U.S. Court of Appeals for the Seventh Circuit, Yancheng Shanda Yuanfeng Equity Investment Partnership v. Wan, Docket No. 22-1199

Recognition and Enforcement in the U.S. of a Foreign Judgment

 

Default Judgment

 

Illinois’s Uniform Foreign-Country Money Judgments Recognition Act

 

Subject Matter Jurisdiction

 

Diversity of Citizenship

 

Citizenship of a Corporation

 

Citizenship of an LLC

 

Citizenship of a Partnership

 

The Citizenship of Each Partner Must Be Established

 

 

 

 

 

Appeal from the United States District Court for the Central District of Illinois

No. 2:20-cv-02198

 

 

In May 2019, Yancheng Shanda Yuanfeng Equity Investment Partnership (“Yancheng Shanda”) filed a contract claim in a Chinese court against Kevin Wan, his company, and his brother. The Chinese court entered a default judgment against Mr. Wan after he failed to appear. In July 2020, Yancheng Shanda filed a complaint in the United States District Court for the Central District of Illinois, seeking enforcement of the Chinese judgment under the Illinois foreign judgment recognition law. In that complaint, it predicated subject matter jurisdiction on diversity of citizenship.

 

 

The district court, determining that the Chinese judgment was enforceable under Illinois law, granted Yancheng Shanda’s motion for summary judgment. Mr. Wan now appeals the judgment of the district court. Because the factual predicates for the district court’s jurisdiction are not established firmly in the existing record, we vacate the judgment of the district court and remand the case for further proceedings consistent with this opinion.

 

 

Yancheng Shanda is a partnership based in Yancheng Shanda City, Jiangsu Province, People’s Republic of China. Mr. Wan is a United States citizen and the founder, owner, and chief executive officer of Zmodo Technology Shenzhen Corp., Ltd. (“Shenzhen Zmodo”), a Chinese company and global provider of security cameras.

 

 

(…) In the present action to enforce the Chinese court’s judgment, Mr. Wan maintains that he did not receive the summons mailed by the Chinese court or any other physical mail regarding the Chinese suit. He claims that he had no notice of the underlying action until August 3, 2020, when he received notice of the present attempt to enforce the judgment.

 

 

Having received a default judgment against Mr. Wan in the Chinese proceedings, Yancheng Shanda filed a complaint in the Central District of Illinois on July 13, 2020. It sought recognition and enforcement of the Chinese court’s judgment against Mr. Wan under Illinois’s Uniform Foreign-Country Money Judgments Recognition Act (“Recognition Act”), 735 ILCS 5/12-661 et seq. Invoking the district court’s diversity jurisdiction, Yancheng Shanda alleged that it was “a limited partnership organized under the laws of China” and therefore was “a citizen of a foreign state.”

 

 

The next day, the district court ordered Yancheng Shanda to make “adequate jurisdictional allegations.” The court explained that a partnership has the citizenship of all the partners and that, because Yancheng Shanda did not list its partners and their citizenships, its allegations were “insufficient to adequately establish diversity jurisdiction.” Yancheng Shanda then filed an amended complaint with an attachment alleging the Chinese citizenship of each of its four partners. Specifically, Yancheng Shanda alleged that each of its partners was a limited liability company (“LLC”) “organized under the laws of China and with its principal place of business in China.” Of particular relevance here, Yancheng Shanda alleged that one partner, Jiangsu Zhonghan Yancheng Industrial Park Investment Co., Ltd. (“Jiangsu Zhonghan”), was a Chinese LLC owned by six Chinese state or state-owned entities, each of which was “a foreign state as defined in 28 U.S.C. § 1603(a).”

 

 

The information before the district court was inadequate to establish subject matter jurisdiction. Yancheng Shanda, which had the burden on this issue, failed to present “competent proof” of its citizenship. Hertz Corp. v. Friend, 559 U.S. 77, 96–97 (2010). Yancheng Shanda did not present any evidence establishing its citizenship or the citizenship of its several partners. It submitted a declaration by its employee Mei Hu who stated simply that Yancheng Shanda “is and was domiciled in Yancheng City, Jiangsu Province, People’s Republic of China.”

 

 

However, a partnership does not have a “domicile” for purposes of diversity jurisdiction. Rather, to establish subject matter jurisdiction based on diversity of citizenship, the citizenship of each partner must be established. See Elston Inv., 731 F.2d at 439. There was no evidence in the district court record establishing the citizenship of each of Yancheng Shanda’s four Chinese LLC partners. As a result, there is no evidence to support a finding of complete diversity.

 

 

In this appeal, Yancheng Shanda presents a new declaration of employee Mei Hu. This declaration states that each of Yancheng Shanda’s partners “is a citizen of China” and further details characteristics of each partner’s business structures in an effort to establish that, as a matter of federal jurisdictional law, Yancheng Shanda’s partners are corporations and thus are considered citizens of their place of incorporation and principal place of business. Although United States LLCs are treated as partnerships for purposes of assessing diversity of citizenship, Yancheng Shanda submits that, based on our decision in BouMatic, LLC v. Idento Operations, BV, 759 F.3d 790 (7th Cir. 2014), Chinese LLCs should be treated as corporations for purposes of § 1332. In BouMatic, we identified factors for determining whether a foreign business entity is a “corporation” for diversity purposes, including whether the company has personhood, limited liability for shareholders, and shares that can be bought and sold subject to restrictions declared by the business. Id. at 791. The Mei Hu declaration states, albeit in summary fashion, that Chinese LLCs have these characteristics.

 

 

Classification of a foreign business entity can be difficult because other nations may use subsets of the characteristics that distinguish corporations from other business entities in the United States.” BouMatic, 759 F.3d at 791 (citation omitted). In the case of Chinese business entities, however, we already have indicated that significant care needs to be taken in determining the precise characteristics of the organization in question. See Fellowes, Inc. v. Changzhou Xinrui Fellowes Off. Equip. Co. Ltd., 759 F.3d 787 (7th Cir. 2014). Accordingly, in the present case, we vacate the district court’s judgment and remand the case so that the district court may explore in more depth the nature of the Chinese businesses in question and determine whether the requirements of diversity jurisdiction have been fulfilled. The district court is in a better position than this court to give the parties a plenary and even-handed opportunity to present evidence on the nature of these entities.

 

 

On remand, the district court must first address whether Yancheng Shanda’s partners can be characterized as corporations and, if so, the jurisdiction of their incorporation and of their principal place of doing business. If the district court determines that these entities do not qualify as corporations under the diversity statute, the court must treat them as partnerships. Because partnerships take the citizenship of each of their partners, the court must identify each partner’s citizenship.

 

 

Finally, the district court must address particular questions about one of the partners, Jiangsu Zhonghan, and its six state or state-owned entity owners.22

 

 

22 The exact shape of this inquiry will depend upon whether the district court determines that Jiangsu Zhonghan, as a Chinese LLC, should be treated as a corporation or a partnership under § 1332. If it is a corporation, then the district court should evaluate Jiangsu Zhonghan itself for potential status as a “foreign state” under §§ 1332(a)(4) and 1603(a). If, instead, it is a partnership, the district court will need to evaluate each of Jiangsu Zhonghan’s partners.

 

 

If this entity is directly and majority-owned by a “foreign state or political subdivision thereof,” it is itself a “foreign state” for purposes of federal jurisdiction. 28 U.S.C. §§ 1332(a)(4), 1603(a), (b)(2); Dole Food Co. v. Patrickson, 538 U.S. 468, 473–77 (2003).

 

 

 

(U.S. Court of Appeals for the Seventh Circuit, Jan. 31, 2023, Yancheng Shanda Yuanfeng Equity Investment Partnership v. Wan, Docket No. 22-1199)

Greb v. Diamond Internat. Corp., S183365

Jurisdiction: plaintiffs highlight defendant’s history of transacting business in California from the 1930s through the 1980s, when it surrendered its certificate of qualification.  They assert that defendant, having been dormant for nearly two decades, strategically filed for dissolution in Delaware in 2005 in order to cut off its continuing liability (and recovery of damages through applicable “undistributed . . . insurance assets” ) to asbestos victims.  Plaintiffs argue that this course of conduct directly contravenes California policy.  When foreign corporations seek and accept the benefits of transacting business here, California law should not allow them to use their home state’s corporate-friendly laws to deprive California citizens of their remedies. (Cal. S. Ct., S183365, 21.02.2013, Greb v. Diamond Internat. Corp.).

Lorsque des entreprises incorporées hors de l’état de Californie recherchent et acceptent le bénéfice de commercer en Californie, le droit californien ne saurait permettre à ces entreprises de recourir au droit – qui leur est favorable, de leur état d’incorporation, dans le but de priver les résidents de Californie des remèdes que cet état met à leur disposition.

Greb v. Diamond Internat. Corp, S183365

Jurisdiction, conflict of laws (California): corporations: interpretation of Corporations Code section 2010, which governs the winding-up and survival of dissolved corporations.  We consider whether the statute applies to foreign corporations — those formed in states other than California — and conclude, consistently with the appellate court below, that it does not; (…) If, on the other hand, California’s section 2010 applies to a dissolved foreign corporation, a court would then be required to perform a choice-of-law analysis in order to determine which state’s law should apply and govern defendant’s capacity to be sued.  (See Kearney v. Salomon Smith Barney, Inc. (2006) 39 Cal.4th 95, 107-108 (Kearney) [describing the traditional three-step choice-of-law inquiry]); as we explained in Kearney:  “first, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular issue in question is the same or different.  Second, if there is a difference, the court examines each jurisdiction’s interest in the application of its own law under the circumstances of the particular case to determine whether a true conflict exists.  Third, if the court finds that there is a true conflict, it carefully evaluates and compares the nature and strength of the interest of each jurisdiction in the application of its own law ‘to determine which state’s interest would be more impaired if its policy were subordinated to the policy of the other state’, and then ultimately applies ‘the law of the state whose interest would be the more impaired if its law were not applied.’  (Kearney, supra, 39 Cal.4th at pp. 107-108.)  The circumstance that “two states are involved does not in itself indicate that there is a ‘conflict of laws’ or ‘choice of laws’ problem.”  (Offshore Rental Co. v. Continental Oil Co., Inc. (1978) 22 Cal.3d 157, 161-162.); (…) In North American I, the plaintiffs, California residents, sued the defendant, an Illinois corporation, in California for asbestos-related personal injuries suffered in California; (…) (North American I, supra, 128 Cal.App.3d at p. 144.)  The court observed that the survival statute, section 2010, is in chapter 20 of division 1, which is entitled ‘General Provisions Relating to Dissolution.’  Nowhere is there any mention that the provisions of that chapter or of section 2010 apply to foreign corporations.  Foreign corporations are the subject of the entire next chapter, chapter 21.  (North American I, supra, at p. 144); (under the common law, as with a deceased person, a dissolved corporation could not sue or be sued.  (Crossman v. Vivienda Water Co. (1907) 150 Cal. 575, 580; see Comment, Corporations — Dissolution — Directors as Trustees (1913) 1 Cal. L.Rev. 266); (…) chapter 21 (foreign corporations) of division 1, the General Corporation Law; Corporations Code section 171 provides, “ ‘Foreign corporation’ means any corporation other than a domestic corporation” but does “not include a corporation . . . chartered under the laws of the United States.”; plaintiffs assert that section 102(a) and related provisions disclose legislative intent to apply the survival statute, section 2010, to foreign corporations like defendant that transact business in California.  As explained below, we disagree; this leaves the first category set out in section 102(a) — “corporations organized under this division.”  Based on this language, it would appear to be doubtful that defendant is a corporation within that category.  The phrase “organized under,” given its ordinary usage, would seem to relate to the fundamental creation and structuring of a corporation — matters governed by division 1, chapter 2 (organization and bylaws), sections 200-213.  Defendant, incorporated in Delaware, clearly was not formed or created under division 1, the General Corporation Law.  Pursuant to chapter 21 of division 1 all “foreign corporations transacting intrastate business” in California (§ 2100) must not only obtain a certificate of qualification to do so (§ 2105, subd. (a)) but must also set up and consent to a California agent for service of process, pay state fees, select a permissible corporate name for use in California, and continually update and amend their filings here.  (§§ 2105, subd. (a)(4) & (5)(A) [accepting service of process], 2106, subds. (a) [paying “fees required by law”] & (b) [using a corporate name that does not conflict with a Cal. business], 2107 [duty to update and amend all required filings]); the Corporations Code defines “transacting intrastate business” as “entering into repeated and successive transactions of its business in this state.”  (§ 191, italics added.); we discern in the statutes no evidence that the Legislature intended by section 102(a) to accomplish the dramatic result ascribed to it by plaintiffs — essentially, imposing on all “category (2)” foreign corporations that are qualified to undertake repeated and successive business in California, the burden of complying with all provisions of division 1, subject to what would often be a difficult choice-of-law analysis with regard to each California statutory provision that conflicts with a provision governing the corporation in its state of formation.  As defendant suggests, such a scheme would require foreign corporations to “follow a litany of requirements regarding various corporate activities that their home state already regulates, creating innumerable, treacherous conflicts of law that the corporation would find impossible to navigate.”  (See ante, fn. 22.)  We would expect the Legislature to have made its intentions clear had it intended to adopt such an elaborate and litigation-intensive scheme (S183365).

For these reasons we disagree with plaintiffs’ assertion that foreign corporations like defendant, that have qualified under sections 2105-2107 to undertake “repeated and successive transactions of its business in this state” are thereby rendered “organized under” division 1, the General Corporation Law, and hence subject to its myriad provisions, including section 2010.  Accordingly, we are disposed to reject plaintiffs’ interpretation of section 102(a) and related statutes; (…) with this court’s application of the internal affairs doctrine, under which our state refrained from regulating the inner workings of foreign corporations (see, e.g., post, fn. 35).  Accordingly, contrary to the majority opinion in North American II, supra, 180 Cal.App.3d 902, 908, we do not infer that by specifying that the provisions of the General Corporation Law were applicable to “ ‘every private corporation,’ ” the Legislature in 1929 must have intended all of the various sections within that title to apply generally to both domestic and foreign business corporations.  The inference we draw is the opposite — that the Legislature intended its general statutes governing domestic corporations should apply to foreign corporations only as specifically provided in those statutes.  It would have been unprecedented for the Legislature in 1929 to have intended otherwise; we disagree with the implicit assumption of the majority in North American II that in 1929, when the survival statute was enacted, the general understanding was that article XII, former section 15, meant that all statutory burdens imposed on domestic corporations also would apply to foreign corporations — even if the particular statute did not specify that it would apply to foreign as well as domestic corporations.  Berkey, supra, 156 Cal. 466, decided in 1909, demonstrates that it was not at all clear in 1929 that the former constitutional provision had the effect attributed to it in 1986 by the appellate court in North American II; we conclude that the survival statute should properly be interpreted to apply to domestic corporations only (Cal. S. Ct., S183365, 21.02.2013, Greb v. Diamond Internat. Corp).

Conflits de lois en Californie : interprétation du Code des sociétés commerciales, Section 2010, qui régit le sort des entreprises en liquidation. En l’espèce, la Cour Suprême de Californie considère dans quelle mesure cette Section s’applique ou non à des entreprises situées hors de l’état, soit les entreprises constituées dans des états autres que l’état de Californie. La réponse apportée est négative. (…) Si la Section 2010 s’appliquait à une compagnie (en dissolution) sise hors de l’état, le Tribunal serait tenu de procéder à une analyse de la loi applicable pour déterminer quel droit étatique s’applique et quel droit étatique régit la qualité pour défendre. La Cour rappelle les trois étapes traditionnelles menant à la détermination du droit applicable : tout d’abord, la cour détermine si les lois de chacune des juridictions potentiellement affectées s’agissant de la question à résoudre sont les mêmes ou sont différentes. Ensuite, s’il existe une différence, la cour examine l’intérêt de chaque juridiction quant à l’application de son propre droit selon les circonstances du cas particulier aux fins de déterminer si un vrai conflit de loi existe. Enfin, si le Tribunal détermine qu’un vrai conflit existe, il évalue et compare avec soin la nature et la force de l’intérêt de chaque juridiction dans l’application de son propre droit, pour déterminer lequel de ces intérêts serait le plus endommagé si sa politique législative serait ainsi subordonnée à celle d’un autre état. Le Tribunal applique enfin le droit de l’état dont l’intérêt serait le plus endommagé si son droit n’était pas appliqué. (…) Que deux états soient impliqués dans une affaire ne signifie pas en soi qu’il existe un conflit de loi. Dans sa jurisprudence North American I, la Cour d’appel de Californie avait à se prononcer sur les conclusions des demandeurs, résidents californiens, qui réclamaient en Californie une indemnité pour des dommages corporels liés à l’amiante, dommages subis en Californie, la partie adverse étant une entreprise de l’état de l’Illinois. La Cour d’appel observa que la loi californienne permettant d’actionner une société en dissolution (la Section 2010), se trouvait dans le Chapitre 20 de la Division 1, Chapitre intitulé « Dispositions générales relatives à la dissolution ». Il n’est nulle part inscrit dans les dispositions de ce Chapitre ni dans la Section 2010 qu’une application de ces dispositions à des sociétés sises hors de l’état de Californie serait prévue. Ces sociétés sises hors de l’état sont l’objet de tout le Chapitre suivant, le Chapitre 21. (…) Selon le régime de la Common law, une personne décédée ou une entreprise en dissolution ne pouvait pas actionner ni défendre en justice. (…) La Section 171 du Code des sociétés dispose que la notion de « société étrangère » inclut toute société autre qu’une société californienne, mais n’inclut pas une société incorporée selon les lois des Etats-Unis. Dans la présente affaire, les demandeurs soutiennent que la Section 102(a) et les dispositions du Code liées à dite Section découvrent une intention du législateur californien d’appliquer la Section 2010 à des sociétés « étrangères », comme la défenderesse, qui conduisent des activités commerciales en Californie. La Cour Suprême de Californie n’est pas de cet avis. (…) La phrase « organisée selon », comprise dans son sens courant, se réfère à la création, à l’incorporation, à la mise en place des structures d’une société commerciale – une matière régie par la Division 1, Chapitre 2 du Code (organisation et statuts), Sections 200-213. La défenderesse, incorporée dans l’état du Delaware, n’a clairement pas été formée ou créée selon la Division 1 du Code (Droit des sociétés général). Conformément au Chapitre 21 de la Division 1, toutes les sociétés étrangères pratiquant des activités commerciales en Californie (Section 2100) doivent obtenir un certificat de qualification à cette fin (Section 2105, subd. (a)), et doivent aussi désigner un agent en Californie habilité à recevoir les notifications judiciaires. Elles doivent s’acquitter des émoluments fixés par l’état, sélectionner une raison sociale admise en Californie, et mettre continuellement à jour les indications qui figurent dans les formules qu’elles ont dû remplir en Californie pour commercer dans cet état. Le Code des sociétés définit la notion de « pratiquer des activités commerciales dans l’état » comme signifiant la conclusion répétée et successive de transactions à l’intérieur des frontières de l’état. La Cour Suprême de Californie ne discerne dans le Code des sociétés aucune preuve d’une intention du législateur californien d’aboutir au résultat souhaité par la partie demanderesse, soit imposer à toutes les sociétés dont le siège est situé hors de l’état, qui sont autorisées à pratiquer dans l’état des activités commerciales successives et répétées, le fardeau de se conformer à toutes les dispositions de la Division 1, ce qui reviendrait à devoir procéder à une difficile analyse de la détermination de la loi applicable au regard de toutes les dispositions légales californiennes susceptibles d’entrer en conflit avec une disposition régissant une société commerciale dans son état de formation. Comme le suggère la partie défenderesse, un tel schéma impliquerait pour les sociétés étrangères de se conformer à une multitude d’exigences portant sur diverses activités sociales déjà réglées par leurs états d’incorporation, créant ainsi de nombreux conflits de lois entre lesquels la société serait dans l’impossibilité de naviguer. Le législateur californien aurait clairement manifesté son intention s’il avait entendu mettre sur pied un tel schéma élaboré et susceptible d’induire de nombreux litiges. C’est pourquoi la Cour Suprême de Californie rejette l’assertion des demandeurs selon laquelle les sociétés étrangères, telle la défenderesse, qui sont qualifiées au sens des Sections 2105-2107 pour conclure des transactions répétées et successives en Californie, seraient considérées comme organisées selon la Division 1, la loi générale sur les sociétés, et par conséquent seraient sujettes à la myriade de dispositions prévues par dite Division, comprenant la Section 2010. (…) La Cour Suprême de Californie s’en tient à l’application de sa doctrine des affaires internes, selon laquelle l’état de Californie se retient de régler le fonctionnement interne des sociétés « étrangères ». Par conséquent, contrairement à l’opinion majoritaire rendue par la Cour d’appel de Californie dans sa jurisprudence North American II, la Cour Suprême de Californie n’infère nullement qu’en spécifiant que les dispositions du droit des sociétés général sont applicables à toutes les sociétés commerciales privées, le législateur californien de 1929 avait l’intention de rendre applicable l’ensemble des diverses Sections du Titre à la fois aux sociétés commerciales californiennes et aux sociétés commerciales étrangères. Dite Cour Suprême infère l’inverse : soit que l’intention du législateur californien était d’appliquer ses lois générales régissant les sociétés californiennes aux sociétés « étrangères » uniquement si la loi le prévoit spécifiquement. Une autre intention du législateur de 1929 aurait été sans précédent. La Section 2010 du Code ne s’applique dès lors qu’aux sociétés incorporées en Californie.