illinois
Deceptive Trade Practices Act, and violations of
the Illinois Consumer Fraud Act. NAR brought the
suit on behalf of the association and its
members, claiming injury to the reputation of the
association and a monetary injury to the members.
NAR also sought injunctive relief. The claims
were based on NREA’s sale of insurance polices to
NAR’s members. The district court determined that
NAR’s members were the real parties in interest,
and that because some of them were citizens of
Ohio, the requirement of complete diversity was
not satisfied. See NAR, 894 F.2d at 939. On
appeal, this Court stated the general rule that,
for the purposes of diversity jurisdiction, when
the plaintiff is a corporation, the relevant
citizenship is that of the corporation and not
that of the shareholders. Id. We also held that
the rule was the same whether the corporation was
made up of shareholders or members. We then noted
the exception to this rule:

But the rule we have just stated, and have
expanded to embrace non-share corporations,
presupposes that the wrong is to the corporation
rather than to the shareholders or members
directly. If the defendants had blown up NAR’s
corporate headquarters, or broken a contract they
had with the association, the wrong would be to
the association even though the loss resulting
from it would be borne ultimately by the real
estate agents who are its members. The law does
not lift the corporate veil in search of the
ultimate incidence of the corporation’s
transactions; the tracing out of the incidence of
such transactions is too complicated a process to
make it a feasible preliminary to establishing
federal jurisdiction.

894 F.2d at 939 (citations omitted). Because the
Illinois Consumer Fraud Act claim was based
entirely on a wrong directly to the members, and
not a wrong to the corporation that damaged the
members through a trickle down effect, we held
that the members were the real parties in
interest for that claim. NAR did not claim that
NREA tried to sell insurance to NAR, but rather
to its members. "The members were in the front
line. They received the blow." 894 F.2d at 940.
NAR conceded that it intended to hand over to its
members any damages recovered under the Illinois
Consumer Fraud count. We noted that this
demonstrated that NAR was a mere conduit for its
members in regards to that claim. NAR would not
be a mere conduit "if it were the injured one
rather than they. The effect on shareholders, or
members, of an injury to their corporation is
indirect, buffered by the network of contractual
relations through which costs and benefits
incurred or received by a corporation are
transmitted to real people." Id.
  We have in the instant case the very situation
mentioned by the NAR Court. CCC breached a
contract with ASPA, not ASPA’s members, and
therefore ASPA is at the front line. ASPA is the
party that feels the blow. That the members feel
the blow though a trickle down effect is
irrelevant to jurisdictional analysis under NAR.
CCC nonetheless maintains that for the purposes
of the non-compete clause, ASPA’s members are on
the front line rather than ASPA because ASPA
itself is not engaged in the salvage business. It
is true that the members are third party
beneficiaries to the contract between ASPA and
CCC, and the members could have sought to enforce
their rights on that basis. With the exception of
IAA that we noted above, they did not seek to
enforce their rights, and IAA voluntarily
dismissed its state court suit against CCC. ASPA
conceded at oral argument that if CCC prevailed
on ASPA’s non-compete claims, the members would
be bound by that result, and we agree. In a suit
where the members sought to enforce their rights
as third party beneficiaries, the members’
citizenship would control. But where the members
are incidentally benefitted by the association’s
enforcement of its own contract rights, the
citizenship of the association is the only
relevant factor in the diversity analysis. As we
noted in NAR, any other rule would be too
complicated a process to make it a feasible
preliminary to establishing federal jurisdiction.
894 F.2d at 940. Because ASPA is completely
diverse from CCC, we hold that the district court
has jurisdiction over this action.

REVERSED AND REMANDED.