IL Bell Tele Co v. Ferrous Miner Holdin

In the
United States Court of Appeals
For the Seventh Circuit
No. 07-3425
ILLINOIS B ELL T ELEPHONE C OMPANY, INC.,
Plaintiff-Appellant,
v.
G LOBAL NAP S ILLINOIS, INC., et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 06 C 3431—John W. Darrah, Judge.
A RGUED S EPTEMBER 11, 2008—D ECIDED D ECEMBER 22, 2008
Before E ASTERBROOK, Chief Judge, and P OSNER and
E VANS, Circuit Judges.
P OSNER, Circuit Judge. This appeal in a suit against a
group of affiliated corporations charges that in violation
of the plaintiff’s federal tariffs filed with the Federal
Communications Commission, its state tariffs filed with
the Illinois Commerce Commission, and the interconnec-
2 No. 07-3425
tion agreement between the plaintiff and one of the
affiliates, Global NAPs Illinois, the defendants failed to
pay for telecommunications services that the plaintiff
had sold to that company.
Questions about our jurisdiction led us to invite sup-
plemental briefs. The plaintiff’s points out that a suit
to enforce a tariff filed with the FCC is deemed to arise
under federal law and is therefore within the federal-
question jurisdiction of the district court. Louisville &
Nashville R.R. v. Rice, 247 U.S. 201, 201-03 (1918); Thurston
Motor Lines, Inc. v. Jordan K. Rand, Ltd., 460 U.S. 533 (1983)
(per curiam); Cahnmann v. Sprint Corp., 133 F.3d 484, 488-89
(7th Cir. 1998). It argues that the suit is within the
diversity jurisdiction as well because, while Illinois Bell is
an Illinois corporation, none of the defendants either is
incorporated in Illinois or has its principal place of busi-
ness there. That the case is within the diversity jurisdiction
as well as the federal-question jurisdiction is potentially
important because the plaintiff has at least one, and
possibly two, claims under state law—one for failure to
comply with its state tariffs and the other for violation of
the interconnection agreement. Although both are within
the supplemental jurisdiction conferred on the federal
courts by 28 U.S.C. § 1367, the exercise of that jurisdiction
is, as the statute makes clear, discretionary; the exercise
of diversity jurisdiction is not.
An exhibit to the plaintiff’s supplemental brief contains
an admission by Global NAPs Illinois that “to the extent
Global [NAPs Illinois] denied [that] it is a Delaware
corporation with its principal place of business at 10
No. 07-3425 3
Merrymount Road, Quincy, MA that denial was inad-
vertent and in error.” The defendants’ supplemental brief
says, in a reversal of their previous position, that Global
NAPs Illinois “obviously has its principal place of
business in Illinois, the only state in which it is licensed
and has established interconnection facilities.” But its
being licensed to do business in Illinois and having
“established interconnection facilities” are not evidence
that it is a citizen of Illinois. AT&T is licensed to do busi-
ness in Illinois and has “established interconnection
facilities,” but is not a citizen of Illinois.
When the facts that determine federal jurisdiction are
contested, the plaintiff—or if it is a case that has been
removed to federal court, the defendant—must establish
those facts by a preponderance of the evidence. Meridian
Security Ins. Co. v. Sadowski, 441 F.3d 536, 543 (7th Cir.
2006); Gafford v. General Elec. Co., 997 F.2d 150, 159-60 (6th
Cir. 1993). Global NAPs Illinois has not mounted a suffi-
ciently colorable challenge to diversity jurisdiction to
require the plaintiff to present additional evidence of
diversity. Global NAPs Illinois does not have an Illinois
corporate charter. Nor is Illinois where it has its principal
place of business. It admits that it has no employees other
than its corporate officers, and they are all in Massachu-
setts.
A company’s principal place of business is where its
“nerve center” is located, or, more concretely, where its
executive headquarters are located. Krueger v. Cartwright,
996 F.2d 928, 931 (7th Cir. 1993); Metropolitan Life Ins. Co. v.
Estate of Cammon, 929 F.2d 1220, 1223 (7th Cir. 1991);
Dimmitt & Owens Financial, Inc. v. United States, 787 F.2d
4 No. 07-3425
1186, 1191 (7th Cir. 1986). There are no nerves (in all but
the simplest animals) without a brain, and there is no
human brain without a human being. An executive head-
quarters without any executives is similarly oxymoronic.
We can imagine an automated company that has no
office anywhere but consists of pieces of equipment
operated by telecommuting employees scattered across
the globe. But what we have in this case is commonplace:
a company located in one state (Massachusetts) that has
contracts with firms in other states, including Illinois.
“[A] corporation whose center of gravity is in the same
state [as the opposing party] even though it may be
incorporated elsewhere . . . [is] sufficiently ‘lo-
cal’—sufficiently identified with the state—to avoid the
obloquy that may attach to a ‘foreign’ corporation in
litigation with a local resident and that provides the
modern rationale of the diversity jurisdiction. The words
‘principal place of business’ are to be construed with this
purpose in mind.” Dimmitt & Owens Financial, Inc. v. United
States, supra, 787 F.2d at 1190. There is nothing local about
a corporation chartered in another state, managed in
another state, administered in another state, headquartered
in another state, its local “presence” actually a ghostly
absence of living bodies.
But the defendants argue that even if there is prima
facie federal jurisdiction, whether based on a federal
question or diversity of citizenship, the Telecommunica-
tions Act of 1996, 47 U.S.C. §§ 151 et seq., withdraws
that jurisdiction from a suit of this kind.
No. 07-3425 5
To understand the argument one must understand the
two types of charge that one telecommunications carrier
can extract from another pursuant to the Telecommunica-
tions Act. Iowa Network Services, Inc. v. Qwest Corp., 363
F.3d 683, 686 (8th Cir. 2004). First, an “incumbent local
exchange carrier” (a carrier that provided local phone
service when the Act was passed, such as Illinois Bell) is
required to interconnect on demand with other carriers
that provide local telecommunications services within
its service area. 47 U.S.C. § 251(c)(2). A carrier demanding
interconnection must negotiate with the incumbent local
exchange carrier on price and other terms. If the two
carriers cannot reach agreement, their disagreement is
submitted to what is called “arbitration” but is really the
first stage in a regulatory proceeding, as the “arbitration”
decision must be submitted to the state regulatory com-
mission for its approval, as must an agreement reached
by negotiation. Id., §§ 252(a)(1), (b)(1), (e)(1); Illinois Bell
Tel. Co. v. Box, No. 08-1489, 2008 WL 5006614, at *1 (7th
Cir. Nov. 26, 2008); Illinois Bell Tel. Co. v. Box, 526
F.3d 1069, 1070 (7th Cir. 2008).
The interconnection agreement between the plaintiff and
Global NAPs Illinois was approved by the Illinois Com-
merce Commission. A party aggrieved by the state com-
mission’s decision, whether imposing or altering the terms
of an interconnection agreement, can seek judicial review
in federal district court on the ground that the decision
violates sections 251 or 252 of the Telecommunications
Act. 47 U.S.C. § 252(e)(6). But so far as appears both
parties were content with the agreement and neither
sought judicial review of the commission’s order ap-
proving it. Nor did anyone else.
6 No. 07-3425
If as in this case the incumbent local exchange carrier
sues merely to collect the interconnection charge
specified in the approved interconnection agreement, the
suit is not based on federal law in any realistic sense, but
on a price term in a contract. Just as a suit to enforce a
copyright license is held to arise under state rather than
federal law even though the grant of a copyright is gov-
erned by federal law, Gaiman v. McFarlane, 360 F.3d 644,
652 (7th Cir. 2004); T. B. Harms Co. v. Eliscu, 339 F.2d 823,
824, 826-27 (2d Cir. 1964) (Friendly, J.), so likewise, while
“section 252(c)(6) authorizes a federal court to determine
whether the agency’s decision departs from federal law,”
“a decision ‘interpreting’ an agreement contrary to its
terms creates a different kind of problem—one under
the law of contracts, and therefore one for which a state
forum can supply a remedy.” Illinois Bell Tel. Co. v.
Worldcom Technologies, Inc., 179 F.3d 566, 574 (7th Cir. 1999);
see also Connect Communications Corp. v. Southwestern Bell
Tel., L.P., 467 F.3d 703, 708 (8th Cir. 2006); Southwestern Bell
Tel. Co. v. Public Utility Comm’n, 208 F.3d 475, 484-86
(5th Cir. 2000).
Judge Friendly analogized a suit on a contract by a
motor carrier regulated by the Interstate Commerce
Commission to a copyright license, in words equally
applicable to this case: “That the contracts could not
lawfully be carried out save with ICC approval does not,
without more, demonstrate that Congress meant all
aspects of their performance or non-performance to be
governed by law to be fashioned by federal courts rather
than by the state law applicable to similar contracts
relating to businesses not under federal regulation. This
No. 07-3425 7
is not to say that a particular issue concerning such a
contract, e.g., whether ICC approval had or had not been
granted prior to a particular date, would not require
determination under federal principles. But the com-
plaint does not suggest that any such issue is present
here.” McFaddin Express, Inc. v. Adley Corp., 346 F.2d 424,
426-27 (2d Cir. 1965) (citation omitted); see also Chicago &
North Western Ry. v. Toledo, Peoria & Western R.R., 324
F.2d 936, 938-39 (7th Cir. 1963).
We are mindful that Verizon Maryland, Inc. v. Global
NAPs, Inc., 377 F.3d 355, 364-65 (4th Cir. 2004), says that
interconnection agreements are so important to the fed-
eral regulation of telecommunications that suits to
enforce them arise under the Telecommunications Act.
But that was a very different case from this. Verizon was
suing state commissioners to block their order requiring
it to pay compensation to another carrier, and while it
was doing so in part because it thought they had misinter-
preted the interconnection agreement, “according to
Verizon’s complaint, whether it must pay reciprocal
compensation on ISP-bound traffic under the terms of the
agreement depends in substantial measure upon the re-
quirements of the Act and the FCC’s regulations and
interpretations. On its face, then, Verizon’s contract claim
is tied directly to federal law, and its asserted basis in
federal law is not ‘insubstantial [or] frivolous.’ ” Id. at 363-
64 (emphasis in original).
BellSouth Telecommunications, Inc. v. MCIMetro Access
Transmission Services, Inc., 317 F.3d 1270, 1278-79 (11th Cir.
2003) (en banc), was a similar case—and the majority
8 No. 07-3425
opinion drew a powerful dissent by Judge Tjoflat, see id.at 1285-1308—but we need not take sides, as our case is
distinguishable. Illinois Bell is seeking merely to collect
charges specified in the interconnection agreement.
The second type of charge that one carrier can levy
against another is a charge for transmission of a carrier’s
long-distance telecommunications. Such a charge must
be embodied in and collected pursuant to a tariff filed
with the Federal Communications Commission. 47 U.S.C.
§ 203(a). Carriers file similar tariffs with state com-
missions such as the Illinois Commerce Commission for
the transmission of long-distance intrastate communica-
tions, and the plaintiff’s other state-law claim is based
on such a tariff.
The defendants argue that the federal tariff cannot
create federal jurisdiction over this suit, as the plaintiff
claims it does, because, they say, the interconnection
agreement between the plaintiff and Global NAPs Illinois
“includes an ‘integration clause,’ whereby all the terms
and conditions of the interconnection to which Global
was entitled by the [Telecommunications Act] were
acknowledged by the parties to be set forth in the [inter-
connection agreement]. Thus, whatever the parties
might owe one another on account of the traffic passing
by virtue of their interconnection was plainly acknowl-
edged to be set forth in the [agreement] (and not else-
where) in compliance with the regime [created by the Act].
Tariff claims presented as ‘alternative pleading’ do not
create federal subject matter jurisdiction.”
But the clause is more limited than the defendants
claim. It reads: “Entire Agreement. This Reciprocal Com-
No. 07-3425 9
pensation Appendix is intended to be read in conjunc-
tion with the underlying Interconnection Agreement
between ILEC [Illinois Bell, the incumbent local ex-
change carrier, to which reciprocal compensation is due
from competing local exchange carriers that interconnect
with it, 47 U.S.C. § 251(b)(5); In re Core Communications, Inc.,
455 F.3d 267, 270 (D.C. Cir. 2006)] and CLEC [Global NAPs
Illinois, the competitive local exchange carrier], but that
as to the Reciprocal Compensation terms and conditions,
this Appendix constitutes the entire agreement between
the Parties on these issues, and there are no other oral
agreements or understandings between them on
Reciprocal Compensation that are not incorporated into
this Appendix.” The “entire agreement” to which the
clause refers is thus the reciprocal-compensation ap-
pendix, and a number of the plaintiff’s claims are
unrelated to reciprocal compensation. The duty to
provide such compensation is only one of the duties
created by the interconnection provisions of the Tele-
communications Act. See 47 U.S.C. §§ 251(b)(1)-(4), (c).
We cannot find the “underlying Interconnection Agree-
ment” in the record, but the plaintiff concedes that some
of the payments that it claims Global NAPs Illinois owes
it are based solely on the interconnection agreement, and
we have just ruled that a suit for nonpayment in viola-
tion of such an agreement does not arise under federal
law. And we suppose an integration clause (though not
this one, which is narrow in scope) could make all
claims for payment to a carrier arise under the agreement
rather than under filed tariffs. An ordinary agreement
couldn’t do that—the obligation created by a filed tariff
10 No. 07-3425
cannot be altered by an agreement of the parties. Maislin
Industries, Inc. v. Primary Steel, Inc., 497 U.S. 116, 126-30
(1990); Louisville & Nashville R.R. Co. v. Central Iron & Coal
Co., 265 U.S. 59, 65 (1924). But telecommunications com-
mon carriers are authorized to make binding intercon-
nection agreements setting forth the prices of the
services agreed upon. 47 U.S.C. § 252(a)(1).
The possibility of turning a federal tariff claim into a
simple contract claim does not affect jurisdiction, how-
ever. A suit to enforce a federal tariff arises under federal
law even if the defendant has a good defense to the claim,
such as that the plaintiff had agreed not to make it. That
is the implication of the well-pleaded complaint rule.
Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987). (For its
application to a case similar to this, involving one of the
defendants in this case, see Verizon New York Inc. v. Global
NAPs, Inc., No. 1:03-cv-05073-ENV-RML, at 6-7 (E.D.N.Y.
Sept. 20, 2007).) Only if the complaint’s invocation of
federal law is frivolous does the rule forbid access to
federal court under the federal-question jurisdiction. E.g.,
Saturday Evening Post Co. v. Rumbleseat Press, Inc., 816
F.2d 1191, 1195 (7th Cir. 1987).
The integration clause is a reminder, however, that if
an interconnection agreement specifies a particular price
for a particular service, the seller cannot, simply by filing
a tariff, prevent the buyer from challenging the price in
the tariff as discrepant with the price in the intercon-
nection agreement. Global NAPs Illinois argues that the
plaintiff’s claim is based on a misinterpretation of the
agreement. Such a disagreement should normally be
No. 07-3425 11
referred to the state regulatory agency, in this case the
Illinois Commerce Commission, before the federal court
decides the case. The agency had to approve the parties’
agreement and had the authority to impose a different
agreement on them, or, what amounts to the same thing,
to modify the agreement they had negotiated. 47 U.S.C.
§ 252(e)(1), (2). If a dispute over the meaning of the agree-
ment arises, the agency will usually be in the best posi-
tion to resolve it.
True, the Telecommunications Act does not expressly
authorize a state commission, after it approves an inter-
connection agreement, to resolve disputes arising under it.
Nor does the Act expressly authorize a federal court to
refer such a dispute, if the dispute arises in a suit in
federal court, to the state commission, either. But such
authority is a sensible corollary to the allocation of state
and federal responsibilities made by the Act. Core Commu-
nications, Inc. v. Verizon Pennsylvania, Inc., 493 F.3d 333,
344 (3d Cir. 2007); BellSouth Telecommunications, Inc. v.
MCIMetro Access Transmission Services, Inc., supra, 317 F.3d
at 1276-77; cf. Peter W. Huber, Michael K. Kellogg & John
Thorne, Federal Telecommunications Law § 3.3.4, pp. 226-28
(2d ed. 1999) (the Telecommunications Act of 1996 “di-
rectly controls intrastate issues that were once the ex-
clusive province of the states. To that extent, the Act
federalizes these local interconnection issues. But the
respective roles of the state and federal agencies in imple-
menting these market-opening provisions have been
a matter of considerable dispute . . . . As a backstop to
it s p r im a ry re lian ce on p r iv a t ely n e go t ia t ed
agreements . . . Congress enlisted the aid of state public
12 No. 07-3425
utility commissions to ensure that local competition
was implemented fairly and with due regard to the
local conditions and the particular historical circumstances
of local regulation under the prior regime”); Leon T.
Knauer, Ronald K. Machtley & Thomas M. Lynch, Telecom-
munications Act Handbook 127-31 (1996).
Regulatory agencies don’t usually engage in contract
interpretation. But since interconnection agreements are
complex and have to be approved by a state commission
and disputes over their meaning are very likely to present
issues related to the commission’s federal statutory
authority—for example whether the contractual inter-
pretation urged by one of the parties would result in price
discrimination, 47 U.S.C. § 252(d)(1)(A)(ii)—the referral of
interpretive disputes to the state commission, unless they
seem contrived or are otherwise easy to resolve, is a
sensible procedure; and there is nothing in the Telecom-
munications Act to forbid it. And if this is right, then a
carrier seeking to enforce an interconnection agreement
must not be permitted to prevent referral by filing a
tariff and suing to enforce it rather than the intercon-
nection agreement. U.S. West Communications, Inc., v. Hix,
183 F. Supp. 2d 1249, 1266 (D. Colo. 2000); see Global NAPs,
Inc. v. FCC, 247 F.3d 252, 255-56 (D.C. Cir. 2001).
To give the referral procedure a label, we are saying
that issues that arise in the course of a federal suit to
enforce an interconnection agreement may sometimes
be within the “primary jurisdiction” of the state reg-
ulatory agency. As explained in United States v. Western
Pacific Ry., 352 U.S. 59, 63-64 (1956), “the doctrine of
primary jurisdiction, like the rule requiring exhaustion of
No. 07-3425 13
administrative remedies, is concerned with promoting
proper relationships between the courts and administrative
agencies charged with particular regulatory duties . . . .
‘Primary jurisdiction’ . . . applies where a claim is origi-
nally cognizable in the courts, and comes into play when-
ever enforcement of the claim requires the resolution of
issues which, under a regulatory scheme, have been
placed within the special competence of an administrative
body; in such a case the judicial process is suspended
pending referral of such issues to the administrative
body for its views.” See also City of Peoria v. General
Electric Cablevision Corp., 690 F.2d 116, 120-21 (7th Cir.
1982). Although the role assigned by the Telecommunica-
tions Act to the state commission in approving, rejecting,
or imposing agreements is largely limited to assuring
that they are “nondiscriminatory” and serve the “public
interest, convenience and necessity,” 47 U.S.C.
§§ 252(d)(1)(A)(ii), (e)(2)(A), these are broad criteria that
create regulatory discretion based on familiarity with a
technical field. See also Illinois Public Utilities Act, 220
ILCS 5/9-250, 5/10-108. A federal court can properly stay
its proceedings to allow the state commission to inter-
pret the terms of an interconnection agreement to assure
compliance with the statutory criteria before the court
addresses other aspects of the suit, including (as in
this case) federal tariff and veil-piercing claims.
Primary jurisdiction usually involves referral to a
federal agency, but in a case such as this, in which a
state commission is exercising in effect delegated federal
power, the logic of the doctrine permits a federal court’s
reference to a state agency. Cf. Kendra Oil & Gas, Inc. v.
14 No. 07-3425
Homco, Ltd., 879 F.2d 240, 242 (7th Cir. 1989). An alterna-
tive approach—the doctrine of Burford v. Sun Oil Co., 319
U.S. 315 (1943), which requires federal district courts to
decline to exercise federal jurisdiction over certain types
of cases confided by state law to state administrative
agencies—does not fit this case. The reason is not the
uncertainty about whether the state commission can
resolve the entire dispute over nonpayment of the plain-
tiff’s interconnection charges, even though, if not, the
proper disposition is a stay of the court case rather
than—what is the normal result of Burford abstention—its
dismissal. Hi Tech Trans, LLC v. New Jersey, 382 F.3d 295,
302 (3d Cir. 2004). For in a damages suit, a stay might be
an appropriate means of effectuating Burford abstention,
as explained in Front Royal & Warren County Industrial
Park Corp. v. Town of Front Royal, 135 F.3d 275, 282-83 (4th
Cir. 1998). The critical point, rather, is that Burford is
limited to cases in which “adjudication in federal court
would ‘unduly intrude into the processes of state govern-
ment or undermine the State’s ability to maintain
desired uniformity,’ ” or invade “the State’s interests in
maintaining ‘uniformity in the treatment of an essentially
local problem’ . . . and [in] retaining local control over
‘difficult questions of state law bearing on policy problems
of substantial public import.’ ” Quackenbush v. Allstate Ins.
Co., 517 U.S. 706, 728 (1996) (citations omitted); see also
Behavioral Institute of Indiana, LLC v. Hobart City of
Common Council, 406 F.3d 926, 931 (7th Cir. 2005).
The regulatory issues that arise in cases governed by
the Telecommunications Act are not “local” in the Burford
sense. The role that the Act carves out for the states is
No. 07-3425 15
that of ancillary enforcers of the comprehensive scheme
of federal telecommunications regulation set forth in the
Act. The state commissions are not enforcing policies
central to state government when they are regulating
telecommunications; in that role they are “ ‘deputized’
federal regulator[s]” of the Telecommunications Act.
MCI Telecommunications Corp. v. Illinois Bell Tel. Co., 222
F.3d 323, 344 (7th Cir. 2000).
Despite the term primary jurisdiction, the reference of a
case to an agency pursuant to that doctrine, rather than
denying the jurisdiction of the court over the case, presup-
poses that jurisdiction. See, e.g., United States v. Western
Pacific Ry., supra, 352 U.S. at 63-64; Baker v. IBP, Inc., 357
F.3d 685, 692 (7th Cir. 2004); Clark v. Time Warner Cable, 523
F.3d 1110, 1114-15 (9th Cir. 2008). If the court lacked
jurisdiction it would have to dismiss the suit, not stay it in
anticipation of its eventual resumption after the agency
rules. As explained in Arsberry v. Illinois, 244 F.3d 558, 563-
64 (7th Cir. 2001) (citations omitted), we are at the heart of
the doctrine of primary jurisdiction when “in a suit involv-
ing a regulated firm but not brought under the regulatory
statute itself, an issue arises that is within the exclusive
original jurisdiction of the regulatory agency to resolve,
although the agency’s resolution of it will usually be
subject to judicial review. When such an issue arises, the
suit must stop and the issue must be referred to the agency
for resolution. If the agency’s resolution of the issue does
not dispose of the entire case, the case can resume, subject
to judicial review of that resolution along whatever path
governs review of the agency’s decisions, whether back to
16 No. 07-3425
the court in which the original case is pending or, if the
statute governing review of the agency’s decisions desig-
nates another court, to that court.” Despite the reference in
this passage to the “exclusive original jurisdiction of the
regulatory agency,” as we said earlier we do not think
the court need refer all disputes over an interconnection
agreement to the state commission, only those where the
dispute raises a genuine policy issue the resolution of
which has been confided by the Telecommunications
Act to the state commissions.
For completeness we note that in the absence of
diversity or federal-question jurisdiction, a suit to en-
force an interconnection agreement would have to be
brought in state court, though if in the course of the
litigation a question within the primary jurisdiction of
the state commission arose the question would have to
be referred to the commission.
The defendants do raise issues concerning the meaning
of the interconnection agreement, as we said, but it
would be premature at this juncture to refer any of those
issues to the Illinois Commerce Commission. The only
issue addressed thus far in this litigation (apart from
subject-matter jurisdiction) is whether the district court
has personal jurisdiction over six affiliates of Global NAPs
Illinois on a theory of “piercing the corporate veil.” To ask
the Illinois Commerce Commission to opine on that topic
would be to ask it to rule on an issue unrelated to its
regulatory responsibilities. It is a threshold issue because
unless it is resolved in Illinois Bell’s favor this suit is
academic—Global NAPs Illinois has no assets out of which
No. 07-3425 17
to pay a judgment. The issue of piercing the corporate
veil has to be resolved before there is any referral to the
state commission. The district court therefore properly
addressed the issue and we have now to determine
whether the court resolved it correctly.
Ferrous Miner Holdings is the parent of Global NAPs
Illinois and the other defendants. The district court dis-
missed it as not being within the court’s personal juris-
diction. The judge entered that dismissal as a final judg-
ment under Rule 54(b), finding no reason to delay the
entry of an appealable order letting Ferrous Miner out
of the case.
The plaintiff argues that the district judge was not
authorized to issue a Rule 54(b) judgment because the
question of personal jurisdiction over Ferrous Miner is
entwined with questions involving other defendants,
such as whether the doctrine of piercing the corporate veil
can be used by the plaintiff to fix liability on other
affiliates of Global NAPs Illinois, four of which (all but
Ferrous Miner) remain defendants in the district court.
The argument is frivolous. The rule provides that “when
an action presents more than one claim for relief . . . or
when multiple parties are involved, the court may [pro-
vided there is no just reason for delay] direct entry
of a final judgment as to one or more, but fewer than all,
of the claims or parties.” Multiple claims or multiple
parties. If there is one claim but multiple parties, the court
can enter judgment as to one or more of the parties,
releasing them from the threat of liability. E.g., United
18 No. 07-3425
States v. Ettrick Wood Products, Inc., 916 F.2d 1211, 1217-19
(7th Cir. 1990).
That the plaintiff should be seeking in this appeal to
change the judgment into a mere interlocutory ruling by
the district judge that the plaintiff cannot bring Ferrous
Miner into the case (a ruling without res judicata effect
until a final judgment is entered) is defeatist, and
surprises us, as the merits of the appeal—which fortu-
nately for the plaintiff it has also argued—are compelling.
Ferrous Miner is the sole stockholder of Global NAPs
Illinois, which has no assets other than its Illinois certi-
ficate of convenience and necessity, no revenues, no
income, no financial statements, no payroll accounts, and
no employees besides its three officers.
The district judge seems to have thought that a court
in Illinois could obtain jurisdiction over Ferrous Miner
only if there was a basis for piercing Ferrous Miner’s
corporate veil. But the plaintiff is not trying to obtain
relief against Frank Gangi, the owner of Ferrous Miner. The
veil it wishes to pierce is that of Ferrous Miner’s subsid-
iary—the corporate limited liability of Global NAPs
Illinois—so that it can get at the parent company. United
States v. Bestfoods, 524 U.S. 51, 61-64 (1998); Papa v. Katy
Industries, Inc., 166 F.3d 937, 940-41 (7th Cir. 1999); APS
Sports Collectibles, Inc. v. Sports Time, Inc., 299 F.3d 624, 630-
31 (7th Cir. 2002). That corporation is a shell. For aught
that appears, the only reason for its existence is that
Ferrous Miner does not want to pay for the communica-
tions services that it bought from the plaintiff in the
name of the shell. Richard Gangi, the treasurer of Global
NAPs Illinois, has acknowledged that Ferrous Miner’s
No. 07-3425 19
subsidiaries are “file companies” that “don’t do anything.”
“They have no assets. They have no employees.” Frank
Gangi similarly described what he calls “regulatory”
corporations as ones that exist “for the purpose of serving
a regulatory requirement.” It “may have no assets, it
may have no income, it may have no expenses. It may be
just what we call a file drawer company.” The corporate
structure that the Gangi brothers have created appears
to be designed to keep all its assets in corporations that
have no liabilities and all its liabilities in corporations
that have no assets.
Ferrous Miner argues that the law applicable to piercing
the corporate veil in this case is Delaware law, and that
under Delaware law the veil can be pierced only upon a
showing of fraud. That is not true, as it would enable
companies to insulate themselves from tort liability by
operating through shell corporations. For if you are a
bystander injured by a truck driven by the employee of
a corporation that has no assets, you cannot cry
“fraud”—the corporation had made no representations
to you.
What is true is that in a contractual veil-piercing case,
such as this case, Delaware permits piercing the veil only
upon proof either of fraud or that the corporation
simply functioned as a façade for the dominant share-
holder. See Stephen B. Presser, Piercing the Corporate Veil
§ 2:8 (2008). These are closely related criteria. See Trustees
of National Elevator Industry Pension, Health Benefit &
Educational Funds v. Lutyk, 332 F.3d 188, 193-94 (3d Cir.
2003); Southeast Texas Inns, Inc. v. Prime Hospitality Corp.,
462 F.3d 666, 674-75 (6th Cir. 2006), citing Wallace v.
20 No. 07-3425
Wood, 752 A.2d 1175, 1184 (Del. Ch. 1999). If there is no
substance at all to a corporation, so that it cannot be
made to answer for any of its debts, no rational person
would make a contract with it unless he were deceived.
“ S u p p o s e a c o n t r ollin g s h a re h o l d e r [ F e rr o u s
Miner] . . . persuades a lender to extend credit on
favorable terms to the shareholder’s corporation [Global
NAPs Illinois] by representing that the corporation has
substantial net assets, but in fact it is a shell, and all
the assets ostensibly owned by the corporation are
actually owned by the shareholder. The corporation
defaults, and when the lender tries to sue the share-
holder to collect his loan—for the corporation has no
assets out of which to collect it—he is met by the defense
of limited liability. This is the paradigmatic case for
rejecting the defense.” In re Kaiser, 791 F.2d 73, 75 (7th Cir.
1986); see also Browning-Ferris Industries of Illinois, Inc. v.
Ter Maat, 195 F.3d 953, 959-60 (7th Cir. 1999). Had
Global NAPs Illinois during its negotiations with the
plaintiff said that in the event it broke its contract the
plaintiff could forget about suing, because it is a shell, the
plaintiff would not have signed the contract without a
guaranty by Ferrous Miner. It is hard to imagine why,
except to commit such a fraud, a businessman would
create shell corporations other than for tax or regulatory
reasons, which would not justify using the shell to strip
unknowing contracting parties of all remedies for breach
of contract.
Not that the plaintiff has yet proved fraud, or even that
Global NAPs Illinois is just a shell; the only question at
this stage is whether the plaintiff produced enough
evidence to bring Ferrous Miner within the personal
No. 07-3425 21
jurisdiction of the district court, a preliminary issue to be
resolved summarily by the judge. The plaintiff has pro-
duced more than enough evidence. Phillips v. Prairie Eye
Center, 530 F.3d 22, 26 (1st Cir. 2008); see also Central States,
Southeast & Southwest Areas Pension Fund v. Phencorp
Reinsurance Co., 440 F.3d 870, 877-78 (7th Cir. 2006); Szabo
v. Bridgeport Machines, Inc., 249 F.3d 672, 675-77 (7th Cir.
2001).
Since we are not ruling that the plaintiff can pierce
Global NAPs Illinois’s corporate veil—only that there is
enough evidence to enable the company’s owner, Ferrous
Miner, to be brought within the personal jurisdiction of
the district court—we should consider, in order to
provide some guidance to the district court on remand,
the plaintiff’s argument that a federal common law of veil
piercing, less demanding than the Delaware standard,
should apply instead of that standard. The plaintiff is
correct that a state’s restrictive law of veil piercing is not
allowed to undermine the effectiveness of a federal
statute that provides remedies for persons who may
find it impossible to vindicate their federal rights if op-
posed by such a law. “[T]he policy underlying a federal
statute may not be defeated by such an assertion of state
power,” Anderson v. Abbott, 321 U.S. 349, 365 (1944); see
also United States v. Bestfoods, supra; First National City
Bank v. Banco Para El Comercio Exterior De Cuba, 462 U.S.
611, 629 (1983); Brotherhood of Locomotive Engineers v.
Springfield Terminal Ry., 210 F.3d 18, 25-30 (1st Cir. 2000);
Lowen v. Tower Asset Management, Inc., 829 F.2d 1209, 1220
(2d Cir. 1987).
22 No. 07-3425
But we doubt that there will be any need in this case
to depart from the Delaware standard. A person who
deals with a corporation knowing that it is radically
undercapitalized or otherwise unusually difficult to
obtain a collectible judgment against in the event of a
breach of contract either has only himself to blame or
was compensated by the other party for the increased
risk that its capital structure placed on him. Browning-Ferris
Industries of Illinois, Inc. v. Ter Maat, supra, 195 F.3d at 960.
(There is no suggestion that as a common carrier the
plaintiff was obligated to sell to a firm that could not
pay for the service it was buying.) The plaintiff argues that
it was misled by the shell’s appearing to be a real firm.
If that is right it is entitled to pierce the corporate veil,
id. at 959-60; In re Kaiser, supra, 791 F.2d at 76; Bridas
S.A.P.I.C. v. Government of Turkmenistan, 447 F.3d 411, 416-
17 (5th Cir. 2006); Torco Oil Co. v. Innovative Thermal Corp.,
763 F. Supp. 1445, 1450-51 (N.D. Ill. 1991), and if not, not.
Ferrous Miner is within the district court’s personal
jurisdiction. The judgment dismissing it is therefore
reversed.
12-22-08