Lear Corp. v. Johnson Electric Holdings Ltd.

• Decision Date: 30 December 2003
• Docket Number: No. 03-2932.,03-2932.
• Citation: 353 F.3d 580
• Parties: LEAR CORPORATION, Plaintiff-Appellant, v. JOHNSON ELECTRIC HOLDINGS LIMITED and Nevada Bond Investment CORP. II, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

353 F.3d 580

LEAR CORPORATION, Plaintiff-Appellant, v. JOHNSON ELECTRIC HOLDINGS LIMITED and Nevada Bond Investment CORP. II, Defendants-Appellees.

No. 03-2932.

United States Court of Appeals, Seventh Circuit.

Argued December 4, 2003.

Decided December 30, 2003.

Thomas J. Wiegand (argued), Winston & Strawn, Chicago, IL, for Plaintiff-Appellant.

R. Ryan Stoll (argued), Skadden, Arps, Slate, Meagher & Flom, Perry C. Rocco, Menges & Molzahn, Chicago, IL, for Defendants-Appellees.

Before BAUER, EASTERBROOK, and EVANS, Circuit Judges.

EASTERBROOK, Circuit Judge.

In 1999 Lear Corporation, which specializes in automotive interiors, purchased UT Automotive, Inc. (UTA), the automotive operations of United Technologies Corporation, through an intermediary called Nevada Bond. Lear spun off UTA's electrical motors division to Johnson Electric Holdings Ltd. while retaining the balance of the business. Automobile and motors businesses come with risks of environmental liability, given their reliance on long-lasting fluids that can leak and reach the ground. The transactions therefore included reciprocal agreements to indemnify. Nevada Bond promised to cover any environmental costs associated with "a discontinued operation ... or assets no longer used ... by UTA" as of the closing, plus any other environmental liabilities of which it then had notice. Lear promised to indemnify Nevada Bond for all subsequently arising environmental liabilities. Lear and Johnson Electric agreed to parallel arrangements. Lear believes that, with respect to the electrical-motors assets, all past, present, and future liabilities have been apportioned between Johnson Electric and Nevada Bond, so that even if Lear should be held liable (because it is in the chain of title), one or the other must indemnify it. But this generality does not identify which of the two must pay. Each may insist that the other is responsible, leaving Lear at risk in the meantime — and holding the bag, if either should become insolvent.

Two years after Johnson Electric acquired United Technologies' electric-motor business, a suit was filed in Columbus, Mississippi. The plaintiffs contend that hazardous substances have leaked from UTA's automobile-parts manufacturing facility, which Johnson Electric now owns. The complaint named Lear, Nevada Bond, and Johnson Electric among the defendants. Lear and Nevada Bond took the position that, because the Columbus plant is still operating, and there was no actual knowledge as of 1999 of environmental problems, all liability (if there turns out to be any) rests with Johnson Electric. Lear asked Johnson Electric to assume the defense of the suit and to admit responsibility for indemnity. But Johnson Electric contended that Lear (and thus Nevada Bond) had retained the liability because any leaks came from "assets" that were no longer in use by 1999, even though an operational plant exists at the site. Johnson Electric declined to provide Lear with either defense or indemnity.

With Nevada Bond and Johnson Electric each insisting that the other bears any liability, Lear filed this action against both under the diversity jurisdiction, asking the court for a declaratory judgment that one or the other must assume the defense of the Mississippi litigation and pick up the tab at the end. The district court dismissed the action to the extent that Lear sought relief against Johnson Electric, see 2003 U.S. Dist. LEXIS 9132 (N.D.Ill. May 30, 2003), and then entered a partial final judgment under Fed.R.Civ.P. 54(b), so that Lear could take an immediate appeal. The district court concluded that, while the Mississippi litigation is pending, it is premature to determine which firm must indemnify Lear. And although the dispute about defense is ripe, the judge held that Johnson Electric has an option to take over the defense (in order to protect its interests from missteps by Lear, which lacks much interest in the outcome) but not an obligation to do so. Lear does not contest the latter holding on appeal but contends that it is entitled to an immediate decision about indemnity.

Neither the parties nor the district judge devoted much attention to what must be the first issue in every federal suit: subject-matter jurisdiction. Lear is a Delaware corporation with its principal place of business in Michigan. Nevada Bond is a Nevada corporation with its principal place of business in Connecticut (United Technologies' home state). So far, so good. But Johnson Electric is a foreign entity "limited by shares" under Bermuda law with its principal place of business (which is to say, its corporate headquarters) in China. Until we raised the issue at oral argument, everyone had assumed that a Bermuda "limited" organization is just like a U.S. corporation, so that jurisdiction is supplied by 28 U.S.C. § 1332(a)(3), which covers suits between "citizens of different States and in which citizens or subjects of a foreign state are additional parties". That depends on thinking of Johnson Electric as the "citizen." Perhaps, however, a Bermuda "limited" organization is similar to a U.S. limited liability company, which like a partnership is disregarded for purposes of determining citizenship. Instead courts look to the citizenship of all partners or investors. See Carden v. Arkoma Associates, 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990); Cosgrove v. Bartolotta, 150 F.3d 729 (7th Cir. 1998). We directed the parties to file post-argument briefs discussing how "limited" entities organized under Bermuda law should be classified for purposes of the diversity jurisdiction.

Counsel did not get the point. The parties' joint memorandum discusses such questions as whether a Bermuda corporation is a "subject[] of a foreign state" — to which the answer is yes, given Bermuda's status as an overseas territory of the United Kingdom, see JP Morgan Chase Bank v. Traffic Stream (BVI) Infrastructure Limited, 536 U.S. 88, 122 S.Ct. 2054, 153 L.Ed.2d 95 (2002); Universal Reinsurance Co. v. St. Paul Fire & Marine Insurance Co., 312 F.3d 82, 86 (2d Cir.2002) — but not whether Johnson Electric's legal attributes classify it as a "corporation." The memorandum does not discuss Carden or Cosgrove. But it does include a copy of Bermuda's Companies Act 1981, so we were able to do the research ourselves. This statute shows that a business organization "limited by shares" under Bermuda law is equivalent in all legally material respects to a corporation under state law. It is an entity with perpetual existence, governed by a Board of Directors, able to issue tradable shares (which Johnson Electric has done; they trade on the Hong Kong Stock Exchange), and treated as independent of its equity investors — who are neither taxable on its profits nor liable for its debts. Johnson Electric, rather than the investors, therefore is a "citizen" for purposes of U.S. law, and complete...