Astra Oil Trading Nv v. Prsi Trading Co. Lp

• Decision Date: 23 June 2011
• Docket Number: No. 08 CV 10467(NRB).,08 CV 10467(NRB).
• Parties: ASTRA OIL TRADING NV, Plaintiff,v.PRSI TRADING COMPANY LP, Defendant.
• Court: U.S. District Court — Southern District of New York

794 F.Supp.2d 462

ASTRA OIL TRADING NV, Plaintiff,

v.PRSI TRADING COMPANY LP, Defendant.

No. 08 CV 10467(NRB).

United States District Court, S.D. New York.

June 23, 2011.

Gerald A. Novack, Esq., David S. Versfelt, Esq., Scott Newman, Esq., Catherine A. LaRose, Esq., K & L Gates LLP, New York, NY, for Plaintiff.William M. Katz, Jr., Esq., Thompson & Knight LLP, Dallas, TX, for Defendant.

MEMORANDUM AND ORDER

NAOMI REICE BUCHWALD, District Judge.

Plaintiff Astra Oil Trading N.V. (“AOT”) has brought two actions before this Court against defendant PRSI Trading Company L.P. (“PRSI Trading”) seeking indemnification in the amount of approximately $156 million, which AOT alleges was paid under its obligation as a guarantor of PRSI Trading's credit facility. In the first action, 08 Civ. 10467, this Court granted plaintiff's motion for pre-judgment attachment of funds in two PRSI Trading bank accounts pursuant to Sections 6201 and 6212 of the New York Civil Practice Law and Rules and Rule 64 of the Federal Rules of Civil Procedure. See Astra Oil Trading N.V. v. PRSI Trading Co. L.P., No. Civ. 10467(NRB), 2008 WL 5429821 (S.D.N.Y. Dec. 23, 2008). Plaintiff's second action, 10 Civ. 6067, seeks an identical attachment of the same accounts in the event that the first action is dismissed. Defendant now moves to dismiss both actions for lack of subject matter jurisdiction and to vacate the existing attachment. In addition, defendant seeks an award of damages and attorneys' fees for wrongful attachment or, alternatively, an increase in the amount of plaintiff's attachment bond. For the reasons set forth below, defendant's motion is granted in part and denied in part.

BACKGROUND¹

In 2006, plaintiff and Petrobras America, Inc. (“PAI”) formed the defendant partnership, PRSI Trading Company. Initially the partnership was comprised of two entities wholly-owned by plaintiff (“the Astra partners”) and two entities wholly-owned by PAI (“the PAI partners”). Disputes between plaintiff and PAI led the parties to begin an arbitration in June 2008.

In July 2008, the Astra partners sought to exercise put-option rights under the partnership agreement against the PAI partners. This would have had the effect of forcing a buyout of the Astra partners' ownership interests, leaving the PAI partners with complete ownership of defendant. On October 24, 2008, the arbitration panel upheld the validity of plaintiff's exercise of its put-option rights, but deferred a decision on when and how much PAI and the PAI partners would be required to pay until a final hearing to commence in February 2009.

At the time, plaintiff and PAI were guarantors of defendant's $500 million credit facility from BNP Paribas which was set to expire on October 31, 2008. Defendant allowed the credit facility to expire without fully repaying BNP Paribas. As a result, on November 3, 2008 the guarantors (both plaintiff and PAI) were required to make guarantee payments to BNP Paribas of approximately $156 million each. Because the arbitration panel's October 24, 2008 ruling assured plaintiff that it would eventually recover the price of its put-option rights under a pre-determined formula at the conclusion of arbitration, plaintiff raised a counterclaim seeking immediate reimbursement of the $156 million guarantee payment it had made. The arbitration panel denied the interim expedited relief without prejudice to plaintiff recovering the $156 million claim at the conclusion of the final hearing.

On December 3, 2008, plaintiff filed its first action in this Court, 08 Civ. 10467, seeking attachment of defendant's funds and indemnification in the amount of $156 million. At oral argument, counsel for defendant assured the Court that defendant did not dispute that an amount greater than $156 million was owed to “Astra” but professed confusion as to the exact amount and which entity within plaintiff's corporate structure to pay. (Versfelt Decl. Ex. 1 at 31–35.) Defense counsel also emphasized that the indemnification claim would shortly be resolved in the ongoing arbitration. ( Id. at 36:7–16, 38:6–14.)

On December 23, 2008, following briefing and oral argument, we granted plaintiff's motion for an order of attachment. See Astra Oil Trading N.V. v. PRSI Trading Co. L.P., No. 08 Civ. 10467(NRB), 2008 WL 5429821 (S.D.N.Y. Dec. 23, 2008). Thereafter, defendants moved to dismiss the action for lack of diversity jurisdiction. On April 6, 2009, we denied defendant's motion without prejudice, predicting that the arbitration panel's forthcoming final determination would “obviate the need for our attachment order.” Astra Oil Trading N.V. v. PRSI Trading Co. L.P., No. 08 Civ. 10467(NRB), 2009 WL 928672, at *4 (S.D.N.Y. April 6, 2009).

On April 10, 2009, the arbitration panel's Final Award of Arbitrators was issued, holding that AOT was entitled to indemnification from the PAI partners for the $156 million guarantee payment. (Petronio Decl. Ex 4 at 51.) The panel directed the PAI partners to pay this amount, plus interest, to plaintiff on or before April 27, 2009. ( Id.) The panel also directed the Astra partners to transfer their ownership interests in the defendant partnership to the PAI partners on or before April 27, 2009. ( Id. at 58.)

Plaintiff alleges that the Astra partners transferred their interests as directed, but that the PAI partners refused to pay. On April 28, 2009, plaintiff brought an action to enforce the arbitration award in federal court in the Southern District of Texas. The district court initially ruled in favor of plaintiff on the merits, confirming the arbitration award, but on a motion for reconsideration the action was dismissed for lack of subject matter jurisdiction. See Astra Oil Trading N.V. v. Petrobras Am. Inc., 718 F.Supp.2d 805 (S.D.Tex. Mar.10, 2010), vacated on reh'g, Astra Oil Trading N.V. v. Petrobras Am. Inc., 2010 WL 3069793 (S.D.Tex. Aug. 4, 2010).

Shortly after the Texas district court's dismissal, defendant returned to this Court and renewed its motion to dismiss the indemnification action for lack of subject matter jurisdiction. On August 12, 2010, plaintiff filed its second action against defendant, 10 Civ. 6067, nearly identical to the first, and informed the Court that this was done “as a precaution merely in order to continue preserving the status quo.” (Pl.'s 2d Compl. 3 ¶ 4.)

DISCUSSION

In its first action, 08 Civ. 10467, plaintiff has invoked subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a)(2), which grants federal courts jurisdiction over actions between “citizens of a State and citizens or subjects of a foreign state.” Plaintiff asserts that it is a citizen or subject of Netherlands, and defendant is a limited partnership whose members are citizens of Delaware, Texas, Nevada, and California. Defendant objects that plaintiff's principal place of business is in fact California, making plaintiff a citizen of that state pursuant to 28 U.S.C. § 1332(c) and thus destroying complete diversity.

I. Subject Matter Jurisdiction—Application of § 1332(c) to Alien Corporations

The diversity statute, 28 U.S.C § 1332, was amended in 1958 to add a subsection (c) dealing with the citizenship of corporations. 28 U.S.C. § 1332(c) provides in pertinent part:

For the purposes of this section and section 1441 of this title, a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business ...

Congress intended this amendment to correct a perceived abuse “whereby a local institution, engaged in a local business and in many cases locally owned, is enabled to bring its litigation into the Federal courts simply because it has obtained a corporate charter from another State.” S.Rep. No. 85–1830, at 4 (1958), reprinted in 1958 U.S.C.C.A.N. 3099, 3101–02 (citing Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276 U.S. 518, 48 S.Ct. 404, 72 L.Ed. 681 (1928) in which plaintiff, a Tennessee corporation, gained access to federal court by dissolving itself in Tennessee and reincorporating in Kentucky to create diversity). The result under § 1332(c) is the well-established system of dual-citizenship for the many corporations which are incorporated by one state of the United States (“U.S. State”), such as Delaware, but have their principal place of business in a different U.S. State.

Prior to 1958, alien corporations were treated solely as citizens or subjects of a foreign state, without regard to their principal place of business. See Steamship Co. v. Tugman, 106 U.S. 118, 121, 1 S.Ct. 58, 27 L.Ed. 87 (1882) (“[A] corporation of a foreign state is, for purposes or jurisdiction in the courts of the United States, to be deemed, constructively, a citizen or subject of such state.”). After Congress added § 1332(c), however, the difficult question arose as to whether this subsection applied to a corporation incorporated by a foreign state which nonetheless had its principal place of business in a U.S. State.

The diversity statute clearly distinguishes between foreign states and U.S. States, using the lowercase term ‘states' to refer to foreign states and the capitalized term ‘States' to refer to U.S. States.² Alien corporations create an interpretive difficulty because the initial clause of § 1332(c)(1), which deems a corporation to be a “citizen of any State by which it has been incorporated,” may be read to refer only to a corporation which has been incorporated by at least one U.S. State. On this interpretation, it is far from clear how the pronouns of the second clause of § 1332(c)(1), which says “the State where it has its principal place of business” (emphasis added), can be interpreted to refer to a corporation not referred to in the first clause, i.e. an alien corporation. Thus a literal interpretation renders § 1332(c) inapplicable to alien corporations.

The first district court to confront this difficulty found it...