Casio, Inc. v. S.M. & R. Co., Inc.

Decision Date17 January 1985
Docket NumberNo. 83-3300,83-3300
Citation755 F.2d 528
PartiesCASIO, INC., Plaintiff-Appellee, v. S.M. & R. CO., INC., Defendant-Appellant.
CourtU.S. Court of Appeals — Seventh Circuit

Narcisse A. Brown, Schwartz, Cooper, Kolb & Gaynor, Chicago, Ill., for defendant-appellant.

Ruben Castillo, Charles N. Brusso & Assoc., Chicago, Ill., for plaintiff-appellee.

Before BAUER and POSNER, Circuit Judges, and CAMPBELL, Senior District Judge. *

POSNER, Circuit Judge.

Casio, the U.S. distributor of watches manufactured by its Japanese parent, sued SM & R, which sells watches at retail. The suit was for $38,235, representing the unpaid balance of watches that Casio had sold and delivered to SM & R. Casio obtained judgment for that amount after a bench trial and SM & R has appealed, claiming that the watches it has not paid for are watches it was contractually entitled to return to Casio for a credit, because its customers had returned them to it. The only basis for federal jurisdiction is diversity of citizenship, and the first question we must decide is whether the parties were actually citizens of different states.

The complaint alleges (and the answer does not deny) that Casio is incorporated in New York and SM & R in Illinois, and that Casio "is a New York Corporation" and SM & R "is an Illinois Corporation," which we take to be a second reference to the states of incorporation. The pretrial order states accurately that "the jurisdiction of the [District] Court is not disputed," and the parties presented no evidence at trial explicitly directed to establishing or refuting the existence of diversity of citizenship. The district judge in his Rule 52(a) findings stated that Casio's principal place of business is in New Jersey and SM & R's in Illinois, but the complaint, answer, and pretrial order are in fact silent on the parties' principal places of business and the question was not raised at trial. SM & R challenged the district court's jurisdiction for the first time after judgment.

For purposes of the federal diversity jurisdiction, a corporation is (with an immaterial exception) a citizen both of the state (or states) in which it is incorporated and the state in which it has its principal place of business. 28 U.S.C. Sec. 1332(c). Hence when one corporation sues another and the only basis of federal jurisdiction is diversity, the plaintiff must allege both the state of incorporation and the state of the principal place of business for each corporation. See Form 2, Forms Appendix of Federal Rules of Civil Procedure; Note of Advisory Committee on the 1961 Amendment to Form 2. If the plaintiff fails to allege all these things the complaint should be dismissed. If the complaint does contain the requisite allegations showing diversity, and the answer does not deny them, and nothing comes to light before judgment becomes final (after all appeal possibilities have been exhausted) to indicate that they are untrue, then jurisdiction is established, while if the answer denies a jurisdictional allegation the truth of that allegation must be determined like that of any other contested allegation in a lawsuit. See, e.g., Grafon Corp. v. Hausermann, 602 F.2d 781, 783 (7th Cir.1979); Western Transport. Co. v. Couzens Warehouse & Distributors, Inc., 695 F.2d 1033, 1038 (7th Cir.1982).

Casio's complaint omitted essential jurisdictional allegations; and though neither the parties nor the district judge noticed this till after the judge had rendered his decision on the merits, it was not too late even then for SM & R to question the court's jurisdiction. See Fed.R.Civ.P. 12(h)(3); cf. Honneus v. Donovan, 691 F.2d 1, 2 (1st Cir.1982) (per curiam). We must therefore decide whether there was enough evidence in the record to support the district judge's rejection of SM & R's motion to dismiss. If there was, the deficiency in the complaint is not fatal. See Fed.R.Civ.P. 15(b).

A finding of jurisdictional fact made in denying a post-judgment motion is not subject to Rule 52(a); see last sentence of rule. Nevertheless the same standard of appellate review set forth in Rule 52(a) for findings of fact in orders that are subject to the rule (orders deciding bench trials)--the "clearly erroneous" standard--should be followed. See Western Transport. Co. v. Couzens Warehouse & Distributors, Inc., supra, 695 F.2d at 1038; cf. Village Fair Shopping Center Co. v. Sam Broadhead Trust, 588 F.2d 431, 433-34 (5th Cir.1979); 1 Moore's Federal Practice p 0.74, at p. 707.5 (2d ed. 1984). It is the character of the judge's finding as a finding of fact, rather than the character of the decision in which it is embodied, that brings the "clearly erroneous" standard into play.

In applying that standard here, we begin by noting the uncontroverted evidence that SM & R's principal place of business is in Illinois, the state where it is also incorporated. Since Casio is not incorporated in Illinois, the only thing that would destroy diversity would be for Casio to have its principal place of business in Illinois. All of SM & R's dealings with Casio (after an initial meeting at SM & R's headquarters in Illinois) took the form of correspondence with Casio officials in New Jersey or (to a much lesser extent) California, except for dealings with Casio's midwestern sales representative--who was, however, an independent contractor, rather than Casio's employee. Casio's consumer warranty and letterhead list the address of the company as New Jersey, and Casio's national operations manager has his office there. Although the evidence that Casio's principal place of business is in New Jersey is thinner than it would have been if the district judge had ordered an evidentiary hearing on the post-judgment motion to dismiss, and maybe that would have been the better course of action in view of the importance of confining the jurisdiction of the federal courts within the boundaries established by the Constitution and Congress, the record contains enough evidence that Casio's principal place of business--wherever it is (probably in New Jersey)--is not in Illinois to make the district court's finding that the parties were of diverse citizenship not clearly erroneous.

Before turning to the merits, we comment very briefly on choice of law. The district judge stated in his conclusions of law that "because this is a diversity action, Illinois law provides the rules of decision." This is not quite accurate. Because this is a diversity suit the district court must use Illinois' choice of law principles to determine what state's substantive rules ("rules of decision") to apply to the parties' dispute. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941). The forum state's substantive rules are applicable only if the forum state's choice of law rules make them applicable. See Lloyd v. Loeffler, 694 F.2d 489, 495 (7th Cir.1982). But since the parties do not contest the application of Illinois substantive law, the district court's error is immaterial. Parties can within broad limits stipulate the substantive law to be applied to their dispute, and that is what we deem them to have done here by not objecting to the district judge's application of the substantive law of Illinois to their dispute. See id.; Gonzalez v. Volvo of America Corp., 752 F.2d 295, at 299 (7th Cir. Jan. 4, 1985); Central Soya Co. v. Epstein Fisheries, Inc., 676 F.2d 939, 941 (7th Cir.1982).

There are two issues on the merits. The first is whether the sales contract under which Casio sold watches to SM & R allowed SM & R to return them for a credit (or replacement of merchandise) only if they had been delivered to SM & R in a defective state (either factory defective or damaged in transit), as Casio contends and the district judge found; or whether SM & R could return any watches that its retail customers returned to it pursuant to its "customer...

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