The opinion of the court was delivered by: SWEET
Plaintiff Corporacion Venezolana de Fomento ("CVF"), after losing on its own claims and on defendants' counterclaims, now challenges this court's jurisdiction over the subject matter and seeks dismissal of the action pursuant to Fed.R.Civ.P. 12(h)(3).
The facts underlying this dispute are set forth by the Honorable William C. Conner in Corporacion Venezolana de Fomento v. Vintero Sales Corp., 452 F. Supp. 1108 (S.D.N.Y.1978) and may be summarized as follows. CVF is a corporation wholly owned by the Venezuelan government, which gives financial backing, in the form of guarantees, to projects designed to stimulate Venezuelan economic development. Defendant, the Merban Corporation ("Merban"), is a Swiss corporation doing business in New York, which purchases debt instruments issued or guaranteed by financial institutions or governmental entities. All other corporate defendants have their principal places of business in New York and all individual defendants are citizens of New York.
Originally, CVF sought a declaratory judgment as to the validity of guarantees made by CVF on two loan agreements between Merban (the lender) and Venezolana de Cruceros Del Caribe ("Cariven") (the borrower). Merban, and six intervening Canadian and American banks which purchased participating interests in the guaranteed notes issued in connection with the loan agreements, asserted that the loans were in default and counterclaimed for the award of principal and interest. Judge Conner granted summary judgment for the intervening banks, finding them holders in due course and not subject to the defenses asserted against the other defendants. 452 F. Supp. at 1120. After a bench trial on the remaining issues, this court
found that CVF's allegations of fraud had not been proven, and that Merban was entitled to recover because the notes and CVF's guarantees were valid obligations enforceable according to their terms. Corporation Venezolana de Fomento v. Vintero Sales Corp., No. 76-1671 (S.D.N.Y. Feb. 13, 1979).
CVF appealed Judge Conner's decision and thereafter sought dismissal of the entire action on the grounds that federal jurisdiction was improvidently granted. The issue of subject matter jurisdiction was not raised previously, although it was assumed throughout the action that jurisdiction was based on diversity of citizenship. See Corporation Venezolana de Fomento v. Vintero Sales Corp., No. 76-1671, slip op. at 1 (S.D.N.Y. Feb. 13, 1979); Corporacion Venezolana de Fomento v. Vintero Sales Corp., 452 F. Supp. 1108, 1110 (S.D.N.Y.1978).
Accordingly, the Second Circuit then remanded the case to this court for consideration of that issue. Corporacion Venezolana de Fomento v. Vintero Sales Corp., 607 F.2d 994 (2d Cir. 1979).
Upon more careful consideration, it appears that there is no diversity of citizenship in this case. This court does have jurisdiction over the subject matter of the action, however, because the defendants' counterclaims arise under the Foreign Sovereign Immunities Act and under the Edge Act.
A. Diversity Jurisdiction
The district court has original jurisdiction over actions between citizens of a state and citizens of a foreign state. 28 U.S.C. § 1332(a)(2). It does not, however, have jurisdiction over actions between aliens, Hodgson v. Bowerbank, 9 U.S. (5 Cranch) 303, 3 L. Ed. 108 (1809); ITT v. Vencap, Ltd., 519 F.2d 1001, 1015 (2d Cir. 1975), even if the aliens are from different countries. 1 Moore's Federal Practice P 0.75(1.-2) (2d ed. 1979). Similarly, a lack of complete diversity will defeat jurisdiction if an alien sues a citizen of a state and another alien. See ITT v. Vencap, Ltd., supra; 1 Moore's Federal Practice, supra.
Defendants note that under 28 U.S.C. § 1332(c), a corporation is deemed a citizen both of the state by which it has been incorporated and of the state in which it has its principal place of business. They contend that this section applies to alien as well as domestic corporations, and indeed, some courts have adopted that view. See, e.g., Arab International Bank & Trust Co. v. National Westminster Bank, Ltd., 463 F. Supp. 1145 (S.D.N.Y.1979); Jerro v. Home Lines, Inc., 377 F. Supp. 670, 672 (S.D.N.Y.1974); Southeast Guaranty Trust Co. v. Rodman & Renshaw, Inc., 358 F. Supp. 1001, 1005-07 (N.D.Ill.1973). From this premise they argue that since Merban was a citizen of Switzerland and of New York, diversity of citizenship between the parties exist under 28 U.S.C. § 1332(a)(2).
There is, however, substantial authority against the view that section 1332(c) applies to alien corporations. See e.g., Tsakonites v. Transpacific Carriers Corp., 246 F. Supp. 634 (S.D.N.Y.1965), Aff'd, 368 F.2d 426 (2d Cir.) Cert. denied, 386 U.S. 1007, 87 S. Ct. 1348, 18 L. Ed. 2d 434 (1967); Chemical Transp. Corp. v. Metropolitan Petroleum Corp., 246 F. Supp. 563 (S.D.N.Y.1964); Mazzella v. Pan Oceanica A/S Panama, 232 F. Supp. 29 (S.D.N.Y.1964); Eisenberg v. Commercial Union Assurance Co., 189 F. Supp. 500 (S.D.N.Y.1960). See also Clarkson Co., Ltd. v. Shaheen, 544 F.2d 624 n.5 (2d Cir. 1976) (indicating that alien corporations are "probably deemed to be citizens exclusively of (their home country) for diversity purposes"). In addition, even if § 1332(c) applies to alien corporations, it should be interpreted as it is for domestic corporations, I. e., to preclude corporations with "dual citizenships' from alleging only one of its citizenships in order to meet the diversity requirement. 1 Moore's Federal Practice P 0.77(2.-1). Most of the cases that have applied § 1332(c) to alien corporations have adopted this approach. See, e.g., Jerro v. Home Lines, Inc., supra and Southeast Guaranty Trust Co. v. Rodman and Renshaw, Inc., supra, (finding no diversity of citizenship in actions between alien corporation having its principal place of business in a state and a citizen of the same state).
In Bergen Shipping Co. v. Japan Marine Serv., Ltd., 386 F. Supp. 430 (S.D.N.Y.1974), an exception to this trend, the court in dictum indicated that section 1332(c) may be used by an alien corporation with its principal place of business in New York to create diversity jurisdiction in an action against another alien. Id. at 433-34. The court found that Congress, in enacting section 1332(c), sought to eliminate the evil whereby a local institution could bring its litigation into federal court simply because it was incorporated in another state. In view of that policy, the court reasoned that any corporation with its principal place of business in a state should be deemed a citizen of that state. No consideration apparently was given as to why an alien corporation could selectively allege only one citizenship when a domestic corporation could not.
Subsequently in Hercules Incorporated v. Dynamic Export Corporation, 71 F.R.D. 101 (S.D.N.Y.1976), diversity jurisdiction was found lacking where both parties were aliens, even though one of the aliens had its principal place of business in New York. In Hercules, the court noted:
The statute (s 1332(c)) creates a principal of dual citizenship, not one of alternative citizenship. Thus, where a corporation is incorporated in state A and has its principal place of business in state B and the adverse party is a citizen of either A or B, diversity is lacking. . . . Likewise, assuming Arguendo that § 1332(c) is applicable to alien corporations, when an alien corporation with its principal place of business in state A is adverse to either an alien or a citizen of state A, diversity would be lacking. Id. at 107 (citations omitted).
Accord Torres v. Hartford Ins. Co., 588 F.2d 848, 850 (1st Cir. 1978). This result is consistent with the underlying purpose of section 1332, which is to restrict federal jurisdiction, See S.Rep.No.1830, 85th Cong., 2d Sess. (1958); H.Rep.No.1706, 85th Cong., 2d Sess. (1958), ...