Foreign corporations have right to sue in U.S. courts, Louisiana court rules

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by Eric Pearson

Does an “alien”—including a corporation organized under the laws of a foreign country—have a right to bring a lawsuit in the federal courts of the United States? A federal district court in Louisiana recently dismissed a breach of contract lawsuit filed by a Venezuelan corporation against an American corporation. The Fifth Circuit has now reversed that ruling.

In Servicios Azucareros de Venezuela, C.A. V. John Deere Thibodeaux, Inc., No. 11-30776 (5th Cir. Dec. 13, 2012), Servicios, a Venezuela corporation, filed suit in the United States District Court for the Eastern District of Louisiana against John Deere Thibodaux, Inc., a Louisiana corporation. Servicios alleged it had a contract to be the exclusive distributor of John Deere products in Venezuela and that, under the contract, Servicios was entitled to receive a 20% commission on all John Deere harvesters and tractors, and a 25% commission on spare parts, sold in Venezuela. Servicios alleged that after John Deere changed its name, it wrongfully reduced Servicios’s commission from 20% to 10% and, using “economic duress,” eventually attempted to terminate the contract altogether. Servicios alleged that John Deere’s breach of contract caused it to suffer over $1.5 million in damages.

John Deere filed a motion to dismiss the lawsuit, arguing that Servicios did not have standing to sue “under the well-established rule of prudential standing that prohibits non-resident aliens from maintaining suit in American federal courts.” The district court granted the motion and dismissed the case. On appeal, the Fifth Circuit disagreed. Finding no such “well-established rule,” the Fifth Circuit found instead that John Deere’s argument was “without merit.”

The Fifth Circuit noted that, from the beginning of our nation, it was envisioned that the federal courts would hear cases involving foreign citizens. Article III of the Constitution provides for jurisdiction in the federal courts over all “Controversies . . . ‘between a State, or the Citizens thereof, and foreign States, Citizens, or Subjects,’” U.S. CONST. art. III, § 2, cl. 1. The diversity jurisdiction statute, 28 U.S.C. § 1332(a)(2) confers diversity jurisdiction in civil actions between “citizens of a State and citizens or subjects of a foreign state,” excepting lawful permanent residents domiciled in the same state.

The Fifth Circuit determined that John Deere’s argument was based on a misreading of the Johnson v. Eisentrager decision. The Fifth Circuit found that, in Johnson v. Eisentrager, the Supreme Court intended only to address claims by enemy aliens and “did not establish any general rule of prudential standing that nonresident aliens were barred from obtaining civil relief in American courts.” Rather than barring suits by aliens, the court of appeals found “[t]o the contrary, Article III and § 1332(a)(2)’s alienage jurisdiction provisions were from the very beginning intended to provide a federal forum for civil disputes between foreign plaintiffs and American citizens.” As a result, the trial court erred by dismissing the suit due to the alleged lack of standing.

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