Burckhardt Compression (US), Inc. et al v. Deutsche Bank AG et al

Filing 38

OPINION & ORDER.....This case is dismissed for lack of subject matter jurisdiction, without prejudice to it being refiled in state court. The Clerk of Court shall close the case. (Signed by Judge Denise L. Cote on 7/21/2016) (gr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------- X
:
BURCKHARDT COMPRESSION (US), INC., and :
BURCKHARDT COMPRESSION AG,
:
:
Plaintiffs,
:
:
-v:
:
DEUTSCHE BANK AG,
:
Defendant.
:
:
-------------------------------------- X

16cv3658 (DLC)
OPINION & ORDER

APPEARANCES
For the plaintiffs:
Clifford H. Walston
Walston Bowlin, LLP
800 Town & Country Blvd., Suite 300
Houston, TX 77024
For the defendant:
Mark A. Robertson
Norton Rose Fulbright US LLP
666 Fifth Avenue
New York, NY 10103
DENISE COTE, District Judge:
This action is dismissed for lack of subject matter
jurisdiction.

Although it appeared upon its filing that

diversity jurisdiction was present, with the dismissal of two
domestic defendants, it is now clear that there is no federal
jurisdiction over this lawsuit.

Background
This case was originally filed on February 2, 2016, in the
United States District Court for the Southern District of Texas.
The sole basis of federal jurisdiction is diversity of the
parties under 28 U.S.C. § 1332.

As originally filed, the case

involved two plaintiffs and three defendants.

The plaintiffs

were Burckhardt Compression (US), Inc., a Texas corporation with
its principal place of business in Texas; and Burckhardt
Compression AG, a Swiss corporation.

The defendants were

Deutsche Bank AG, a German corporation also doing business and
having its U.S. headquarters in New York; Deutsche Bank Trust
Company Americas, a New York corporation with its principal
place of business in New York; and Deutsche Bank Trust Company
Delaware, a Delaware corporation with its principal place of
business in Delaware.

As originally filed, federal jurisdiction

existed for this action because it was between “citizens of
different States and in which citizens or subjects of a foreign
state are additional parties.”

28 U.S.C. § 1332(a)(3).

On May 3, the plaintiffs voluntarily dismissed defendants
Deutsche Bank Trust Company Americas and Deutsche Bank Trust
Company Delaware under Federal Rule of Civil Procedure
41(a)(1)(A)(i).

The plaintiffs dismissed these defendants

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because they did not participate in the wire transfers from
which the plaintiffs’ claims arose.

Following the dismissal of

those defendants, the case involved a Swiss plaintiff, a Texas
plaintiff, and a German defendant that does business and has its
U.S. headquarters in New York.

On May 11, the case was

transferred to Southern District of New York and assigned this
Court.
At the initial pre-trial conference on July 1, the Court
raised with the parties whether federal jurisdiction exists over
this action given that the suit is between two foreign entities
with a citizen of a State on only one side of the litigation.
The parties briefed the issue on July 15.
Discussion
Federal courts have a duty to inquire into their subject
matter jurisdiction . . . .”

D’Amico Dry Ltd. v. Primera Mar.

(Hellas) Ltd., 756 F.3d 151, 161 (2d Cir. 2014).

“If subject

matter jurisdiction is lacking and no party has called the
matter to the court’s attention, the court has the duty to
dismiss the action sua sponte.”

Fracasse v. People’s United

Bank, 747 F.3d 141, 143 (2d Cir. 2014).

“[W]hen a determination

is made that no jurisdiction lies, the district court has no
power to do anything but to strike the case from the docket.”
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W.G. v. Senatore, 18 F.3d 60, 64 (2d Cir. 1994) (citation
omitted).
This action, as it currently exists, involves a Swiss
plaintiff, a Texas plaintiff, and a German defendant.

With

respect to foreign parties, § 1332 authorizes jurisdiction over
actions between (1) “citizens of a State and citizens or
subjects of a foreign state” and (2) “citizens of different
States and in which citizens or subjects of a foreign state are
additional parties.”

28 U.S.C. § 1332(a).

This case does not

fit into either category because it involves foreign entities on
both sides of the litigation and an additional plaintiff that is
a citizen of Texas.

The Second Circuit has held that

jurisdiction does not exist when foreign entities are on both
sides of the litigation and citizens of a State are only on one
side.

Universal Licensing Corp. v. Paola del Lungo S.p.A., 293

F.3d 579, 581 (2d Cir. 2002).

This is true even though

defendant Deutsche Bank AG also does business and has its U.S.
headquarters in New York.

Id.

For that reason, § 1332 does not

authorize jurisdiction over this action with respect to the
current configuration of parties.
The parties agree that jurisdiction does not exist over the
action as it is currently configured.

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The plaintiffs contend,

however, that the action may proceed because jurisdiction
existed over the action at the time it was filed.

This argument

is unpersuasive.
It is true, as the Supreme Court has held, that “diversity
of citizenship is assessed at the time the action is filed.”
Freeport-McMoRan, Inc. v. K N Energy, Inc., 498 U.S. 426, 428
(1991).

Accordingly, in the ordinary case, “if jurisdiction

exists at the time an action is commenced, such jurisdiction may
not be divested by subsequent events.”

Id.

Freeport involved a

contract dispute between two plaintiffs that were both citizens
of Delaware and Louisiana; and a defendant that was a citizen of
Kansas and Colorado.

After the suit was filed, one of the

plaintiffs transferred its interest in the contract to a limited
partnership that had limited partners who were citizens of
Kansas and Colorado.

The Supreme Court held that a change of a

party’s citizenship after the filing of a lawsuit did not divest
the district court of jurisdiction because “[a] contrary rule
could well have the effect of deterring normal business
transactions during the pendency of what might be lengthy
litigation.”

Id.

The Court also identified another situation

in which subsequent events would not defeat jurisdiction: “the
intervention, by leave of the court, of a party whose presence

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is not essential to a decision of the controversy between the
original parties.”

Id.

In contrast to Freeport, the instant case involves neither
a change in a party’s citizenship, nor the intervention of a
non-diverse party “whose presence is not essential to a decision
of the controversy.”

Id.

Instead, this case involves the

dismissal of two parties who had no involvement in the subject
matter of this case and whose presence is essential to the
existence of federal jurisdiction.

Jurisdiction under § 1332

never existed for an action between the parties who have an
actual stake in this case.
The expansive reading of Freeport advocated by the
plaintiffs has been rejected by the Courts of Appeals that have
considered this issue.

There are situations in which events

that occur after the filing of an action do divest a federal
court of jurisdiction.

See, e.g., Am. Fiber & Finishing, Inc.

v. Tyco Healthcare Grp., LP, 362 F.3d 136, 142 (1st Cir. 2004)
(diversity jurisdiction can be divested by substitution of nondiverse party); Estate of Alvarez v. Donaldson Co., 213 F.3d
993, 995 (7th Cir. 2000) (diversity jurisdiction can be divested
by the subsequent addition of non-diverse parties); Cobb v.
Delta Exps., Inc., 186 F.3d 675, 680–81 (5th Cir. 1999) (joinder

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of non-diverse defendants destroys diversity for jurisdictional
purposes); Ingram v. CSX Transp., Inc., 146 F.3d 858, 861 (11th
Cir. 1998) (“Freeport does not stand for the proposition that
all additions of nondiverse parties are permissible as long as
complete diversity existed at the time of commencement of the
lawsuit.”).
To provide one example, American Fiber involved a plaintiff
that was a citizen of Delaware and North Carolina and a
defendant that was a citizen of Nevada and New Hampshire.

After

the case had been filed, the plaintiffs discovered that a
different party was the real party of interest and substituted
the original defendant for a new defendant, which was a citizen
of Delaware.

When the case was on appeal, the First Circuit

held that the case must be dismissed for lack of jurisdiction,
even though diversity existed at the time the action was filed.
In discussing Freeport, the First Circuit noted:
The procedural circumstances and ratio decidendi of
Freeport–McMoRan limit its precedential value. They
make it clear that when the Court declared that
“subsequent events” do not divest the district court
of diversity jurisdiction, it was referring mainly to
post-filing transfers of interest -- not to all postfiling additions of non-diverse parties. Accordingly,
we join several other courts of appeals that have read
Freeport narrowly and restricted its precedential
force to the precincts patrolled by Rule 25.
Am. Fiber, 362 F.3d at 140.
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American Fiber addressed a circumstance not unlike the one
presented here.

The First Circuit observed that a plaintiff

cannot manufacture jurisdiction by doing in two steps what it
could not do in one:
[The plaintiff] could not originally have brought suit
in federal court against [the substituted defendant],
since citizens of Delaware would have been perched on
both sides of the litigation. When [the plaintiff]
amended its complaint to configure its suit in
precisely that fashion, complete diversity was
destroyed just as surely as if it had sued [the
substituted defendant] in the first instance . . . .
[T]he plaintiff was doing in two steps what, if the
plaintiff had done it in one, would have clearly
disclosed the absence of federal jurisdiction. The
extra step obfuscates, but does not alter, the
jurisdictional calculus.
Id. at 141 (citation omitted).
The same rationale applies here even though instead of
substituting one defendant for another, the plaintiffs in the
instant action originally sued three defendants and subsequently
dismissed the two that are essential to the existence of
jurisdiction.

The plaintiffs could not have originally sued

Deutsche Bank AG in federal court, and allowing this case to
proceed would permit the plaintiffs to do in two steps what they
could not do in one.

A contrary rule would permit a foreign

plaintiff to manufacture jurisdiction by suing another foreign
entity along with citizens of States, only to later dismiss the

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claims against the citizens of States and proceed against only
the foreign entity, subverting to the holding of Universal
Licensing Corp., 293 F.3d at 581.
Conclusion
This case is dismissed for lack of subject matter
jurisdiction, without prejudice to it being refiled in state
court.
Dated:

The Clerk of Court shall close the case.
New York, New York
July 21, 2016
__________________________________
DENISE COTE
United States District Judge

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