Bank of New York v. Bank of America

• Citation: 861 F. Supp. 225
• Decision Date: 27 May 1994
• Docket Number: No. 94 Civ. 3057 (LAP).,94 Civ. 3057 (LAP).
• Parties: The BANK OF NEW YORK and BNY Australia Limited, Plaintiffs, v. BANK OF AMERICA and Bank of America Australia Limited, Defendants.
• Court: U.S. District Court — Southern District of New York

861 F. Supp. 225

The BANK OF NEW YORK and BNY Australia Limited, Plaintiffs, v. BANK OF AMERICA and Bank of America Australia Limited, Defendants.^*

No. 94 Civ. 3057 (LAP).

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

May 27, 1994.

Jed S. Rakoff, John Sullivan, Fried, Frank, Harris, Shriver & Jacobson, A Partnership Including Professional Corporations, New York City, for defendants.

Daniel Wallen, Otterbourg, Steindler, Houston & Rosen, P.C., New York City, for plaintiffs.

PRESKA, District Judge:

This case is a contract dispute between two Australian banks and their American parent companies. Plaintiffs originally filed the action in the Supreme Court of the State of New York, and defendants removed it here, alleging 28 U.S.C. § 1332 (diversity) and 12 U.S.C. § 632 (international banking) as bases for jurisdiction. Presently before the Court are a motion by plaintiffs to remand the case back to State court and motions by the defendants (1) to dismiss or stay the action in favor of a parallel Australian proceeding; (2) to dismiss as to Bank of America Australia Limited (BOAA) for lack of personal jurisdiction; and (3) to vacate a temporary restraining order issued by the state court judge. Because the Court finds that it lacks subject matter jurisdiction, plaintiffs' motion to remand the action is granted, and defendants' motions are not addressed.¹

Background

BNY Australia (BNYA) is an Australian corporation with its principal place of business in Sydney, Australia. It is a wholly-owned subsidiary of The Bank of New York (BNY), a New York banking corporation with its principal place of business in New York City. BOAA is an Australian corporation with its principal place of business in Sydney, Australia. It is a wholly-owned subsidiary of Bank of America (BOA), a national banking association with its principal place of business in San Francisco, California.

On or about November 19, 1993, BNYA and BOAA, using their parent companies as agents, entered into a letter agreement committing themselves to engage in exclusive negotiations for the purchase of certain of BNYA's assets by BOAA. Specifically, the parties were to discuss the possible sale of BNYA's interest in several loans made by BNYA to a group of Australian companies. Over the next several months, such discussions did occur and draft closing documents were exchanged. However, despite several extensions of the period for exclusive negotiations, the parties were unable to reach a final agreement. BNYA finally terminated the dialogue in March 1994.

In April 1994, the parties traded complaints. BOAA and BOA, on April 11, 1994, commenced an action in the Supreme Court of New South Wales in Sydney against BNYA and BNY for damages and equitable relief. The complaint alleges that the parties reached agreements, enforceable under Australian and California law, for the sale to BOAA of BNYA's interests in several loans and that those agreements have been breached. The next day, April 12, 1994, BNYA and BNY commenced this action in the Supreme Court of the State of New York, seeking a declaratory judgment that neither BNYA nor BNY have any obligation to BOAA or BOA concerning the failed transaction.

After filing their respective complaints, the parties began efforts to frustrate progress in each other's actions. BOAA and BOA, on April 20, 1994, secured a scheduling order from the Australian court for a motion to enjoin BNYA from prosecuting this New York action. Two days later, BNYA and BNY procured an Order to Show Cause and a Temporary Restraining Order from Justice Herman Cahn of the Supreme Court of the State of New York enjoining BOAA and BOA from seeking an injunction from the Courts of Australia to bar the adjudication of this New York action.

Justice Cahn set the return date on the Order to Show Cause for May 2, 1994.² On April 26, however, BOAA and BOA removed the New York action to this Court, alleging 28 U.S.C. § 1332 (diversity) and 12 U.S.C. § 632 (international banking) as bases for jurisdiction. Along with their removal petition, defendants filed motions to dismiss or stay the action in favor of the Australia action and to dismiss the action against BOAA for lack of personal jurisdiction. Defendants also filed a motion to vacate the temporary restraining order on May 9, 1994. All of these motions were made returnable on May 11, 1994.

Discussion

In their response to defendants' motions, plaintiffs have asserted that the Court lacks subject matter jurisdiction over this action and must therefore remand the action back from whence it came. Because the removal statute only allows removal of actions within the Court's original jurisdiction, 28 U.S.C. § 1441, and because fundamental principles of American jurisprudence forbid the Court from acting in the absence of subject matter jurisdiction, see W.G. v. Senatore, 18 F.3d 60, 63 (2d Cir.1994) (citing Marbury v. Madison, 5 U.S. (1 Cranch) 137, 173-80, 2 L.Ed. 60 (1803) and noting that in the absence of jurisdiction, "the district court has `no power to do anything but to strike the case from the docket.' The Mayor v. Cooper, 73 U.S. (6 Wall.) 247, 250, 18 L.Ed. 851 (1868)"), plaintiffs' contention must be examined before any other matter.

1. Diversity

As their first basis of jurisdiction, defendants allege diversity. The Court's diversity jurisdiction is set out generally in 28 U.S.C. § 1332. In this case, the arguably applicable provision is § 1332(3), which grants district courts diversity jurisdiction in cases which are between "citizens of different States and in which citizens or subjects of a foreign state are additional parties."³

Plaintiffs offer several reasons why diversity jurisdiction is lacking in the present case. First, they argue, there is not complete diversity here because the alien parties on opposite sides of the caption are from the same foreign state. Plaintiffs rest this argument upon a 1983 decision where a judge of this Court held that "the requirement of complete diversity applies with the same force and effect to `additional parties' under § 1332(a)(3)," with the result that diversity jurisdiction cannot exist when aliens from the same state are on both sides of a case. De Wit v. KLM Royal Dutch Airlines, N.V., 570 F.Supp. 613, 617.

Acknowledging plaintiffs' accurate reporting of the De Wit case, and with all due respect to the De Wit court, I decline to follow that decision. Virtually all of the authorities that have considered the question hold that in cases where there are citizens and aliens on both sides of a case, jurisdiction exists under § 1332(a)(3) so long as there is complete diversity among the citizen parties and the citizen parties are legitimately involved in the underlying controversy and not present merely to establish federal jurisdiction. See Transure, Inc. v. Marsh and McLennan, Inc., 766 F.2d 1297, 1298 (9th Cir.1985); Camper & Nicholsons International, Ltd. v. Blonder Marine & Charter, Inc., 793 F.Supp. 318, 320 (S.D.Fla.1992); Clark v. Yellow Freight System, Inc., 715 F.Supp. 1377, 1378 (E.D.Mich.1989); K & H Business Consultants Ltd. v. Cheltonian, Ltd., 567 F.Supp. 420, 424 (D.N.J.1983); 13B Charles Wright, et al., Federal Practice and Procedure § 3604, at 390-391 (1984) ("Wright"); 1 James Moore, et al., Moore's Federal Practice ¶ 0.75 1.-2-4, at 800.44-800.47 (1991) ("Moore"). While this Court has never expressly reached that result, it has implicitly assumed it to be the law on at least two occasions. See L'Europeenne de Banque v. La Republica de Venezuela, 700 F.Supp. 114, 126 (S.D.N.Y.1988); Coudert Brothers v. Easyfind International, 601 F.Supp. 525, 526 (S.D.N.Y.1985).⁴

Aside from De Wit, there is no authority in support of engrafting a requirement onto § 1332(a)(3) that alien parties on opposite sides of a case be from different foreign nations.⁵ The leading authorities have rejected the idea, see Moore ¶ 0.75 1.-2-4, at 800.45-800.46; Wright § 3604, at 389 n. 20 (labeling the holding of De Wit "dubious"), and it is unsupported by logic. The raison d'etre of diversity jurisdiction is to guard against the possibility that state court judges will treat litigants from the forum state more favorably than out-of-state adversaries.⁶ Complete diversity among citizen parties is required, at least in part, because the presence of litigants from the forum state on both sides of the case eliminates the concern that one side will be treated more favorably than the other on the basis of home-state bias. This rationale clearly does not extend to justify a complete diversity requirement with respect to alien parties. Consider a case brought in New York state court where a citizen of New York and a citizen of Lithuania sue a Texan and a co-defendant. If the co-defendant is a New Yorker, the Texan's fear of bias will be allayed — for in order to penalize the Texan the judge will have to harm one of his or her neighbors. On the other hand, if the co-defendant is a Lithuanian, the nervous Texan will be little comforted —he or she has no reason to think that the judge will be any less willing to penalize a Texan and a Lithuanian than to penalize a Texan alone. For diversity purposes, an alien is an alien is an alien. Thus, the fact that aliens on opposite sides of a case hail from the same country has no bearing on the existence of diversity.

Plaintiffs' second argument against diversity rests upon defendants alleged contention that the two alien entities are the principal adverse parties in the present dispute. As just referenced above, it is indeed a requirement of § 1332(a)(3) jurisdiction that the citizen parties be legitimate parties to the underlying controversy and not mere "window dressing." Moore ¶ 0.75 1.-2-5, at 800.47. Thus, if it were the case that BOA and BNY were not genuinely involved in this dispute, diversity jurisdiction would not lie. Further, if it were the case that BOA had unequivocally asserted that BOA and BNY were...