United States District Court, Southern District of New York
December 9, 1999
CREACIONES CON IDEA, S.A. DE C.V.; AND IMAGEN TEXTIL Y CONFECCIONES, S.A. DE C.V., PLAINTIFFS,
MASHREQBANK PSC AND MASHREQBANK NEW YORK (FORMERLY BANK OF OMAN LTD.), DEFENDANTS.
The opinion of the court was delivered by: Motley, District Judge.
Plaintiffs, Creaciones Con Idea, S.A. de C.V. ("Creaciones")
and Imagen Textil Y Confecciones, S.A. de C.V. ("Imagen"), filed
this action against defendants, Mashreqbank PSC ("Mashreqbank")
and Mashreqbank New York ("MNY") on December 31, 1997. Plaintiffs
are beneficiaries of two irrevocable letters of credit ("ILC")
issued by Mashreqbank. Mashreqbank refused payment on these ILC's
due to alleged documentation deficiencies in the payment demands.
Plaintiffs brought suit against Mashreqbank, alleging that the
refusals constituted breach of contract, fraud and conspiracy to
commit fraud. On May 12, 1999, this court granted defendant's
pre-answer motion to dismiss as against the fraud and conspiracy
claims, finding that these claims were duplicative of the breach
of contract claims. Currently before the court is the question of
the legitimacy of diversity jurisdiction in this case. The court
now finds that the requirements for diversity jurisdiction have
not been satisfied, and dismisses the action for lack of subject
Plaintiffs allege that Creaciones and Imagen are foreign
corporations organized under the laws of the principality of
Mexico, with offices in Mexico. See Plaintiffs' Compl. ¶ 5,7.
According to plaintiffs' complaint, defendant Mashreqbank is a
registered commercial bank established under the laws of the
United Arab Emirates, with its principal office in Dubai, a city
in the United Arab Emirates. See Plaintiffs' Compl. ¶ 9.
Plaintiffs further allege that Defendant MNY is the wholly owned
branch office of Mashreqbank, organized under the laws of the
United States, with its principal office in New York City. See
Plaintiffs' Compl. ¶ 10.
Defendants have raised the question of the appropriateness of
subject matter jurisdiction in this case due to a lack of
diversity of citizenship. Plaintiffs alleged in their complaint
that jurisdiction is authorized by Title 28 U.S.C. § 1332
(a)(2) ("Section 1332"), the provision governing diversity
jurisdiction in cases involving foreign litigants. Upon
examination of the facts and the allegations in plaintiffs'
complaint, this court finds that the requirements of Section
1332(a)(2) have not been met, and dismisses the action for lack
of subject matter jurisdiction.
A. Dismissal for Lack of Subject Matter Jurisdiction
Dismissal for lack of subject matter jurisdiction is proper at
any stage of trial, regardless of whether a motion has been made
by either of the parties. See Alliance of American Insurers v.
M. Cuomo, 854 F.2d 591, 605 (2d Cir. 1988) ("The fact that
neither party contested the District Court's authority . . . does
not act to confer jurisdiction on the Court since a challenge to
subject matter jurisdiction cannot be waived and may be raised
sua sponte by the district court, or by a federal appellate
court."); United Food & Commercial Workers Union, Local 919 v.
CenterMark Properties, 30 F.3d 298, 300 (2d Cir. 1994) ("Indeed,
our cases make it clear that `[i]t is common ground that in our
federal system of limited jurisdiction any party or the court sua
sponte, at any stage of the proceedings, may raise the question
of whether the court has subject matter jurisdiction.'" quoting
Manway Constr. Co. v. Housing Auth. of Hartford, 711 F.2d 501,
503 (2d Cir. 1983)); Fed.R.Civ.P. 12(h)(3) ("Whenever it appears
by suggestion of the parties or otherwise that the
court lacks jurisdiction of the subject matter, the court shall
dismiss the action.") In examining the issue of subject matter
jurisdiction, a court may consider the allegations made in the
complaint as well as extrinsic evidence outside of the pleadings.
See Transatlantic Marine Claims Agency, Inc., v. Ace Shipping
Corp., 109 F.3d 105, 107 (2d Cir. 1997) ("[t]he case law does
not limit our right to refer to any material in the record.") If
the court ultimately concludes that jurisdiction is lacking,
dismissal of the action is mandatory. See United Food &
Commercial Workers Union, Local 919, 30 F.3d 298, 300.
B. Diversity Jurisdiction
1. Scope of Diversity Jurisdiction
Pursuant to Title 28 U.S.C. § 1332, federal courts have
original jurisdiction in cases involving parties with diverse
citizenship. Subsection (a) of Section 1332 outlines the
requirements for diversity of citizenship, and reads, in
`(a) The district courts shall have original
jurisdiction of all civil actions where the matter in
controversy exceeds the sum or value of $75,000,
exclusive of interests and costs, and is between —
`(1) citizens of different States;
`(2) citizens of a State and citizens or subjects
of a foreign state;
`(3) citizens of different States and in which
citizens or subjects of a foreign state are
additional parties; and
`(4) a foreign state, defined in section 1603(a) of
this title, as plaintiff and citizens of a State or
of different states.
In this case, plaintiff has alleged damages in excess of
$404,000.00, so the amount in controversy requirement has been
satisfied. The only issue remaining before this court is the
question of whether the requirements for diversity of citizenship
have been satisfied.
2. Title 28 U.S.C. § 1332(c)(1) — Citizenship of Corporate
In order to determine whether subject matter jurisdiction based
on the diversity of citizenship exists, a court must first
determine the citizenship of the parties involved. Subsection
(c)(1) of Section 1332 details the standards for determining the
citizenship of a corporate party, and provides, "a corporation
shall be deemed to be a citizen of any State by which it has been
incorporated and of the State where it has its principal place of
business[.]" 28 U.S.C. § 1332(c)(1). Creaciones, Imagen, and
Mashreqbank are alleged to have been incorporated in foreign
states. This fact, however, does not affect the applicability of
Section 1332(c). Courts have interpreted Section 1332(c) to apply
to both foreign and domestic corporations. See Bailey v. Grand
Trunk Lines New England, 805 F.2d 1097
, 1099 (2d. Cir.
1986) (applying the Section 1332(c) definition of citizenship to a
Canadian corporation); Petroleum & Energy Intelligence Weekly,
Inc. v. Liscom, 762 F. Supp. 530, 533 (S.D.N.Y. 1989) ("[t]he
Court concludes that § 1332(c) applies to foreign corporations.")
Therefore, this court will examine the citizenship of the parties
to this action based on the standards provided by subsection (c)
of Section 1332.
Under Section 1332(c)(1), a corporation's citizenship is in the
state where it was incorporated and the state where it has its
principal place of business. Plaintiffs allege that both
Creaciones and Imagen were organized under the laws of Mexico and
have offices in Mexico. See Plaintiffs' Compl. ¶ 5,7. Thus, for
the purposes of Section 1332(c)(1), plaintiff corporations are
citizens of Mexico.
According to plaintiffs' allegations, defendant Mashreqbank was
incorporated in the United Arab Emirates and has its principal
office in Dubai. See Plaintiffs' Compl. ¶ 9. However,
plaintiffs allege that in addition to the Dubai office,
Mashreqbank has a New York branch office that is organized under
the laws of the United States and conducts business in New York
City. See Plaintiffs' Compl. ¶ 10. According to Mashreqbank's
Foreign Branch License, MNY is the foreign
branch of Mashreqbank licensed to operate in the State of New
The operation of a New York branch office, however, is not
sufficient to make Mashreqbank a citizen of New York under
Section 1332(c)(1). The branch office does not satisfy either of
the two bases for corporate citizenship outlined in Section
1332(c)(1). As for the first basis, place of incorporation, the
New York branch office is immaterial to Mashreqbank's status
because the company was incorporated in the United Arab Emirates,
not New York. The fact that MNY is licensed to operate in New
York does not qualify as a basis for citizenship, "[t]he fact
that a foreign corporation is authorized or licensed to do
business in a state does not . . . make it a citizen of that
state." Arab International Bank & Trust v. National Westminster
Bank Limited 463 F. Supp. 1145, 1148 (S.D.N.Y. 1979). As for the
second basis, principal place of business, the operation of the
MNY branch office does not satisfy the standard for citizenship.
The Second Circuit considered the issue of the citizenship of a
foreign corporation with a branch office in the United States in
Bailey v. Grand Trunk Lines New England, 805 F.2d 1097 (2d Cir.
1986). In Bailey, the plaintiff was a citizen of the United
States and the defendant was a Canadian corporation with a branch
office in the United States. The court found that in determining
the citizenship of a foreign corporation under Section 1332(c),
"[a]n alien corporation's worldwide principal place of business,
and not its principal place of business within the United States,
is controlling." Bailey v. Grand Trunk Lines New England, 805
F.2d at 1101. It is undisputed that Mashreqbank has its principal
office in Dubai. The New York branch office may be Mashreqbank's
principal place of business in the United States, but, as the
Second Circuit held in Bailey, this fact is not controlling in
the Section 1332(a)(2) inquiry. To briefly review the facts,
plaintiffs allege that Mashreqbank's principal office is in Dubai
and that MNY is a foreign branch of Mashreqbank. Mahreqbank's
Foreign Branch License lists the Dubai location as Mashreqbank's
principal office and the New York City location as a branch
office. Thus, although Mashreqbank's principal office in the
United States is located in New York, its worldwide principal
office is in the United Arab Emirates. Accordingly, this court
finds that because Mashreqbank is incorporated in the United Arab
Emirates and operates its worldwide principal place of business
there, both Mashreqbank and its subsidiary, MNY, are citizens of
the United Arab Emirates for the purposes of Section 1332(c)(1).
3. Title 28 U.S.C. § 1332(a)(2) — Diversity of Citizenship for
Matters Involving Foreign Litigants
Plaintiffs have predicated jurisdiction in this case on Title
28 U.S.C. § 1332(a)(2). Section 1332(a)(2) authorizes diversity
jurisdiction in matters involving "citizens of a state and
citizens or subjects of a foreign state." As the wording of the
provision dictates, Section 1332(a)(2) limits diversity
jurisdiction in actions involving foreign litigants to matters
where at least one of the parties is a citizen of the United
States. See Arab International, 463 F. Supp. at 1147; M.
Saunders v. Cunard Line Limited, 1995 WL 329323 (S.D.N.Y. 1995).
The United States District Court of the Southern District of New
York considered the scope of Section 1332(a)(2) in Arab
International, 463 F. Supp. at 1145. In Arab International, the
plaintiff corporation was incorporated in the West Indies and the
defendant corporation was organized under the laws of the United
Kingdom. See id. at 1147. The court found that under Section
1332(a), "[t]he other party to a litigation involving a foreign
litigant must be a citizen of a state of the United States."
Arab International, 463 F. Supp. at 1147. In a similar case in
the Southern District of New York, M. Saunders v. Cunard Line
Limited, 1995 WL 329323 (S.D.N.Y. 1995), the court found that
diversity jurisdiction under Section 1332 was lacking because
plaintiffs were citizens of Canada and the defendant was a
corporation organized under the laws of the United Kingdom. See
M. Saunders, 1995 WL 329323 at *1. The court stated that,
"[w]here Plaintiff is a citizen of a foreign state, Defendant
must be a citizen of a state of the United States to satisfy
requirements for diversity jurisdiction." M. Saunders, 1995 WL
329323 at *3. In the instant case, this court has determined that
plaintiffs and defendants are citizens of foreign states based on
the standards for corporate citizenship outlined in subsection
(c)(1) of Section 1332. Section 1332(a)(2) requires that at least
one party to the action be a citizen of the United States.
Accordingly, this court finds that the requirements for diversity
jurisdiction in subsection (a)(2) of Section 1332 have not been
satisfied in this case because neither party qualifies as a
citizen of the United States.
For the foregoing reasons, this court finds that diversity
jurisdiction fails because the requirements of Section 1332(a)(2)
have not been satisfied. Therefore, pursuant to Federal Rule of
Civil Procedure 12(h)(3), this action is dismissed for lack of
subject matter jurisdiction.
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