Koehler v. Bank of Bermuda

• Court: U.S. Court of Appeals — Second Circuit
• Writing for the Court: CALABRESI; SOTOMAYOR; CALABRESI
• Citation: Koehler v. Bank of Bermuda, 229 F.3d 187 (2nd Cir. 2000)
• Decision Date: 10 April 2000
• Docket Number: No. 98-9624,98-9624
• Parties: (2nd Cir. 2000) LEE N. KOEHLER, Petitioner-Appellant, v. THE BANK OF BERMUDA (NEW YORK) LIMITED, a New York Corporation, THE BANK OF BERMUDA LIMITED, a Bermuda Corporation, REEFS BEACH CLUB LIMITED, a Bermuda Corporation, and A. DAVID DODWELL, a Bermuda citizen, Defendants-Appellees. Argued: Aug., 1999. Decided:

Page 187

229 F.3d 187 (2nd Cir. 2000)

LEE N. KOEHLER, Petitioner-Appellant, v. THE BANK OF BERMUDA (NEW YORK) LIMITED, a New York Corporation, THE BANK OF BERMUDA LIMITED, a Bermuda Corporation, REEFS BEACH CLUB LIMITED, a Bermuda Corporation, and A. DAVID DODWELL, a Bermuda citizen, Defendants-Appellees.

No. 98-9624

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: Aug., 1999.

Decided: April 10, 2000.

On Reconsideration by the Court In Banc Dissent: Sept. 28, 2000

A request for a vote as to whether the panel decision should be reconsidered sua sponte by the Court in banc having been made by a judge of the Court, and a poll of the judges in regular active service having been taken, a majority of the Court has voted not to reconsider the decision in banc. The mandate shall therefore issue. Judges Leval, Calabresi and Sotomayor dissent.

Judge CALABRESI dissents in a separate opinion.

SOTOMAYOR, Circuit Judge, with whom Judge LEVAL concurs, dissenting from the denial of rehearing in banc:

Federal courts may, under their alienage jurisdiction, hear controversies between "citizens of a State and citizens or subjects of a foreign state." 28 U.S.C. 1332(a)(2) (1994). Based upon a prior holding of this Court in Matimak Trading Co. v. Khalily, 118 F.3d 76 (2d Cir. 1997), cert. denied, 522 U.S. 1091, 139 L. Ed. 2d 871, 118 S. Ct. 883 (1998), the panel in this case concluded that Bermuda corporations and a Bermuda citizen were not "citizens or subjects of a foreign state," and, therefore, that a controversy involving such parties was not within the alienage jurisdiction of the federal courts. Koehler v. Bank of Bermuda (New York) Ltd., 209 F.3d 130, 139 (2d Cir. 2000). Because a rehearing in banc would provide a much-needed opportunity for the full Court to reexamine the flawed and internationally troublesome position that corporations and individuals from territories of the United Kingdom do not fall within the alienage jurisdiction of the federal courts, I dissent from the denial of the petition for rehearing in banc.

I.

This is a question of "exceptional importance." Fed. R. App. P. 35(a)(2). Its import reaches well beyond our government, to our relations with foreign nations, and the access of foreign entities and individuals to the federal courts. Both the Executive Branch and the government of the United Kingdom of Great Britain and Northern Ireland have asked that we reconsider the reasoning we employed in Matimak. This Circuit's understanding of the scope of alienage jurisdiction is squarely in conflict with that of the other circuit courts that have addressed this question. When issues of such enduring significance are presented, I believe that the Court in banc should reexamine the merits of its conclusion to ensure that substantial numbers of individuals and corporations are not erroneously deprived of access to our federal courts.

The defendants in this case include Bermuda corporations and a Bermuda citizen. Bermuda is not recognized by our State Department as an independent state. It is, rather, a "British Overseas Territory."¹ Essential to this case is the fact that despite the myriad ways in which the United Kingdom exercises dominion over Bermuda, British law terms Bermudan citizens and corporations "nationals," but not "subjects," of the United Kingdom. See United Kingdom Government's Diplomatic Service Procedure Manual, Vol. 7, Annex 1, Rules 1(b), 2(a) (1996). Previously, this Court in Matimak held that a corporation organized under the laws of Hong Kong could not sue New York defendants in federal court because Hong Kong was, at the time, a Dependent Territory of the United Kingdom, and therefore the plaintiff corporation was not a "citizen or subject" of a foreign "state."² Relying on Matimak, the panel here concluded that Bermuda corporations and a Bermuda citizen were not "citizens or subjects of a foreign state," 28 U.S.C. 1332(a)(2) (1994), and therefore not within our alienage jurisdiction.

The people of Bermuda would undoubtedly be surprised to learn that they are "stateless." But this is precisely the conclusion upon which these decisions rest. See Matimak, 118 F.3d at 86 ("[Plaintiff-Hong Kong corporation] is thus stateless. And a stateless person-the proverbial man without a country-cannot sue a United States citizen under alienage jurisdiction."). Having found such entities or individuals "stateless," the panels in this case and in Matimak had no difficulty denying these litigants access to the federal courts because "the raison d'etre of alienage jurisdiction is to avoid entanglements with other sovereigns that might ensue from failure to treat the legal controversies of aliens on a national level." Matimak, 118 F.3d at 82 (internal quotation omitted). These panels implicitly reason that absent a "state," there is no sovereign to offend and therefore no cause to provide federal alienage jurisdiction.

This assurance is undermined by the strong reaction to our decisions by the United Kingdom.³ Whatever other intention the panels here and in Matimak may have had, there can be no doubt that the fundamental purpose of alienage jurisdiction--to void offense to foreign nations--is frustrated by the Matimak decision and its further application by this panel. Paradoxically the country we offend by these holdings is not only a strong ally, but the very country the drafters of the alienage jurisdiction provision had in mind more than two hundred years ago when they sought to open the federal courts to foreign litigants. See Kevin R. Johnson, Why Alienage Jurisdiction? Historical Foundations and Modern Justifications over Disputes Involving Noncitizens, 21 Yale J. Int'l L. 1, 7-8 (1996) (noting the failure of state courts to enforce debts owed to British creditors following the Revolutionary War).

This Court, in Matimak, attempted to shift responsibility for the disturbing consequences of its reasoning to the Executive Branch. Because the Department of State maintains that British Overseas Territories are not independent "states," the Matimak court reasoned that it was forced to conclude that Bermuda corporations were stateless. See Matimak, 118 F.3d at 83 (commenting that "it is for the Executive Branch, not the courts, to anticipate where potential 'entanglements' with such entities are appreciable enough to recognize sovereign status"). The Executive Branch, however, has urged us not to use the definition of "statehood" taken from the context of diplomatic recognition as a basis for denying British Overseas Territories the benefit of federal alienage jurisdiction. The Executive Branch has emphasized that to do so may cause the United States to "face an international controversy with British authorities for failure to provide a neutral forum" for individuals or corporations of a British Overseas Territory in federal court. Brief Amicus Curiae for the United States at 8, Matimak Trading Co. v. Khalily (96-9117).

Our Circuit is alone in concluding that federal alienage jurisdiction does not extend to citizens and corporations of British Overseas Territories. The Third Circuit, largely out of deference to the Executive Branch's position that Hong Kong corporations were considered, at the time, "subject to British sovereignty," found that they fell within the federal courts' alienage jurisdiction. Southern Cross Overseas Agencies, Inc. v. Wah Kwong Shipping Group Ltd., 181 F.3d 410, 413 (3rd Cir.1999). The Seventh Circuit has held that a Cayman Islands corporation could be sued in federal court under alienage jurisdiction, explaining that, "certainly, the exercise of American judicial authority over the citizens of a British Dependent Territory implicates this country's relationship with the United Kingdom-precisely the raison d'etre for applying alienage jurisdiction." Wilson v. Humphreys (Cayman) Ltd., 916 F.2d 1239, 1243 (7th Cir.1990), cert. denied, 499 U.S. 947, 113 L. Ed. 2d 468, 111 S. Ct. 1415 (1991). The Fourth Circuit, without discussion of the issue, has found that a Bermuda resident-apparently the same individual defendant sued in this case--was a "citizen" or "subject" of a foreign state for alienage jurisdiction purposes. Koehler v. Dodwell, 152 F.3d 304, 308 (4th Cir. 1998).

Owing to the fact that our characterization of corporations and citizens of British Overseas Territories as "stateless" has given rise to precisely the sort of damage to foreign relations the statute was meant to avoid, it is questionable that this distinction has its origins in the statute. Nor is this dubious characterization imposed upon us by the Executive Branch, which has advocated a contrary rule. Neither has this distinction been accepted by our sister circuits. Moreover, this Circuit has previously concluded, albeit without discussion, that "there is no question" that alienage jurisdiction existed between citizens of the United States and a Bermuda corporation. Netherlands Shipmortgage Corp. v. Madias, 717 F.2d 731, 735 (2d Cir. 1983). Finally, two respected senior circuit judges from the panel in this case, Judge Jon O. Newman and Judge Richard J. Cardamone, have expressed disagreement with the merits of our precedent in Matimak. See Koehler v. Bank of Bermuda (New York) Ltd., F.3d , , n. (2d Cir. 2000). All this being the case, it seems incumbent upon us, as a full Court, to reexamine the basis upon which our panels both here and in Matimak reached their conclusions.

II.

An examination of the merits leads to the conclusion that Matimak misapplied the terms "citizens or subjects of a foreign state" in a fashion inconsistent with both the historical understanding of these terms and a contemporary understanding of the relationship between the United Kingdom and its Overseas Territories.

The panel in Matimak began its analysis with the unremarkable proposition that "a foreign state is entitled to define who are its citizens or subjects." Matimak, 118 F.3d at 85 (citing,...