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Merit Tat International, Ltd. v. Wynnchurch Capital Partners

February 25, 2010

MERIT TAT INTERNATIONAL, LTD., PLAINTIFF,
v.
WYNNCHURCH CAPITAL PARTNERS, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Magistrate Judge Geraldine Soat Brown

MEMORANDUM OPINION AND ORDER

This matter came before the court on the motion for summary judgment filed by defendants Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada, L.P. (collectively, the "Wynnchurch Defendants") against plaintiff Merit Tat International, Ltd. ("Merit Tat") pursuant to Fed. R. Civ. P. 56(c). [Dkt 75.] Federal jurisdiction in this case is premised on diversity of citizenship. 28 U.S.C. § 1332. The parties have consented to the exercise of jurisdiction by a magistrate judge pursuant to 28 U.S.C. § 636(c). [Dkt 38.]

Upon reviewing the papers filed in conjunction with the motion for summary judgment, the court ordered Merit Tat to show cause why this case should not be dismissed for a lack of jurisdiction. [Dkt 96.] Merit Tat did not file any submission by the date allowed. For the reasons set out below, the court finds that there is no subject matter jurisdiction, and the case is dismissed without prejudice for a lack of federal jurisdiction.

Procedural Background

In June 2006, Merit Tat, a foreign corporation with its principal place of business in China, filed a complaint against the following defendants: (1) Wormser Company, an Illinois corporation; (2) Wynnchurch Capital, Ltd., a Delaware corporation with its principal place of business in Illinois; (3) John Hatherly, an individual (president of Wynnchurch Capital Ltd.); and (4) Frank Hayes, an individual (partner of Wynnchurch Capital, Ltd.). (Compl. ¶¶ 4-9.) [Dkt 1.] In its complaint, Merit Tat sought to satisfy a debt defendant Wormser Company purportedly owed it. (Compl. ¶¶ 1, 21-27.)

Wormser Company filed for bankruptcy in July 2006 and was dismissed as a party without prejudice. [Dkt 5, 15.] The remaining defendants filed a motion to dismiss. [Dkt 9.] Before that motion was decided, Merit Tat moved for leave to file an amended complaint. [Dkt 19.] That motion was granted and an amended complaint was filed. [Dkt 21, 22.] The amended complaint dropped defendant Wynnchurch Capital, Ltd., as well as the other three defendants named in the original complaint, and added Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada, L.P. as defendants. (Am. Compl. ¶¶ 5, 6.] In the amended complaint, Merit Tat sought to pierce the corporate veil and hold the Wynnchurch Defendants responsible for the debt allegedly owed by Wormser Company. (Id. ¶ 1.) The case proceeded through discovery and to Wynnchurch Defendants' current motion for summary judgment.

In the exhibits accompanying their Rule 56.1 Statement in support of that motion, the Wynnchurch Defendants provided the limited partnership agreements for each of the Wynnchurch Defendants, as well as the names and citizenships of each of the partners in the limited partnerships. (Defs.' LR Exs. 2, 3.) [Dkt 82.] The partners who comprise defendant Wynnchurch Capital Partners, L.P. include both foreign and United States citizens. The partners who comprise defendant Wynnchurch Capital Partners Canada, L.P. include foreign (Canadian) partners. (Defs.' LR Exs. 2, 3.)*fn1 That disclosure revealed that there is no federal jurisdiction over this case.

Discussion

Federal courts are courts of limited jurisdiction. Turner/Ozanne v. Hyman/Power, 111 F.3d 1312, 1316 (7th Cir. 1997). In the absence of jurisdiction, a court is powerless to act. Lewis v. Local Union No. 100 of the Laborers' Int'l. Union of N.A., AFL-CIO, 750 F.2d 1368, 1377 n. 11 (7th Cir. 1984). Federal courts are expected to monitor their jurisdictional boundaries vigilantly and to guard carefully against expansion by judicial interpretation. American Fire & Cas. Co. v. Finn, 341 U.S. 6, 17-18 (1951); In re Shell Oil Co., 966 F.2d 1130, 1133 (7th Cir. 1992); see also Long v. Shorebank Dev. Corp., 182 F.3d 548, 554 (7th Cir. 1999) (stating that district court is not limited to the jurisdictional allegations of the complaint and may look to whatever evidence has been submitted to determine whether subject matter jurisdiction exists). Just as a federal court cannot expand its jurisdiction, parties may not confer subject matter jurisdiction on a federal court by oversight, collusion, or consent. Nightingale Home Healthcare, Inc. v. Anodyne Therapy, LLC, 589 F.3d 881, 886 (7th Cir. 2009); Shell Oil, 966 F.2d at 1133.

28 U.S.C. § 1332(a), which governs federal jurisdiction in diversity cases, states that the courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum of $75,000, and is between (1) citizens of different States; (2) citizens of a State and citizens or subjects of a foreign state; (3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and (4) a foreign state as plaintiff and citizens of a State or of different States. Merit Tat, the only plaintiff in this case, is a citizen of a foreign state.*fn2 The defendants named in the original complaint are citizens of the United States. Thus, at the time the suit was filed, the court had original jurisdiction of the case under § 1332(a)(2), because the matter was between "citizens of a State and citizens or subjects of a foreign state."*fn3

When Merit Tat amended its complaint, however, it dismissed the four defendants with United States citizenship, and added in their stead two defendants who are limited partnerships. Carden v. Arkoma Assoc., 494 U.S. 185, 195-96 (1990). A limited partnership is deemed to be a citizen of every state of which any of its general or limited partners are citizens. Carden v. Arkoma Assoc., 494 U.S. 185, 195-96 (1990). Because both of the limited partnerships in this case are comprised of at least some foreign partners, the Wynnchurch Defendants are citizens of both foreign states and the United States. Id. Thus, as currently postured, the case is between a single plaintiff of foreign citizenship and multiple defendants of both foreign and United States citizenship.

Accordingly, the court must now address the following issues: (1) whether the court has jurisdiction of the case in its current posture; and (2) if not, whether the lack of diversity between the parties divests the court of jurisdiction, given that the original parties were diverse and the court had jurisdiction when the complaint was filed.

A. Whether there is Diversity of Citizenship between Merit Tat and the Wynnchurch

Defendants To determine whether there is diversity of citizenship between the parties, the court must look to § 1332(a), set forth above. Subpart (1) of § 1332(a) does not apply because the case is not between "citizens of different States." Merit Tat is a citizen of a foreign state. Subpart (2) does not apply because the case is not between "citizens of a State and citizens or subjects of a foreign state." Merit Tat is a citizen of a foreign state, but the Wynnchurch Defendants are comprised not only of citizens of a State, but also of citizens of foreign states. Subpart (3) does not apply, because the case is not between "citizens of different States and in which citizens or subjects of a foreign state are additional parties." Merit Tat is a citizen of a foreign state, but it is not an "additional part[y]," since it is the only plaintiff in the case. Finally, subpart (4) does not apply because the case is not between "a foreign state . . . as plaintiff and citizens of a State or of ...


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