MAS Capital, Inc. v. Biodelivery Sciences International, Inc.
524 F.3d 831 (2008)
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Rule of Law:
For the purposes of federal diversity jurisdiction under 28 U.S.C. § 1332(c)(1), a corporation incorporated in the United States is a citizen only of its U.S. state of incorporation and the U.S. state of its principal place of business; a principal place of business in a foreign country is disregarded.
Facts:
- MAS Capital, Inc., a corporation controlled by its president Aaron Tsai, provided services to Biodelivery Sciences International, Inc. to help it go public via a 'back door' merger.
- The Securities and Exchange Commission (SEC) began investigating the transaction.
- NASDAQ informed Biodelivery that it would not allow its stock to trade unless the firm was disentangled from Tsai.
- In response, Tsai, acting for himself and as president of MAS Capital, sold his stock and options in Biodelivery.
- Tsai signed a release stating that neither he nor MAS Capital had any right to further compensation from Biodelivery, 'either directly or indirectly.'
- MAS Capital was incorporated in Nevada and had its principal place of business in Taiwan.
- Biodelivery was incorporated in Delaware and had its principal place of business in New Jersey.
- Despite the release, MAS Capital sued Biodelivery for additional compensation for the services rendered.
Procedural Posture:
- MAS Capital filed a lawsuit against Biodelivery Sciences in an Indiana state court.
- Biodelivery removed the case to the United States District Court for the Southern District of Indiana, asserting federal diversity jurisdiction.
- The district court granted summary judgment in favor of Biodelivery.
- MAS Capital, the plaintiff, appealed the district court's decision to the United States Court of Appeals for the Seventh Circuit.
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Issue:
For the purpose of diversity jurisdiction under 28 U.S.C. § 1332, is a domestic corporation incorporated in one state and having its principal place of business in a foreign country deemed a citizen of that foreign country?
Opinions:
Majority - Easterbrook, Chief Judge
No. For diversity jurisdiction, a U.S. corporation with its principal place of business in a foreign country is a citizen only of its U.S. state of incorporation. The court reasoned that 28 U.S.C. § 1332(c)(1) defines corporate citizenship by its 'State' of incorporation and 'State' of its principal place of business. Based on the consistent statutory usage throughout § 1332, the word 'State' refers exclusively to a state of the United States, while a foreign nation is referred to as a 'foreign state.' Therefore, a foreign principal place of business is not considered for jurisdictional purposes. Adopting the reasoning of the Fifth and Eleventh Circuits in Torres and Cabalceta, the court held that MAS Capital is a citizen of Nevada alone, establishing complete diversity with Biodelivery (a citizen of Delaware and New Jersey) and confirming federal jurisdiction. On the merits, the court affirmed summary judgment, finding the suit barred by the release Tsai signed, as any recovery by MAS Capital would be an 'indirect' benefit to Tsai, its sole beneficial owner.
Analysis:
This decision aligns the Seventh Circuit with other federal circuits, establishing a clear and uniform rule for determining the citizenship of U.S. corporations with foreign principal places of business. By holding that only domestic locations matter for the 'principal place of business' test, the court simplifies the jurisdictional analysis for multinational U.S. corporations. This precedent prevents such corporations from being treated as 'alien' parties, which could otherwise complicate or defeat diversity jurisdiction, thereby providing greater predictability for litigants.
