Court Opinion

ID: 770869
Source: CourtListenerOpinion
Date Created: 2012-04-18 10:40:47+00
Date Added: 2024-06-11T17:55:53.578794
License: Public Domain

230 F.3d 342 (7th Cir. 2000)
CCC INFORMATION SERVICES, INCORPORATED,  a Delaware corporation, Plaintiff-Appellee,v.AMERICAN SALVAGE POOL ASSOCIATION,  a Florida non-profit corporation, Defendant-Appellant.
Nos. 99-3393 & 99-3565
In the  United States Court of Appeals  For the Seventh Circuit
Argued April 4, 2000Decided September 22, 2000

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.[Copyrighted Material Omitted]
Before COFFEY, ROVNER and DIANE P. WOOD, Circuit  Judges.
ROVNER, Circuit Judge.

1
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.

2
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.

3
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.

4
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.

5
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.

6
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.").

7
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.

8
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

9
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.

10
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.

11
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.

12
REVERSED AND REMANDED.