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SELFIX, INC. v. BISK

October 18, 1994

SELFIX, INC. and SELFIX INDEPENDENT PRODUCTS COMPANY, INC., Plaintiffs,
v.
LEONARD BISK and CONTINENTAL ILLINOIS BANK AND TRUST COMPANY, N.A., Defendants.


Grady


The opinion of the court was delivered by: JOHN F. GRADY

Plaintiffs Selfix, Inc. and Selfix Independent Products Company sued defendants Leonard Bisk and Continental Illinois Bank and Trust Company in an Illinois state court. Defendant Leonard Bisk removed the case to federal court pursuant to 28 U.S.C. §§ 1441 and 1332, basing jurisdiction on diversity of the parties. Plaintiffs now move to remand the case to the state court pursuant to 28 U.S.C. § 1447(c), arguing that the parties are not diverse. For the reasons explained below, the motion is denied.

 BACKGROUND

 On February 1, 1994, Selfix, Inc. and Selfix Independent Products Company (collectively "Selfix") filed suit against Leonard Bisk and Continental Illinois Bank and Trust Company ("Continental") in an Illinois state court. The suit centered around several agreements that Selfix and Bisk entered into when Selfix purchased Independent Products Company. The agreements were secured by letters of credit issued by Continental, and provided that Bisk had the right to call the letters of credit upon default by Selfix.

 In the state court suit, Selfix sought to be released from its obligations under the agreements. Selfix asked for two things: first, a declaration that Bisk had breached the agreements and that Selfix was therefore released from its obligations, and second, an injunction against Bisk from calling the letters of credit and against Continental from paying on those letters of credit if called.

 On February 16, 1994, defendant Bisk removed the case to this court pursuant to 28 U.S.C. § 1441. Bisk claimed that the case fell within the court's diversity jurisdiction. 28 U.S.C. § 1332. He said that the amount in controversy exceeded $ 50,000 and made the following statements with regard to the citizenship of the parties: Bisk is a resident of Israel and of the state of Pennsylvania. *fn1" Defendant Continental is a national banking association located in Chicago, Illinois, and is, therefore, a citizen of Illinois. *fn2" 28 U.S.C. § 1348. Plaintiffs Selfix, Inc. and Selfix Independent Products Company are both Delaware corporations with their principal places of business in Chicago, Illinois. Both plaintiffs are, therefore, citizens of Delaware and of Illinois. 28 U.S.C. § 1332(c)(1).

 Even though the plaintiffs and one defendant, Continental, are Illinois citizens, Bisk argues that diversity jurisdiction is proper because either (1) Continental is a nominal party whose citizenship should be ignored for diversity purposes, or (2) Continental should be realigned as a plaintiff, since the action is actually an interpleader. Plaintiffs have moved to remand this action pursuant to 28 U.S.C. § 1447(c), arguing that Continental is not a nominal defendant, that it should not be realigned as a plaintiff, and that complete diversity therefore does not exist.

 DISCUSSION

 When a case is removed to federal court from a state court, if at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case must be remanded to the state court. 28 U.S.C. § 1447(c). Because there is no federal question involved in this case, jurisdiction is proper only if the case falls within the court's diversity jurisdiction. 28 U.S.C. § 1332. Diversity jurisdiction is proper only where there is complete diversity among the parties, that is, where no defendant is a citizen of the same state as any plaintiff. Strawbridge v. Curtiss, 7 U.S. 267, 2 L. Ed. 435 (1806). Thus, the court must remand if complete diversity does not exist between the parties.

 I. Nominal Party

 If a party to a suit is merely a nominal party, its presence in the suit will not defeat removal. A nominal party need not join in the removal petition. Shaw v. Dow Brands, Inc., 994 F.2d 364, 369 (7th Cir. 1993). Moreover, the addition to a lawsuit of a purely nominal party does not affect diversity jurisdiction. Matchett v. Wold, 818 F.2d 574, 576 (7th Cir.), cert. denied, 484 U.S. 897, 98 L. Ed. 2d 189, 108 S. Ct. 230 (1987). If, therefore, Continental is a nominal party to this suit, the suit was properly removed even though Continental did not join the removal petition and even though its citizenship is the same as that of the plaintiffs.

 In two cases decided not long ago, but cited by neither party, the Seventh Circuit explained the concept of a nominal defendant. A defendant is nominal "if there is no reasonable basis for predicting that it will be held liable" in the suit. Shaw, 994 F.2d at 369. A nominal defendant "has no ownership interest in the property which is the subject of litigation"; it "holds the subject matter of the litigation in a subordinate or possessory capacity as to which there is no dispute." SEC v. Cherif, 933 F.2d 403, 414 (7th Cir. 1991), cert. denied, U.S. , 112 S. Ct. 966, 117 L. Ed. 2d 131 (1992) (citations omitted). "Because the nominal defendant is a trustee, agent, or depositary who has possession of the funds which are the subject of litigation, he must often be joined purely as a means of facilitating collection." Id. When the dispute is resolved, "the court needs to order the nominal defendant to turn over funds to the prevailing party." Id. A nominal defendant is not a real party in interest because it has no interest in the subject matter litigated. "His relation to the suit is merely incidental and it is of no moment to him whether the one or the other side in the controversy succeeds." Id. Because of the disinterested status of the nominal defendant, "there is no claim against him and it is unnecessary to obtain subject matter jurisdiction over him once jurisdiction over the defendant is established." Id.

 Moreover, a nominal defendant cannot be a "necessary" or "indispensable" party as those terms are used in Fed. R. Civ. P. 19. Cherif, 933 F.2d at 414 n.13. A nominal defendant has no interest in the property that is the subject of the litigation. Id. In contrast, a necessary party is one who "claims an interest relating to the subject of the action." Fed. R. Civ. P. 19(a); id.

 Under the Seventh Circuit's definition, Continental is a nominal party to the litigation between Bisk and Selfix. The essence of this case is a contract dispute between Bisk and Selfix. There is no reasonable basis for predicting that Continental will be held liable. Shaw, 994 F.2d at 369. If Selfix wins on its contract claim, it will be discharged from its obligations, and Bisk will be enjoined from calling the letters of credit. If Selfix loses, it will not be so discharged, and it will be bound by the contract. At most, Continental will have to pay on the letters of credit ...


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