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LEBANESE AMERICAN UNIV. v. NATIONAL EVANGELICAL SYNOD

United States District Court, S.D. New York


January 5, 2005.

LEBANESE AMERICAN UNIVERSITY, Plaintiff,
v.
NATIONAL EVANGELICAL SYNOD OF SYRIA AND LEBANON, Defendant.

The opinion of the court was delivered by: RICHARD HOLWELL, District Judge

MEMORANDUM OPINION AND ORDER

This action is part of a battle for control of the Lebanese American University (the "University"), pitting the University's Board of Trustees (the "Trustees"), acting through the University, against defendant National Evangelical Synod of Syria and Lebanon (the "Synod"), a religious organization with ties to the Presbyterian Church of the United States (the "PCUSA"). The Trustees claim that the University is an American institution, pointing out that it was founded by Presbyterian missionaries from the United States, and that it has been chartered by New York State since 1950. The Synod disagrees, contending that the University, which maintains campuses only in Beirut and Byblos, Lebanon, is a Lebanese institution governed only by Lebanese law.

The dispute arose after the Trustees voted to adopt a new constitution and to amend the University's by-laws in June 2003 (the "Restructuring"). As a result of the Restructuring, the Synod lost much of its power within the University. Frustrated with that outcome, on April 24, 2004 the Synod filed a complaint in Lebanese court against the Board of Trustees, arguing that the University is a Lebanese institution and that the Restructuring was invalid under Lebanese law. Those proceedings were stayed by a Lebanese appellate court, and on July 13, 2004 the University instituted this action, seeking a declaration that the University is an American institution and arguing that the Restructuring was valid — and in fact required — under New York law. On July 30, 2004, this Court entered an order preliminarily enjoining the Synod from, among other things, attempting to lift the stay of the Lebanese proceedings before the present matter is resolved.

  Thereafter, by notice of motion dated September 10, 2004, the Synod moved to dismiss this case pursuant to Fed.R.Civ.P. 12(b)(1), arguing that the Court does not have subject matter jurisdiction under 28 U.S.C. § 1332(a) because diversity of citizenship is lacking. It is undisputed that the Synod is a foreign entity, and that the University is a New York not-for-profit corporation. The Synod contends that the University is also a citizen of Lebanon, and argues that diversity is therefore lacking because both parties are aliens. The University disagrees, arguing that it is only a citizen of New York for purposes of 28 U.S.C. § 1332(c)(1), which means that complete diversity exists.

  For the reasons that follow, the Court concludes that the concept of dual citizenship under Section 1332(c) cannot be invoked to destroy diversity where a domestically incorporated entity with a foreign principal place of business brings suit against a foreign entity. Accordingly, the Court finds that jurisdiction is proper and denies the Synod's motion to dismiss. BACKGROUND

  A thorough factual discussion is not necessary to resolve the purely jurisdictional question presently before the Court, and in any case would be premature. However, a brief overview — historical in nature, and focusing on the parties — will be helpful to frame the relevant issues.

  A. The Parties

  The University began life as the American School for Girls, founded in Beirut in 1835 by Presbyterian missionaries from America. Questions & Answers, at http://www.lau.edu.lb/general-info/qanda.html (last visited December 20, 2004). Under the direction and control of the PCUSA, the University evolved into the American Junior College for Women in 1924, the Beirut College for Women in 1948, the coeducational Beirut University College in 1973, and finally, the Lebanese American University in 1994. Id. Since 1950, the University has been chartered by the New York Board of Regents,*fn1 and in that capacity has awarded degrees to "tens of thousands of students," consistent with its goal "to extend to students, without regard to gender, race, nationality, faith or religious sect, an opportunity for higher education . . . in accordance with the heritage of its Presbyterian founders." (Amended Complaint for Declaratory Relief, ¶ 12 ("Amend. Compl.")). In its present form, the University considers itself to be a "bridge of cultural understanding between East and West in the Middle East." (Amend. Compl., ¶ 2). Like any bridge, the University has ties to the lands that it connects, two of which are relevant to the jurisdictional question raised by the Synod's motion to dismiss. First, the University is incorporated in and chartered by New York State, and has kept administrative offices in New York City at all relevant times. (Amend. Compl., ¶¶ 8, 12). Second, the University maintains educational facilities only in Beirut and Byblos, Lebanon. Accordingly, for purposes of the present motion the Court will assume that the University's principal place of business is in Lebanon, which means that the University shall be considered a domestic corporation with a foreign principal place of business.

  Defendant Synod has a similarly eclectic past, also tracing its origins to Presbyterian missionaries first active in Syria and Lebanon in the early 19th century. In particular, certain of the ecclesiastical facilities established by those missionaries apparently banded together to form the Synod, although it is unclear when this occurred. (Mot. to Dismiss, p. 2.). Since its formation, the Synod asserts that it has worked with the PCUSA in the Middle East to "promote the fundamental Presbyterian values of tolerance, inclusiveness, peace and reconciliation." (Mot. to Dismiss, p. 2). Thus, the Synod considers itself to be a citizen only of Lebanon for purposes of diversity jurisdiction. (Mot. to Dismiss, p. 5). The University agrees, characterizing the Synod as a "religious organization recognized under Lebanese law", and also noting that it is a "juridical person separate from its members" and that it has the "exclusive right of regulating and administering its own affairs and property." (Amend. Compl., ¶ 13). B. The University's Governance

  By the early 1970's, the Synod contends that the PCUSA had determined to divest itself of several assets in the Middle East, including the University. At the same time, however, the PCUSA was concerned that the University's New York charter be maintained, which was thought to require that a "majority of the trustees . . . be American citizens," and also that those Trustees be "invested with certain fundamental powers." (Mot. to Dismiss, p. 3). In order to achieve both goals, the Synod claims that in 1973 the University implemented a "compromise solution," whereby a "Synod-controlled Board of Overseers" shared power with a "non-Synod-controlled Board of Trustees." (the "1973 Structure") (Id.). For its part, the University acknowledges that the Synod had significant rights under the 1973 Structure, but notes that control was shared between (i) a Board of Trustees, consisting of twenty-five members, a majority of whom were United States citizens, and (ii) a Board of Overseers, composed of the members of the Board of Trustees, plus seven members elected by the Synod, the President of the Alumi Association, and other individuals selected by the Board of Overseers. (Amend. Compl., ¶¶ 18-20).

  However one describes the power sharing arrangement, it appears that the Board of Overseers played a significant role in the University's governance. Thus, when the University began a search for a new president in 2002, the Board of Overseers was apparently able to force a stalemate, preventing the Trustees from electing the president of their choice. (Amend. Compl., ¶¶ 29-30). Once it became clear that the disagreement would not be resolved, the University sought guidance from the Office of Counsel at the New York State Education Department ("NYED"). (Compl., ¶ 30). Specifically, the University asked the NYED to clarify the legality of its governance structure given the requirements of its charter.

  On March 7, 2003, the NYED notified the University that only the Board of Trustees had the authority to manage the University, to choose its President, and to adopt or amend by-laws. (March 7, 2003 letter from Kathy A. Ahearn to Barbara L. Kirschten and Randolph M. Goodmna, attached as Exhibit G to the Compl.). The NYED also advised the University that, under the laws of the State of New York, the Trustees could not delegate this power to the Overseers, at least not without first submitting a petition to the New York State Board of Regents.

  Shortly thereafter, in June 2003, at a meeting in New York that was apparently not attended by the Synod's representatives on the Board of Trustees, the Trustees voted to adopt a new Constitution and by-laws consistent with this advice. (Amend. Compl., ¶¶ 32-36). Under the Restructuring, the Synod was granted a single seat on the Board of Trustees, and the Board of Overseers was eliminated in favor of a Board of International Advisors, whose only role was to advise the Trustees. In this way, the Synod lost much of its power within the University.

  On April 21, 2004 the Synod filed a complaint against the Trustees in a Lebanese "emergency court," arguing that the changes effected by the Restructuring were invalid because the University is a Lebanese institution subject only to Lebanese law. (Amend. Compl., ¶ 38). On July 2, 2004, the Lebanese emergency court issued an interim order, placing the University in receivership and staying all changes effected by the Trustees at the June 2003 meeting. (Amend. Compl., ¶ 41). The University appealed the interim order that same day, and on July 6, 2004 a Lebanese appellate court stayed the order pending the Synod's response to the appeal. (Amend. Compl., ¶ 42).

  On July 13, 2004 the University brought suit in this Court, seeking a declaratory judgment that (i) the University is an American entity; (ii) New York State law applies to this dispute; and (iii) the actions taken by the Trustees in June 2003 were valid and therefore remain in effect. Upon filing the complaint, the University also moved for a preliminary injunction to enjoin the Synod from taking further legal action in Lebanese courts or making statements to the effect that the University is a Lebanese institution, or that the current governance structure is invalid.

  On July 30, 2004, this Court entered an order preliminary enjoining the Synod from filing a lawsuit in any Lebanese court seeking to establish that: (a) plaintiff University is not an American-chartered university; (b) plaintiff is not subject to New York laws; (c) plaintiff's governance documents are invalid; or (d) plaintiff's President was unlawfully selected. The Court also preliminarily enjoined the Synod from pursuing dissolution of a stay of the Lebanese emergency court order. The Court expressly entered this order without prejudice to the ability of the Synod to later assert any defenses, including jurisdictional ones.

  On September 10, 2004 the Synod moved to dismiss the case for lack of subject matter jurisdiction. Thus, the only issue presently before the Court is whether jurisdiction is proper. DISCUSSION

  Under 28 U.S.C. § 1332(a), this Court has original subject matter jurisdiction over all claims "where the matter in controversy exceeds the sum or value of $75,000," and where the action is between "citizens of a State and citizens or subjects of a foreign state." 28 U.S.C. § 1332(a). Jurisdiction under § 1332(a) has long been interpreted to require complete diversity, such that the citizenship of each plaintiff must be different from that of each defendant. Caterpillar Inc. v. Lewis, 519 U.S. 61, 67-68 (1996); Cushing v. Moore, 970 F.2d 1103, 1106 (2d Cir. 1992). The Second Circuit has applied this requirement to preclude diversity jurisdiction where citizens of a foreign state appear on both sides of a dispute. See, e.g., IIT v. Vencap, Ltd., 519 F.2d 1001, 1015 (2d Cir. 1975) ("Diversity jurisdiction under 28 U.S.C. s. 1332 is defeated by the presence of aliens both as plaintiffs and as defendants.") (citations omitted); Khan v. State Bank of India, 2001 WL 1463783, at *2 (S.D.N.Y. 2001) ("As an alien suing other aliens, [plaintiff's] claims cannot be heard in federal court.").

  Relying on this limitation, the Synod argues that diversity is lacking in this case because both it and the University are properly considered "foreign citizens" for purposes of Section 1332. The parties agree that the Synod is a foreign citizen, and that the University is incorporated in New York State. The parties also assume for purposes of the present motion that the University has its principal place of business in Lebanon, although the University has reserved the right to contest the issue.*fn2 Thus, the only question before the Court is whether the University is properly considered a "foreign citizen" for diversity purposes. If it is, this Court does not have jurisdiction because "aliens [would be present] both as plaintiffs and as defendants." 519 F.2d 1001, 1015.

  The citizenship of a corporation for diversity purposes is governed by 28 U.S.C. § 1332(c), which states in pertinent part: "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) (emphasis added). This means that domestic corporations — that is, companies incorporated in the United States or certain of its territories*fn3 — have "dual citizenship" if they have a domestic principle place of business different from their "State" of incorporation. See, e.g., Interpool Ltd. v. Orient Overseas Container Line, Ltd., 1991 WL 107272, at *1 (S.D.N.Y. 1991). The University is clearly a domestic corporation, which means that it would have dual citizenship were its principal place of business located in the United States. As noted, however, that is not the case.

  Rather, the University's principal place of business is in Lebanon. Thus, the critical issue here is whether a domestic corporation has dual citizenship under § 1332(c)(1) where its worldwide principal place of business is located outside the United States. The Synod argues that under § 1332(c)(1) the "State" of a corporation's "principal place of business" can include foreign "states" such as Lebanon. 28 U.S.C. § 1332(c)(1). If that proposition were accepted, the University would be a citizen of both Lebanon and New York, and complete diversity would be lacking because the Synod is a foreign citizen. Khan at *2. For several reasons, the Court rejects that outcome. First, when the language of Section 1332 is considered in toto, it is clear that the Synod's reading of Section 1332(c)(1) is overly broad. Under Section 1332(d), the word "State" is defined to "include? the Territories, the District of Columbia, and the Commonwealth of Puerto Rico."*fn4 Nowhere in this definition does the term "foreign state" appear; neither is its inclusion necessary to achieve harmony or coherence. To the contrary, exclusion is consistent with the balance of § 1332; where foreign states are discussed elsewhere, they are referred to as "states", with a lower case "s". See, e.g., 28 U.S.C. § 1332(a); see also Atlantic Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 433 (1932) (noting the presumption that "identical words used in different parts of the same act are intended to have the same meaning.").*fn5 Although the more expansive definition urged by the Synod is at least plausible, the Court will not ignore the familiar maxim expressio unius est exclusio alterius without more. See Cipollone v. Liggett Group, Inc., 505 U.S. 504, 517 (1992) (applying expressio unius exclusio alterius to hold that "Congress' enactment of a provision defining the pre-emptive reach of a statute implies that matters beyond that reach are not pre-empted.").

  Second, when Congress amended the diversity statute in 1958 to include the "principal place of business" test, it did so for reasons not implicated where, as here, a domestic corporation has a principal place of business abroad. Prior to the 1958 amendments, corporations were considered to be citizens only of the state in which they were incorporated, primarily because Congress feared that "out-of-state" corporations would suffer local bias in state courts. Clifford Corp., N.V. v. Ingber, 713 F.Supp. 575, 576 (S.D.N.Y. 1989) (citations omitted). This concern rested on the assumption that corporations tend to operate primarily in their state of incorporation; that is to say, that corporations would be considered "outsiders", and therefore would be subject to local bias, in every state but their state of incorporation. With the adoption of the "principal place of business" test in 1958, Congress implicitly recognized that this assumption was eroding. Thus, as the court observed in Quintel Corp., N.V. v. Citibank N.A., 1984 WL 558 at *1 (S.D.N.Y. 1984):

The policy in favor of . . . dual corporate citizenship has a twofold purpose: first, it minimizes the unfairness which would result if a corporation were permitted to avoid litigation in the court of a State where it transacts its principal business by means of a legal device not available to an individual citizen . . . and second, it serves to minimize and reduce the caseload of the federal courts based upon diversity.
1984 WL 558 at *1 (citations and internal quotation marks omitted).*fn6

  The first of those purposes is not relevant where, as here, the party asserting diversity jurisdiction is not attempting to avoid state court. Although the second purpose is certainly relevant in a general sense, it is not the raison d'etre of Section 1332(c)(1), and it ought not be sanctified without regard to context. With the 1958 amendments, Congress intended to foreclose diversity jurisdiction where there is not likely to be local bias, and hence no reason for it. There is no indication that Congress intended the concept of dual corporate citizenship to bestow foreign citizenship on domestic corporations, or to alter the diversity calculus when there is a foreign party on one side and a domestic corporation on the other. See Cabalceta v. Standard Fruit Co., 883 F.2d 1553, 1561 (11th Cir. 1989) ("We are convinced that Congress has never intended to strip a domestic corporation of its citizenship for any purpose, nor has Congress intended to create a situation of dual citizenship and punish a domestic corporation which operates on an international basis.").

  In this case, the Synod is just the sort of "out-of-state" citizen that is most likely to benefit from diversity jurisdiction, and the University is not attempting to disclaim domestic citizenship in order to defeat diversity.*fn7 There is no reason to "minimize and reduce the caseload of the federal courts" where, as here, diversity jurisdiction is not being abused and otherwise serves its intended purpose. Quintel Corp., N.V., 1984 WL 558 at *1. The Synod has not cited authority to the contrary; nor has it cited persuasive authority to support the proposition that the University has dual citizenship under Section 1332(c)(1) by virtue of its Lebanese principal place of business.*fn8 Indeed, every court to consider the issue has rejected that proposition.*fn9 In Torres v. Southern Peru Copper Corp., 113 F.3d 540 (5th Cir. 1997), the Fifth Circuit reversed the district court's determination that a Delaware corporation with a principal place of business in Peru was citizen of both Peru and Delaware for diversity purposes, concluding that "[a]bsent congressional amendment to section 1332(c)(1) to the contrary . . . a corporation incorporated in the United States with its principal place of business abroad is solely a citizen of its `State' of incorporation" for diversity purposes. Torres at 543-44. Similarly, in Cabalceta v. Standard Fruit Co., 883 F.2d at 1559, the Eleventh Circuit framed the issue as "whether, for diversity purposes, a domestically incorporated defendant corporation can have a foreign principal place of business such that would defeat diversity jurisdiction against an alien plaintiff." Cabalceta at 1558. After a careful review of the language of Section 1332, and taking into consideration the intent of the 1958 amendments thereto, the Cabalceta court found that "the district court was correct in finding that [the defendant's] possible Latin American principal place of business would not destroy diversity jurisdiction against alien Plaintiffs." Cabalceta at 1561.

  More than twenty years before the decisions in Torres and Cabalceta, a court in this district was the first to reach that conclusion. In Willems v. Barclays Bank D.C.O., 263 F. Supp. 774, 775 (S.D.N.Y. 1966), Judge Cooper held that "dual citizenship" under § 1332(c) does not apply where a domestically incorporated corporation has its principal place of business abroad. Although, as the Synod notes, this Court is not bound by the Willems decision, In re Oxford Health Plans, Inc., 191 F.R.D. 369, 377 (S.D.N.Y. 2000), the Court agrees with the reasoning contained therein, and will adhere to its holding.*fn10

  The cases relied upon by the Synod to rebut Willems are inapposite. In both Jerro v. Home Lines, Inc., 377 F. Supp. 670 (S.D.N.Y. 1970) and Carmania Corporation, N.V. v. Hambrecht Terrell International, 758 F. Supp. 896 (S.D.N.Y. 1991), foreign corporations were held to be "dual citizens" for purposes of Section 1332 because both maintained domestic worldwide principal places of business in New York State. Thus, the issue was whether Section 1332(c) applies to foreign corporations; neither court addressed the question presented here, namely, whether Section 1332(c) confers dual citizenship on domestic corporations with a foreign principal place of business. Under the circumstances, and in light of Congress' intent to "preclude any technical finding of diversity, when, in fact, no such diversity existed," Southeast Guaranty Trust Co., Ltd. v. Rodman & Renshaw, Inc., 358 F. Supp. 1001, 1007 (N.D. Ill. 1973), the Jerro and Carmania courts correctly concluded that the foreign corporations were attempting to abuse the diversity statute and therefore applied Section 1332(c) to limit diversity jurisdiction.

  CONCLUSION

  For the above reasons, defendant's motion to dismiss [25] is DENIED.

  SO ORDERED.


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