Jurisdiction (Subject Matter)

• Author: International Law Group

Traffic Stream (BVI) Infrastructure Ltd. (TSI) is a corporation organized under the laws of the British Virgin Islands (BVI), an Overseas Territory of the United Kingdom. In 1998, JP Morgan, at that time known as Chase Manhattan Bank (Chase), decided to provide financial support to certain TSI projects involving the building and operating of toll roads in China. Under their contract, New York law was to be the applicable law and TSI consented to submit to the personal jurisdiction of the U.S. District Court for the Southern District of New York. Some time later, Chase sued TSI in that court, claiming that the latter had failed to live up to its contractual duties.

As to subject matter jurisdiction, the Court relied upon the alienage diversity provisions of 28 U.S.C. s. 1332. Subdivision (a)(2) grants district courts jurisdiction over civil actions where the controversy, inter alia, is "between citizens of a State and citizens or subjects of a foreign state." Chase moved for summary judgment and the Court granted the motion. The U.S. Court of Appeals for the Second Circuit reversed. It concluded sua sponte that, as a citizen of an "Overseas Territory," TSI's relationship to an independent foreign state was too "attenuated" to meet the demands of the jurisdictional statute.

The U.S. Supreme Court granted certiorari (1) because the ruling below conflicted with rulings in the Third, Fourth and Seventh Circuits, and (2) because it implicated "serious issues of foreign relations." The Court unanimously reverses and remands (with one opinion concurring only in the judgment), holding that TSI's citizenship was enough to bring the BVI corporation within Section 1332(a)(2).

The Court first notes that a corporation organized under the laws of a foreign state is a "subject" of that state for jurisdictional purposes. It is true that the U.S. Executive Branch does not recognize the British Virgin Islands as an independent foreign state. This Court, however, has never expressly read Section 1332(a)(2) as limited to citizens of a formally recognized state but not to those residents of a state's legal dependency. Indeed, this distinction is not meaningful under the alienage jurisdiction statute.

The British Crown, the Court notes, had established the BVI Constitution. Moreover, the United Kingdom wields extensive power over the BVI. For example, the British Monarch may annul any statute enacted by the BVI government and itself may legislate for the BVI. In...