Article

U.S. Federal Subject Matter Jurisdiction; Diversity; Federal Question; Edge Act

Prior History:

Creaciones Con Idea v. Mashreq Bank PSC, 1999 U.S. Dist. LEXIS 6914 (S.D.N.Y. May 12, 1999); abstracted at 2000 Annual Survey of Letter of Credit Law & Practice 301. Creaciones Con Idea v. MashreqBank PSC, 1999 U.S. Dist. LEXIS 18927 (S.D.N.Y. December 9, 1999); abstracted at 2000 Annual Survey of Letter of Credit Law & Practice 303.

Note:

The beneficiary, a corporate citizen of Mexico, brought suit against the issuer, a corporate citizen of United Arab Emirates, for wrongful dishonor and conspiracy. The U.S. District Court of the Southern District of New York ultimately dismissed the action for lack of federal subject matter jurisdiction under the diversity statute. The beneficiary appealed. On appeal, the decision of the District Court was affirmed by the U.S. Court of Appeals for the 2nd Circuit.

The beneficiary argued that the issuer should be estopped from claiming foreign corporate citizenship for diversity purposes because such claims contradict prior assertions made by the issuer in other litigation. The court rejected this argument on the ground that the principles of estoppel are not applicable to issues of subject matter jurisdiction. Therefore, any assertions made by the issuer in prior litigation regarding its corporate citizenship will not have any affect on unrelated current or future litigation. The court further determined that even if the issuer were found to be a citizen of the state of New York, it would be irrelevant. The court noted that having at least one alien party on each side of the litigation destroys diversity. The beneficiary (plaintiff) is a corporate citizen of Mexico. The issuer (defendant) is a corporate citizen of United Arab Emirates. Therefore there is no diversity for federal subject matter jurisdiction.

The beneficiary also argued that "because the [issuer] is the successor in interest to a federally chartered Edge Act corporation, federal question jurisdiction lies in this case under 12 U.S.C. § 632, which provides for original jurisdiction in the district courts in 'all suits ... to which any corporation organized under the laws of the United States shall be a party, arising out of transactions involving international or foreign banking.'" The court rejected that argument, stating that it was not "aware of [any] authority supporting the proposition that simply by virtue of its status as a successor in interest to a corporation organized under federal law, a bank incorporated abroad with a domestic branch chartered under State law is subject to federal jurisdiction in the same manner as its predecessor. The statute is clear in limiting its reach to cases in which a federally chartered corporation is a 'party.' We find no basis on which to accept the [beneficiary's] contention that federal question jurisdiction exists in this case ... ."

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