Newman-Green, Inc. v. Alfonzo-Larrain, NEWMAN-GREE

Citation832 F.2d 417
Decision Date28 October 1987
Docket NumberINC,No. 87-1195,NEWMAN-GREE,ALFONZO-LARRAIN,87-1195
Parties, Plaintiff-Appellant, v. AlejandroR., et al., Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Rowe W. Snider, Lord, Bissel & Brook, Chicago, Ill., for plaintiff-appellant.

Charles G. Albert, Bell, Boyd & Lloyd, Chicago, Ill., for defendants-appellees.

Before FLAUM, EASTERBROOK, and KANNE, Circuit Judges.

EASTERBROOK, Circuit Judge.

Newman-Green, Inc., a manufacturer of aerosol valves, licensed Newman-Green de Venezuela (NGV) to use its trademarks and trade secrets in Venezuela in exchange for a 5% royalty on net sales. Newman-Green (NGI) owns 25% of NGV's stock; four Venezuelans and one U.S. citizen living in Caracas own the rest. Several of these are the principal managers of NGV. The five signed a guaranty, the core of which provides:

In consideration for the execution of the license agreement dated June 13, 1974 from [NGI] to [NGV], the undersigned personally, individually and/or collectively agree that they guarantee the payment to [NGI] of an amount of money up to the 5% royalty set forth in the license agreement and for the period of time specified in the license agreement.

NGV made and sold valves using NGI's technology between 1975 and 1980 but has not paid NGI a penny. One reason was a decision by an agency of the Venezuelan government that 5% was excessive. The license allowed NGI to call off the deal in such an event, and the guaranty was a hedge against the possibility that Venezuela might not approve the license.

When NGI gave notice of termination in light of the decree, NGV made and sold the valves for more than eight months beyond the time allowed by the contract. When NGV stopped, a new firm, Venvalvex, started making valves. NGI believes (with some evidentiary support) that the guarantors organized Venvalvex and transferred NGI's technology to it; we must assume that NGI could prove this at a trial.

NGI is an Illinois corporation, and the guarantors consented to suit in Illinois (and under its law). NGI filed this action against NGV and the five guarantors, relying on the mixed alien-diversity jurisdiction established by 28 U.S.C. Sec. 1332(a)(3). The suit has many separate claims for relief, some of which are before us on a separate judgment under Fed.R.Civ.P. 54(b). The district court wrapped up all segments of the litigation involving the guarantors and properly entered the judgment under the "separate party" provision of Rule 54(b).

NGI received summary judgment against the guarantors for the more than $200,000 in royalties NGV owed through November 1, 1979, the final termination date NGI fixed. 1 The guarantors won summary judgment on two other claims: for royalties on sales NGV made until July 1980, when it became quiescent, and for royalties on Venvalvex's sales since then. The district court held that the guarantors stand behind NGV's debts, not Venvalvex's; and of NGV's debts, the guarantors are responsible only for "royalties". The district court concluded that sums due for valves sold after November 1 are "damages" rather than "royalties" and therefore are not covered by the guaranty. The guarantors have not appealed from the judgment representing royalties through November 1, 1979, and NGI has not appealed from the dismissal of certain claims against NGV itself. (The district court concluded that it lacked personal jurisdiction over NGV with respect to tort claims.) So we need consider only the award of summary judgment against NGI's claims for compensation from the guarantors on sales of valves after November 1, 1979.

I

The guarantors simplified the case further by conceding at oral argument that if Venvalvex is the alter ego of NGV, a mere continuation of that firm's business after squeezing out NGI, then their liability on the Venvalvex sales stands or falls with their liability on the sales between November 1979 and July 1980. The concession was well advised in light of United States Shoe Corp. v. Hackett, 793 F.2d 161 (7th Cir.1986), which, although decided under Wisconsin law, states principles of more general applicability. If Venvalvex is a genuinely new firm, deriving its technology from an independent source, then as the district court correctly held the guarantors are not liable, even if they are its managers and principal investors. The guarantors' participation in an independent venture might be tortious, but the guaranty does not cover torts. The case was resolved on summary judgment, yet it is a question of fact whether Venvalvex is a "successor" to NGV. If Venvalvex is NGV's successor, it stands in NGV's shoes, and the guarantors--alleged to have arranged the substitution of Venvalvex for NGV--could not improve their position by shuffling corporate papers. The successorship question must be tried, if the guarantors are liable for NGV's sales after November 1, 1979.

II

There is an obstacle to reaching this issue, however: subject matter jurisdiction. We haven't any. NGI sued NGV and four Venezuelans. Jurisdiction for a suit between a U.S. citizen and aliens is available under 28 U.S.C. Sec. 1332(a)(2). But NGI also sued William L. Bettison, the fifth guarantor. The complaint alleges, and the parties agree, that Bettison is a citizen of the United States who has lived in Caracas for more than a decade; it is a fair inference that Bettison is domiciled in Caracas, and no one contends that Bettison is domiciled in any state. NGI therefore invoked 28 U.S.C. Sec. 1332(a)(3), which supplies jurisdiction of suits among "citizens of different States and in which citizens or subjects of a foreign state are additional parties". The difficulty is that Bettison, an expatriate, is not a "citizen" of any state; one must be domiciled in a state to be its citizen. So far as the diversity jurisdiction is concerned, Bettison is "stateless". Sadat v. Mertes, 615 F.2d 1176, 1180 (7th Cir.1980). He also is not an alien. So Sec. 1332(a)(3) does not afford jurisdiction, and there is no other source. See Charles Alan Wright, Arthur Miller & Edward Cooper, 13B Federal Practice and Procedure Sec. 3621 (2d ed. 1984). Cf. David P. Currie, The Federal Courts and the American Law Institute, 36 U.Chi.L.Rev. 1, 9-10 (1968) (suggesting that Congress do something about the problem, perhaps treating expatriates as foreign nationals). The "complete diversity" rule of Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806), requires us to dismiss the whole case.

Unless NGI cures the problem by dismissing Bettison as a party. We invited such a solution, and NGI has filed the necessary motion. See 28 U.S.C. Sec. 1653; Fed.R.Civ.P. 21. A court "may dismiss a nondiverse party in order to achieve diversity even after judgment has been entered." Publicker Industries, Inc. v. Roman Ceramics Corp., 603 F.2d 1065, 1069 (3d Cir.1979). See also, e.g., Caspary v. Louisiana Land & Exploration Co., 725 F.2d 189, 191-92 (2d Cir.1984); J. Wm. Moore & Jo Desha Lucas, 3A Moore's Federal Practice p 21.03 at 21-10 (1986 rev.).

The guarantors oppose the motion, citing Kanzelberger v. Kanzelberger, 782 F.2d 774, 778-79 (7th Cir.1986). We held in Kanzelberger that a plaintiff could not drop a party on appeal to preserve jurisdiction, when that party's presence in the district court conferred a tactical advantage that may have contributed to the judgment. A court ought not allow a dismissal that injures adverse parties unduly, compared with the position the plaintiff could have achieved by suing the right parties in the first place. The guarantors other than Bettison may be injured in fact by Bettison's dismissal: they must pay the $200,000 (plus interest) for the pre-November 1979 sales without Bettison's help, and they are exposed to liability for other sales. We gather from NGI's representations at oral argument that Bettison has property in the United States on which NGI may have planned to levy. This is not, however, the sense of prejudice that matters. The guarantors are jointly and severally liable, so none is an indispensable party under Fed.R.Civ.P. 19(b). See Bio-Analytical Services, Inc. v. Edgewater Hospital, Inc., 565 F.2d 450, 452-53 (7th Cir.1977); Jett v. Philips & Associates, 439 F.2d 987, 996 (10th Cir.1971). NGI could have sued only the four Venezuelan guarantors in the first place, putting them in the same position they will occupy once NGI dismisses Bettison. Bettison's presence in the district court did not affect the conduct of the litigation.

The only apparent prejudice is to Bettison, who has participated in this litigation and faces the prospect of a second suit in state court. Had NGI filed this case in the courts of Illinois or Venezuela, or sued Bettison in one court while pursuing the Venezuelan guarantors in another, his liability would have been finally determined in a single litigation. NGI's carelessness about federal jurisdiction is responsible for this problem, so although we grant NGI's motion to dismiss Bettison, we dismiss him with prejudice. The other guarantors may pursue Bettison to obtain contribution or indemnity, if they are entitled to any. Section 1653 provides that "[d]efective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts." Those are our terms.

III

The district court absolved the guarantors of liability for valves sold after November 1, 1979, because the guaranty covered "royalties" but not "damages"; sums due because of NGV's breach of contract are damages, the district court held. The guaranty is not expressly so limited. It speaks of "a sum of money up to the 5% royalty", and NGI says that this language--designed to sidestep Venezuelan rules that could curtail the payment of "royalties"--also sidesteps the recharacterization of the money as "damages". This is a plausible argument, but we do not reach it. We may assume, with the district court, that ambiguities...

To continue reading

Request your trial
20 cases
  • Marshall v. Allen
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 25 February 1993
    ......denied, --- U.S. ----, 113 S.Ct. 1045, 122 L.Ed.2d 354 (U.S.1993); Get Away Club, Inc. v. Coleman, 969 F.2d 664 (8th Cir.1992); see also Elliott, 937 F.2d at 341-42 (noting that courts ......
  • Newman-Green Inc. v. Alfonzo-Larrain
    • United States
    • United States Supreme Court
    • 12 June 1989
    ...which it had invited, to amend the complaint to drop Bettison as a party, thereby producing complete diversity under § 1332(a)(2). 832 F.2d 417 (1987). The panel, in an opinion by Judge Easterbrook, relied both on 28 U.S.C. § 1653 and on Rule 21 of the Federal Rules of Civil Procedure as so......
  • Gray v. Lacke, 88-3334
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 3 November 1989
    ......denied, 459 U.S. 942, 103 S.Ct. 254, 74 L.Ed.2d 198 (1982); Harper Plastics, Inc. v. AMOCO Chems. Corp., 657 F.2d 939, 945 (7th Cir.1981). In order for res judicata to apply to ......
  • Newman-Green, Inc. v. Alfonzo-Larrain R.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 11 August 1988
    ...Previous decisions by this court had answered the question "no," but the panel disagreed and held that we may do this, 832 F.2d 417, 419-20 (7th Cir.1987), and it went on to reverse the district court on the merits. The full court adheres to our previous decisions. "Where the record reveals......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT