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ROUHI v. HARZA ENGG. CO.

February 7, 1992

NEZAMEDDIN ROUHI, LIQUIDATOR, F. & H. R. FARMAN - FARMAIAN, Plaintiff,
v.
HARZA ENGINEERING COMPANY, HARZA ENGINEERING COMPANY INTERNATIONAL, RICHARD D. HARZA, JOHN H. SCOVILLE, and GEORGE E. PABICH, Defendants.



The opinion of the court was delivered by: JAMES B. MORAN

MEMORANDUM AND ORDER

 Plaintiff, Nezameddin Rouhi (Rouhi), as liquidator of F. & H. R. Farman-Farmaian Farman-Farmaian), brings this action against defendants for money allegedly due Farman-Farmaian as its share of an award issued to certain of the defendants by the Iran-United States Claim Tribunal. Defendants now move this court to require plaintiff to post a security bond, pursuant to Civil Rule 2 of the Northern District of Illinois. *fn1" Defendants also move to dismiss plaintiif's complaint for lack of subject matter jurisdiction, pursuant to Rule 12(h)(3) of the Federal Rules of Civil Procedure, and request that we assess attorneys' fees against plaintiff under Rule 11. For the following reasons, we grant defendants' motion to dismiss, decline to impose Rule 11 sanctions, and deny defendants' motion for a security bond.

 DISCUSSION

 I. Jurisdictional Issue

 Plaintiff alleges federal jurisdiction based solely on diversity of citizenship under 28 U.S.C. § 1332(a)(2). *fn2" According to the complaint, Rouhi is an Iranian citizen who resides in Tehran, Iran, and Farman-Farmaian is an Iranian entity with its principal place of business in Tehran. Defendant Harza Engineering Company (Harza) is a Delaware corporation with its principal place of business in Chicago. Defendants Richard Harza, John Scoville and George Pabich are citizens and residents of Illinois. Finally, defendant Harza Engineering Company International (Harza International) is a Liberian corporation with its principal place of business in Chicago. *fn3"

 Defendants claim that complete diversity is lacking because plaintiff is Iranian *fn4" and a defendant, Harza International, is a Liberian corporation. Complete diversity, as required by Strawbridge v. Curtiss, 7 U.S. 267, 2 L. Ed. 435 (1806), is defeated by the presence of alien parties on both sides of a suit under § 1332(a)(2). *fn5" Bank of Nova Scotia v. S & W Berisford, Inc., 753 F. Supp. 237, 238 (N.D. Ill. 1990). The primary issue in this case is whether an alien corporation with its principal place of business in the United States can be considered a citizen of a state of the United States for diversity purposes; and, if so, whether the alien place of incorporation still serves to defeat diversity jurisdiction in a suit brought by another alien.

 A. Application of § 1332(c) to Alien Corporations

 The first question is whether 28 U.S.C. § 1332(c) applies to alien corporations, or only to domestic corporations. Section 1332(c)(1) provides:

 For the purposes of this section and section 1441 of this title . . . a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business . . . .

 If § 1332(c) applies only to domestic corporations, then the principal place of business of Harza International is irrelevant for jurisdictional purposes. Alien corporations are generally considered citizens of their country of incorporation. Wilson v. Humphreys (Cayman) Ltd., 916 F.2d 1239, 1242 n.2 (7th Cir. 1990), cert. denied, 113 L. Ed. 2d 468, 111 S. Ct. 1415 (1991); R.W. Sawant & Co. v. Ben Kozloff, Inc., 507 F. Supp. 614, 616 (N.D. Ill. 1981). In this case, without considering the principal place of business, both plaintiff and one defendant (Harza International) would be considered aliens. Diversity then would be defeated because the case would be viewed as one with aliens on both sides of the dispute.

 Southeast Guaranty Trust Co. v. Rodman & Renshaw, Inc., 358 F. Supp. 1001, 1007 (N.D. Ill. 1973), rejected the reasoning of Eisenberg v. Commercial Union Assurance Co., 189 F. Supp. 500 (S.D.N.Y. 1960), *fn6" and held that § 1332(c) did apply to foreign corporations. The court found that applying § 1332(c) to alien corporations better served congressional intent to limit the diversity jurisdiction of federal courts. Southeast, 358 F. Supp. at 1007. The court reasoned that, like a domestic corporation, an alien corporation with its principal place of business in a state of the United States neither needs nor deserves the protection of a federal court from state-court bias. Id. at 1007. In Southeast, the plaintiff was a Bahamian corporation with its principal place of business in Illinois. Because some defendants were citizens of Illinois, plaintiff's § 1332(c) Illinois citizenship destroyed complete diversity. The Seventh Circuit apparently has not addressed the issue, but the reasoning of Southeast and other cases persuades us that § 1332(c) applies to a foreign corporation with its principal place of business within the United States. *fn7" See Southeast, 358 F. Supp. at 1005-07; Beeler, Schad & Diamond, P.C., v. American Trust Ins. Co., No. 91 C 288, 1991 U.S. Dist. LEXIS 5852, at *1-2 (N.D. Ill. 1991) ("But most (though not all) of the case law these days treats an alien corporation's principal place of business as also relevant under 28 U.S.C. § 1332(c)(1)"). Therefore, under § 1332(c) Harza International's principal place of business in Illinois makes it a citizen of Illinois for purposes of diversity.

 B. Whether § 1332(c) Produces Dual or Single Citizenship

 Defendants argue that even if we find § 1332(c) applicable to alien corporations, the resulting citizenship of Harza International will be "dual"; that is, Harza International will be a citizen of both its state of incorporation (Liberia) and the state where it has its principal place of business (Illinois). Under § 1332(c), a domestic corporation is deemed a citizen both of its state of incorporation and the state where it has its principal place of business. A domestic corporation, then, cannot be diverse to a party whose citizenship is the same as either of the domestic corporation's citizenships. According to defendants, Harza International should be treated just as a domestic corporation would be treated -- Harza International would not be diverse to a citizen of either of its places of citizenship. Harza International, as an alien and a citizen of Illinois, would not be diverse to plaintiff, an alien. The alternative view, and one that would save diversity jurisdiction here, is to consider an alien corporation with its principal place of business in a state of the United States to be a citizen solely of that state. Case law goes both ways.

 Several Northern District of Illinois courts have encountered this issue; none has resolved it conclusively. In R.W. Sawant & Co. v. Ben Kozloff, Inc., 507 F. Supp. 614 (N.D. Ill. 1981), Judge Flaum noted the debate about whether § 1332(c) applies to alien corporations and decided that "if section 1332(c) applies to alien corporations, the better approach is to consider a foreign corporation a citizen of the foreign state in which it is incorporated and the state or foreign state where it has its principal place of business." Sawant, 507 F. Supp. at 616. Though this language supports the dual citizenship theory, the court did not ...


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