F. & H.R. Farman-Farmaian Consulting Engineers Firm v. Harza Engineering Co.

• Decision Date: 20 September 1989
• Docket Number: No. 88-3133,FARMAN-FARMAIAN,88-3133
• Citation: 882 F.2d 281
• Parties: F. & H.R.CONSULTING ENGINEERS FIRM and Farough Farman-Farmaian, Plaintiffs-Appellants, v. HARZA ENGINEERING COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 281

882 F.2d 281

14 Fed.R.Serv.3d 747

F. & H.R. FARMAN-FARMAIAN CONSULTING ENGINEERS FIRM and Farough Farman-Farmaian, Plaintiffs-Appellants, v. HARZA ENGINEERING COMPANY, Defendant-Appellee.

No. 88-3133.

United States Court of Appeals, Seventh Circuit.

Argued May 17, 1989.

Decided Aug. 17, 1989.

As Amended Aug. 24, 1989.

Rehearing Denied Sept. 20, 1989.

Ann E. Acker, Donna Ross Daniels, Lenore L. MacDonald, Chapman & Cutler, Chicago, Ill., John Vanderstar, Covington & Burling, Washington, D.C., for plaintiffs-appellants.

Gary L. Prior, William C. Meyers, McDermott, Will & Emery, Chicago, Ill., Jerry D. Anker, Wald, Harkrader & Ross, Washington, D.C., for defendant-appellee.

Before WOOD, Jr. and POSNER, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

POSNER, Circuit Judge.

This lawsuit--a bit of fallout from the Iranian Revolution--was filed under the alienage component of the federal diversity jurisdiction. 28 U.S.C. Sec. 1332(a)(2). The plaintiffs are F. & H.R. Farman-Farmaian Consulting Engineers Firm ("Consulting Firm," for short), an Iranian corporation, and Farough Farman-Farmaian, an Iranian citizen now resident in London. The defendant is Harza Engineering Company, a Delaware corporation whose principal place of business is in Chicago.

Before his ouster by the revolutionary regime, Mr. Farman-Farmaian was the Consulting Firm's managing director and a twenty percent shareholder. He is suing on his own behalf and that of the other owners of the firm--all of whom are members of the Farman-Farmaian family and all of whom gave him a broad power of attorney to prosecute this suit--to collect a debt of some $2 million that Harza allegedly owes the Consulting Firm for work that the firm did for Harza in Iran before the revolution. Harza moved for summary judgment on the ground that the act of state doctrine bars the suit. The district judge agreed; and although the judgment order recites that it is dismissing the complaint, the judge's intent to dismiss the entire suit is plain, which is enough to satisfy the final decision rule of 28 U.S.C. Sec. 1291. See, e.g., Bethune Plaza, Inc. v. Lumpkin, 863 F.2d 525, 527-28 (7th Cir.1988). But we repeat our plea that district courts head off spurious issues of appellate jurisdiction by complying with the letter of Rule 58. See, e.g., Coniston Corp. v. Village of Hoffman Estates, 844 F.2d 461, 463 (7th Cir.1988).

Harza, beginning in the 1960s, had become the prime contractor on a number of major water development projects in Iran, and had engaged the Consulting Firm to perform services for it in connection with these projects. The record does not disclose the nature of the services but all were performed in Iran. The Consulting Firm mailed the invoices for these services to Harza's headquarters in Chicago. Harza had no office in Iran, although the director of its Iranian projects frequently visited Iran for extended periods and while there had the use of an office that the Consulting Firm provided. Harza paid the Consulting Firm's invoices sometimes in dollars but usually in Iranian currency, and the Consulting Firm deposited all the payments in Iranian banks. Just as Harza had no office in Iran, the Consulting Firm had no office in the United States. The only officer or employee of the firm ever to visit Harza's office was Mr. Farman-Farmaian himself, who had family in Chicago.

In 1979 the revolutionary government seized the Consulting Firm and the next year Harza stopped doing business with Iran because the Iranian government refused to pay Harza's bills. Later the Iranian government decided to dissolve the Consulting Firm--without paying any compensation to its owners--and a board of liquidators was appointed. By this time most of the Farman-Farmaian family wisely had left Iran.

Years later Harza obtained an award from the Iran-United States Claims Tribunal for services rendered to the Iranian government before the Revolution. The plaintiffs claimed that under Harza's contract with the Consulting Firm some $2 million of the Claims Tribunal's award was due to them for services the Consulting Firm had rendered Harza on projects covered by the award. When Harza refused to pay, the plaintiffs filed this suit. Neither the board of liquidators nor any other representative of Iran has filed a claim to the $2 million.

The plaintiffs argued in the district court that the seizure of the Consulting Firm violated Iranian law, but they have abandoned that contention (which the district judge had rejected) on appeal. And they concede that the act of state doctrine generally forbids an American court to question the act of a foreign sovereign that is lawful under that sovereign's laws. To defeat Harza's act-of-state defense they invoke the "extraterritoriality" exception. Well discussed in Tchacosh Co. v. Rockwell International Corp., 766 F.2d 1333, 1336-37 (9th Cir.1985), the exception lifts the bar to suit in cases in which the act of state (1) is confiscatory, and hence contrary to strong American public policy, yet (2) could not be completed within the territory of the foreign sovereign. It is the second element of the exception that is at issue in this appeal; the first is not contested. See, e.g., Republic of Iraq v. First National City Bank, 353 F.2d 47, 51-52 (2d Cir.1965) (Friendly, J.). What the revolutionary government confiscated was the Consulting Firm's claim against Harza for payment for the services the firm had rendered Harza before the firm was seized and its property confiscated. The plaintiffs argue that the revolutionary government could not seize this claim because the debt giving rise to it was "in Chicago" rather than "in Iran."

Before addressing the merits we must determine whether there is federal jurisdiction. The rule of complete diversity--that no plaintiff and no defendant may be a citizen of the same state--applies to alienage cases as well as to ordinary diversity cases. Newman-Green, Inc. v. Alfonzo-Larrain, --- U.S. ----, 109 S.Ct. 2218, 2221, 104 L.Ed.2d 893 (1989). The Consulting Firm is an Iranian corporation and Mr. Farman-Farmaian is also an Iranian citizen, while Harza is for purposes of the diversity jurisdiction a citizen of both Delaware and Illinois. See 28 U.S.C. Sec. 1332(c). So far, so good. The problem is that Mr. Farman-Farmaian is suing not only on his own behalf but also on behalf of the firm's other shareholders, and the pleadings do not indicate their citizenship. Supplemental briefs on jurisdiction filed at our request reveal that one of the shareholders is an Illinois citizen and was at the time the suit was filed. If she is considered a plaintiff, complete diversity is lacking, and with it federal jurisdiction.

Ordinarily the relevant citizenship for diversity purposes is that of the named plaintiff rather than that of the persons on whose behalf he is suing. Obviously this is true of a suit by a corporation--the corporation is the "person" whose citizenship counts, not the shareholders. It was true of suits by trustees and executors, see Navarro Savings Ass'n v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980); Mecom v. Fitzsimmons Drilling Co., 284 U.S. 183, 186, 52 S.Ct. 84, 85, 76 L.Ed. 233 (1931), until the enactment last year of 28 U.S.C. Sec. 1332(c)(2). It is true of class actions--only the citizenship of the named plaintiffs matters for diversity purposes. See Snyder v. Harris, 394 U.S. 332, 340, 89 S.Ct. 1053, 1058, 22 L.Ed.2d 319 (1969); In re "Agent Orange" Product Liability Litigation, 818 F.2d 145, 162 (2d Cir.1987). And--a close analogy to the present case--it is true of stockholder derivative suits; the citizenship of the named plaintiff is all that counts even though he is suing on behalf of the corporation. See Doctor v. Harrington, 196 U.S. 579, 25 S.Ct. 355, 49 L.Ed. 606 (1905); Venner v. Great Northern Ry., 209 U.S. 24, 28 S.Ct. 328, 52 L.Ed. 666 (1908); Van Gelder v. Taylor, 621 F.Supp. 613, 621 (N.D. Ill.1985). On the other hand, the citizenship of a partnership is the citizenship of all the partners, not just of the general partner, despite the close analogy between limited partners and corporate shareholders. So at least we held in Stockman v. LaCroix, 790 F.2d 584, 587 (7th Cir.1986), and Elston Investment, Ltd. v. David Altman Leasing Corp., 731 F.2d 436 (7th Cir.1984), although there is a conflict among the circuits on the question which the Supreme Court has granted certiorari to resolve. See Arkoma Associates v. Carden, 874 F.2d 226, 228 (5th Cir.1988), cert. granted, --- U.S. ----, 109 S.Ct. 1952, 104 L.Ed.2d 421 (1989). In distinguishing the partnership case we pointed out in Elston that a partnership has no legal identity separate from that of the partners. See 731 F.2d at 438. This distinction invites the following generalization: in deciding whether the required diversity is present, the court will confine inquiry to the citizenship of the named parties. If there is the required complete diversity of citizenship among them, the question whether the suit can be maintained will depend on whether the named parties are the real parties in interest and whether any indispensable party has been left out. See Fed.R.Civ.P. 17(a), 19(b).

Under this approach, since Mr. Farman-Farmaian is a named plaintiff but the other owners of the Consulting Firm are not, the citizenship of the other owners is irrelevant. True, Mr. Farman-Farmaian's representative capacity is sui generis. He is not a trustee or guardian of the other shareholders, nor is this a class action or a stockholders' derivative suit. And the plaintiffs sensibly do not argue that the grant of a power of attorney makes the grantee rather than the grantor the party for purposes of determining whether there is diversity--a position that would as a practical matter enable any suit to be maintained as a diversity suit. There is, however, an analogy between this case and the creditor's bill, an old form of...