Belleville Catering v. Champaign Market ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-3975
BELLEVILLE CATERING CO., et al.,
Plaintiffs-Appellants,
v.
CHAMPAIGN MARKET PLACE, L.L.C.,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Central District of Illinois.
No. 00-2259—David G. Bernthal, Magistrate Judge.
____________
ARGUED OCTOBER 22, 2003—DECIDED DECEMBER 1, 2003
____________
Before FLAUM, Chief Judge, and EASTERBROOK and
WILLIAMS, Circuit Judges.
EASTERBROOK, Circuit Judge. Once again litigants’
insouciance toward the requirements of federal jurisdiction
has caused a waste of time and money. See, e.g., Hart v.
Terminix International, 336 F.3d 541 (7th Cir. 2003);
Meyerson v. Showboat Marina Casino Partnership, 312 F.3d
318 (7th Cir. 2002); Meyerson v. Harrah’s East Chicago
Casino, 299 F.3d 616 (7th Cir. 2002); Indiana Gas Co. v.
Home Insurance Co., 141 F.3d 314 (7th Cir. 1998); Guaranty
National Title Co. v. J.E.G. Associates, 101 F.3d 57 (7th Cir.
1996); Kanzelberger v. Kanzelberger, 782 F.2d 774 (7th Cir.
1986).
2 No. 02-3975
Invoking the diversity jurisdiction, see 28 U.S.C. §1332,
the complaint alleged that the corporate plaintiff is incor-
porated in Missouri and has its principal place of business
there, and that the five individual plaintiffs (guarantors
of the corporate plaintiff’s obligations) are citizens of
Missouri. It also alleged that the defendant is a “Delaware
Limited Liability Company, with its principle [sic] place of
business in the State of Illinois.” Defendant agreed with
these allegations and filed a counterclaim. The parties
agreed that a magistrate judge could preside in lieu of a
district judge, see 28 U.S.C. §636(c), and the magistrate
judge accepted these jurisdictional allegations at face value.
A jury trial was held, ending in a verdict of $220,000 in
defendant’s favor on the counterclaim. Plaintiffs appealed;
the jurisdictional statement of their appellate brief tracks
the allegations of the complaint. Defendant’s brief asserts
that plaintiffs’ jurisdictional summary is “complete and
correct.”
It is, however, transparently incomplete and incorrect.
Counsel and the magistrate judge assumed that a limited
liability company is treated like a corporation and thus is a
citizen of its state of organization and its principal place of
business. That is not right. Unincorporated enterprises are
analogized to partnerships, which take the citizenship of
every general and limited partner. See Carden v. Arkoma
Associates, 494 U.S. 185 (1990). In common with other
courts of appeals, we have held that limited liability com-
panies are citizens of every state of which any member
is a citizen. See Cosgrove v. Bartolotta, 150 F.3d 729 (7th
Cir. 1998). So who are Champaign Market Place LLC’s mem-
bers, and of what states are they citizens? Our effort to
explore jurisdiction before oral argument led to an unex-
pected discovery: Belleville Catering, the corporate plaintiff,
appeared to be incorporated in Illinois rather than
Missouri!
No. 02-3975 3
At oral argument we directed the parties to file sup-
plemental memoranda addressing jurisdictional details.
Plaintiffs’ response concedes that Belleville Catering is (and
always has been) incorporated in Illinois. Counsel tells us
that, because the lease between Belleville Catering and
Champaign Market Place refers to Belleville Catering as “a
Missouri corporation,” he assumed that it must be one. That
confesses a violation of Fed. R. Civ. P. 11. People do not
draft leases with the requirements of §1332 in
mind—perhaps the lease meant only that Belleville Cater-
ing did business in Missouri—and counsel must secure
jurisdictional details from original sources before making
formal allegations. That would have been easy to do; the
client’s files doubtless contain the certificate of incorpora-
tion. Or counsel could have done what the court did: use the
Internet. Both Illinois and Missouri make databases of
incorporations readily available. Counsel for the defendant
should have done the same, instead of agreeing with the
complaint’s unfounded allegation.
Both sides also must share the blame for assuming that
a limited liability company is treated like a corporation. In
the memorandum filed after oral argument, counsel for
Champaign Market Place relate that several of its members
are citizens of Illinois. Citizens of Illinois thus are on both
sides of the suit, which therefore cannot proceed under
§1332. Moreover, for all we can tell, other members are
citizens of Missouri. Champaign Market Place says that one
of its members is another limited liability company that “is
asserting confidentiality for the members of the L.L.C.” It
is not possible to litigate under the diversity jurisdiction
with details kept confidential from the judiciary. So federal
jurisdiction has not been established. The complaint should
not have been filed in federal court (for Belleville Catering
had to know its own state of incorporation), the answer
should have pointed out a problem (for Champaign Market
4 No. 02-3975
Place’s lawyers had to ascertain the legal status of limited
liability companies), and the magistrate judge should have
checked all of this independently (for inquiring whether the
court has jurisdiction is a federal judge’s first duty in every
case).
Failure to perform these tasks has the potential, realized
here, to waste time (including that of the put-upon jurors)
and run up legal fees. Usually parties accept the inevitable
and proceed to state court once the problem becomes ap-
parent. Perhaps the most extraordinary aspect of this pro-
ceeding, however, is the following passage in defendant’s
post-argument memorandum:
Defendant-Appellee, Champaign Market Place
L.L.C., prays that this Court in the exercise of its
Appellate jurisdiction decide the case on the merits
and affirm the judgment entered on the jury’s
verdict. Surely in the past this Court has decided a
case on the merits where an examination of the
issue would have shown a lack of subject matter
jurisdiction in the District Court. It would be
unfortunate in the extreme for Champaign Market
Place L.L.C. to lose a judgment where Belleville
Catering Company, Inc. misrepresented (albeit
unintentionally) its State of incorporation in its
Complaint. . . . [T]here was no reason for Cham-
paign Market Place L.L.C. to question diversity of
citizenship, since it is not, and never has been, a
citizen of Missouri.
This passage—and there is more in the same vein—leaves
us agog. Just where do appellate courts acquire authority to
decide on the merits a case over which there is no federal
jurisdiction? The proposition that the Seventh Circuit has
done so in the past—a proposition unsupported by any
citation—accuses the court of dereliction combined with
usurpation. “A court lacks discretion to consider the merits
No. 02-3975 5
of a case over which it is without jurisdiction”. Firestone
Tire & Rubber Co. v. Risjord, 449 U.S. 368, 379 (1981). And
while counsel feel free to accuse the judges of ultra vires
conduct, and to invite some more of it, they exculpate
themselves. Lawyers for defendants, as well as plaintiffs,
must investigate rather than assume jurisdiction; to do this,
they first must learn the legal rules that determine whose
citizenship matters (as defendant’s lawyers failed to do).
And no entity that claims confidentiality for its members’
identities and citizenships is well situated to assert that it
could believe, in good faith, that complete diversity has
been established.
One more subject before we conclude. The costs of a
doomed foray into federal court should fall on the lawyers
who failed to do their homework, not on the hapless clients.
Although we lack jurisdiction to resolve the merits, we have
ample authority to govern the practice of counsel in the
litigation. See, e.g., Willy v. Coastal Corp., 503 U.S. 131(1992); Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393-
98 (1990); Szabo Food Service, Inc. v. Canteen Corp., 823
F.2d 1073 (7th Cir. 1987). The best way for counsel to make
the litigants whole is to perform, without additional fees,
any further services that are necessary to bring this suit to
a conclusion in state court, or via settlement. That way the
clients will pay just once for the litigation. This is intended
not as a sanction, but simply to ensure that clients need not
pay for lawyers’ time that has been wasted for reasons
beyond the clients’ control.
The judgment of the district court is vacated, and the
proceeding is remanded with instructions to dismiss the
complaint for want of subject-matter jurisdiction.
6 No. 02-3975
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—12-1-03