TRANS WORLD HOSP., ETC. v. Hospital Corp. of Am.

• Decision Date: 06 July 1982
• Docket Number: No. 80-3750.,80-3750.
• Citation: 542 F. Supp. 869
• Parties: TRANS WORLD HOSPITAL SUPPLIES LIMITED, Plaintiff, v. HOSPITAL CORPORATION OF AMERICA, Defendant.
• Court: U.S. District Court — Middle District of Tennessee

542 F. Supp. 869

TRANS WORLD HOSPITAL SUPPLIES LIMITED, Plaintiff, v. HOSPITAL CORPORATION OF AMERICA, Defendant.

No. 80-3750.

United States District Court, M. D. Tennessee, Nashville Division.

July 6, 1982.

Donelson M. Leake, Knoxville, Tenn., for plaintiff.

Ames Davis, Nashville, Tenn., for defendant.

MEMORANDUM

WISEMAN, District Judge.

Plaintiff Trans World Hospital Supplies Ltd. Trans World brought this action in December 1980 against defendant Hospital Corporation of America HCA for an alleged breach of contract and injuries related thereto. The dispute arises out of an alleged agreement between Trans World and HCA under which Trans World ostensibly acted as a purchasing agent for HCA and obtained medical supplies and services for King Faisal Specialist Hospital and Research Centre, located in Riyadh, Saudi Arabia, which HCA managed. Trans World alleges that it acted as purchasing agent for HCA from August 1977 until February 1980, when HCA terminated the relationship. Trans World contends that HCA owes it $325,000, which HCA has refused to pay, for expenses and debts incurred by Trans World in the performance of its duties under the contract. Trans World has brought this action to recover that sum and to receive compensation for injury to its reputation and loss of business that it allegedly suffered as a result of HCA's refusal to pay.

On April 16, 1982, HCA filed a motion for summary judgment in which it declared essentially that it never entered into any contractual agreement of any sort with Trans World regarding the King Faisal Hospital. HCA argued that Trans World's contract was instead with Hospital Corporation of America Service & Supply Co., Ltd. HCA S&S, a subsidiary of HCA. HCA had previously raised this matter in its answer to Trans World's complaint, asserting as a defense that Trans World had failed to join HCA S&S, which HCA deemed an indispensable party.

On April 16, 1982, apparently in response to HCA's answer (if not its summary judgment motion), Trans World asked the Court for permission to file an amended and supplemental complaint pursuant to Rule 15, F.R.Civ.P. The Court granted Trans World's motion. In its amended and supplemental complaint, Trans World named HCA S&S as an additional defendant.

HCA has now asked the Court to reconsider its decision to allow Trans World to join HCA S&S as a defendant in this action. HCA contends that joinder of HCA S&S is improper because it would destroy the Court's diversity jurisdiction. HCA argues that because Trans World is a United Kingdom corporation and HCA S&S is incorporated under the laws of the Cayman Islands, the complete diversity of citizenship necessary for the Court to exercise jurisdiction over this matter under 28 U.S.C. § 1332 would be absent. In other words, HCA contends that there would be alien corporations on either side of this dispute, and such an alignment precludes diversity jurisdiction. Trans World asserts in response that joinder of HCA S&S would not destroy the diversity of the parties because (1) HCA S&S's principal place of business is in the United States (Tennessee) and (2) HCA's state of citizenship, Tennessee, can be attributed to HCA S&S under an "alter ego" theory of jurisdiction.

The Court has considered the arguments of each side and has determined that no clear rule of law exists to control this issue. Having reviewed the relevant case law in light of the particular facts of this case, however, the Court concludes that joinder of HCA S&S would not destroy the Court's diversity jurisdiction. Because HCA S&S's principal place of business is in Tennessee, HCA S&S may be considered a citizen of that state for purposes of jurisdiction under section 1332. The requisite diversity of citizenship thus remains. Consequently, HCA's motion to reconsider is denied.

The Statute Involved

At the heart of the dispute between HCA and Trans World is the interpretation to be given to 28 U.S.C. § 1332, the statute that generally provides diversity jurisdiction to the federal district courts. Section 1332(a)(2) declares that

the district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs, and is between ... citizens of a State and citizens or subjects of a foreign state ....

As is apparent from the wording of this provision, the federal district courts have jurisdiction of cases, such as the instant action, in which a citizen of a particular state in this country is on one side of the dispute and an alien is on the other side. As with other types of diversity cases, however, such as those between citizens of different states, when more than one party is on one side of an action, complete diversity of citizenship must exist between all opposing parties or the jurisdiction of the federal district court will be eliminated. See Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978); Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806). In other words, when an alien sues or is sued in federal district court, all opposing parties must be citizens of a state of the United States. The presence of aliens on both sides of a controversy will destroy diversity jurisdiction. Field v. Volkswagenwerk AG, 626 F.2d 293 (3d Cir. 1980); IIT v. Vencap, Ltd., 519 F.2d 1001 (2d Cir. 1975).

In the instant case, the plaintiff, Trans World Hospital Supplies Ltd., is chartered under the laws of the United Kingdom and maintains its principal place of business in Ashford Middlesex, England. The defendant, Hospital Corporation of America, is a Tennessee corporation with its principal place of business in Nashville, Tennessee. For purposes of diversity jurisdiction, plaintiff Trans World is deemed a citizen of England and defendant HCA is deemed a citizen of Tennessee. Were these the only parties to this action, the jurisdiction of this Court under 28 U.S.C. § 1332(a)(2) would be unquestionable, as there is an alien on one side of the dispute and a citizen of a state of the United States on the other side.

The jurisdictional difficulty in this case arises, however, because of the desire of Trans World to join Hospital Corporation of America Service and Supply Co., Ltd., as an additional defendant. HCA S&S is incorporated under the laws of the Cayman Islands. HCA S&S, however, is a subsidiary of HCA and presently maintains its principal place of business in Nashville, Tennessee.¹ If HCA S&S is deemed a citizen of the Cayman Islands, its place of incorporation, the diversity jurisdiction of this Court over this action would be defeated; aliens would be present on both sides of the dispute. On the other hand, if HCA S&S is deemed a citizen of Tennessee for jurisdictional purposes, the diversity jurisdiction of the Court would remain intact; complete diversity of citizenship would exist among the parties on opposing sides of the action.² The question for this Court to resolve thus is whether HCA S&S can be considered a citizen of Tennessee or is instead solely a citizen of the Cayman Islands.

Resolution of this jurisdictional issue depends upon whether 28 U.S.C. § 1332(c) is applicable to alien corporations like HCA S&S. Section 1332(c) provides in relevant part:

For the purposes of this section and section 1441 of this title, a corporation shall be deemed a citizen of any State by which it has been incorporated and of the State where it has its principal place of business ....

When applied to domestic corporations—as clearly intended by its language — section 1332(c) establishes dual citizenship for such corporations for jurisdictional purposes: (1) the state of incorporation and (2) the state of the corporation's principal place of business. If applicable to alien corporations, section 1332(c) would establish dual citizenship for them as well. In that case, this Court's jurisdiction of this action would not be affected since HCA S&S would be considered a citizen of Tennessee for jurisdictional purposes; complete diversity of citizenship among the opposing parties would still exist.³ If section 1332(c) is inapplicable, however, dual citizenship would not exist, and HCA S&S would be considered a citizen only of the Cayman Islands, since a corporation is traditionally deemed a citizen of the place of its incorporation. See Steamship Co. v. Tugman, 106 U.S. (16 Otto) 118, 1 S.Ct. 58, 27 L.Ed. 87 (1882); Marshall v. Baltimore & Ohio Railroad Co., 57 U.S. (16 How.) 314, 14 L.Ed. 953 (1853). In that case, the diversity jurisdiction of the Court in this matter would be defeated.

The Applicability of Section 1332(c) to Alien Corporations

By its language, section 1332(c) offers no ready answer to the question of whether its establishment of dual citizenship extends to alien corporations. Section 1332(c) was enacted in 1958 as an amendment to the general diversity jurisdiction statute in an effort by Congress to remove from the federal courts essentially local matters involving citizens of a state and corporations that are actually based in that state but that, for whatever reasons, are legally incorporated in another state. Pub.L.No.85-554, § 2, 72 Stat. 415. See S.Rep.No.1830, 85th Cong., 2d Sess., reprinted in 1958 U.S.Code Cong. & Ad.News 3099. Congress focused its attention on domestic corporations, however, and nowhere in the legislative history of the amendment is there an indication that Congress even considered the problem of alien-chartered but domestically located corporations.

Those courts that have confronted the issue of section 1332(c)'s applicability to alien corporations have divided in their conclusions, and each has drawn its own inferences from the lack of express congressional discussion of the problem. The Sixth Circuit has yet to address the question, and in the absence of any controlling precedent, this Court has endeavored to examine the existing case law with...