Fellowes, Inc. v. Changzhou Xinrui Fellowes Office Equipment Co. Ltd., No. 12-3124 (7th Cir. July 22, 2014) [click for opinion]

Plaintiff Fellowes, Inc. sued Defendant Changzhou Xinrui Fellowes Office Equipment Company Ltd., alleging breach of contract.  The dispute was brought pursuant to the international diversity jurisdiction provision, 28 U.S.C. § 1332(a)(2).  Plaintiff is a citizen of Illinois.  Defendant is a company established under Chinese law, but one of its investor-members is Hong Kong Fellowes, an organization having its principal place of business in Illinois.  On appeal, the Seventh Circuit addressed the issue of subject-matter jurisdiction, which depended on whether Defendant was deemed a corporation for purposes of § 1332. 

An entity treated as a corporation under § 1332 has two citizenships: (1) the jurisdiction of its incorporation and (2) its principal place of business. Limited liability companies, by contrast, have the citizenship of each member.  Courts have struggled with whether a business entity in a foreign country should be treated as a corporation for § 1332 purposes.

Both Plaintiff and Defendant described Defendant as an LLC, agreeing that it had “members.”  Still, Plaintiff’s main argument was that entities “that can own property, make contracts, transact business, and litigate in [their] own name” (also known as “juridical persons”) should be considered corporations under § 1332.

The Seventh Circuit, in an opinion written by Judge Easterbrook, disagreed.  Even if it has the characteristics of a juridical person, the court said, an LLC cannot be considered a corporation for purposes of § 1332 diversity.  The court refuted Plaintiff’s reliance on Puerto Rico v. Russell & Co., a Supreme Court case holding that a sociedad en comandita, an entity which Puerto Rico recognized as a juridical person, could be considered a Puerto Rican citizen and thus could litigate in federal court. The court said that Russell was a narrow holding that only applied the juridical entity approach to the sociedad.  In determining diversity, common law entities besides the sociedad would be analyzed according to “the tradition of the common law,” meaning that only incorporated groups would be deemed legal persons.  All other groups would be deemed partnerships, resulting in each investor or individual’s citizenship being attributed to the entity.  The Seventh Circuit also declined to follow, and instead limited to its own facts, its prior ruling in Autocephalous Greek-Orthodox Church v. Goldberg and Feldman Fine Arts, Inc., 917 F.2d 278 (7th Cir. 1990), which had held that a foreign juridical entity from a non-common law jurisdiction that was distinct from its members had only its own citizenship and not the citizenship of its members.

Considering that each member-investor of an LLC contributes to its citizenship under § 1332 and that both parties characterized Defendant as an LLC, international diversity jurisdiction did not exist because of Hong Kong Fellowes’ Illinois citizenship.  The court therefore ordered the lower court to dismiss the lawsuit for lack of subject-matter jurisdiction.

Adam Pascarella of the New York office contributed to this summary.