The opinion of the court was delivered by: LASKER
Windert Watch Co., Inc. is a California corporation which distributes wristwatches. It sues Remex Electronics Limited, International Precision Time Ltd. and Tele-Art Corporation, Hong Kong corporations which manufacture watches, and Time Products Limited, a British corporation which distributes watches, for lost profits and punitive damages. Remex and IPT move to dismiss Windert's claim against them for lack of subject matter jurisdiction.
Windert asserts that subject matter jurisdiction is present under the diversity statute, 28 U.S.C. § 1332(a)(2), relating to actions between a citizen of one of the states of the United States and a citizen or subject of a foreign state where the amount in controversy is more than $ 10,000.
The plaintiff is a citizen of one of the states of the United States.
See 28 U.S.C. § 1332(c). However, Remex and IPT argue that diversity is lacking because they are citizens of Hong Kong which, they argue, is not a "foreign state" within the meaning of the statute.
There is no doubt that Remex and IPT are citizens of Hong Kong. An alien corporation is a citizen of the entity under the laws of which it is incorporated,
See National Steamship Co. v. Tugman, 106 U.S. 118, 120-21, 1 S. Ct. 58, 27 L. Ed. 87 (1882); Banco Nacional de Cuba v. Sabbatino, 307 F.2d 845, 852, Rev'd on other grounds, 376 U.S. 398, 84 S. Ct. 923, 11 L. Ed. 2d 804 (1964), and Remex and IPT were incorporated under the Companies Ordinance of Hong Kong, a statute adopted in 1932 by the Governor and Legislative Council of Hong Kong. The issue turns, therefore, on whether Hong Kong is a "foreign state" within the meaning of 28 U.S.C. § 1332(a)(2). The cases construe the term "foreign state" to mean a political entity that is recognized by the United States as a free and independent sovereign. Thus, in Klausner v. Levy, 83 F. Supp. 599 (E.D.Va.1949), the court found that the plaintiffs, citizens of the then mandate of Palestine, were not citizens of a foreign state because at the time Palestine, as a mandate territory administered by Great Britain and lacking local autonomy, was not a sovereign. Id. at 600.
In Murarka v. Bachrack Bros., 215 F.2d 547 (2d Cir. 1954), the Second Circuit found that the plaintiffs, citizens of India, were citizens of a foreign state and that the district court possessed jurisdiction of their action against a New York corporation even though India was still formally a part of the British Empire when the plaintiffs had filed their complaint. The plaintiffs filed their complaint in July, 1947, and India did not become formally independent until August 15, 1947. The court emphasized, however, that India could be considered a state on the earlier date only because the United States had previously accorded it de facto recognition.
In anticipation of India's forthcoming independence, the United States had sent an ambassador to the interim government that had been set up to assist in the transition to independence. India had also sent an ambassador to the United States. Justice, then Circuit Judge, Harlan, writing for the court, concluded: "Unless form rather than substance is to govern, we think that in every substantial sense by the time this complaint was filed India had become an independent international entity and was so recognized by the United States." Id. at 552. The court's opinion makes clear that, had India not yet been accorded at least de facto recognition by the United States, it would not have been a "state" within the meaning of the diversity statute. See also Betancourt v. Mutual Reserve Fund Life Association, 101 F. 305, 306 (C.C.S.D.N.Y.1900) (citizen of Cuba held a citizen of a foreign state where Spanish rule had ceased and the United States had recognized Cuba as "free and independent," even though Cuba was still occupied by United States troops).
The United States has not accorded Hong Kong recognition, de facto or otherwise. Hong Kong is a Crown Colony of the United Kingdom, parts of which were leased and other parts of which were ceded outright to the United Kingdom by China in the nineteenth century. It is administered by a Governor who is appointed by the Queen and serves as her representative. The Governor acts with the advice and consent of a legislative council none of whose members is elected. A communication sent defendants' counsel by a representative of the State Department confirms that the United States does not recognize Hong Kong as an independent state but rather regards it as a colony of the United Kingdom. The United States carries on no direct diplomatic dealings with Hong Kong. Exhibit J. to Defendants' Affidavit sworn to on November 21, 1978.
In reply Windert contends that Hong Kong is a state within the meaning of 28 U.S.C. § 1332(a)(2) despite its nonsovereign status. Windert bases its argument on the proposition that not only sovereign entities but also the political subdivisions of sovereign entities are "states" within the meaning of 28 U.S.C. § 1332(a)(2).
In support of this proposition Windert cites Land Oberoesterreich v. Gude, 109 F.2d 635 (2d Cir. 1940), a case interpreting the statutory provision for diversity jurisdiction of an action brought not by a citizen of a foreign state but by a foreign state itself against a citizen of one of the states of the United States. See 28 U.S.C. § 1332(a)(4). The Land Oberoesterreich court concluded that the governmental subdivision of an entity which the United States had recognized as a sovereign state could itself be treated as a sovereign state for purposes of determining whether an action between the subdivision and an American citizen was within the court's diversity jurisdiction. Id. at 637.
Windert argues that the Land Oberoesterreich holding means that a "subdivision" of a sovereign foreign entity is to be considered a "foreign state" also for purposes of determining whether a district court's diversity jurisdiction encompasses a suit, like the one here, that is between a citizen of an American state and a citizen of the subdivision of a foreign state rather than the subdivision itself. According to Windert, Hong Kong is a political "subdivision" of the United Kingdom; an entity clearly recognized by the United States as a sovereign state. It follows, Windert argues, that citizens of Hong Kong are citizens of a foreign state.
In support of its contention that Hong Kong is a "political subdivision" of a foreign state, Windert has submitted a letter from Hong Kong counsel containing a broad statement that "Hong Kong is a political subdivision of the United Kingdom." Supplementary Exhibit to Plaintiff's Memorandum of Law. However, this conclusion is at odds with the Act of Parliament by which the United Kingdom was constituted, which indicates that the United Kingdom consists only of England, Scotland, Wales, and Northern Ireland. See Royal and Parliamentary Titles Act of April 12, 1927. Hong Kong is not one of its political subdivisions. Moreover, even if Land Oberoesterreich were to be interpreted to mean that the citizen of a political subdivision of a foreign state is a citizen of a foreign state for diversity purposes, an interpretation that is itself open to question,
the case does not support the proposition that the citizen of a colony of a foreign state is a citizen of a foreign state.
Windert has also sought to establish that plaintiffs are citizens of a foreign state because they are citizens not only of Hong Kong but also of the United Kingdom, which is a "foreign state." Again relying on the premise that Hong Kong is a "subdivision" of the United Kingdom, Windert argues that, because Hong Kong is a subdivision of the United Kingdom, citizens of Hong Kong are, in the larger sense, also citizens of the United Kingdom.
Windert's argument that Remex and IPT are citizens of the United Kingdom as well as of Hong Kong is unconvincing. As pointed out above, Hong Kong is not a subdivision of the United Kingdom. Moreover, it is implicit in the court's opinion in Murarka, supra, that the citizen of a colony of the United Kingdom is not also a citizen of the mother country. Quite obviously it would have been unnecessary for the Murarka court to analyze the political status of India to determine whether the Indian plaintiffs were citizens of a foreign state had the court concluded that they were citizens of the United Kingdom merely because India was then a colony of the United Kingdom. Furthermore, although the United Kingdom has by statute made natural persons who are citizens of Hong Kong or other British colonies subjects of the Crown, See British Nationality Act 1948 § 1, the privileges of British nationality are not conferred on corporations formed under the laws of Hong Kong, See Companies Act 1948 § 406. Justice Harlan noted in Murarka, supra, that "it is the undoubted right of each country to determine who are its nationals, and it seems to be general international usage that such a determination will usually be accepted by other nations." 215 F.2d at 553.
Because Remex, IPT and Tele-Art Corp. are not citizens of a foreign state within the meaning of the diversity statute, Windert's claims against them must ...