Matimak Trading Co. v. Albert Khalily, D/B/A Unitex Mills, Inc., and D.A.Y. Kids Sportswear Inc.

118 F.3d 76, 1997 U.S. App. LEXIS 15889
CourtCourt of Appeals for the Second Circuit
DecidedJune 27, 1997
Docket1251, Docket 96-9117
StatusPublished
Cited by43 cases

This text of 118 F.3d 76 (Matimak Trading Co. v. Albert Khalily, D/B/A Unitex Mills, Inc., and D.A.Y. Kids Sportswear Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Matimak Trading Co. v. Albert Khalily, D/B/A Unitex Mills, Inc., and D.A.Y. Kids Sportswear Inc., 118 F.3d 76, 1997 U.S. App. LEXIS 15889 (2d Cir. 1997).

Opinions

McLAUGHLIN, Circuit Judge.

Plaintiff appeals from an order entered August 19, 1996 in the United States District Court for the Southern District of New York (Wood, J.) dismissing plaintiffs claims for lack of subject matter jurisdiction. We review de novo the grant of the dismissal motion. See PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1197 (2d Cir.1996).

The principal issue is whether a Hong Kong corporation is either a “citizen or subject” of a “foreign state” for purposes of alienage jurisdiction. See U.S. Const. art. III, § 2, cl. 1; 28 U.S.C. § 1332(a)(2). More precisely the issue is whether Hong Kong may be regarded as a “foreign state.” We hold that it may not and, accordingly, affirm the district court.

BACKGROUND

Plaintiff Matimak Trading Co. Ltd. is a corporation organized under the laws of Hong Kong, with its principal place of business in Hong Kong. It seeks to sue Albert Khalily and D.A.Y. Kids Sportswear Inc., two New York corporations, in the Southern District of New York (Wood, J.) for breach of contract. Matimak invoked the court’s diversity jurisdiction under 28 U.S.C. § 1332(a)(2), which provides jurisdiction over any civil action arising between “citizens of a State and citizens or subjects of a foreign state.”

In June 1996, the district court sua sponte raised the issue of the court’s subject matter jurisdiction. In August 1996, after allowing the parties to brief the issue, the district court dismissed the Complaint for lack of subject matter jurisdiction. The court concluded that Hong Kong is not a “foreign state” under the diversity statute, and, conse[79]*79quently, Matimak is not a “citizen or subject” of a “foreign state.”

DISCUSSION

This is not the first time we have had to navigate what we have earlier described as a “shoal strewn area of the law.” National Petrochemical Co. of Iran v. M/T Stott Sheaf, 860 F.2d 551, 552 (2d Cir.1988).

Article III of the Constitution extends the federal judicial power to “all Cases ... between a State, or citizens thereof, and foreign States, Citizens or Subjects.” U.S. Const. art. III, § 2, cl. 1. The United States Judicial Code tracks the constitutional language by providing diversity jurisdiction over any civil action arising between “citizens of a State and citizens or subjects of a foreign state.” 28 U.S.C. § 1332(a)(2). This judicial power is referred to as “alienage jurisdiction.” Iran Handicraft and Carpet Export Ctr. v. Marjan Int’l Corp., 655 F.Supp. 1275, 1277 (S.D.N.Y.1987), aff'd, 868 F.2d 1267 (2d Cir.1988).

British sovereignty over Hong Kong ceases on July 1, 1997, when Hong Kong becomes a special administrative region of the People’s Republic of China. See 22 U.S.C. § 5701(1)(B) (West Supp.1996). Diversity of citizenship, however, is determined as of the commencement of an action. See Louisville, N.A. & C. Ry. Co. v. Louisville Trust Co., 174 U.S. 552, 566, 19 S.Ct. 817, 822, 43 L.Ed. 1081 (1899); Smith v. Sperling, 354 U.S. 91, 93 n. 1, 77 S.Ct. 1112, 1113 n. 1, 1 L.Ed.2d 1205 (1957); Maryland Cas. Co. v. W.R. Grace and Co., 23 F.3d 617, 622 (2d Cir.1993).

Given these building blocks, we must address three principal questions: (1) whether Hong Kong is a “foreign state,” such that Matimak is a “citizen or subject” of a “foreign state”; (2) whether Matimak is a “citizen or subject” of the United Kingdom, by virtue of Hong Kong’s relationship -with the United Kingdom when it brought suit; and (3) whether any and all non-citizens of the United States may ipso facto invoke alienage jurisdiction against a United States citizen. Although not addressed by the parties, this last question is the focus of the dissent, and thus merits serious consideration.

I. Is Hong Kong a “Foreign State”?

A. Well-Established Principles in this Court

Neither the Constitution nor § 1332(a)(2) defines “foreign state.” However, “[i]t has generally been held that a foreign state is one formally recognized by the executive branch of the United States government.” 13B C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure § 3604 (1984).

For purposes of diversity jurisdiction, a corporation is a “citizen” or “subject” of the entity under whose sovereignty it is created. See National Steamship Co. v. Tugman, 106 U.S. 118, 121, 1 S.Ct. 58, 59, 27 L.Ed. 87 (1882); Restatement (Second) of the Foreign Relations Law of the United States § 26 (1965).

The Supreme Court has never addressed the issue before us. This Court, however, has applied these general rules in addressing alienage jurisdiction on several occasions.

In Iran Handicraft and Carpet Export Center v. Marjan International Corp., 655 F.Supp. 1275 (S.D.N.Y.), aff'd, 868 F.2d 1267 (2d Cir.1988), an Iranian corporation sued a New York corporation in the Southern District of New York for breach of contract. When the complaint was filed, Iran was undergoing a revolutionary change of government. The issue was whether the court was required to find that the United States formally recognized the new government of Iran to permit the plaintiff to invoke alienage jurisdiction. See id. at 1275-76.

The court noted the general rule that a “foreign state” in § 1332(a)(2) is one “formally recognized by the executive branch.” Id. at 1277 (citing Wright, Miller & Cooper, supra, § 3604). The eourt explained:

Because the Constitution empowers only the President to “receive Ambassadors and other public Ministers,” the courts have deferred to the executive branch when determining what entities shall be considered foreign states. The recognition of foreign states and of foreign governments, therefore, is wholly a prerogative of the executive branch. Thus, it is outside the competence of the judiciary to pass judgment upon executive branch decisions regarding recognition.

Id. (citations omitted).

[80]*80The court surveyed the ease law, concluding that “[i]n eases involving parties claiming to be citizens of a foreign state, ... courts have focused on whether the foreign state was recognized by the United States as ‘a free and independent sovereign.’” Id. at 1278 (quoting Windert Watch Co. v. Remex Elecs. Ltd., 468 F.Supp. 1242, 1244 (S.D.N.Y. 1979)).

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118 F.3d 76, 1997 U.S. App. LEXIS 15889, Counsel Stack Legal Research, https://law.counselstack.com/opinion/matimak-trading-co-v-albert-khalily-dba-unitex-mills-inc-and-day-ca2-1997.