Suing solely between aliens in the U.S.

Federal District Court Opinions

STEEN v. SYGEN INTERNATIONAL, PLC, (N.D.Cal. 11-20-2006)
HENRICUS VAN DER STEEN, Plaintiff, v. SYGEN INTERNATIONAL,
PLC, et al., Defendants. No. C 06-4966 CRB. United States
District Court, N.D. California. November 20, 2006

MEMORANDUM AND ORDER

CHARLES BREYER, District Judge

Henricus Van Der Steen (“Plaintiff”) is a citizen of the
Netherlands and a permanent resident alien domiciled in
California. He filed suit in California state court against
his former employer and related corporate entities. He
asserts, among other claims, breach of contract. The case
was removed to federal court on the basis of diversity
jurisdiction. Now pending before the Court is Plaintiff’s
motion to remand.

Presently, the only defendants remaining in the suit are
two alien corporations. The question presented by
Plaintiff’s motion is whether this Court has jurisdiction
under the diversity statute, 28 U.S.C. § 1332, over
a suit solely between aliens, when one of the alien parties
is a lawful permanent resident. Plaintiff argues that,
because the case now involves only an alien plaintiff and
alien defendants, this Court lacks constitutional authority
to hear it. For the reasons set forth below, the Court
agrees. Page 2

BACKGROUND

Plaintiff came to the United States from the Netherlands
in 1998 as part of his job with Sygen International, Ltd.
(“Sygen”). In 2001, he became a legal permanent resident.
Thus, at the time he filed this lawsuit, Plaintiff was a
permanent resident alien domiciled in California.

Plaintiff worked primarily at Sygen’s research lab in
Berkeley, California, until 2003, when the company decided
to move its research lab from California to Kentucky.
Thereafter, Plaintiff continued to work for Sygen from his
home in Marin County, California. Plaintiff alleges that in
2005 he was offered a new position with Sygen and entered
into a new employment contract with the company. According
to Plaintiff, Sygen agreed to establish a research chair at
the University of Western Kentucky and to employ him in
that position as research liaison between Sygen and the
University. Plaintiff further alleges that Sygen breached
this contract when it subsequently repudiated its agreement
to fund the position. Plaintiff filed suit on June 30,
2006, asserting claims for breach of employment contract,
wrongful termination, various related statutory violations,
and other tort claims. Plaintiff originally named four
defendants in the suit: (1) Sygen, (2) Genus, PLC
(“Genus”), (3) ABS Global, Inc. (“ABS”), and (4) PIC
International Group, PLC (“PIC”).

Two of these companies, Sygen and PIC, are actually the
same entity. Sygen, which was previously called PIC
International Group, changed its name in 2003 when it moved
its headquarters to England. The company is incorporated
and has its principal place of business in the United
Kingdom. Currently, Sygen has only one employee, an
internal auditor, working in California. As noted above, it
also operates a research laboratory in the United States.
Sygen is a wholly owned subsidiary of Genus.

Genus is also a United Kingdom company and has its
principal place of business there. Genus has no employees
and conducts no business in the United States, other than
through its separately incorporated subsidiaries, Sygen and
ABS.

ABS is a Delaware corporation whose headquarters are in
Wisconsin. It is the only citizen party named in this
lawsuit. Along with Sygen, ABS is a wholly owned subsidiary
of Page 3 Genus. The complaint reveals that Plaintiff
named ABS as a defendant under the erroneous impression
that Genus and ABS were the same company. Plaintiff never
performed any work for ABS and made no specific allegations
against that entity. In light of this misidentification,
the Court has dismissed ABS, with Plaintiff’s consent.

Thus, the only parties remaining in the case are Plaintiff
(a permanent resident alien) and Defendants Sygen (a
foreign corporation)[fn1] and Genus (a foreign
corporation).

DISCUSSION

In 1988, Congress amended the diversity statute to include
the following language: “For purposes of this section, . .
. and section 1441 [which governs removal], an alien
admitted to the United States for permanent residence shall
be deemed a citizen of the State in which such alien is
domiciled.” Judicial Improvements and Access to Justice
Act, Pub.L. No. 100-702, § 203, 102 Stat. 4642, 4646
(1988) (codified at 28 U.S.C. § 1332(a)) (“the 1988
Amendment”). Thus, on its face, the 1988 Amendment
classifies Plaintiff as a citizen of California for
purposes of diversity jurisdiction, and thereby appears to
confer federal jurisdiction over this case.

The problem in this case is that a literal application of
the 1988 Amendment leads to an arguably unconstitutional
result. Article III provides in part that the federal
judicial power “shall extend to [suits] . . . between a
State, or the Citizens thereof, and foreign States,
Citizens or Subjects.” U.S. CONST. art. III, ¶ 2.
The Supreme Court has long held that this conferral of
so-called “alienage jurisdiction” does not extend to cases
involving only aliens. Montalet v. Murray, 8 U.S. (4
Cranch) 46, 47 (1807) (“[T]he courts of the United States
have no jurisdiction of cases between aliens.”); see also
Kramer v. Caribbean Mills, Inc., Page 4 394 U.S. 823, 825
(1969) (stating that a district court would have no
jurisdiction over a suit between foreign entities); Hodgson
v. Bowerbank, 9 U.S. (5 Cranch) 303, 303 (1809) (same).

Thus, the issue presented here is whether the Court has
jurisdiction to hear claims brought by an alien permanent
resident against two foreign corporations. On the one hand,
Defendants argue that the plain language of the diversity
statute makes this a suit between a California citizen and
two foreign corporations, over which this Court may
properly exercise alienage jurisdiction. On the other hand,
Plaintiff argues that such an application of the 1988
Amendment would exceed the constitutional limits on
alienage jurisdiction set forth in Article III by
purporting to create federal jurisdiction over a suit
solely between aliens.

The Court notes that it is not the first to confront the
apparent conflict between § 1332(a) and the
constitutional limits on alienage jurisdiction.[fn2] Other
courts have concluded, with near uniformity, that a literal
application of § 1332(a) would be unconstitutional
in cases such as this one. As the D.C. Circuit Court of
Appeals explains:

[A] literal reading of the 1988 amendment to §
1332(a) would produce an odd and potentially
unconstitutional result. It would . . . create federal
diversity jurisdiction over a lawsuit brought by one alien
against another alien, without a citizen of a state on
either side of the litigation. The judicial power of the
United States does not extend to such an action under the
Diversity Clause of Article III.

Saadeh, 107 F.3d at 58 (citing Hodgson, 9 U.S. at 303).
Accord Engstrom, 959 F. Supp. at 551 (noting that the 1988
Amendment “seems to lend itself to an entirely unintended
and almost surely unconstitutional interpretation”);
Chavez-Organista, 208 F. Supp. 2d at 176-77 (“[T]he plain
language of the 1988 Amendment could not govern inasmuch as
it expands diversity jurisdiction to cases where a
permanent resident alien residing in state A sues only a
Page 5 permanent resident alien residing in state B or a
nonresident alien, thus exceeding the limits of Article
III.”); Tay, 1995 U.S. Dist. LEXIS 22196, at *4 (noting
that there would be no federal jurisdiction over a suit
between a permanent resident alien and a nonresident
alien); Lee, 111 F. Supp. 2d at 141 (finding no federal
jurisdiction over an action between plaintiffs permanent
resident aliens and defendants alien corporations).
Scholars have likewise concluded that “any interpretation
of the [1988 Amendment] that would provide diversity
jurisdiction for a case solely involving aliens would be
unconstitutional.” 15 JAMES WM. MOORE ET AL., MOORE’S
FEDERAL PRACTICE § 102.78[2] (3d ed. 2006); see also
John B. Oakley, Recent Statutory Changes in the Law of
Federal Jurisdiction and Venue: The Judicial Improvements
Act of 1988 and 1990, 24 U.C. DAVIS L. REV. 735, 745 (1991)
(“By facially authorizing such suits between aliens the
1988 Act conflicts with the rule . . . that article III
does not permit federal alienage jurisdiction over a suit
in which aliens are the only opposing parties.”); Kevin R.
Johnson, Why Alienage Jurisdiction? Historical Foundations
and Modern Justifications for Federal Jurisdiction Over
Disputes Involving Noncitizens, 21 YALE J. INT’L L. 1, 25
(1996) (“[T]he amendment potentially allows an alien, who
has been admitted for permanent residence into the United
States and is domiciled in a state, to sue another alien in
federal court, an unconstitutional result.”). Indeed, this
court is aware of no authority to support the proposition
that the exercise of federal jurisdiction would be
constitutional on the facts of this case.

“Where an otherwise acceptable construction of a statute
would raise serious constitutional problems, [a court
should] construe the statute to avoid such problems unless
such a construction is plainly contrary to the intent of
Congress.” Edward J. DeBartolo Corp. v. Florida Gulf Coast
Building & Constr. Trades Council, 485 U.S. 568, 575,
(1988). While it is true that courts do not ordinarily
resort to legislative history where statutory language is
plain on its face, Garcia v. United States, 469 U.S. 70, 76
(1984), it is an axiomatic principle of statutory
interpretation that courts should not construe statutes in
a fashion that raises “serious constitutional doubts,”
Clark v. Martinez, 543 U.S. 371, 381-382 (2005). Instead,
where “the literal application of a statute will produce a
result demonstrably at odds with the Page 6 intentions of
its drafters, . . . those intentions must be controlling.”
Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571
(1982); see also Public Citizen v. U.S. Dep’t of Justice,
491 U.S. 440, 454 (1989) (“Looking beyond the naked text
for guidance is perfectly proper when the result it
apparently decrees is difficult to fathom or where it seems
inconsistent with Congress’ intention.”). Thus, given that
a literal application of the 1988 Amendment raises serious
constitutional questions in this case, an examination of
the statute’s history is appropriate. See Intec, 2006 U.S.
App. LEXIS 27165, at *12 (Easterbrook, J.).

Several other courts have previously engaged in an
exhaustive analysis of the history behind the 1988
Amendment. See Saadeh, 107 F.3d at 57-61; Singh, 9 F.3d at
306-10; Lee, 111 F. Supp. 2d at 139-41; Engstrom, 959 F.
Supp. at 549-53; Arai, 778 F. Supp. at 1538-42. Though many
courts have noted that the legislative history is limited,
remarks by Senator Howell Heflin provide the most revealing
commentary:

[The pre-1988 version of § 1332(a)] gives the
district courts diversity jurisdiction over actions
between citizens of a State and citizens or subjects of a
foreign state. Diversity jurisdiction exists under this
provision even though the alien may have ben admitted to
the United States as a permanent resident. . . . There is
no apparent reason why actions between persons who are
permanent residents of the same State should be heard by
Federal courts merely because one of them remains a
citizen or subject of a foreign state.

Arai, 778 F. Supp. at 1539-40 (quoting 134 Cong. Rec.
31,055 (Oct. 14, 1988)). Indeed, courts have concluded that
the only indication of congressional purpose in the
legislative history is that Congress’ intent in passing the
1988 Amendment was to eliminate so-called “suits between
neighbors.” That is, Congress wished to eliminate federal
jurisdiction over lawsuits between citizens and permanent
resident aliens residing in the same state. See Saadeh, 107
F.3d at 60 (“[T]he [1988] Amendment clearly appears to have
been intended only to eliminate subject matter jurisdiction
of cases between a citizen and an alien living in the same
state” (internal quotations omitted)); Singh, 9 F.3d at 309
(“The Senate’s consideration of [the 1988 Amendment]
focused on the incongruity of permitting a permanent
resident alien living next door to a citizen to invoke
federal jurisdiction for a dispute between them while
denying a citizen living across the street the same
privilege.”); Lee, 111 F. Supp. 2d at 141 (“Congress
enacted the [1988] Amendment to address the `suits Page 7
between neighbors’ problem.”); Arai, 778 F. Supp. at 1540
([The 1988 Amendment] was intended to eliminate suits
between [neighbors]. There is no evidence that Congress
enacted the provision for any other purpose.”); see also
15-102 MOORE ET AL., supra, at § 102.78[1] (“The
purpose of the [1988] [A]mendment was to terminate
diversity jurisdiction between United States citizens and
permanent resident aliens of the same state.”).

Thus, it appears that Congress’ principal aim in passing
the 1988 Amendment was to contract, not expand, the scope
of federal diversity jurisdiction. See Saadeh, 107 F.3d at
59 (“[T]he legislative history of [the 1988 Amendment]
makes clear that Congress focused on reducing the caseload
of the federal courts by contracting the scope of diversity
jurisdiction”); Lee, 111 F. Supp. 2d at 141 (“Congress’s
intention that the [1988] Amendment limit federal courts’
diversity jurisdiction is supported by the legislative
history.”); Arai, 778 F. Supp. at 1542 (“The legislative
history is . . . unequivocal that Congress sought to
ameliorate the overburdened federal judicial system by
reducing, not expanding, diversity and alienage
jurisdiction.”); John B. Oakley, supra, at 741-42 (noting
that the 1988 Amendment had the “modest . . . objective to
rid the federal diversity docket of a small category of
essentially localized lawsuits”). But see Singh, 9 F.3d at
309 (“[T]here is . . . nothing [in the legislative history]
to support [the] view that the entire 1988 [Amendment] was
characterized by a `clarity of purpose’ to reduce diversity
jurisdiction.”).

This Court agrees that it would be incongruous with
congressional intent to construe the 1988 Amendment as
creating federal jurisdiction over suits brought by
permanent resident aliens against other aliens residing
anywhere in the world. See Saadeh, 107 F.3d at 60 (“It
would be illogical to conclude that Congress intended to
eliminate diversity jurisdiction in [suits between
neighbors], but simultaneously intend to expand diversity
jurisdiction in cases between an alien permanently residing
in one state and an alien permanently residing in another
state.”).

Because a plain reading of § 1332(a) would
unconstitutionally extend federal jurisdiction to allow a
suit solely between aliens, and because such an
interpretation would be contrary to the legislative intent
behind the 1988 Amendment, this Court declines to consture
Page 8 the statute as conferring federal jurisdiction in
cases involving only aliens on both sides. See Edward J.
DeBartolo Corp., 485 U.S. at 575; Griffin, 458 U.S. at 571.
In holding that the 1988 Amendment does not give a district
court jurisdiction over a suit solely between aliens, the
Court joins the vast majority of tribunals that have
refused to apply the statute’s text literally in cases such
as the one at bar.[fn3] See, e.g., Gall, 2005 U.S. Dist.
LEXIS 4421 at *17; Chavez-Organista, 208 F. Supp. 2d at
177; Matsuda, 128 F. Supp. 2d at 667; Banci, 44 F. Supp. 2d
at 1276; Tay, 1995 U.S. Dist. LEXIS 22196, at *4; see also
Intel, 2006 U.S. App. LEXIS 27165, at *9-15 (holding that
“the best reading” of the 1988 Amendment is that it confers
“both state and foreign citizenship” on permanent resident
aliens, and that no jurisdiction exists when a case
involves only aliens, including legal permanent residents).

Defendants contend that the Court nonetheless has
jurisdiction over the case because Plaintiff originally
included ABS, a corporate citizen of Wisconsin and
Delaware, as a defendant. The Court acknowledges that a
controversy exists about whether the 1988 Amendment should
be applied literally when a citizen party is present.
Compare Saadeh 107 F.3d at 61 (holding that no jurisdiction
exists when there is “an alien on one side, and an alien
and a citizen on the other side, regardless of the
residence status of the aliens”), with Singh 9 F.3d at 312
(holding that jurisdiction exists over a suit brought by a
permanent resident alien plaintiff against both alien and
citizen defendants), and Intel, 2006 U.S. App. LEXIS 27165,
at *9-15 (same). The Court need not resolve that more
difficult question today. Even if the Court were to assume
that Singh and Intel are correct, and that removal
initially was proper by virtue of the presence of a citizen
defendant, the dismissal of ABS Page 9 eliminates any
basis for jurisdiction that Singh or Intel might
provide.[fn4] Therefore, even assuming this Court had
jurisdiction at the time of removal, the dismissal of
Plaintiff’s claims against ABS at best leaves this Court
with only supplemental jurisdiction over the case. To the
extent it may have such supplemental jurisdiction, the
Court declines to exercise it. See 28 U.S.C. §
1367(c)(3).

CONCLUSION

It is an extraordinary case when constitutional principles
require a statute to be applied in a manner directly
contrary to its text. This, however, is such a case. The
Court joins every other tribunal that has decided the issue
in holding that § 1332(a) does not confer
jurisdiction over suits, such as this one, solely between
aliens. See Mantelet, 8 U.S. at 47; Hodgson, 9 U.S. at 303.
To the extent that the presence of a citizen defendant may
have conferred jurisdiction upon this Court when it was
removed, this Court declines to exercise it now.
Plaintiff’s motion for remand is therefore GRANTED.

IT IS SO ORDERED.

[fn1] The fact that Sygen maintains a research lab in the
United States does not alter its status as a foreign
citizen. See Nike, Inc. v. Comercial Iberica De Exclusivas
Deportivas, S.A., 20 F.3d 987, 990 (9th Cir. 1994) (“We
draw no distinction between corporations incorporated in a
state of the United States and those incorporated in a
foreign country when determining the corporation’s
citizenship for purposes of diversity jurisdiction. In each
instance, the corporation is deemed a citizen of its place
of incorporation and the location of its principal place of
business.” (citation omitted)); Bailey v. Grand Trunk Lines
New England, 805 F.2d 1097, 1101 (2d Cir. 1986) (“An alien
corporation’s worldwide principal place of business, and
not its principal place of business in the United States,
is controlling.”).

[fn2] See Intec USA, LLC v. Engle, 2006 U.S. App. LEXIS
27165 (7th Cir. Nov. 2, 2006); Saadeh v. Farouki, 107 F.3d
52 (D.C. Cir. 1997); Singh v. A.G. Daimler-Benz, 9 F.3d 303
(3d Cir. 1993); see also Gall v. Topcall Int’l, A.G., 2005
U.S. Dist. LEXIS 4421 (E.D. Pa. Mar. 22, 2005);
Chavez-Organista v. Vanos, 208 F. Supp. 2d 174 (D.P.R.
2002); Marcus v. Five J. Jewelers Precious Metals Indus.
Ltd., 111 F. Supp. 2d 445 (S.D.N.Y. 2000); Matsuda v. Wada,
128 F. Supp. 2d 659 (D. Haw. 2000); Banci v. Wright, 44 F.
Supp. 2d 1272 (S.D. Fla. 1999); Lee v. Trans American
Trucking Serv. Inc., 111 F. Supp. 2d 135 (E.D.N.Y. 1999);
China Nuclear Energy Indus. Corp. v. Arthur Andersen, LLP,
11 F. Supp. 2d 1256 (D. Colo. 1998); Engstrom v. Hornseth,
959 F. Supp.545 (D.P.R. 1997); Helmut J. Unkel Ltd. v. Tay,
1995 U.S. Dist. LEXIS 22196 (N.D. Cal. Feb. 7, 1995);
Lloyds Bank PLC v. Norkin, 817 F. Supp. 414 (S.D.N.Y.
1993); Arai v. Tachibana, 778 F. Supp. 1535 (D. Haw. 1991).

[fn3] Admittedly, this approach to the diversity statute is
not without problems. Circumventing the literal language of
§ 1332(a) leads to the curious result that a
permanent resident alien’s “citizenship” turns entirely on
whom he is suing. Like a chameleon, the citizenship of the
lawful permanent resident changes with the context of his
lawsuit — if he sues an alien, he is treated as an
alien; if he sues a U.S. citizen, he is treated as a
citizen. It is indeed strange that a plaintiff’s identity
should hinge on that of his adversary. The Court accepts
this anomaly as the unfortunate consequence of hastily
enacted legislation. The approach of the overwhelming
majority of the courts discussed above must be embraced as
the least problematic, though certainly not problem-free,
interpretation of § 1332(a).

[fn4] The Third Circuit in Singh explicitly limited its
jurisdictional holding to cases involving at least one
citizen party. The Singh court noted the “potential” and
“intriguing” constitutional question in applying the 1988
Amendment literally to suits involving solely alien
parties. Singh, 9 F.3d at 311-12. But because the plaintiff
in Singh, a permanent resident alien, had sued both citizen
and alien defendants, the Third Circuit declined to reach
the constitutional issue presented in this case. See id. at
312. The Court notes that even in the Third Circuit, at
least one district court has declined to apply Singh when
no United States citizen is involved in the case, on the
ground that the exercise of such jurisdiction would be
unconstitutional. See Gall, 2005 U.S. Dist. LEXIS 4421, at
*9 n. 4, 11, 17, 23. The Seventh Circuit’s recent decision
in Intel is in accord, holding that federal courts may
adjudicate suits brought by a permanent resident alien
against both diverse citizens and aliens, but not suits
brought only against aliens. This Court likewise concludes,
contrary to Defendants’ contention, that Singh does not
apply to cases, such as this one, where no citizen parties
are present. Page 1