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Jet Midwest International Co. v. Jet Midwest Group, LLC

United States Court of Appeals, Eighth Circuit

August 2, 2019

Jet Midwest International Co., Ltd Plaintiff - Appellant
Jet Midwest Group, LLC Defendant-Appellee Paul Kraus; Karen Kraus; F. Paul Ohadi; F. Paul Ohadi Trust; Kenneth M. Woolley; Jet Midwest Inc. Defendants

          Submitted: June 11, 2019

          Appeal from United States District Court for the Western District of Missouri - St. Joseph

          Before GRUENDER, ARNOLD, and STRAS, Circuit Judges.

          Gruender, Circuit Judge.

         Jet Midwest International Co., Ltd. sued Jet Midwest Group, LLC ("JMG") for breaching a loan agreement. The district court granted summary judgment to Jet Midwest International, which then moved for the reimbursement of its attorneys' fees under the agreement. The district court denied the motion, and Jet Midwest International appeals.

         Before addressing the merits of this appeal, we must first ensure the existence of subject-matter jurisdiction.[1] We review subject-matter jurisdiction de novo. Slater v. Republic-Vanguard Ins. Co., 650 F.3d 1132, 1134 (8th Cir. 2011).

         Subject-matter jurisdiction in this case is based on diversity of citizenship. Diversity jurisdiction "requires an amount in controversy greater than $75,000 and complete diversity of citizenship among the litigants." OnePoint Solutions, LLC v. Borchert, 486 F.3d 342, 346 (8th Cir. 2007) (citing 28 U.S.C. § 1332(a)). Complete diversity "exists where no defendant holds citizenship in the same state where any plaintiff holds citizenship." Id. For purposes of establishing diversity jurisdiction, "a corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business." 28 U.S.C. § 1332(c)(1). Only corporations are entitled to this treatment under § 1332. GMAC Commercial Credit LLC v. Dillard Dep't Stores, Inc., 357 F.3d 827, 828-29 (8th Cir. 2004) (citing Carden v. Arkoma Assocs., 494 U.S. 185, 186, 189, 195-96 (1990)). The citizenship of non-incorporated entities like limited liability companies depends on the citizenship of their members. Id.

         JMG is a limited liability company whose members are citizens of various U.S. states. Jet Midwest International is a Hong Kong limited company with a principal place of business in Beijing. On appeal, JMG contends that Jet Midwest International's failure to establish the citizenship of its members means we must dismiss the case for lack of subject-matter jurisdiction. JMG argues that if a foreign legal entity like Jet Midwest International is not expressly called a corporation, it cannot be treated as such under § 1332. Jet Midwest International counters that a Hong Kong limited company is a corporation under § 1332 and therefore a citizen of China for jurisdictional purposes.

         While our circuit has not addressed the citizenship of a Hong Kong limited company, we adopt the approach employed by the Seventh Circuit for considering the citizenship of foreign entities. As the Seventh Circuit has noted, deciding whether a foreign company should be treated as a corporation under § 1332 is a difficult task. Fellowes, Inc. v. Changzhou Xinrui Fellowes Office Equip. Co., 759 F.3d 787, 788 (7th Cir. 2014); White Pearl Inversiones S.A. (Uruguay) v. Cemusa, Inc., 647 F.3d 684, 686 (7th Cir. 2011). To account for linguistic and other differences between domestic and foreign business laws and the fact that other nations do not necessarily call entities that are in effect corporations by that name, a court examines whether the foreign entity is "equivalent in all legally material respects to a corporation under state law." Lear Corp. v. Johnson Elec. Holdings Ltd., 353 F.3d 580, 583 (7th Cir. 2003). The court treats a foreign legal entity as a corporation if it has "the standard elements of 'personhood' (perpetual existence, the right to contract and do business in its own name, and the right to sue and be sued)," as well as the ability to "issue[] shares to investors who enjoy limited liability" and which "can be bought and sold, subject to restrictions that the business declares." BouMatic, LLC v. Idento Operations, BV, 759 F.3d 790, 791 (7th Cir. 2014).

         Drawing on several cases that have conducted the necessary analysis under the Seventh Circuit framework, we conclude that a Hong Kong limited company is equivalent to a U.S. corporation under § 1332. See Superl Sequoia Ltd. v. Carlson Co., 615 F.3d 831, 832 (7th Cir. 2010) (stating that a Hong Kong business organization "limited by shares" is "a status in the Commonwealth of Nations that is equivalent to a corporation in the United States"); Flextronics Int'l USA, Inc. v. Sparkling Drink Sys. Innovation Ctr. Ltd, 186 F. Supp. 3d 852, 861 (N.D. Ill. 2016) (concluding that Hong Kong limited companies should be treated as corporations under § 1332); Shanshan Shao v. Beta Pharma, Inc., No. 3:14-cv-01177(CSH), 2018 WL 1882855, at *4 (D. Conn. Apr. 19, 2018) (reviewing cases). As a result, there is complete diversity between JMG, whose members are citizens of U.S. states, and Jet Midwest International, which is a citizen of China. Thus, the district court properly exercised subject-matter jurisdiction under § 1332, and we have appellate jurisdiction under 28 U.S.C. § 1291.

         Turning to the merits, we review de novo the interpretation of an attorneys' fees provision in a contract. John T. Jones Const. Co. v. Hoot Gen. Const. Co., 613 F.3d 778, 786 (8th Cir. 2010). Section 9.2 of the parties' loan agreement sets out JMG's obligation to pay Jet Midwest International's costs and expenses incurred in preparing and enforcing the loan agreement:

Borrower agrees to pay on demand all costs and expenses in connection with the preparation, execution, delivery, filing, recording, and administration of any of the Loan Documents, including the reasonable fees and out-of-pocket expenses of counsel for Lender, with respect to the items noted above and with respect to advising Lender as to its rights and responsibilities under any of the Loan Documents; provided, however, that Borrower's payment obligations in this sentence shall not exceed, and shall be capped at, $20,000. Borrower agrees to pay on demand all costs and expenses, if any, in connection with the enforcement of any of the Loan Documents.

Section 9.8 provides that Hong Kong law governs the interpretation of the loan agreement.

         In denying Jet Midwest International's motion for attorneys' fees, the district court observed that Section 9.2 expressly mentions "reasonable fees" of counsel in connection with preparing the agreement but omits "reasonable fees" of counsel in connection with enforcing it. The district court reasoned that the parties therefore did not intend for Jet Midwest International to recover attorneys' fees incurred in enforcing the agreement. The district court also rejected Jet Midwest International's argument that governing Hong Kong law dictates that costs include attorneys' fees. The district court followed the American Rule, under which the parties pay their own fees and expenses, rather than the ...

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