Hoagland v. Sandberg, Phoenix & Von Gontard

Decision Date22 September 2004
Docket NumberNo. 03-2059.,03-2059.
Citation385 F.3d 737
PartiesDonald HOAGLAND, as receiver of Midwest Transit, Inc., Plaintiff-Appellant, v. SANDBERG, PHOENIX & VON GONTARD, P.C., Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

Appeal from the United States District Court for the Southern District of Illinois, Phil Gilbert, J Sharon Shanahan (argued), Makanda, IL, Terrell L. Sharp, Mt. Vernon, IL, for Plaintiff-Appellant.

A. Courtney Cox (argued), Hart & Hart, Benton, IL, for Defendant-Appellee.

Before BAUER, POSNER, and EASTERBROOK, Circuit Judges.

POSNER, Circuit Judge.

Donald Hoagland, as receiver for Midwest Transit, filed suit in an Illinois state court against the Sandberg law firm, which in the course of representing Midwest had, Hoagland charged, wronged its client. The law firm removed the suit to federal district court on the basis of diversity of citizenship. The district court entered judgment for Sandberg after determining that Hoagland had not proved the elements of legal malpractice, and Hoagland appeals.

As happens all too often when a suit comes into the federal courts by removal, so that the original pleadings did not specify a basis for federal jurisdiction, the case came to us without adequate specification of the citizenship of the parties, even though the only possible basis for federal jurisdiction was diversity of citizenship. We therefore directed the parties to file supplemental briefs addressed to jurisdiction, and they have done so. The supplemental briefs reveal that Hoagland is a citizen of Illinois; and it is his citizenship rather than Midwest's that is germane to diversity, FDIC v. Elefant, 790 F.2d 661, 665-66 (7th Cir.1986); Gross v. Hougland, 712 F.2d 1034, 1037-39 (6th Cir.1983); Jump v. Manchester Life & Casualty Management Corp., 579 F.2d 449, 452 n. 4 (8th Cir.1978); cf. Navarro Savings Ass'n v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980), because there is no suggestion that he was appointed receiver in order to create diversity jurisdiction. 28 U.S.C. § 1359; Gross v. Hougland, supra, 712 F.2d at 1037-39. The briefs also reveal, however, that while the Sandberg firm is a professional corporation incorporated and having its principal place of business in Missouri, three of the twenty-two members of the firm (the shareholders in the professional corporation) are citizens of Illinois. If the citizenship of the members is what counts for purposes of determining diversity, as would be the case if the law firm were a partnership, a limited liability company, or any other noncorporate enterprise, then the requirement of complete diversity has not been met and the suit must be dismissed for want of federal jurisdiction.

In Coté v. Wadel, 796 F.2d 981, 983 (7th Cir.1986), however, we held, as had the Second Circuit in Saxe, Bacon & Bolan, P.C. v. Martindale-Hubbell, Inc., 710 F.2d 87, 89 (2d Cir.1983), that for purposes of the diversity jurisdiction a professional corporation should be treated like any other corporation, rendering the members' citizenship irrelevant. A number of subsequent cases are in accord. Schneider ex rel. Estate of Schneider v. Fried, 320 F.3d 396, 399, 400 (3d Cir.2003); Ocean Ships, Inc. v. Stiles, 315 F.3d 111, 114, 115 n. 1 (2d Cir.2002); Edell & Associates, P.C. v. Law Offices of Peter G. Angelos, 264 F.3d 424, 427 (4th Cir.2001); Duffey v. Wheeler, 820 F.2d 1161, 1162 (11th Cir.1987). There are no contrary decisions.

We reaffirmed Coté in Saecker v. Thorie, 234 F.3d 1010, 1010-13 (7th Cir.2000), and at about the same time, in a case involving a nonprofit corporation, made clear that Coté stands for a rule that "for purposes of diversity jurisdiction a corporation is a corporation is a corporation," CCC Information Services, Inc. v. American Salvage Pool Ass'n, 230 F.3d 342, 346 (7th Cir.2000) (quoting Coté v. Wadel, supra, 796 F.2d at 983); see also National Ass'n of Realtors v. National Real Estate Ass'n, Inc., 894 F.2d 937, 939 (7th Cir.1990); Wild v. Subscription Plus, Inc., 292 F.3d 526, 528-29 (7th Cir.2002); Mutual Service Casualty Ins. Co. v. Country Life Ins. Co., 859 F.2d 548, 550-51 (7th Cir.1988) — it doesn't matter what kind. Yet we know that business entities that are functionally similar to corporations, but are not formally corporations, such as limited partnerships and limited-liability companies, are not classified as corporations for diversity purposes. Carden v. Arkoma Associates, 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990); Great Southern Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 454-57, 20 S.Ct. 690, 44 L.Ed. 842 (1900); Belleville Catering Co. v. Champaign Market Place, L.L.C., 350 F.3d 691, 692-93 (7th Cir.2003); Tango Music, LLC v. DeadQuick Music, Inc., 348 F.3d 244, 245 (7th Cir.2003); Cosgrove v. Bartolotta, 150 F.3d 729, 731 (7th Cir.1998); Rolling Greens MHP, L.P. v. Comcast SCH Holdings L.L.C., 374 F.3d 1020, 1021-22 (11th Cir.2004) (per curiam); GMAC Commercial Credit LLC v. Dillard Department Stores, Inc., 357 F.3d 827 (8th Cir.2004); Riley v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 292 F.3d 1334, 1337-40 (11th Cir.2002); Handelsman v. Bedford Village Associates Limited Partnership, 213 F.3d 48, 51-52 (2d Cir.2000). Since professional corporations differ in certain respects from business corporations, perhaps in more respects than the entities involved in the cases just cited, we were led in Saecker v. Thorie, supra, 234 F.3d at 1012-13, to wonder whether the rule of Coté could be reconciled with these cases.

Upon reconsideration, however, we have concluded that we ought to continue to follow Coté rather than overrule it and by doing so create an intercircuit conflict and, worse, inject confusion into the determination of federal jurisdiction. A salient consideration in favor of Coté is the easy applicability of a rule that treats any corporation as a corporation for diversity purposes. Functional approaches to legal questions are often, perhaps generally, preferable to mechanical rules; but the preference is reversed when it comes to jurisdiction. When it is uncertain whether a case is within the jurisdiction of a particular court system, not only are the cost and complexity of litigation increased by the necessity of conducting an inquiry that will dispel the uncertainty but the parties will often find themselves having to start their litigation over from the beginning perhaps after it has gone all the way through to judgment. "Jurisdictional rules ought to be simple and precise so that judges and lawyers are spared having to litigate over not the merits of a legal dispute but where and when those merits shall be litigated." In re Lopez, 116 F.3d 1191, 1194 (7th Cir.1997); see also Budinich v. Becton Dickinson & Co., 486 U.S. 196, 202-03, 108 S.Ct. 1717, 100 L.Ed.2d 178 (1988); Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527, 549-56, 115 S.Ct. 1043, 130 L.Ed.2d 1024 (1995) (concurring opinion); Kennedy v. Wright, 851 F.2d 963, 967 (7th Cir.1988); Inter-Coastal Xpress, Inc. v. United States, 296 F.3d 1357, 1367 (Fed.Cir.2002). "The more mechanical the application of a jurisdictional rule, the better. The chief and often the only virtue of a jurisdictional rule is clarity." In re Kilgus, 811 F.2d 1112, 1117 (7th Cir.1987) (citations omitted).

There is an enormous variety of types of corporation. There are business corporations, professional corporations, public benefit and charitable corporations, mutual benefit corporations, religious corporations, educational and scientific corporations, municipal and other public corporations, cooperative corporations, corporations sole (see, e.g., Cal. Corp.Code § 10002), and Native American tribal corporations. See 1 & 1A William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations, ch. 3 (rev. ed.1999), and 1 James D. Cox & Thomas Lee Hazen, Cox & Hazen on Corporations, ch. 1 (2d ed.2003). Would it be a sensible, or even a feasible, judicial undertaking to create and apply, case by case, a standard for deciding which of these should be classified as corporations for purposes of the diversity jurisdiction and which not? No court has thought so. All the cases that discuss the citizenship of nonbusiness corporations hold that they are indeed corporations for diversity purposes. Besides those we've cited already, see Moor v. County of Alameda, 411 U.S. 693, 717-18, 93 S.Ct. 1785, 36 L.Ed.2d 596 (1973) (municipal corporation); City of Clinton v. Moffitt, 812 F.2d 341, 342 (7th Cir.1987) (same); Rucci v. City of Pacific, 327 F.3d 651, 652 (8th Cir.2003) (same); Caudle v. American Arbitration Ass'n, 230 F.3d 920, 922 (7th Cir.2000) (nonprofit corporation); Indiana Port Comm'n v. Bethlehem Steel Corp., 702 F.2d 107, 109-10 (7th Cir.1983) (public corporation); University of Rhode Island v. A.W. Chesterton Co., 2 F.3d 1200, 1202-03, 1206-07 (1st Cir.1993) (same); Gaines v. Ski Apache, 8 F.3d 726, 729 (10th Cir.1993) (tribal corporation); Stock West, Inc. v. Confederated Tribes of the Colville Reservation, 873 F.2d 1221, 1226 (9th Cir.1989) (same). Countless other cases assume that business and nonbusiness corporations should be treated the same. E.g., Tosco Corp. v. Communities for a Better Environment, 236 F.3d 495 (9th Cir.2001) (per curiam) (nonprofit corporation); Bell v. United States, 754 F.2d 490, 494-95 (3d Cir.1985) (same); Knab Co. v. St. Mary's Hospital, Inc., 286 F.2d 854, 855 (7th Cir.1961) (charitable corporation); Wellness Community-National v. Wellness House, 70 F.3d 46, 47 (7th Cir.1995) (same); Fresenius Medical Care Cardiovascular Resources, Inc. v. Puerto Rico & Caribbean Cardiovascular Center Corp., 322 F.3d 56, 59 (1st Cir.2003) (public corporation); Strotek Corp. v. Air Transport Ass'n of America, 300 F.3d 1129, 1130-32 (9th Cir.2002) (incorporated trade association); American Institute of Chemical Engineers v. Reber-Friel Co., 682 F.2d...

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