In case of first
impression, New York district court holds that federal courts should now
consider Hong Kong as part of "foreign state," i.e., China and
therefore its citizens may invoke alienage jurisdiction under 28 U.S.C. Section
1332(a)(2)
In Matimak Trading Co. v. Khalily, 118 F.3d 76 (2d Cir. 1997),
cert. denied, 522 U.S. 1091 (1998), the Second Circuit held that Hong Kong,
while a British dependent territory, was not itself a "foreign state"
for purposes of 28 U.S.C. Section 1332(a)(2) [U.S. District Courts have
original jurisdiction over civil actions between "citizens of a State and
citizens or subjects of a foreign state."]
The plaintiff in this case, Favour Mind Ltd., is a Hong Kong
corporation. The defendant, Robert Czwartacky, is a citizen of South Carolina
who operates two New York corporations. Czwartacky allegedly breached a sales
agreement between the parties. Favour Mind brought suit, basing jurisdiction on
28 U.S.C. Section 1332(a)(2) and alleging that it had shipped garments to
Czwartacky's companies on several occasions but never received any payments.
Czwartacky moved to dismiss pursuant to Matimak because Favour
Mind, as a Hong Kong corporation, is not a "citizen or subject of a
foreign state" under Section 1332(a)(2) and therefore cannot maintain an
action in federal court. The U.S. District Court for the Southern District of
New York denies the motion.
The court expressly limits the holding in Matimak to the period
during which Hong Kong was a British territory. The Second Circuit had
"expressed no view" as to the status of Hong Kong corporations
"following Great Britain's transfer of sovereignty" to the People's
Republic of China on July 1, 1997.
The Second Circuit had established the doctrine of "de
facto" recognition of foreign states for purposes of Section 1332(a)(2) in
Murarka v. Bachrack Bros., Inc., 215 F.2d 547 (2d Cir. 1954). In that case, the
Court recognized India as a "foreign state" prior to the U.S.' formal
recognition of India because the U.S. had already taken significant steps
towards such recognition. In Matimak, the Court refused to recognize Hong Kong
as ration may assert alienage jurisdiction in federal court after Hong Kong's
reversion to China.
In this case, both the U.S. Department of State and the Hong Kong
Special Administrative Region (SAR) filed amicus curiae briefs arguing that
Favour Mind is a citizen of the "foreign state" of China. Also, the
Basic Law" of Hong Kong established a regime of "one country/two
systems." This allows Hong Kong to retain its separate commercial and
legal institutions though becoming part of China.
Most importantly, a diplomatic note from the Chinese Government
declared that: "Hong Kong is an inalienable part of the People's Republic
of China. The Hong Kong SAR is a local administrative region of the People's
Republic of China, which shall enjoy a high degree of autonomy. Companies
established in the Hong Kong SAR in accordance with its laws and decrees
therefore enjoy the nationality of the People's Republic of China."
[9/9/99 Diplomatic Note from Embassy of People's Republic of China to
Department of State, No. CE 118/99.]
Finally, the district court notes that the principles underlying
alienage jurisdiction support the finding that Hong Kong is part of a
"foreign state." China considers the treatment of its citizens,
including Hong Kong companies, a very important matter. To deny that Hong Kong
corporations are citizens of China would frustrate the interests of every
concerned government – the U.S., China and the Hong Kong SAR. It would also
antagonize recognized foreign powers -- the harm that alienage jurisdiction was
mainly designed to prevent.
Citation: Favour Mind Ltd. v. Pacific Shores,
Inc., 98 Civ. 7038 (SAS) (S.D.N.Y. December 7, 1999).
**** Terik Hashmi is a business consultant serving businesses in the marketing realm. Among his clients are a medical service provider and an Online Reputation Management company. - Attorney Website at: https://terikhashmiattorney.com/ - Attorney Profile at: https://solomonlawguild.com/terik-hashmi%2C-esq# - Attorney News at https://attorneygazette.com/terik-hashmi%2C-consultant#eec97f53-49a0-4c94-869a-4847514cb694