Nike, Inc. v. Comercial Iberica De Exclusivas Deportivas, S.A., 20 F.3d 987 (9th Cir. 1994)

CYNTHIA HOLCOMB HALL, Circuit Judge:

These consolidated appeals raise numerous challenges to the proceedings before the district court. We do not address most of these claims, however, because we find that the district court lacked subject matter jurisdiction..

I

FACTS AND PROCEDURAL HISTORY

This dispute arises from the alleged breach of several contracts between Comercial Ibéri-ca de Exclusivas Deportivas, S.A. (Cidesport) and Nike, International, Ltd. (NIL), a wholly-owned subsidiary of Nike, Inc. (Nike).1 These contracts authorized Cidesport to act as the exclusive distributor of Nike shoes, apparel and bags in several European countries.

Nike brought these claims for breach of contract, fraud and tortious interference with prospective advantage against Cidesport, its parent corporation, and the individual corporate officers of these two corporations (collectively “defendants”).2 Nike claims the district court had jurisdiction over this action pursuant to 28 U.S.C. § 1332(a)(2) because the action was between a “citizen[] of a State,” Nike, an Oregon corporation with its principal place of business in Beaverton, Oregon, and “citizens or subjects of a foreign state,” the defendants, none of whom are United States citizens. NIL, a Bermuda corporation, was not a party to the action, having assigned its claims to Nike just three days before Nike filed its complaint.

Defendants moved to dismiss for lack of subject matter jurisdiction, alleging that NIL had collusively assigned its claims to Nike to create diversity jurisdiction. The district court granted the motion, reasoning that Nike had not overcome the presumption of collusion applicable because NIL is a wholly-owned subsidiary of Nike. Nike successfully sought reconsideration of this decision. To rebut the presumption of collusion, Nike submitted the affidavit of its corporate counsel, Lindsey Stewart. Stewart explained that the assignment occurred because Nike prefers to litigate in Oregon, particularly the United States District Court in Oregon. Nike considers the district court a superior forum because it is more convenient, more expeditious, less expensive and allows Nike to maintain better control over the litigation.

Nike also submitted an affidavit from George Porter, the Vice President of Finance for Nike and NIL. Porter’s affidavit reiterated the language of the assignment, claiming that the assignment was made “for good and valuable consideration.” Porter also offered additional reasons for the assignment including Nike’s preexisting interest in the enforcement of the contract rights; the similar interest of Nike’s newly-created, wholly-owned subsidiary that now performs the tasks Cidesport was previously authorized to do; Nike’s ultimate entitlement to NIL’s profits; and Nike’s interest in protecting its trademarks, trade names, business reputation and goodwill.

Nike offered a third affidavit from Philip Knight, the Chief Executive Officer of NIL and Nike. Knight’s affidavit reiterated Nike’s position that the assignment of claims was made for good business reasons and not for purposes of improper collusion.3

The district court vacated its earlier decision, finding that Nike had overcome the presumption of collusion by showing that it made the assignment for legitimate business purposes, and reinstated the action.4 In this

appeal, defendants renew their challenge to the district court’s jurisdiction.

II

STANDARD OF REVIEW

"The existence of subject matter juT-isdiction is a question of law, and our review is de novo.” Yokeno v. Mafnas, 973 F.2d 803, 806 (9th Cir.1992). “We review the district court’s findings of fact relevant to its determination of subject matter jurisdiction for clear error.” Id.; see also Syms v. Castleton Indus., Inc., 470 F.2d 1078, 1085 (5th Cir.1972) (applying clear error standard to trial court’s finding that assignment was not collusive).

III

DISCUSSION

Defendants maintain that the claim assignment from NIL to Nike violates the proscriptions of the federal anti-collusion statute.5 28 U.S.C. § 1359. Under that statute, “[a] district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collu-sively made or joined to invoke the jurisdiction of such court.” 28 U.S.C. § 1359.

A

Before we evaluate this assignment for collusion, we must respond to the district court’s suggestion that the assignment did not create jurisdiction. The district court speculated that even if NIL had been a plaintiff in this action, diversity jurisdiction would have existed. If this suggestion is correct, the assignment could not violate the anti-collusion statute regardless of Nike’s and NIL’s motivation.

We draw no distinction between corporations incorporated in a state of the United States and those incorporated in a foreign country when determining the corporation’s citizenship for purposes of diversity jurisdiction. Danjaq, S.A. v. Pathe Communications Corp., 979 F.2d 772, 774 (9th Cir.1992). In each instance, the corporation is deemed a citizen of its place of incorporation and the location of its principal place of business. 28 U.S.C. § 1332(c)(1). Our decision in Mutuelles Unies v. Kroll & Linstrom, 957 F.2d 707 (9th Cir.1992), does not alter this result. In that case, we considered the effect of an individual’s potential citizenship in the United States and Ireland and concluded' that “[d]ual citizenship ... does not defeat jurisdiction.” Muiuelles Unies, 957 F.2d at 711. The distinction between our treatment of individuals and corporations finds its source in the statute establishing diversity jurisdiction. While the statute creates a system of dual citizenship for corporations, see 28 U.S.C. § 1332(c)(1), it contains no indication that we should consider the dual citizenship of an individual for purposes of diversity jurisdiction. Accordingly, we do not. Mutuelles Unies, 957 F.2d at 711.

NIL, however, is a corporation and we cannot disregard either its site of incorporation, Bermuda, or its principal place of business, which Nike alleges is Oregon,6 when testing for complete diversity. In this instance, when we treat NIL as an alien citizen due to its Bermuda incorporation, the

requirements of diversity jurisdiction are not met. Although the federal courts have jurisdiction over an action between “citizens of a State and citizens or subjects of a foreign state,” 28 U.S.C. § 1382(a)(2), diversity jurisdiction does not encompass a foreign plaintiff suing foreign defendants, Cheng v. Boeing Co., 708 F.2d 1406, 1412 (9th Cir.), cert. denied, 464 U.S. 1017, 104 S.Ct. 549, 78 L.Ed.2d 723 (1983), such as an action between NIL and these alien defendants. Nike’s presence as a plaintiff does not salvage jurisdiction because diversity must be complete. See Faysound Ltd. v. United Coconut Chem., Inc., 878 F.2d. 290, 294 (9th Cir.1989) (presence of citizen defendant does not save jurisdiction as to alien defendant in action brought by alien plaintiff); cf. Transure, Inc. v. Marsh & McLennan, Inc., 766 F.2d 1297, 1298-99 (9th Cir.1985) (pursuant to § 1332(a)(3) presence of aliens on both sides does not defeat diversity when citizens of United States on both sides who satisfy diversity requirements); 28 U.S.C. § 1332(a)(3) (diversity jurisdiction extends to actions between “citizens of different States and in which citizens or subjects of a foreign state are additional parties”).

Moreover, if Nike had filed this suit as the sole plaintiff, it could not have relied on the district court’s supplemental jurisdiction to add NIL and NIL’s claims. Prior to the assignment, NIL was an indispensable party, see Harrell & Sumner Contracting v. Peabody Peterson, 546 F.2d 1227, 1229 (5th Cir.1977) (joint obligees are indispensable parties to action for enforcement of that obligation), whose presence, as we have just demonstrated, would have defeated diversity.7 Supplemental jurisdiction cannot be used to create jurisdiction over an action that does not satisfy the requirements of the diversity statute. See 28 U.S.C. § 1367(b) (where original jurisdiction founded on diversity supplemental jurisdiction does not extend to claims “by persons proposed to be joined as plaintiffs under Rule 19 ... when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332”). Absent NIL’s assignment to Nike, the federal courts lacked jurisdiction over this action.

B

We may now proceed to determine whether the assignment was “collusive.” In this circuit, we have concluded that “[cjertain kinds of diversity-creating assignments warrant particularly close scrutiny.” Yokeno v. Mafnas, 973 F.2d 803, 809 (9th Cir.1992). We have treated assignments “by corporations to their officers or directors ‘[as] presumptively ineffective to create diversity jurisdiction,’ ” id. at 809-10; see also Dweck v. Japan CBM Corp., 877 F.2d 790, 792 (9th Cir.1989), and have generally stated that the same presumption applies to “ [assignments between parent companies and subsidiaries.” Yokeno, 973 F.2d at 809-10 (citations omitted). In this action, for the first time, we apply these general statements to an assignment by a subsidiary to its parent corporation. Whichever direction the transfer occurs, “the close relationship between parent and subsidiary necessarily presents opportunities for the collusive manufacture of’ commercial reasons for the assignment.8 Prudential Oil Corp. v. Phillips Petroleum Co., 546 F.2d 469, 476 (2d Cir.1976) (quoting Green & White Constr. Co. v. Cormat Constr. Co., 361 F.Supp. 125, 128 (N.D.Ill.1973)). Moreover, “when a wholly-owned subsidiary assigns a claim to its parent, just as in the

reverse situation, the same set of stockholders running both corporate forms can transfer title to that claim freely between them. In each case the transferor, whether it is the parent or the subsidiary, realistically retains a substantial pecuniary interest in the outcome of the litigation which it assigns to the other.” Id. at 475-76. We agree with the district court that this assignment triggers a presumption of collusion.

When testing this assignment, although the district court applied the presumption, it did not have the benefit of our decision in Yokeno v. Mafnas, 973 F.2d 803 (9th Cir.1992), which further explicates the implications of the presumption. There we stated that evidence of a jurisdictional motive for the assignment will heighten the presumption of collusion. Yokeno, 973 F.2d at 811. Simply showing a colorable or plausible business reason for the assignment will no longer suffice. Id. “The business reason must be sufficiently compelling that the assignment would have been made absent the purpose of gaining a federal forum.” Id.

This case compels application of the heightened presumption. In an affidavit explaining Nike’s “excellent business reasons” for the assignment, Nike explained:

If we had any remaining doubts whether NIL and Nike acted at least in part to obtain a federal forum, the timing of the assignment, only three days before Nike filed the complaint in this action, dispels them.

Presented with this heightened presumption, we conclude that Nike has not advanced a “sufficiently compelling” business reason. As justification for the assignment, Nike maintains that it had an interest in the litigation before the assignment and therefore it made sense for it to assume control of all the claims.9 Although a preexisting interest is a factor to consider, see 'Yokeno, 973 F.2d at 811, our primary inquiry is whether the assignment would have been made absent the purpose of obtaining a federal forum. For the answer in this case, we need look no further than the manner in which Nike has handled other litigation. Nike and NIL have filed a civil case against Cidesport in Spain alleging unlawful competition arising from Cidesport’s use of a Spanish trademark. While Nike and NIL apparently have independent interests in the Spanish action, Nike has not taken an assignment of claims from NIL. The evidence not only fails to demonstrate that absent a desire to gain a federal forum Nike would have insisted on the assignment in this action, but it tends to refute Nike’s position.

Nike’s other proffered business reasons are equally dubious. It maintains that cost considerations compelled the assignment. During this litigation, Nike also argued, however, that NIL’s principal place of business is Beaverton, Oregon, same as Nike, and we know that Nike and NIL share many corporate officers. Thus, we do not find any obvious cost savings from excluding NIL, an organization with officers located in Oregon despite its Bermuda incorporation and Spanish affiliations, and Nike does not explain why NIL’s presence in the litigation would increase costs.

“Nor do we find the recital of consideration in the ... assignment, without more, sufficient to establish that business concerns were an independent reason for the assign

ment.” Yokeno, 973 F.2d at 811. In summary, Nike’s business reasons merely justify its desire to litigate in a federal forum. Rather than rebutting the presumption of collusion, these reasons demonstrate its accuracy.10

The district court also found support for its exercise of jurisdiction in the complex nature of Nike’s claims and their close relationship to the federal trademark laws. We do not agree that Nike’s tort and contract claims are any different from the ordinary business litigation the federal anti-collusion statute is aimed at keeping out of the federal courts. See Yokeno, 973 F.2d at 809.

Because we conclude the district court did not have diversity jurisdiction, our jurisdiction is “not of the merits but merely for the purpose of correcting the error of the lower court in entertaining the suit.” United States v. Corrick, 298 U.S. 435, 440, 56 S.Ct. 829, 831, 80 L.Ed. 1263 (1936). Accordingly, we have no jurisdiction to interpret the agreements or their provision for attorney’s fees.

The judgment of the district court, including its award of attorney’s fees, is VACATED. The district court is directed to dismiss Nike’s complaint.