(uruguay) v. Cemusa

• Decision Date: 26 July 2011
• Docket Number: No. 10–2739.,10–2739.
• Parties: WHITE PEARL INVERSIONES S.A. (URUGUAY) and Sanlo Corp., Plaintiffs–Appellants,v.CEMUSA, INCORPORATED, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

647 F.3d 684

WHITE PEARL INVERSIONES S.A. (URUGUAY) and Sanlo Corp., Plaintiffs–Appellants,

v.CEMUSA, INCORPORATED, Defendant–Appellee.

No. 10–2739.

United States Court of Appeals, Seventh Circuit.

Argued June 7, 2011.Decided July 26, 2011.

Daniel J. McMahon (argued), Attorney, Wilson, Elser, Moskowitz, Edelman & Dicker LLP, Chicago, IL, for Plaintiffs–Appellants.Molly K. McGinley, Attorney, K&L Gates LLP, Chicago, IL, Samuel A. Danon (argued), Hunton & Williams LLP, Miami, FL, for Defendant–Appellee.Before EASTERBROOK, Chief Judge, and BAUER and WILLIAMS, Circuit Judges.EASTERBROOK, Chief Judge.

Shelters at bus stops and trash baskets on municipal streets are no longer just shelters and trash baskets. They have become “street furniture.” With the change of name comes an opportunity for advertising. Instead of paying someone to build and maintain fixtures, cities invite specialized enterprises to pay them. The vendors erect and maintain the street furniture at their own expense, financing the venture by advertising. Vendors give the cities a cut of that income. Whichever firm offers a city the most lucrative deal gets the contract—provided the city deems the bidder reputable and reliable.

Corporación Europea de Mobiliario Urbano, S.A., a Spanish firm, places street furniture within the European Union. Its subsidiary Cemusa, a Delaware corporation, wanted to break into the United States market. It hired White Pearl Inversiones as a consultant. White Pearl had helped Corporación Europea de Mobiliario Urbano enter the Brazilian market, and Cemusa hoped that it could do the same in the United States. White Pearl offered its aid on a handshake basis in Miami and San Antonio, where Cemusa bid and won. They decided to make their arrangement more formal and longer-lasting.

A contract between White Pearl and Cemusa, dated March 25, 2003, says that White Pearl will “[p]rovide advice and guidance on the strategy to be adopted by Cemusa, as it relates to the City of New York street furniture market”. White Pearl also agreed to “introduce Cemusa as an important international company operating with the design, manufacture, installation, leasing and management of street furniture in major markets, and as a competent party to provide such services in the City of New York”. This contract, which we call the Letter Agreement, provides that White Pearl would be paid $240,000 for these services over the next nine months. The Letter Agreement contemplates that White Pearl and Cemusa would soon adopt a more general contract, the Master Agreement, and provides that, if they do, and Cemusa wins New York's business, the $240,000 “shall be deducted from any compensation owed by Cemusa to White Pearl pursuant to the Master Agreement or any other agreements arising therefrom.”

Six days later they signed the Master Agreement. It provides that, for each city in which Cemusa and White Pearl join forces, they will negotiate a city-specific RFP Agreement. (In government-contract lingo, RFP means “request for proposals”: a unit of government invites vendors to submit their prices and specifications for a described task.) If they don't have a RFP Agreement providing a different fee for a given city, White Pearl is to receive 3.75% of Cemusa's net advertising revenue realized after a successful bid. White Pearl's right to this fee becomes vested once a given city issues its RFP, but until then the Master Agreement is terminable at either side's option on 30 days' notice.

By early 2004 New York City still had not issued a RFP for street furniture. On February 17, 2004, Cemusa exercised its right to terminate the Master Agreement. White Pearl contends, and we must assume, that Cemusa's only reason was its belief that 3.75% is excessive. It would amount to more than $12 million, White Pearl believes, if Cemusa got the business for all five boroughs in New York City. Cemusa hoped to receive White Pearl's aid for less. The parties negotiated toward a substitute contract that would have paid White Pearl $2 million, but Cemusa never signed those papers.

At the end of March 2004 New York City solicited proposals for street furniture. Cemusa bid for the business in all five boroughs, and it won the contract in all five in July 2004. It has refused to compensate White Pearl beyond the $240,000 paid under the Letter Agreement. White Pearl filed this suit under the international diversity jurisdiction. 28 U.S.C. § 1332(a)(3). The complaint alleges that White Pearl is incorporated in Uruguay and has its principal place of business in Rio de Janeiro, and that Cemusa is a Delaware corporation with its principal place of business in Chicago. (Sanlo Corp., a second plaintiff, is a Florida corporation with its principal place of business in Miami. It does not have any claim independent of White Pearl's, and its presence as a litigant is mysterious. We do not mention it again.)

There is a problem in White Pearl's jurisdictional allegations—a problem that we have seen too often. The complaint asserts that White Pearl is “a corporation”; the appellate briefs repeat this statement, which assumes that Uruguay has business entities that enjoy corporate status as the United States understands it. Yet not even the United Kingdom has a business form that is exactly equal to that of a corporation. For example, it can be difficult to decide whether a business bearing the suffix “Ltd.” is a corporation for the purpose of § 1332 or is more like a limited partnership, limited liability company, or business trust. See, e.g., Lear Corp. v. Johnson Electric Holdings Ltd., 353 F.3d 580, 582–83 (7th Cir.2003).

It can be hard to classify even firms under state law. Businesses organized as trusts don't have their own citizenship; they take the citizenship of the trustee (or citizenships, if there are multiple trustees). Navarro Savings Association v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980). Limited partnerships, limited liability companies, and similar organizations also are disregarded for jurisdictional purposes. For an LP, LLC, or similar organization, the citizenship of every investor counts. See, e.g., Carden v. Arkoma Associates, 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990) (limited partnership); Cosgrove v. Bartolotta, 150 F.3d 729 (7th Cir.1998) (limited liability company); Guaranty National Title Co. v. J.E.G. Associates, 101 F.3d 57 (7th Cir.1996) (essential to trace the citizenship of investors through all levels, if, say, one LP invests in another). If even one investor in an LP or LLC has the same citizenship as any party on the other side of the litigation, complete diversity is missing and the suit must be dismissed. See, e.g., Indiana Gas Co. v. Home Insurance Co., 141 F.3d 314, rehearing denied, 141 F.3d 320 (7th Cir.1998) (ordering a suit against an insuring syndicate at Lloyd's of London dismissed for this reason). But cf. Hoagland v. Sandberg, Phoenix & von Gontard, P.C., 385 F.3d 737 (7th Cir.2004) (a “professional corporation” is a corporation even though it has many attributes of a partnership).

If it is hard to determine whether a business entity from a common-law nation is equivalent to a “corporation,” it can be even harder when the foreign nation follows the civil-law tradition. Uruguay has at least three forms of limited-liability businesses: sociedad anónima (S.A.), sociedad anónima financiera de inversión (S.A.F.I.), and sociedad responsabilidad limitada (S.R.L.). White Pearl did not say which kind it is, and its lawyers did not analyze whether that kind of business organization should be treated as a corporation. We learned at oral argument that White Pearl's lawyers did not know—indeed, that they did not even know their client's legal name and had not tried to analyze the significance of its (unknown) organizational attributes. They simply assumed that Uruguay has such a beast as a “corporation” and that White Pearl is one. The lawyers for Cemusa made the same assumption.

A memorandum filed at our direction after oral argument reveals that White Pearl's name is “White Pearl Inversiones S.A. (Uruguay)”. The complaint and appellate briefs had called it simply “White Pearl Inversiones”; the absence of any initials alerted the court to a potential problem. The post-argument memorandum, which Cemusa joins, contends that a sociedad anónima in Uruguay has the characteristics of a joint-stock company in a common-law jurisdiction and therefore is treated as a corporation under § 1332. The memorandum cites Twohy v. First National Bank of Chicago, 758 F.2d 1185, 1194–95 (7th Cir.1985), which says that a civil-law sociedad anónima is equivalent to a joint-stock company. The parties add that regulations treat a sociedad anónima as a corporation for income-tax purposes. 26 C.F.R. § 301.7701–2. But here things get sticky, because, no matter what we may have thought in Twohy, and no matter what the tax regulations say, the Supreme Court had held that joint-stock companies are not corporations for purposes of the diversity jurisdiction. See Chapman v. Barney, 129 U.S. 677, 9 S.Ct. 426, 32 L.Ed. 800 (1889) (joint-stock company is treated as a partnership).

A sociedad anónima may be best understood as a corporation despite what we called it in Twohy. It has many important attributes of corporate-ness (on which see Lear, 353 F.3d at 583): it is a legal person with perpetual existence, governed indirectly by an elected board or administrator rather than by investors; it can issue tradeable shares, and investors are liable only for agreed capital contributions. Uruguay Commercial Companies Law (No. 16.060) of 1 November 1989. But we need not decide. If it is a joint-stock company, then the citizenship of its equity investors controls. The joint post-argument memorandum tells us that it has only two, Marcelo Conde and Jorge Luz, both of whom are citizens of Brazil. They reside in Rio de Janeiro, so § 1332(a)'s hanging...