Bergen Shipping Co., Ltd. v. Japan Marine Serv., Ltd., 74 Civ. 3160 (WCC).

Decision Date26 November 1974
Docket NumberNo. 74 Civ. 3160 (WCC).,74 Civ. 3160 (WCC).
PartiesBERGEN SHIPPING CO., LTD., Plaintiff, v. JAPAN MARINE SERVICES, LTD., Defendant.
CourtU.S. District Court — Southern District of New York

George L. Graff, and Robert Thomajan, New York City, Milgrim, Thomajan & Jacobs, P. C., New York City, for plaintiff.

George Yamaoka, Stephen J. Murray, and John T. MacDermott, New York City, Hill, Betts & Nash, New York City, for defendant.

MEMORANDUM AND ORDER

CONNER, District Judge:

This is an action to recover money damages for injuries allegedly sustained when Japan Marine Services, Ltd. ("JMS") breached its agreement to provide a crew for the SS Yukon Mart, a bulk cargo vessel owned by plaintiff Bergen Shipping Co., Ltd. ("Bergen").

The action first came before the Court on Bergen's ex parte application for leave to serve JMS in Japan by Telex, and to depose the crew of the vessel. Since the performance of the crew was the crucial issue in the lawsuit and the crew was about to depart from the United States and be reassigned to vessels in international commerce, the application was granted.

Immediately thereafter, JMS appeared to contest the jurisdiction of this Court and moved to have the order vacated on the grounds that Bergen had no reasonable basis for invoking the Court's jurisdiction and that the parties had an agreement to arbitrate its disputes. In view of the exigency of the circumstances, the Court ruled that the depositions were to go forward as scheduled without prejudice to any of JMS' rights. The Court further ruled that the transcripts were to be unavailable to either party pending resolution of JMS' jurisdictional claims.

Subsequently, JMS moved pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for an order dismissing the complaint on the grounds that this action is not within either the admiralty or the diversity jurisdiction of the Court. It has also moved pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure, to quash service on the ground that the Court lacks jurisdiction over its person.

The parties have agreed that the action should be dismissed without prejudice pending the outcome of an arbitration proceeding now scheduled to commence in Tokyo. However, because defendant has claimed that plaintiff invoked the jurisdiction of this Court in bad faith, and that it attended the depositions in reliance on this Court's direction that it would not forfeit its existing rights, it is necessary to pass on defendant's pending motions which seek an order that the deposition transcripts cannot be used in the arbitration or in any other proceedings between the parties.

I.

This action arises out of a decision by Bergen, a Liberian corporation having its principal place of business in New York, to obtain a Japanese crew for its vessel, the SS Yukon Mart. In accordance with Japanese practice, Bergen arranged for JMS, a "marine service company," to supply the crew.

The parties agreed that JMS would negotiate a labor agreement with the All Japan Seamen's Union, and furnish a crew in accordance with the terms of that agreement. JMS further agreed that it would,

"effect payment of all reasonable allotments from wages to beneficiaries directly or through such channels as may be customary and agreed by the employee . . . . And effect payment of wages to employees when the vessel is in Japan . . . ."

In March, 1974 the president of the seamen's union presented JMS with a proposal to revise the original agreement. Eventually, Mr. Hosaka, JMS' Director and Section Chief of the Manning Section, came to the United States for two days to meet with the crew. Negotiations continued until July 10, 1974 when the crew ceased work. On July 24, 1974 Bergen obtained permission to depose the crew with respect to its refusal to perform any further duties.

II.

In support of its jurisdictional objections JMS contends that this Court's jurisdiction may not be based on 28 U.S.C. § 1332.

Section 1332(a) provides:

"The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $10,000 . . . and is between —
(1) citizens of different States;
(2) citizens of a State, and foreign states or citizens or subjects thereof; and
(3) citizens of different States and in which foreign states or citizens or subjects thereof are additional parties."

It is beyond dispute that this section does not confer jurisdiction on the federal courts in suits between aliens. Hodgson v. Bowerbank, 5 Cranch 303, 3 L.Ed. 108 (1809); Willems v. Barclays Bank D.C.O., 263 F.Supp. 774, 775 (S.D.N.Y. 1966); Mazzella v. Pan Oceanica A/S Panama, 232 F.Supp. 29, 31 n.1 (S.D.N. Y.1964). Plaintiff contends, however, that Section 1332(c) provides an exception which allows a foreign corporation which has its principal place of business in one of the United States to sue another foreign corporation. The language Bergen relies on in Section 1332(c) provides that, for purposes of Section 1332,

"a corporation shall be deemed a citizen of any State by which it has been incorporated and of the State where it has its principal place of business."

Although the proper interpretation of Section 1332(c) has been the subject of a substantial body of commentary,1 there is little case law on point.

The seminal case in this area is Eisenberg v. Commercial Union Assurance Co., 189 F.Supp. 500 (S.D.N.Y.1960). In Eisenberg, an action by a New York citizen against a British corporation with its principal place of business in London, Judge Dimock ruled that diversity jurisdiction would attach despite the fact that defendant's principal place of business in the United States was in New York. Thus, the precise ruling of Eisenberg is that an alien corporation which has its principal place of business outside the United States will not be deemed a citizen of the State in which it has its principal U.S. place of business. However, in dictum, Judge Dimock stated:

"Unless a corporation is incorporated by a State of the United States it will not be deemed a citizen of the State where it has its principal place of business." 189 F.Supp. at 502.

In support of his decision, Judge Dimock noted that the statute apparently distinguishes States of the United States from foreign states by spelling the former with a capital S and the latter with a lower case s. Thus, the Court ruled that subdivision (c) only applies to corporations incorporated in the United States. Curiously, however, in illustrating his point, Judge Dimock used an example which contradicted this dictum. He stated that,

"if a Bahamian corporation . . . has located its principal place of business in New York, the inference is legitimate that it has adopted New York as its actual residence and that it is no longer entitled to be considered an outsider and to deserve the protection accorded outsiders." 189 F.Supp. at 502.

In Chemical Transportation Corp. v. Metropolitan Petroleum Corp., 246 F. Supp. 563 (S.D.N.Y.1964), Judge Cooper applied Eisenberg to a case in which the plaintiff was a Liberian corporation and the defendants were New York citizens. The Court ruled that even if plaintiff's principal place of business was in New York, diversity jurisdiction existed since 28 U.S.C. § 1332(c) does not apply to alien corporations.

The defendants in Chemical had sought to defeat jurisdiction by offering proof that plaintiff's principal place of business was in New York, and that all the parties were therefore New York citizens within the meaning of 28 U.S.C. § 1332(c). The Court, recognizing that the issue was as yet unresolved, found Judge Dimock's analysis of the statutory language compelling, and sustained jurisdiction.

In two subsequent decisions, Judge Cooper followed his holding in Chemical.2 Willems v. Barclays Bank D.C.O., supra; Tsakonites v. Transpacific Carriers Corp., 246 F.Supp. 634, 641 (S.D.N.Y.1965).

Although the principle established by this line of cases was challenged by several noted authorities on federal jurisdiction,3 there was no further development in the case law until the recent opinion in Southeast Guaranty Trust Co. v. Rodman & Renshaw, Inc., 358 F.Supp. 1001 (N.D.Ill.1973). See Centraal Stikstof Verkoopkantoor N.V. v. Pensacola Port Authority, 205 F.Supp. 724, 725 (N.D.Fla.1962), aff'd 316 F.2d 189 (1963).

In Southeast, defendants, Illinois citizens, contended that there was no diversity jurisdiction since plaintiff, a Bahamian corporation with its principal place of business in Illinois, was also an Illinois citizen. Plaintiff, on the other hand, relying on Chemical, supra, maintained that federal jurisdiction existed because as a foreign corporation, it was only a citizen of the foreign state in which it was chartered.

The Court rejected plaintiff's contention and ruled that Section 1332(c) applies to foreign corporations whose principal place of business is located in the United States. This Court is constrained to follow this result and respectfully disagree with the result reached in Chemical and its progeny.

Although Congress apparently did not consider alien corporations when it amended Section 1332 to provide that a corporation is a citizen of the state of its incorporation as well as the state of its principal place of business,4 it is clear that the same rationale which precludes out-of-state but locally based corporations from invoking federal jurisdiction against locally incorporated corporations would preclude alien, but locally based corporations, from invoking such jurisdiction.5

Indeed, Congress specifically sought to eliminate the

"evil 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." 1958 U.S.Code Cong. and Admin.News, pp. 3099, 3101-3102.

In view of this overriding policy, this Court is compelled to conclude...

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