International Shipping Company, S.A. v. Hydra Offshore, Inc.International Shipping Company, S.A. v. Hydra Offshore, Inc.
INTERNATIONAL SHIPPING COMPANY, S.A., and Lygren Maritime
Services, S.A., Plaintiffs-Appellants,
and
A. Richard Golub, as Attorney, Appellant,
v.
HYDRA OFFSHORE, INC., T. Peter Pappas, James Pappas,
American General Resources, Inc., Astron
Management Corporation, Richard Jaross,
and Maryland Navigation Co.,
Inc., Defendants-Appellees.
No. 895, Docket 88-7003.
United States Court of Appeals,
Second Circuit.
Argued March 8, 1989.
Decided May 17, 1989.
A. Richard Golub, New York City, for plaintiffs-appellants.
Tulio R. Prieto (Cardillo & Corbett, New York City), for defendants-appellees.
Before KAUFMAN, CARDAMONE, and PRATT, Circuit Judges.
IRVING R. KAUFMAN, Circuit Judge:
Subject matter jurisdiction is the sine qua non of the exercise of power by a federal court. One purpose of
The facts necessary for our decision are undisputed. In May 1987, International Shipping Company, S.A. ("International"), a Panamanian company, through its agent Lygren Maritime Services, S.A. ("Lygren"), a Swiss corporation, allegedly entered into an agreement with Hydra Offshore, Inc. ("Hydra"), a corporation organized under the laws of Liberia, to buy a vessel called Friendship. After International had paid 10% on the total purchase price of $2,650,000.00, Hydra sold the ship to Maryland Navigation Co. ("Maryland"), another Liberian corporation with New York as its principal place of business.
On June 1, 1987, upon International's motion, the English High Court of Justice, Queens Bench Division, restrained Hydra from disposing of or moving the ship, pending the outcome of an arbitration in Britain. Shortly thereafter, appellants brought this action in the Southern District of New York. They alleged Hydra breached a contract to sell the Friendship to International and that Maryland, American General Resources, Astron Management Corp. ("Astron"), James and Peter T. Pappas, and Richard Jaross,1 intentionally and tortiously interfered with its contractual relations with Hydra for the sale of the Friendship. The complaint asserted federal jurisdiction grounded on admiralty (
On June 11, 1987, because of the British court's order, appellants sought an order for a preliminary injunction to prevent Maryland or Hydra from selling, moving, chartering, or otherwise disposing of the vessel. Judge Leisure denied International's request for a temporary restraining order by deleting language in the draft order which would have prevented appellees from selling or transferring the vessel pending the hearing scheduled for June 16. A copy of the order served on Friday, June 12, 1987, by appellants' attorney, however, did not reflect the deletion of the paragraph imposing a temporary restraining order, nor did the copy bear Judge Leisure's signature.2
The jurisdictional grounds for issuance of the injunction were attacked for various reasons by Maryland Navigation in an affidavit filed with the court June 16, 1987. On June 30, Judge Leisure heard oral argument to determine whether subject matter jurisdiction existed. Finding no basis for jurisdiction, he dismissed the action. Appellees then sought to impose
The district court granted counsel's motion for reargument of its decision, and some 11 months after the issuance of the original order heard reargument on both the amount and imposition of sanctions. Judge Leisure declined to amend his order, noting that no new arguments or evidence had been presented. Thereafter, counsel Richard Golub reinstated his appeal, which he had withdrawn pending the outcome of reargument.3
Unfortunately, our dissenting brother misconstrues the reason sanctions were imposed in this case. In so doing he ignores the purpose for the revision of
The district court concluded that
As we stated, appellants' complaint alleged federal jurisdiction founded upon diversity, admiralty, and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The admiralty and Foreign Arbitral Awards grounds, however, were both found to be jurisdictionally deficient. Golub does not contest those findings on appeal.5
Golub's principal claim on appeal rests upon the premise that jurisdiction existed because Maryland Navigation Company's principal place of business was New York, rendering it solely a citizen of that state for purposes of diversity under Sec. 1332(c).6 As support for this proposition, Golub cites dicta in Bergen Shipping Co. v. Japan Marine Services Ltd.,
The general rule requiring complete diversity between opposing parties is explicit and unequivocal. As Judge Leisure properly concluded, "[a] cursory review of a hornbook or digest would have revealed [the] jurisdictional defect to [appellants'] counsel." International Shipping,
In Venezolana, this court dealt with the applicability of
In view of these precedents we are forced to conclude that a reasonable inquiry into the current law would have precluded the argument counsel made at the hearing on June 30--that "[w]hether or not you have aliens on both sides [of a litigation is] irrelevant once their principal places of business are here in New York." Nor could he have stated, after opposing counsel's extended discussion of the controlling cases, "I don't know what the reference is to dual citizenship." Under current Second Circuit doctrine it would have been apparent--after a reasonable examination of the law--that Golub had no chance of succeeding based upon Bergen.8
In addition, we search in vain for any principled argument advanced by counsel to reverse or modify our holding in Venezolana. Instead, he insists that what was decided in that case was not, in fact, decided at all. Yet in Venezolana we concluded beyond cavil that, in this circuit, a corporation organized under the laws of a foreign nation remains an alien corporation under Sec. 1332, even if its principal place of business is in one of the States.
Appellants also claim that Judge Leisure erred in failing to hold an evidentiary hearing to determine the amount of sanctions--on the supposition that sanctions were imposed to compensate appellees. This argument fails for at least two reasons. At the outset it should be stated that appellants were permitted to reargue the
In any event, sanctions were imposed by the court below primarily to reprove appellants' attorney rather than to compensate the opposing side for its expenditures in resisting the action. See International Shipping,
The district court had before it evidence that appellees expended $48,031.33 in the period between June 12 and June 30, 1987, opposing appellants' motion for injunctive relief. Finding that a considerable amount of the work performed by appellees could be used in related court actions, the court declined to impose as sanctions the full amount of the costs incurred. Instead, Judge Leisure, after considering the nature of the violation of
Appellants' final argument is that the district court should have dropped Maryland Navigation from the litigation and retained jurisdiction over the case. But Judge Leisure, during the June 30 hearing on the preliminary injunction application, specifically asked Golub whether he would be willing to strike Maryland as a defendant in the action to preserve diversity. Golub refused, arguing: "If we drop Maryland--the title to the ship is now in Maryland's name--I don't know how we could get any relief against [them]." Research reveals no precedent that indicates that it is error for the court to fail to dismiss a party from an action so as to preserve diversity despite the plaintiff's own choice to retain that party and in the absence of any motion to have that party removed.
Whether sanctions under
The quality of Justice depends upon our ability to control the flood of litigation.
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
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 Sec. 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 p 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 Sec. 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
Thus, in dealing with the problem of a foreign corporation having its principal place of business in this country, the Venezolana 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 sanctionable.
Ironically, less that two years before Golub 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,
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.
Notes
American General Resources Inc., is a domestic corporation organized under the laws of Connecticut. Richard Jaross is a resident of Connecticut and is the principal shareholder of American General. Astron is a domestic corporation with its principal place of business in New York. James Pappas, a resident of Massachusetts, is a principal shareholder in Astron and is also interested in Maryland Co. Peter Pappas resides in Connecticut and is a principal shareholder of Astron and is also interested in Maryland
The effect of the service of this purported copy of Judge Leisure's Order was to force counsel for appellees to labor over the weekend under the impression that the temporary restraining order was already in force. Whether innocent or otherwise, the service of an unconformed copy of an Order to Show Cause on extremely short notice, which incorrectly asserted the imposition of a temporary restraining order is a cause of concern
While International and Lygren also appeal the decision imposing sanctions, we read their participation as based upon the claim that the court erred in dismissing the suit for lack of subject matter jurisdiction. The appeal was concerned principally with the sanctions imposed on counsel
In pertinent part,
While appellants may have abandoned arguments for the court's subject matter jurisdiction based upon admiralty and the Convention, we can and do take note that these claims were defective at the time the pleadings were signed, a fact that would have been apparent after a reasonable inquiry
Judge Leisure correctly ruled that admiralty jurisdiction under
Appellants' contentions that jurisdiction could be premised on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
Appellants agreed at the June 30, 1987 hearing to drop Hydra in order to preserve diversity under Sec. 1332. This, however, still left International and Lygren--both foreign corporations--on one side of the litigation and Maryland, a Liberian corporation on the other
In Bergen, the court premised its exercise of power on the existence of admiralty jurisdiction, rather than on the existence of diversity under its analysis of Sec. 1332(c). Bergen Shipping Co. v. Japan Marine Services Ltd.,
Judge Pratt's reliance upon Chok v. S & W Berisford, PLC,