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43. Amicus brief, United States, for Matimak Trading Co. Ltd. V. Khalily, 118 F.3d 76 (2nd Cir. 1997)


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No. 96-9117

________________________________________________________________
________________________________________________________________

IN THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

____________________


MATIMAK TRADING COMPANY, LTD.,

Plaintiff-Appellant,

v.

ALBERT KHALILY d/b/a UNITEX MILLS INC. et al.,

Defendant-Appellees.

____________________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
____________________

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE
____________________



FRANK W. HUNGER
Assistant Attorney General

MARY JO WHITE
United States Attorney

MICHAEL JAY SINGER
(202) 514-5432
JOHN P. SCHNITKER
(202) 514-4116
Attorneys, Appellate Staff


Civil Division, Room 7407
Department of Justice
950 Pennsylvania Ave., N.W.
Washington, D.C. 20530-0001


________________________________________________________________
________________________________________________________________


TABLE OF CONTENTS
Page


INTEREST OF THE UNITED STATES................................................................................................... 1

STATEMENT OF THE ISSUE PRESENTED FOR REVIEW.................................................................... 1

STATEMENT OF THE CASE............................................................................................................... 2

THE CONSTITIONAL AND LEGISLATIVE ORIGINS
OF ALIENAGE DIVERSITY JURISDICTION............................................................................... 4

SUMMARY OF ARGUMENT................................................................................................................ 6

ARGUMENT....................................................................................................................................... 9

A HONG KONG CORPORATION IS A "SUBJECT" OF A
"FOREIGN STATE" FOR PURPOSES OF ALIENAGE
DIVEERSITY JURISDICTION.................................................................................................. 9

CONCLUSION................................................................................................................................... 20

CERTIFICATE OF SERVICE




TABLE OF AUTHORITIES

Cases: Page


Bailey v. Grand Trunk Lines New England, 805 F.2d
1097 (2d Cir. 1986), cert. denied, 484 U.S. 826
(1987)........................................................................................................................................... 12

Cedec Trading Ltd. v. United American Coal Sales,
Inc., 556 F. Supp. 722 (S.D.N.Y. 1983)........................................................................................... 10

Creative Distribs., Ltd. v. Sari Niketan, Inc.,
No. 89C3614, 1989 WL 105210 (N.D.Ill. Sept. 1, 1989)............................................................... 10, 19

Hodgson v. Bowerbank, 9 U.S. (5 Cranch) 303 (1809)....................................................................... 10

Hong Kong Deposit & Guaranty Co. Ltd. v. Hibdon,
602 F. Supp. 1378 (S.D.N.Y. 1985)................................................................................................ 10

Jackson v. Twentyman, 27 U.S. (2 Pet.) 136 (1829)........................................................................... 10

Marsh v. Chambers, 463 U.S. 783 (1983).......................................................................................... 14

Montalet v. Murray, 8 U.S. (4 Cranch) 46 (1807)................................................................................ 10

Mossman v. Higginson, 4 U.S. (4 Dall.) 12 (1800)............................................................................. 10

National S.S. Co. v. Tugman, 106 U.S. 118 (1882)............................................................................ 12

Netherlands Shipmortgage Corp. Ltd. v. Madias, 717
F.2d 731 (2d Cir. 1983).................................................................................................................. 10

Refco, Inc. v. Troika Inv. Ltd., 702 F.
Supp. 684 (N.D. Ill. 1988).............................................................................................................. 10

Tetra Finance (HK) Ltd. v. Shaheen, 584 F. Supp.
847 (S.D.N.Y. 1984)................................................................................................................. 10, 19

Timco Eng'g, Inc. v. Rex & Co., 603 F. Supp.
925 (E.D. Pa. 1985)................................................................................................................. 10, 19

Van der Schelling v. U.S. News & World Report,
Inc., 213 F. Supp. 756 (E.D. Pa.), aff'd,
324 F.2d 956 (3d Cir. 1963), cert. denied,
377 U.S. 906 (1964)....................................................................................................................... 15

Wilson v. Humphries (Cayman) Ltd., 916 F.2d 1239
(7th Cir. 1990), cert. denied, 499 U.S. 947
(1991)......................................................................................................................... 10, 11, 12, 17


Cases (cont'd):

Windert Watch Co. v. Remex Elec. Ltd., 468 F.
Supp. 1242 (S.D.N.Y. 1979)................................................................................................... passim

Wisconsin v. Pelican Ins. Co., 127 U.S. 265 (1888)........................................................................... 14


United States Constitution:

U.S. Const., art. III, sec. 2, cl. 1................................................................................................ 4, 6, 14


United States Statutes:

Act of March 3, 1975, 18 Stat. (Part 3) 470 (1875)......................................................................... 6, 11

Foreign Sovereign Immunities Act of 1976:

Pub. L. No. 94‑583, 90 Stat. 2891 (1976)............................................................................. 6, 17
28 U.S.C.  • 1602................................................................................................................... 17
28 U.S.C.  • 1603.............................................................................................................. 17-18

Judiciary Act of 1789:

1 Stat. 73, 78 (1789)............................................................................................................ 5, 9

Pub. L. No. 80-773, 62 Stat. 869, 930 (1948)................................................................................. 6, 11

United States‑Hong Kong Policy Act of 1992:

22 U.S.C.  • • 5701, et seq.............................................................................................. 1, 8, 19

5 U.S.C.  • 7342(a)(2)....................................................................................................................... 19

8 U.S.C.  • 1101(a)(1)(14)................................................................................................................. 18

12 U.S.C.  • 632 ............................................................................................................................. 18

28 U.S.C.  • 1330(a)......................................................................................................................... 18
28 U.S.C.  • 1332..................................................................................................................... 8, 9, 10
28 U.S.C.  • 1332(a)(2).............................................................................................................. passim
28 U.S.C.  • 1332(a)(2) codified at 62 Stat.
930 (1948)......................................................................................................................... 18
28 U.S.C.  • 1332(a)(4)................................................................................................................. 8, 17
28 U.S.C.  • 1332(c)(1)..................................................................................................................... 12


Treaties:

Treaty of Amity, Commerce and Navigation, 8 Stat.
116 (Nov. 19, 1794)....................................................................................................................... 11



Treaties (cont'd):

United States-United Kingdom Consular Convention:

3 U.S.T. 3426, 3427, T.I.A.S. No. 2494 (1952)......................................................................... 11
Art. 1, sec. (2), 3 U.S.T. at 3427............................................................................................. 11
Art. 2, sec. (4), 3 U.S.T. at 3428............................................................................................. 12


Foreign Statutes:

British Nationality Act of 1948  • 1............................................................................................... 10, 13

British Nationality Act, 1981, Schedule 6......................................................................................... 16

Hong Kong Companies Ordinance, Chapter 32
(Foreign Tax Law Pub. 1994)................................................................................................. 13

Laws Of Hong Kong (App. I), Letters Patent ��
VIII‑XII, at C4 (rev. ed. 1989).......................................................................................................... 13

Laws Of Hong Kong (App. II), Hong Kong Act 1985
(Chapter 15), at B1 (rev. ed. 1989).................................................................................................. 13

Royal and Parliamentary Titles Act of April 12, 1927........................................................................... 9


Legislative Materials:

1 Annals of Congress 810, 814, 825 (J. Gales, ed.
1834)............................................................................................................................................. 5

2 Cong. Rec. 4978‑4988 (1874).......................................................................................................... 6

3 Cong. Rec. 1992, 2168, 2240, 2275 (1875)....................................................................................... 6

H.R. Rep. No. 94‑1487, 94th Cong., 2d Sess. 6,
reprinted in 1976 U.S.C.C.A.N. 6604......................................................................................... 17, 18


Miscellaneous:

32A Am.Jur.2d, Federal Courts  • 812 (1995)..................................................................................... 12

1 Blackstone, Commentaries on the Laws of England
354‑63 (1765; facsimile ed. U. Of Chicago 1979).............................................................................. 5

Charles Warren, New Light on the History of the Federal
Judiciary Act of 1789, 37 Harv. L. Rev. 49 (1923).............................................................................. 5

Diplomatic List, U.S. Department of State (Summer
1996)...................................................................................................................................... 11, 16


Miscellaneous (cont'd):

Henry J. Friendly, The Historic Basis of Diversity
Jurisdiction, 41 Harv. L. Rev. 483 (1928).......................................................................................... 5

18 Halsbury's Laws of England, Nationality, � 1616
(1977)........................................................................................................................................... 13

1 J. Moore, Moore's Federal Practice (1996)............................................................................. passim

Kevin R. Johnson, Why Alienage Jurisdiction?
Historical Foundations And Modern Justifications
For Federal Jurisdiction Over Disputes Involving
Noncitizens, 21 Yale J. Int'l L. 1 (1996)..................................................................................... 5

Samuel Johnson, A Dictionary Of The English Language (1755;
Facsimile ed. Georg Olms Verlagsbuchhandlung 1968).................................................................... 15

The Federalist No. 80, at 406‑07 (Alexander
Hamilton) (Beloff ed. 1987)............................................................................................................. 4

The Oxford English Dictionary, vol. 17, pp. 27‑28
(1989)........................................................................................................................................... 15

Treaties In Force 280, 290 (1996)...................................................................................................... 11




IN THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

____________________

No. 96-9117
____________________


MATIMAK TRADING COMPANY, LTD.,

Plaintiff-Appellant,

v.

ALBERT KHALILY d/b/a UNITEX MILLS INC. et al.,

Defendant-Appellees.

____________________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
____________________

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE
____________________

INTEREST OF THE UNITED STATES
It is in the interest of the United States to maintain strong relations with Hong Kong, currently and in the future. See United States-Hong Kong Policy Act of 1992, 22 U.S.C.  • • 5701, et seq. Consequently, the United States has an interest in whether the federal courts, under the alienage diver­sity provi­sion, 28 U.S.C.  • 1332(a)(2), are open to Hong Kong corporations conducting busi­ness in the United States.
STATEMENT OF THE ISSUE PRESENTED FOR REVIEW
Whether a Hong Kong corporation is a "citizen or subject" of a "foreign state" for purposes of alienage diversity jurisdiction under 28 U.S.C.  • 1332(a)(2).

STATEMENT OF THE CASE
1. Plaintiff Matimak Trading Company Ltd. ("plaintiff") is a corporation organized under the laws of Hong Kong and has its prin­cipal place of business there. App. 6. Defendants Albert Khalily and D.A.Y. Kids Sportswear Inc. ("defendants") are alleged to be, res­pec­tively, a sole proprietor doing business in Kings Point, New York, and a New York corporation. Id. at 6-7.
Plaintiff filed this action for breach of contract invoking alienage diversity jurisdiction and seeking $ 81,497.42 in damages from defendants. Id. at 8-9. A default judg­ment was entered against the defendants, which D.A.Y. subsequently sought to vacate. Id. at 3-4, 11-12. In ruling on that motion to va­cate, the dis­trict court (Wood, D.J.), sua sponte, raised the issue of subject matter juris­diction under the alienage diversity provision. That provision authorizes district court jurisdic­tion where the matter in contro­versy exceeds $ 50,000, exclusive of interest and costs, and the action "is be­tween * * * citizens of a State and citizens or sub­jects of a foreign state." 28 U.S.C.  • 1332(a)(2). Noting that "Hong Kong is a colony of the United Kingdom and * * * not recog­nized as a foreign state," the court concluded that cor­pora­tions organized under the laws of Hong Kong could not be "deem­ed subjects of a foreign state," and therefore subject matter juris­diction over this case under section 1332 was lacking. App. 12-13. The court, however, permitted the parties to submit short briefs on the issue before entering judg­ment. Id.
Plaintiff submitted a letter-brief in response to the district court's order, contending that the court had subject matter juris­diction under section 1332 on the basis that Hong Kong was a de facto "foreign state." Attached to that letter-brief was a June 21, 1996 letter from Jim Hergen, the Assistant Legal Adviser for East Asian and Pacific Affairs, State Depart­ment. Id. at 14-17. Mr. Hergen affirmed that "'it would be consistent with the foreign policy interests of the United States and the commercial interests of its nationals that courts in the United States be available to resolve private commercial claims between the United States and Hong Kong nationals and business enter­prises.'" Id. at 17 quoting App. 19. Mr. Hergen also explained that the "requirements for diversity jurisdiction" were "satisfied" in this case since the "reference to 'subjects'" in the statute could be understood as a reference to the "numerous colonial subjects" of the European powers, such as Hong Kong na­tionals, "who were not necessarily citizens of their respective foreign States." Id. at 15.
2. On August 19, 1996, the district court (Wood, D.J.) va­cated the default judgment and dis­miss­ed the case without preju­dice. Id. at 102-06. The court rejected plaintiff's arguments as based on "policy considerations," which were inappropriate "because it is not the role of the judiciary to recognize foreign states * * *." Id. at 103, 105. Distinguishing other cases, the court took the view that "foreign state" for purposes of the alienage diver­sity provision required full diplo­matic recognition and held the lack of such recognition of Hong Kong as a foreign sovereign by the United States was fatal to plaintiff's argu­ments. Id. On August 28, 1996, plaintiff filed an appeal to this Court. Id. at 108-09.
THE CONSTITIONAL AND LEGISLATIVE ORIGINS
OF ALIENAGE DIVERSITY JURISDICTION

1. The basis for the alienage diversity jurisdiction of the fed­eral courts is found, of course, in the Constitution, which pro­vides that the "judicial power" of the United States "shall ex­tend to all Cases -- * * * between a State, or the Citizens there­of, and foreign states, Citizens or Subjects." U.S. Const., art. III, sec. 2, cl. 1. The reasons for inclusion of this particular grant of jurisdiction in the Constitution are not difficult to fathom. In the Federalist papers, Alexander Hamilton set forth succinctly the rationale for this provision:

The union will undoubtedly be answerable to foreign pow­ers for the conduct of its members[states]. And the res­ponsibility for an injury ought ever to be accom­panied with the faculty of preventing it. As the de­nial or per­ver­sion of justice by the sentences of courts, as well as in any other manner, is with reason classed among the just causes of war, it will follow that the federal judi­ciary ought to have cognizance of all cases in which the citizens of other countries are concerned. This is not less essential to the preserva­tion of the public faith, than to the security of the public tranquility.


The Federalist No. 80, at 406-07 (Alexander Hamilton) (Beloff ed. 1987) (emphasis added). In sum, noncitizens suing United States citizens in the United States must be guar­an­teed a neutral forum since the failure to pro­vide such a forum (such as, histor­i­cally, in state court) could embroil the United States in an in­ter­national controversy with the foreign litigant's country. 1 J. Moore, Moore's Federal Practice � 0.75[1.-1], at 800.30 to .31 (1996).
2. In enacting the Judiciary Act of 1789, under which the federal courts were first organized, Congress included a pro­vision esta­blish­ing alienage diversity jurisdiction. The Judiciary Act states that the federal courts "shall have original cognizance * * * of all suits of a civil nature at common law or in equity, where the matter in dispute exceeds, exclusive of costs, the sum or value of five hundred dollars, and * * * an alien is a party." 1 Stat. 73, 78 (1789). "Congress subsequently amended the Judicial Code to con­form to the language of the Constitution." 1 J. Moore, supra, � 0.75[1.-2], at 800.37. The Act of March 3, 1975 (which also first established federal question jurisdic­tion) au­thor­ized suits "be­tween citizens of a State and foreign states, citizens or sub­jects." Act of March 3, 1975, 18 Stat. (Part 3) 470 (1875). Compare U.S. Const., art. III, sec. 2, cl. 1. The language of the alienage diver­sity pro­vision was modified to its present form in the recodi­fi­ca­tion of the Judicial Code in 1948, Pub. L. No. 80-773, 62 Stat. 869, 930 (1948), as amended by the Foreign Sovereign Immunities Act of 1976, Pub. L. No. 94-583, 90 Stat. 2891 (1976), which authorized separate provisions to gov­ern suits by, and against, foreign states.
SUMMARY OF ARGUMENT
A Hong Kong corporation is a "sub­ject" of a "for­eign state" for purposes of the alienage diver­sity juris­diction of the federal courts. The district court adopted a narrow reading of this pro­vision, holding that, in order to invoke this grant of juris­dic­tion, plaintiff must demonstrate that the United States recog­nizes Hong Kong itself as an "inde­pendent state." App. 12 citing Windert Watch Co. v. Remex Elec. Ltd., 468 F. Supp. 1242, 1244-46 (S.D.N.Y. 1979). This reading of the alienage diversity provision is un­duly grudging, places an ar­bi­trary limitation on federal jurisdiction and fails to give effect to the im­portant policies underlying this grant of jurisdiction.
Plaintiff may in­voke the alienage diversity jurisdiction of the federal courts to resolve its dispute because, in the last ana­lysis, Hong Kong nation­als, including corporations, are subjects of United Kingdom sov­er­eignty. While the United States views Hong Kong as largely autonomous in most respects, as a matter of recog­nition, it deals with Hong Kong through British authori­ties, since Hong Kong is ultimately subject to United Kingdom sov­ereignty. The various international agree­ments between Hong Kong and the United States are identified in the State Department's authoritative "Treaties In Force" under "United King­dom" sover­eignty. The Con­sular Con­ven­tion be­tween the United States and the United Kingdom identifies citi­zens of the United King­dom's "colo­nies" (including corpor­ations) as U.K. "nationals" for purposes of rela­tions between the two coun­tries. This approach is mirrored in the underlying legal structure under which the plaintiff corpor­ation was created. The Letters Patent for Hong Kong issued by the British Crown make clear that ulti­mate sov­ereignty and authority, includ­ing final ap­proval of all laws, is reserved to the British Crown. Since the ultimate sov­er­eign authority over the plaintiff-corporation is the British Crown, plain­tiff should be treated as a subject of United Kingdom sov­ereignty for purposes of alienage diversity juris­dic­tion.
Providing Hong Kong corporations access to the fede­ral courts is also fully consistent with the legislative history and rationale of alien­age diversity jurisdiction. The legislative history of Con­­gress' ori­ginal enact­ment of this statute, and parti­cularly, Con­gress' use of the general term "alien," indicates that Congress under­stood the terms "citizen or subject" to encompass essentially all aliens (with the pos­sible ex­ception of stateless aliens, for whom the under­lying ra­tionale of the statute would not apply). Further, the rationale underlying this grant of federal juris­diction is that non­citizens embroiled in legal con­troversies with United States citi­zens must be guaran­teed a neutral forum for resolution of their disputes since the failure to provide such a forum could involve the United States in an in­ter­na­tional contro­versy with the foreign liti­gant's home country. Since the United States might face an inter­na­tional controversy with British authorities for the fail­ure to provide a neutral forum for Hong Kong nationals suing here, a Hong Kong national, whether person or corpor­ation, should be con­sidered a "subject" of a "foreign state" for pur­poses of section 1332.
We do not believe that Congress' definition of the term "foreign state" for purposes of section 1332(a)(4) should be read as an indication that Congress intended to exclude from the term "foreign state," as used in section 1332(a)(2), political subdi­vi­sions subject to the sov­er­eignty and authority of a foreign state, such as Hong Kong. Finally, there are significant practical rea­sons for hold­ing that a Hong Kong cor­poration can either sue or be sued in federal court under the alienage diversity provision, such as the strong commercial and cultural ties between the United States and Hong Kong, as recog­nized in the United States-Hong Kong Policy Act of 1992, 22 U.S.C.  • • 5701-15. A Hong Kong corporation, consequently, is a "sub­ject" of a "foreign state" for purposes of alienage diver­sity juris­diction and the district court's decision should be reversed.
ARGUMENT
A HONG KONG CORPORATION IS A "SUBJECT" OF A "FOREIGN
"STATE" FOR PURPOSES OF ALIENAGE DIVERSITY JURISDICTION.

In ruling against plaintiff, the district court essentially adopted the position taken in Windert Watch Co. v. Remex Elec. Ltd., 468 F. Supp. 1242 (S.D.N.Y. 1979). See App. 12-13. In both Windert and the decision below, the courts reasoned that, in order to avail themselves of the alienage diversity provision, Hong Kong nationals must demonstrate that Hong Kong itself is "a poli­tical entity that is recognized by the United States as a free and in­de­pen­dent sovereign." Windert Watch Co., 468 F. Supp. at 1244; see App. 12-13, 103-06. This interpretation of the alien­age diver­sity provi­sion is, in our view, unduly grudging and places an ar­bi­trary limit­ation on federal jurisdiction. The alienage diversity pro­vision per­mits the exercise of federal court jurisdiction over Hong Kong corporations.
1. Plaintiff may in­voke the alienage diversity jurisdiction of the federal courts to resolve its dispute in this case because, in the last analysis, Hong Kong nation­als, including corporations, are subjects of United Kingdom sov­er­eignty.
Windert rejected this contention. 468 F. Supp. at 1245-46. The Windert court rea­soned that "United Kingdom," for these pur­poses, could only include England, Scotland, Wales and Northern Ireland. Id. at 1245 citing Royal And Parlia­men­tary Titles Act of April 12, 1927. It also insisted that Hong Kong residents must be "citi­zens" of this restrictively defined "United Kingdom" to quali­fy under 1332, despite acknow­ledg­ing that, under British law, Hong Kong residents were British sub­jects. 468 F. Supp. at 1246 citing British Nation­ality Act 1948  • 1. Finally, the Windert court re­ject­ed the con­tention that corporations formed under the laws of Hong Kong could be con­si­dered British subjects. 468 F. Supp. at 1246. We think this reasoning is wrong.
a. First, we think the Windert court erred in looking to a British defi­ni­tion of the "United Kingdom" for these purposes. See Id. at 1245 citing Royal And Parliamentary Titles Act of April 12, 1927. Since the relevant consideration under this approach is United States re­cog­nition of the foreign entity as a sovereign state, see Windert Watch Co., 468 F. Supp. at 1244; App. 12-13, the proper focus for analysis, we think, should be on the scope of that recogni­tion. While the United States views Hong Kong as largely autonomous in most respects (see id. at 15-16), as a matter of re­cognition, it deals with Hong Kong through British authorities. Indeed, for diplomatic purposes, the United States government deals on Hong Kong matters with individuals attached to the British Embassy. See Diplomatic List, U.S. Department of State (Summer 1996) (attached hereto).
The United States' international agreements with Hong Kong are identified in the State Department's authoritative "Treaties In Force" under the heading of the "United Kingdom." See Treat­ies In Force 280, 290 (1996). "Treaties In Force" also notes the Consular Conven­tion cur­rently in effect be­tween the United States and "His Ma­jesty the King of Great Britain, Ireland and the British Domi­nions be­yond the Seas." 3 U.S.T. 3426, 3427, T.I.A.S. No. 2494 (1952). As Trea­ties In Force explains, that Convention is "ap­pli­cable to all territories over which the United States has juris­diction or inter­national responsibility and to all British Terri­tories." Treaties In Force, supra, at 282 (emphasis added); see Consular Convention, art. 1, sec. (2), 3 U.S.T. at 3427 ("Con­ven­tion applies * * * on the part of His Majesty * * * to all His Majesty's colonies and pro­tectorates * * *"). The Convention also defines those "na­tion­als" of each country who may avail them­­selves of the consular arrange­ments established by that agree­ment. "[I]n relation to His Maj­esty," the Convention defines "nation­als" to include "all citi­zens of the United Kingdom and colonies * * *, including, where the context permits, all juri­dical en­ti­ties duly created under the law of any of those ter­ri­tories." Con­sular Convention, Art. 2, sec. (4), 3 U.S.T. at 3428 (emphasis added). In short, for purposes of sec­­tion 1332(a)(2), Hong Kong nationals should be viewed as sub­jects of United Kingdom sov­ereignty, as recognized by the United States.
b. The last phrase of the Consular Convention emphasized above, raises an important issue related to the question present­ed here. The plaintiff in this case, of course, is a corpora­tion, rather than a natural person. A corpor­ation, for pur­poses of diversity jurisdiction, is viewed as a "citizen" or "subject" of the entity under whose sovereignty it is created. See National S.S. Co. v. Tugman, 106 U.S. 118, 121 (1882) (Harlan, J.). Compare Windert Watch Co., 468 F. Supp. at 1244. The ob­vious pur­pose of this attribu­tion is to align the corporation with the en­tity under whose au­thority it was created. In this case, that sov­ereign authority is the British Crown.
As a Hong Kong corporation, plaintiff is governed by the Hong Kong Companies Ordinance, which is modelled on the British Com­pan­ies Act of 1948. Commercial Laws Of The World, Hong Kong Companies Ordinance, Chapter 32 (Foreign Tax Law Pub. 1994). The authority under which that statute was enacted is ultimately trace­­able to the British Crown. The Letters Patent for Hong Kong issued by the Crown make clear that sovereignty and authority over Hong Kong is reserved to the British Crown. Laws Of Hong Kong (App. I), Letters Patent �� VIII-XII, at C4 (rev. ed. 1989). Further, the instruc­tions issued by the Bri­tish Crown to the Governor of Hong Kong also reserve final approval of all Hong Kong Ordinances (including, pre­sumably, the Companies Ordi­nance applicable to plaintiff) to the Crown, as transmitted through one of British Prin­ci­pal Secretaries of State. Laws of Hong Kong (App. I), Royal Instructions XXVIII, at D11 (rev. ed. 1989). Hence, the final au­thor­ity for approval of the Hong Kong Companies Ordinance under which plaintiff operates is the British Crown. Since the ultimate sov­ereign authority over the plaintiff-corporation is the British Crown, plain­tiff should be treated as a subject of United Kingdom sov­ereignty for purposes of section 1332.
2. Providing Hong Kong corporations with access to the fede­ral courts is also fully consistent with the legislative history and rationale of the alien­age diversity provision.
a. As noted above, the framers specifi­cally provided in the Constitution for federal jurisdiction over cases involving "citi­zens or subjects" of "for­eign states." U.S. Const., art. III, sec. 2, cl. 1. Significantly, however, when Congress in the Judi­ciary Act of 1789 im­plemented this constitutional grant of author­ity, it used the terms "foreigner" and "alien," rather than "citi­zen or subject," to de­scribe the foreign litigant. See pp. 5-6 supra. The Supreme Court has stated that an Act passed by the first Congress, "'many of whose members had taken part in fram­ing [the Constitu­tion], is contemporaneous and weighty evidence of its true mean­ing.'" Marsh v. Chambers, 463 U.S. 783, 790 (1983) quoting Wisconsin v. Pelican Ins. Co., 127 U.S. 265, 297 (1888). The use of the term "foreigner" and "alien" by the first Congress in enacting this provision suggests that the framers understood that alienage diversity jurisdic­tion provid­ed by the Constitution and author­ized under the Judiciary Act of 1789 would encompass essentially all aliens, with the possible exception of state­less aliens (for whom the underlying rationale for this grant of juris­diction would not apply). In particular, it seems likely that the framers would have understood alienage diversity jurisdiction to extend to residents of British or other European colonies, such as Hong Kong. Further, although Congress in 1875 amended the statute to conform to the language of the Constitution, we can find no indication in either the history of that Act or the his­tory of the subsequent amendments to this provision, of an intent to narrow the juris­dic­­tion granted under the Judi­ciary Act of 1789. See pp. 5-6 supra. This legislative history suggests that the alienage diversity provision should be given an inclusive, rather than restrictive, in­terpreta­tion to include Hong Kong residents and corpora­tions, who pre­sently owe their allegiance to, and are subjects of, United Kingdom sov­ereignty.
b. Providing Hong Kong corporations with access to the fede­ral courts is also fully consistent with the rationale of alien­age diversity jurisdiction. As noted above, the rationale underlying this basis of federal jurisdiction is that noncitizens suing United States citizens in the United States must be guar­an­teed a neutral forum since the failure to pro­vide such a forum could embroil the United States in an in­ter­national controversy with the foreign litigant's country.
Extend­ing alienage diversity jurisdiction to Hong Kong cor­por­ations is fully consistent with this rationale. Were the United States to fail to provide a neutral forum for Hong Kong nationals suing here, the United States might face an in­terna­tion­al con­tro­versy with Bri­tish authori­ties arising out of that failure. Any international problems faced by Hong Kong corporations in the United States are dealt with, at the governmental level, between United Kingdom and U.S. authorities. See Diplomatic List, supra (attached). As the Seventh Cir­cuit stated in Wilson v. Humphries (Cayman) Ltd., a case in­volving the Cayman Islands, another British over­seas pos­ses­sion, "[c]er­tain­ly, the exercise of American judi­cial author­ity over the citizens of a British Depen­dent Territory implicates this coun­try's relation­ship with the United Kingdom -- precisely the raison d'etre for applying alienage jurisdiction." Wilson v. Humphries (Cayman) Ltd., 916 F.2d at 1243. Consequently, plaintiff has pro­perly invoked alienage diversity jurisdiction in this case.
3. Windert rejected the contention that a "foreign state" for purposes of section 1332(a)(2) could include political subdi­vi­sion­s, in part, on the basis that Congress in the Foreign Sovereign Im­munities Act ("FSIA") did not extend the broad defi­ni­tion of "for­eign state" contained in that statute, which in­cludes political subdivisions, to the alien­age diversity provi­sion. Windert Watch Co., 468 F. Supp. at 1245-46n.3 citing 28 U.S.C.  • • 1330, 1332(a) (4), 1603(a). This analy­sis is not persuasive.
When Congress enacted the FSIA in 1976, it was concerned with centralizing into one statutory scheme all matters relating to suits involving foreign states or their entities, particularly on sovereign immunity issues. See Pub. L. No. 94-583,  • 4(a) ( • 1602) (1976) ("Findings and declaration of pur­pose") codified at 28 U.S.C.  • 1602; H. R. Rep. No. 1487, 94th Cong., 2d Sess. 6 (1976) reprinted in 1976 U.S.C.C.A.N. 6604, 6604. Congress was also concerned in the FSIA in insuring that its sta­tutory scheme would apply to most state-owned or -controlled en­tities, such as state trading companies, government procurement agencies, etc. See H. R. Rep. No. 1487, supra at 15-16, reprinted in 1976 U.S.C.C.A.N. at 6613-14. Thus, the FSIA pro­vides a broad defi­nition of "foreign state," which includes "a political sub­divi­sion of a foreign state or an agency or instru­mentality of a for­eign state * * *." 28 U.S.C.  • 1603. Under the FSIA's sta­tu­tory scheme, this definition applies to all cases involving the state as plaintiff, 28 U.S.C.  • 1332(a)(4), and to all cases in­volv­ing the state as defendant, 28 U.S.C.  • 1330(a). While this definition concededly does not, by its own terms, apply to the term "foreign state" as found in the alienage diversity provision, we can find no indi­cation in the legislative history of the FSIA that Congress, by the FSIA scheme, intended to exclude from the term "foreign state," as used in the alienage diversity provision, political subdivisions sub­ject to the sovereignty and authority of a foreign state, such as Hong Kong. See H. R. Rep. No. 1487, supra at 15-16, reprinted in 1976 U.S.C.C.A.N. at 6613-14.
We do not ourselves rely on the definition found in section 1603 for our argument; rather, as explained above, we believe that section 1332(a)(2) can reasonably be read to encompass political subdivisions, such as Hong Kong. We do not believe, how­ever, that Congress, by its FSIA definition of "foreign state," in­tended to exclude such entities from consideration under the alienage diver­sity provision, 28 U.S.C.  • 1332(a)(2).
4. Finally, there are significant practical reasons for hold­ing that a Hong Kong corporation can either sue or be sued in fed­eral court under the alienage diversity provision. As Mr. Hergen noted in the State Department's letter, as of 1994, Hong Kong was the United States' 12th largest trading partner, with direct United States financial investment of almost 12 billion dollars. App. 16. Congress also recently enacted the United States-Hong Kong Policy Act of 1992, which makes clear that Con­gress wants the strong U.S.-Hong Kong rela­tions (includ­ing commer­cial rela­tions) to continue after July 1, 1997, the date on which Hong Kong becomes a special administrative region of the People's Republic of China. See 22 U.S.C.  • • 5711-15. These strong ties, economic and otherwise, provide substantial practical just­i­fication for holding that a Hong Kong corpora­tion can either sue or be sued in federal court under the alienage diversity provision. As Mr. Hergen states in his letter, "'it would be consistent with the foreign policy interests of the United States and the commercial interests of its nationals that courts in the United States be available to resolve private commercial claims between the United States and Hong Kong nationals and business enter­prises.'" App. 17, 19.
5. In sum, the term "foreign state" in the alienage diversity pro­vision includes political subdivisions sub­ject to the sov­ereign­ty and authority of the foreign state. Here, Hong Kong is subject to United Kingdom sovereignty, and plaintiff, therefore, is a sub­ject of United Kingdom sovereignty. Accordingly, plaintiff has pro­per­ly in­voked the juris­diction of the federal courts under the alienage diversity pro­vision, 28 U.S.C.  • 1332(a)(2). The district court's contrary decision, consequently, should be reversed.
CONCLUSION
For the reasons stated above, the decision of the district court should be reversed.
Respectfully submitted,

FRANK W. HUNGER
Assistant Attorney General

MARY JO WHITE
United States Attorney

MICHAEL JAY SINGER
(202) 514-5432
JOHN P. SCHNITKER
(202) 514-4116
Attorneys, Appellate Staff
Civil Division, Room 7407
Department of Justice
950 Pennsylvania Ave., N.W.
Washington, D.C. 20530-0001
NOVEMBER 1996
CERTIFICATE OF SERVICE

I hereby certify that on this 13th day of November, 1996, I caused to be served two copies of the foregoing BRIEF FOR THE UNITED STATES AS AMICUS CURIAE by first class mail, postage prepaid upon:

Marshall T. Postashner, Esq.
Wilson, Elser, Moskowitz, Edelman & Dicker
150 East 42nd Street
New York, New York 10017-5639
Attorney For Plaintiff-Appellant
Matimak Trading Company, Ltd.

M. Christine Carty, Esq.
Schnader Harrison Segal & Lewis
330 Madison Avenue
New York, New York 10017
Attorneys For Defendant-Appellee
D.A.Y. Kids Sportswear, Inc.

Alfred F. Koller, Esq.
230 Central Park West
New York, New York 10024
Attorney For Defendant-Appellee
Albert Khalily d/b/a Unitex Mills Inc.



___________________________

JOHN P. SCHNITKER






All references to the Joint Appendix filed in this case shall be to "App," followed by the appropriate page number.

See generally Kevin R. Johnson, Why Alienage Jurisdiction? Historical Foundations And Modern Justifications For Federal Jurisdiction Over Disputes Involving Noncitizens, 21 Yale J. Int'l L. 1, 10-16, 30-52 (1996) (concluding that federal courts are pre­ferable to state courts for the resolution of disputes involving noncitizens). See also Henry J. Friendly, The Historic Basis of Diversity Jurisdiction, 41 Harv. L. Rev. 483 (1928).

What "legislative his­tory" exists for this provision shows that the foreign party was referred to generally as either a "for­eign­er" or an "alien." Oliver Ells­worth, who was the prin­cipal architect of the first Judiciary Act, refer­red in a letter discuss­ing the "out­lines of a judi­ciary system" then be­fore his Senate Committee, to "contro­ver­sies between for­eign­ers and citi­zens" in explaining this basis for juris­diction. Charles Warren, New Light on the History of the Federal Judiciary Act of 1789, 37 Harv. L. Rev. 49, 60 (1923) ("Warren"). This language was repeat­ed in the draft bill. Warren, supra, at 77-79 ("a foreigner or citizen of another state than that in which the suit is brought is a party"). The term "for­eigner" was apparently changed to "alien" some­time be­fore final enactment, possibly by the Senate. Cf. Warren, supra, at 90-91 (noting a similar change in the lan­guage in the provision gov­erning removal of suits by "aliens" from state court). The legis­­lative debates also generally referred to "foreign­ers" or "aliens." See 1 Annals of Congress 810, 814, 825 (J. Gales, ed. 1834) (House de­bates).

Nothing in the legislative history of the 1875 Act indi­cates a reason for the change in language. See 2 Cong. Rec. 4978-4988 (1874); 3 Cong. Rec. 1992, 2168, 2240, 2275 (1875).

We note that Windert has been universally rejected. See Creative Distribs., Ltd. v. Sari Niketan, Inc., No. 89C3614, 1989 WL 105210 (N.D.Ill. Sept. 1, 1989) (rejecting Windert); Refco, Inc. v. Troika Inv. Ltd., 702 F. Supp. 684, 685n.2 (N.D. Ill. 1988) (Hong Kong corporation falls within section 1332); Timco Eng'g, Inc. v. Rex & Co., 603 F. Supp. 925, 930n.8 (E.D. Pa. 1985) (re­ject­ing Windert); Tetra Fin. (HK) Ltd. v. Shaheen, 584 F. Supp. 847 (S.D.N.Y. 1984) (dictum rejecting Windert); 1 J. Moore, supra, � 0.75 [1.-3], at 800.51-.52 & n.29. See also Hong Kong Deposit & Guar. Co. v. Hibdon, 602 F. Supp. 1378, 1379-80 & n.1 (S.D.N.Y. 1985) (noting issue). These cases are in line with other authori­ties which hold that citizens or cor­porations of British dependen­cies can sue or be sued under section 1332(a)(2). Wilson v. Humphries (Cayman) Ltd., 916 F.2d 1239, 1242-43 (7th Cir. 1990), cert. denied, 499 U.S. 947 (1991) (Cayman Island corpora­tion); Netherlands Shipmortgage Corp., Ltd. v. Madias, 717 F.2d 731, 735 (2d Cir. 1983) (Bermuda corporation); Cedec Trading Ltd. v. United American Coal Sales, Inc., 556 F. Supp. 722 (S.D.N.Y. 1983) (Chan­nel Island cor­por­­ation).

The treaty was agreed to in 1951 when George VI was King, prior to the succession of his daughter, Queen Elizabeth II, to the throne.

Diplomatic and consular relations with Great Britain, of course, date originally from the Jay Treaty, which settled the Revolu­tionary War. Treaty of Amity, Commerce and Navigation, 8 Stat. 116 (Nov. 19, 1794).

There is presently a split of authority on whether the pro­visions of section 1332(c)(1) apply to alien cor­porations. That section provides that a corporation is "deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business * * *." 28 U.S.C.  • 1332 (c)(1). See 32A Am.Jur.2d, Federal Courts  • 812 (1995) (collect­ing authorities); Bailey v. Grand Trunk Lines New England, 805 F.2d 1097, 1100-01 (2d Cir. 1986), cert. denied, 484 U.S. 826 (1987). Since there is no showing in this case that plain­­tiff has a princi­pal place of business in the United States, this provision does not appear applicable.

As Halsbury's acknowledges, "it must necessarily be only too plain that a corporate body which owes it very existence to the laws of a particular country and which has its principal place of business in that particular country must be treated as a national of that country." 18 Halsbury's Laws of England, Nationality,
� 1616 (1977).

Indeed, the Hong Kong Act 1985, issued by the British Crown to implement its agreement with the People's Republic of China to transfer Hong Kong, specifically provides that "[a]s from 1st July 1997 Her Majesty shall no longer have sovereignty or juris­diction over any part of Hong Kong." Laws Of Hong Kong (App. II), Hong Kong Act 1985 (Chapter 15), at B1 (rev. ed. 1989).

One problem that developed shortly after enactment was the failure of the statutory alienage diversity provision to iden­tify (as had the Constitution) the other party to the suit. This led the Supreme Court to rule in a series of cases that federal juris­dic­tion did not extend to suits between two aliens. Mossman v. Higginson, 4 U.S. (4 Dall.) 12 (1800); Montalet v. Murray, 8 U.S. (4 Cranch) 46 (1807); Hodgson v. Bowerbank, 9 U.S. (5 Cranch) 303, 304 (1809); Jackson v. Twentyman, 27 U.S. (2 Pet.) 136 (1829).

Stateless aliens are generally viewed as not falling within this provision. 1 J. Moore, supra, � 0.75[1.-4] (collecting au­thor­i­ties).

At the time alienage diversity was enacted, the term "subj­ect" refer­red to "[o]ne that owes allegiance to a sovereign and is governed by his laws." N. Webster, American Dic­tionary of the En­glish Language (1828; facsimile ed. Foundation for Christ­ian Edu­ca­tion 1985). See S. Johnson, A Dictionary Of The English Language (1755; fac­simile ed. Georg Olms Verlags­buch­handlung 1968); The Oxford English Dictionary, vol. 17, pp. 27-28 (1989). The term was evidently included in the alienage diversity provi­sions to prevent "an arbitrary denial of federal access to many for­eign­ers only be­cause of the nature of the gov­ern­ment under which they happened to live," Van der Schelling v. U.S. News & World Report, Inc., 213 F. Supp. 756, 761 (E.D. Pa.), aff'd, 324 F.2d 956 (3d Cir. 1963), cert. denied, 377 U.S. 906 (1964), name­ly, as "subjects" of a mon­archy, rather than as "citizens" of a repub­lic, such as the United States. 1 J. Moore, supra, � 0.75][1.-3], at 800.48 (1996) ("A monarchy has sub­jects; a republic has citi­zens.").

As plaintiff noted below, Hong Kong, like the Cayman Is­lands, is presently a British Dependent Territory. App. 86 (British Nationality Act 1981, Schedule 6). On July 1, 1997, British sovereignty over Hong Kong will cease when Hong Kong be­comes a special administrative region of the People's Republic of China.

Prior to the FSIA's enactment, the same provision (former 28 U.S.C.  • 1332(a)(2) codified at 62 Stat. 930 (1948)) gov­ern­ed both alienage diversity jurisdiction as well as suits by, and against, foreign states.

We also note that Congress has consistently provided a broad definition of the term "for­eign state" in United States sta­tutes, which would encompass outlying possessions or political subdivi­sions, such as Hong Kong. See 8 U.S.C.  • 1101(a)(1)(14) (nation­ality laws; foreign state includes "out­lying pos­sessions"); 12 U.S.C.  • 632 (banking laws; foreign states includes "political subdi­vi­sion"). See also 5 U.S.C.  • 7342 (a)(2) (foreign gifts act; "foreign government" includes "any unit of foreign govern­men­tal authority, including any foreign national, State, local and muni­cipal government").

See Creative Distribs., Ltd. v. Sari Niketan, Inc., 1989 WL 105210, at *2 (relying on commercial and cultural ties be­tween Hong Kong and the United States as a basis to find diver­sity juris­dic­tion for Hong Kong corporations); Timco Eng'g, Inc. v. Rex & Co., 603 F. Supp. at 930n.8 (same); Tetra Fin. (HK) Ltd. v. Shaheen, 584 F. Supp. at 848 (same).

Although Mr. Hergen's letter asserted that "Hong Kong should * * * be treated in the courts of the United States as a de facto foreign state" for diversity purposes, App. 15, the result we urge should be reached on the grounds stated in the text. The State Department no longer urges treatment of Hong Kong as a de facto foreign state and with­draws any reliance on this conten­tion.



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