Court Opinion

ID: 8969827
Source: CourtListenerOpinion
Date Created: 2022-11-27 10:28:08.854691+00
Date Added: 2024-06-11T17:10:25.151815
License: Public Domain

GEORGE C. PRATT, Circuit Judge,
dissenting:
In this case the majority upholds a sanction against an attorney for wrongly claiming federal jurisdiction even though he asserted a plausible view of the law in a complicated and as yet unsettled area of diversity jurisdiction. The majority implicitly holds that dicta in one of our previous decisions, which expressly left open the issues raised by Golub, can somehow be read as a “holding” of this court which “established beyond cavil” that the argument advanced by Golub stood absolutely no chance of succeeding. Because I believe that Golub’s jurisdictional theory rests on a sensible, albeit erroneous, reading of the diversity statute, is supported by ample authority, and has never been rejected or even squarely addressed by this court, I must respectfully dissent from this harsh application of rule 11.
At the outset, it is important to identify the conduct for which Golub was and was not sanctioned. First, he was not sanctioned (although perhaps he should have been) for allegedly serving on his adversary a copy of an order to show cause that left in a temporary restraining order that had been deleted by the court.
Second, he was not sanctioned for failing to observe the black-letter proposition that an alien party cannot acquire diversity jurisdiction over another alien party. Rather, he was sanctioned for arguing that Maryland Navigation, a corporation chartered in Liberia but having its principal place of business in New York, should be considered a citizen only of New York for diversity purposes, thus preserving federal jurisdiction over the action.
But Golub’s argument flows readily from the language of the diversity statute. Under 28 U.S.C. § 1332(c), a corporation is deemed “a citizen of any State by which it has been incorporated and of the State where it has its principal place of business”. The statute defines the term “State”, with an upper-case “S”, to exclude foreign nations, 28 U.S.C. § 1332(d), and consistently refers to foreign nations by the use of the term “state”, with a lower*394case “s”. 28 U.S.C. § 1332(a)(2), (3), (4). The two versions of the term are not interchangeable.
A straightforward reading of the statute would therefore make Maryland Navigation a citizen of New York, the “State” where it has its principal place of business, but not of Liberia, the place of its incorporation, because Liberia by definition is not a “State” of the United States in which Maryland Navigation is incorporated.
The majority nevertheless suggests that a “cursory review” of hornbook law would have demonstrated the fallacy of this argument. Although I can only guess as to what, if anything, superficial research would uncover, my own reading of the treatises cited by the majority reveals that they support Golub’s position far more than they undermine it. For example, Professors Wright, Miller and Cooper argue that a plausible, and if applied to these facts, preferable reading of the diversity statute would
treat the foreign corporation as having a single domestic citizenship rather than dual citizenship. This approach would be most appropriate when the alien corporation’s principal place of business is in an American state. * * *
Moreover, there may be affirmative reasons why Congress should provide a federal forum. For example, when the dispute between an alien and a foreign corporation with a principal place of business in the United States arises out of local activities, a federal court should be available.
13B C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3628, at 668-69 (2d ed. 1984) (citations omitted); see also 1 J. Moore, J. Lucas, H. Fink, D. Weckstein & J. Wicker, Moore’s Federal Practice If 0.77[2.-3] (2d ed. 1988) (similar); Note, Alien Corporations and Federal Diversity Jurisdiction, 84 Colum.L.Rev. 177 (1984) (arguing in favor of a single-domestic-citizenship interpretation of diversity statute as applied to foreign-chartered, domestically-located corporations).
Notwithstanding the respectable authority supporting Golub’s interpretation of the statute, the majority relies on an exaggerated reading of our Venezolana decision to justify the sanction. In that case, we held that the district court properly exercised its ancillary jurisdiction in deciding a counterclaim brought against a Venezuelan party by a Swiss corporation that had its principal place of business in New York, where federal jurisdiction over the principal action was properly founded on the Edge Act.
Without addressing the particular interpretation of the diversity statute that would have supported Golub’s present claim for federal jurisdiction, we noted that two other approaches to the statute would have deprived the court of jurisdiction to hear the counterclaim if it had been independently presented. First, we suggested that § 1332(c) might not even apply to alien corporations, leaving intact the traditional rule that treated corporations as citizens only of their place of incorporation. Second, we stated that “[w]e need not reach the issue of whether or not 28 U.S.C. § 1332(c) applies to alien corporations,” because even if we assumed that the statute did apply, and that it created dual citizenship, the company chartered in Switzerland would still retain its alien status despite its New York principal place of business.
Thus, in dealing with the problem of a foreign corporation having its principal place of business in this country, the Vene-zolana opinion discusses two possible resolutions: (1) citizen only of foreign state of incorporation and (2) dual citizenship. It fails to even mention, however, let alone clearly reject, a third possible interpretation of 1332(c) now advanced by Golub: citizen only of domestic principal place of business. I cannot understand how, years after the fact, we can fairly transform a brief section of casual discussion of two other issues into a full-blown “holding” of this court on the third issue; even less can I accept the conclusion that our earlier incomplete treatment of this subject not only had the supposed effect of clarifying this complicated, rarely litigated area of diversity jurisdiction, but also made any further argument on the subject sanctiona-ble.
*395Ironically, less that two years before Go-lub commenced this action in the southern district, but five years after Venezolana, a different court in the southern district held that rule 11 was not violated where an attorney advanced an argument identical to the one sanctioned here. See Chok v. S & W Berisford, PLC, 624 F.Supp. 440, 443 (S.D.N.Y.1985). In Chok, Judge Sweet (who perhaps should understand the problem better than most since he was also the district judge in Venezolana) ultimately rejected the argument that a foreign-incorporated, domestically-based corporation should be deemed a citizen only of its domestic principal place of business; but he held that the attorney who asserted the argument could not be sanctioned because “due to the lack of uniform authority on the subject of the citizenship of alien corporations under § 1332(c), the action * * * was not brought without conceivable hope of success.” Id. That case was not appealed, and this circuit has not, from then until now, otherwise addressed this diversity issue.
If rule 11 is to fulfill its purpose of deterring frivolous litigation, it is critical that courts articulate clear, objective standards by which attorneys can reliably measure their conduct and that we avoid the corrosive effect of arbitrary, seemingly contradictory applications of the rule. Here, identical arguments asserted in the same district were held in one case not to violate rule 11, but to “egregious[ly]” violate it in the next; yet the same body of appellate and statutory law was available to both courts. I fear the majority’s ruling today may prove to be a step backward in the evolution of comprehensible and fair standards for applying rule 11.