Extra Equipamentos E Exportacao v. Case Corp.

• Decision Date: 15 March 2004
• Docket Number: No. 03-2863.,03-2863.
• Citation: 361 F.3d 359
• Court: U.S. Court of Appeals — Seventh Circuit
• Parties: EXTRA EQUIPAMENTOS E EXPORTAÇÃO LTDA., et al., Plaintiffs-Appellants, v. CASE CORPORATION, Defendant-Appellee.

Page 359

361 F.3d 359

EXTRA EQUIPAMENTOS E EXPORTAÇÃO LTDA., et al., Plaintiffs-Appellants, v. CASE CORPORATION, Defendant-Appellee.

No. 03-2863.

United States Court of Appeals, Seventh Circuit.

Argued January 9, 2004.

Decided March 15, 2004.

Christopher T. Sheean, Kelley, Drye & Warren, Chicago, IL, Paul F. Doyle (argued), Kelley, Drye & Warren, New York, NY, for Plaintiff-Appellant.

William J.F. Roll, III (argued), Shearman & Sterling, New York, NY, William E. Deitrick, Mayer, Brown, Rowe & Maw, Chicago, IL, for Defendant-Appellee.

Before POSNER, RIPPLE, and ROVNER, Circuit Judges.

POSNER, Circuit Judge.

Extra, a Brazilian company, sued Case, a major U.S. manufacturer of farm and construction equipment, in the federal district court in Chicago, charging fraud. (The co-plaintiff, Extra's boss, can be ignored.) Jurisdiction was based on 28 U.S.C. § 1332(a)(2), because the suit was between a citizen of a state (Case) and citizens of a foreign country (Extra and its boss). The district judge dismissed the suit under Fed.R.Civ.P. 19(b) on the ground that Case Brasil & Cia, Case's wholly owned Brazilian subsidiary, was an indispensable party to the suit. Extra appeals.

Case Brasil had hired Extra to distribute Case products in Brazil. In 1999, Extra sued Case Brasil in a Brazilian court, claiming that corrupt employees of the subsidiary had caused the subsidiary to overcharge Extra. Later that year, a "settlement agreement" was negotiated and signed in Illinois by representatives of Extra and Case. No official of Case Brasil was present or signed the agreement, although the Case executive who signed it purported to be acting on behalf of both parent and subsidiary. The agreement ended the Brazilian litigation and provided that Case Brasil would continue to use Extra as a distributor and would seek no more than $2 million in past-due payments that it claimed Extra owed it under the distributorship contract. In exchange, Extra, besides dropping its suit against Case Brasil, promised to give Case information about the corrupt conduct of Case Brasil's employees that would enable Case to have them removed (thus avoiding possible trouble with the Brazilian government) without the parent or subsidiary incurring liability.

Extra filed the present suit in 2001, complaining that Case had defrauded Extra by inducing it to enter into the settlement agreement when Case knew that Case Brasil would not be bound by the agreement and would not perform its obligations under it. Case's objective in committing the fraud, Extra charged, was to get Extra's Brazilian suit against Case's subsidiary dropped and obtain the information about the corruption at the subsidiary without incurring any of the costs of the agreement arising from the fact that the agreement required Case Brasil to continue Extra as a distributor and to limit its claims for past moneys due from Extra to $2 million. But (according to Extra) Case Brasil, claiming not to be bound by the agreement because it had not authorized its parent to make it — indeed, contending that it had had no wind of the negotiations or of the signing of the agreement — terminated Extra's distributorship and refuses to recognize any limit on its money claims, though Case was happy to receive the information about the corrupt employees that Extra furnished it pursuant to Extra's obligations under the agreement. Case had thus "manipulated the corporate distinction between itself and Case Brasil" by falsely representing that the Case official who signed the agreement was authorized to sign on behalf of Case Brasil.

Case moved to dismiss the suit on the ground that since Case Brasil was a party to the settlement agreement — the Case executive who signed it having signed it on the subsidiary's behalf as well as the parent's — the subsidiary was an indispensable party to the suit. After some discovery, the district judge agreed and dismissed the suit. This was a preliminary ruling, on jurisdiction, and not a ruling that Extra has no fraud case against Case. And anyway the essence of Extra's case is not that Case Brasil was not bound by the settlement agreement, but that Case schemed to make sure that Extra would not benefit from the agreement.

Case had moved in the alternative for dismissal under the doctrine of forum non conveniens, arguing that Brazil was a more convenient locale for the litigation of the fraud claim (there is no suggestion that Extra could not sue Case there). Piper Aircraft Co. v. Reyno, 454 U.S. 235, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981). But the district judge did not rule on the alternative ground.

Case denies that it committed fraud. It contends that the executive who signed the settlement agreement was indeed authorized to do so on behalf of both parent and subsidiary and therefore Case Brasil became bound by the settlement agreement, and that it has never repudiated or, for that matter, violated it, though it has terminated Extra's distributorship (but without, Case contends, violating the agreement). Case points out that Extra has sued Case Brasil in Brazil for damages arising from the termination and that the suit is pending.

Two steps are involved in deciding whether someone is indispensable to a suit, so that the suit must be dismissed if, as in this case, he can't be made a party. The diversity jurisdiction does not extend to a suit in which there is a U.S. citizen on only one side of the suit and foreign parties on both sides, Karazanos v. Madison Two Associates, 147 F.3d 624, 627 (7th Cir. 1998); Israel Aircraft Industries Ltd. v. Sanwa Business Credit Corp., 16 F.3d 198, 202 (7th Cir.1994); Allendale Mutual Ins. Co. v. Bull Data Systems, Inc., 10 F.3d 425, 428 (7th Cir.1993); Universal Licensing Corp. v. Paola del Lungo S.p.A., 293 F.3d 579, 580-81 (2d Cir.2002), as there would be if Case Brasil became a defendant. And the federal courts' supplemental jurisdiction cannot be used to leap this jurisdictional hurdle. See 28 U.S.C. § 1367(b).

The first step in determining indispensability is to decide whether if the person could be joined, he would have to be joined. One of the circumstances in which he would have to be joined (if he could be) would be if he "claims an interest relating to the subject of the action and is so situated that the disposition of the action in [his] absence may as a practical matter impair or impede [his] ability to protect that interest." Fed.R.Civ.P. 19(a)(2)(i). The second step is to determine, if he cannot be joined, "whether in equity and good conscience the action should proceed among the parties before [the court], or should be dismissed." Fed.R.Civ.P. 19(b). Rule 19(b) lists several factors as bearing on this determination, of which the two most important in this case are "to what extent a judgment rendered in the person's absence might be prejudicial to" him and "whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder."

Because of the looseness of the terms "equity and good conscience" and because their applicability is to be determined in each case by weighing several factors with no weights indicated, we agree with those courts (the majority) that hold that appellate review of a determination of indispensability is limited to deciding whether the district judge has committed an abuse of discretion. E.g., National Union Fire Ins. Co. v. Rite Aid of South Carolina, Inc., 210 F.3d 246, 250 n. 7 (4th Cir.2000); Davis v. United States, 192 F.3d 951, 957 (10th Cir.1999); Washington v. Daley, 173 F.3d 1158, 1165 (9th Cir. 1999); Jota v. Texaco Inc., 157 F.3d 153, 161 (2d Cir.1998). The more particularistic, and the less rule-bound and therefore more discretionary, the required judgment made by the trial court, the more limited the competence of the appellate court. A judgment that is not governed by a rule cannot be determined to be correct or incorrect by comparing it to the language or purpose of a rule, because there is none; there is just a medley of imponderables. All the appellate court can do as a practical matter in such a situation is to decide whether the trial court exercised judgment in a reasonable manner.

The second factor that we quoted — whether the plaintiff has an alternative if the suit is dismissed — supports the district court's ruling. Dismissal would not be a disaster for Extra. It can bring its fraud claim against Case in a Brazilian court or, if it prefers, in a state court in Wisconsin, where Case is headquartered, or Illinois, where the settlement agreement was negotiated and signed. Extra is a Brazilian company and therefore should be especially comfortable litigating in Brazil's court system, and Case is suable there — remember that it moved to have the case transferred to Brazil, and we take this to be binding consent to be sued there. Brazil seems in fact a natural venue for the litigation, given the pendency there of the related litigation between Extra and Case's Brazilian subsidiary. We do not say that Brazil is in fact a more convenient forum for the fraud litigation; that is the issue raised by Case's forum non conveniens motion, which the district judge did not address. Such a motion, like a motion to dismiss for failure to join an indispensable party, is addressed to the district judge's discretion, ...