Southern Cross Overseas Agencies Inc. v. Wah Kwong Shipping Group Ltd.

• Citation: 181 F.3d 410
• Parties: (3rd Cir. 1999) SOUTHERN CROSS OVERSEAS AGENCIES, INC., A NEW JERSEY CORPORATION; TRANSPORT INTERNATIONAL POOL INC., A PENNSYLVANIA CORPORATION, APPELLANTS v. WAH KWONG SHIPPING GROUP LTD., A FOREIGN CORPORATION NO. 98-5185 Argued:
• Decision Date: 25 March 1999
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 410

181 F.3d 410 (3rd Cir. 1999)

SOUTHERN CROSS OVERSEAS AGENCIES, INC., A NEW JERSEY CORPORATION; TRANSPORT INTERNATIONAL POOL INC., A PENNSYLVANIA CORPORATION, APPELLANTS v. WAH KWONG SHIPPING GROUP LTD., A FOREIGN CORPORATION

NO. 98-5185

U.S. Court of Appeals, Third Circuit

Argued: March 25, 1999

June 25, 1999

Corrected June 25, 1999

On Appeal From the United States District Court For the District of New Jersey (D.C. Civ. No. 96-cv-05887) District Judge: Honorable Anne E. Thompson, Chief Judge

[Copyrighted Material Omitted]

Hyman Hillenbrand, Esquire (argued) R. Brett Kelly, Esquire De Orchis, Corsa & Hillenbrand 2650 Biscayne Boulevard Miami, FL 33137 (Organized in New York) 1495 Morris Avenue Union, New Jersey 07083

Laura E. Sher, Esquire Kroll & Tract One Gateway Center Newark, NJ 07102-5311 Counsel for Appellants

Jeffrey W. Sarles, Esquire (argued) Alan N. Salpeter, Esquire Mayer, Brown & Platt 190 South LaSalle Street Chicago, IL 60603

Robert B. Kurzweil, Esquire Fredric R. Cohen, Esquire Katz, Ettin, Levine, Kurzweil, Weber & Scialabba 905 North Kings Highway Cherry Hill, NJ 08034 Counsel for Appellee

Becker, Chief Judge, Lewis and Wellford, ^* Circuit Judges.

OPINION OF THE COURT

Becker, Chief Judge.

This suit for sums past due for transportation of cargo emerges from a setting of contractual relationships and prior litigation history so complicated and convoluted as to almost boggle the mind. It will take over thirteen pages of typescript to describe them. The case had its genesis in a now-failed Australian corporation's relationship with a still-extant Hong Kong corporation. The plaintiffs here claim to have been victims of fraud by the Hong Kong corporation. Aspects of the controversy have previously been litigated in an Australian liquidation proceeding, a New Jersey bankruptcy proceeding (consolidated with a California proceeding), ¹ and a civil action in the United States District Court for the Northern District of Illinois. The present appeal arises from an order of the District Court for the District of New Jersey dismissing the complaint of plaintiffs Southern Cross Overseas Agencies, Inc. ("Southern Cross") and Transport International Pool Inc. ("TIP") against defendant Wah Kwong Shipping Group Ltd. ("Wah Kwong") under Fed. R. Civ. Proc. 12(b)(6) on the ground that the statute of limitations barred the action. It presents two interesting and important questions, one of which we resolve in a way that creates a circuit split.

The first issue stems from the defense that the District Court lacked diversity jurisdiction because the defendant is a Hong Kong corporation. The Court of Appeals for the Second Circuit has determined that Hong Kong corporations, being neither "citizens" nor "subjects" of a foreign state, were "stateless" and therefore do not fall within federal alienage diversity jurisdiction under 28 U.S.C. § 1332(a)(2). See Matimak Trading Co. v. Khalily, 118 F.3d 76 (2d Cir. 1997), cert. denied, 118 S. Ct. 883 (1998). We disagree.

Because the question implicates foreign policy, we requested that the government offer its views, and we now endorse the State Department's position that a Hong Kong corporation, though not a "citizen" of the United Kingdom, was a "subject" of the United Kingdom for purposes of diversity jurisdiction. At the time the lawsuit was filed, Hong Kong was a British Dependent Territory. While governed by laws separate from those governing the United Kingdom itself, Hong Kong was ultimately subject to British sovereignty. The British Crown had the power of final approval of its laws. Furthermore, under the relevant consular agreements, Hong Kong citizens (including corporations) were treated as United Kingdom "nationals" for purposes of relations between the United Kingdom and the United States. Therefore, we agree with the District Court that we possess subject matter jurisdiction.

The second issue implicates the permissible scope of a court's inquiry on a 12(b)(6) motion. The plaintiffs filed their complaint in December 1996. The District Court granted the defendant's 12(b)(6) motion, which was grounded on the statute of limitations, because the fraudulent acts complained of occurred in the mid-1980s and the court was satisfied that New Jersey's six-year statute of limitations for fraud had long since run. The plaintiffs, however, maintain that the facts that might have given them knowledge of a probable cause of action did not come to their attention until 1992 and that they could not reasonably have been expected to know them sooner.

Resolution of the issue requires us to examine the published opinion in the earlier New Jersey bankruptcy litigation. Although this examination takes us beyond the face of the complaint, we conclude that we may take judicial notice of that opinion as a matter of public record and as a document on which the plaintiffs rely in the complaint. We further conclude that, as a matter of law, the opinion provided the bankruptcy creditors in that action with notice of the facts that should have led them to inquire into the alleged fraud. Because the plaintiffs were creditors who filed claims in that action, they should have known of the opinion. Therefore, we will affirm the District Court's Conclusion that the complaint is barred by the statute of limitations.

As is already apparent, the factual and procedural background of this case is incredibly complex. Because the subject matter jurisdiction issue is a threshold matter that is distinct from the other issues before us, we address it first, and then turn to the facts and procedural history.

I. Subject Matter Jurisdiction

Wah Kwong alleges that we lack alienage diversity jurisdiction in this case because, as a corporation organized under Hong Kong law, it is "stateless" and does not fall within 28 U.S.C. § 1332(a)(2). The Supreme Court has recently instructed us not to hypothesize jurisdiction, but to decide jurisdiction first and then address other issues only if there is jurisdiction. See Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (1998). Thus, we address this issue before resolving the parties' other arguments.

Section 1332(a)(2) confers original jurisdiction on federal courts in civil actions in which the matter in controversy exceeds $75,000 between "citizens of a State and citizens or subjects of a foreign state." This tracks the language of Article III of the Constitution, which extends the federal judicial power to "all Cases . . . between a State, or Citizens thereof, and foreign States, Citizens or Subjects." Wah Kwong argues that, as a Hong Kong corporation, it is neither a citizen nor a subject of a "foreign state." ² The District Court found that it had jurisdiction, reasoning only that federal jurisdiction in this case served the interests of "providing a neutral forum and avoiding the appearance of injustice or creating grounds for resentment in the relations of the United States with other nations." Slip Op. at 14.

A. The Second Circuit's View

The District Court's decision is in conflict with the Second Circuit's decision in Matimak. The District Court disposed of the jurisdictional issue summarily, and did not discuss Matimak. In Matimak, Judge McLaughlin, joined by Judge Jacobs, held that Hong Kong was not a "foreign state" for purposes of alienage jurisdiction and that Hong Kong corporations were not "citizens or subjects" of the United Kingdom. Matimak set forth two important principles that formed the basis for its decision.

The first concerned the definition of "foreign state":

Neither the Constitution nor § 1332(a)(2) defines "foreign state." However, "it 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).

Matimak, 118 F.3d at 79. It is undisputed that Hong Kong has not been formally recognized as an independent sovereign by the executive branch. The Matimak court also found that Hong Kong was not a "de facto" foreign state, despite its status as the United States's twelfth-largest trading partner and the United States-Hong Kong Policy Act of 1992, 22 U.S.C.A. §§ 5701-5732 (West Supp. 1996). That Act establishes that Congress desires close United States-Hong Kong relations to continue after Hong Kong's change from a British Dependent Territory to a special administrative region of the People's Republic of China. ³ While the Act demonstrates that there is a special, close relationship between the United States and Hong Kong, that, we agree, is simply not the same as explicit recognition of foreign statehood.

Recognition matters because the Framers feared that foreign nations might become incensed if they perceived that state courts were biased against foreigners; the result could be war or commercial disruption if foreign nations became incensed at the treatment of their citizens or subjects in state courts. See Matimak, 118 F.3d at 82-83. Matimak suggested that, "[w]here the Executive Branch determines that a foreign entity is not a `sovereign,' there is no threat of entanglement with a sovereign stemming from the refusal of a federal court to treat that entity's citizen in a national forum." Id. at 83. The court recognized that, if an unrecognized foreign entity perceived that its citizens had been subject to bias in a state court, there could be foreign relations repercussions, but found that it was for the executive branch to evaluate a foreign entity's autonomy and resources in order to determine whether the entity constituted a sovereign state. Thus, the risk of foreign policy entanglements was not for the court to evaluate. See id.

The second crucial principle in Matimak concerned the definition of "citizens or subjects," and a corollary relating to corporations:

"We begin with the truism that a foreign state is entitled to define who are its...