The opinion of the court was delivered by: DEBEVOISE
Plaintiffs, K & H Business Consultants, Ltd. ("K & H, Ltd."), an English corporation, and K & H Computer Systems, Inc. ("K & H, Inc."), a Delaware corporation, with its principal place of business in Sparta, New Jersey, filed suit in the Superior Court of New Jersey naming Cheltonian, Ltd., an English corporation, and Cheltonian, Inc., a Texas corporation, as defendants.
The complaint alleged that in 1977 K & H, Ltd. entered into an agreement with Cheltonian, Ltd. in which K & H, Ltd. granted Cheltonian, Ltd. the non-exclusive right to sell and lease (anywhere in the world except North and South America and South Africa) the PROMINI computer system which K & H, Ltd. had developed. It further alleged that thereafter K & H, Ltd. assigned an exclusive license to K & H, Inc. to reproduce and sell the PROMINI system in North and South America and the Caribbean. Plaintiffs contend that Cheltonian, Ltd., and/or Cheltonian, Inc. have sold computer programs that incorporate elements of the PROMINI system in direct competition with plaintiffs and in violation of their 1977 agreement. Plaintiffs' complaint charges misappropriation of trade secrets, unjust enrichment, unfair competition, and tortious interference with prospective economic advantage.
Defendants filed a Petition for Removal pursuant to 28 U.S.C. § 1441 asserting diversity jurisdiction under 28 U.S.C. § 1332(a)(3). This section provides that federal courts have jurisdiction in civil suits where the amount in controversy exceeds $10,000 and the suit involves "citizens of different States and in which citizens or subjects of a foreign state are additional parties." Plaintiffs move to remand on the ground that diversity jurisdiction is lacking, contending that under controlling law diversity jurisdiction is destroyed when aliens are present on both sides of a controversy between diverse citizens of the United States. (Hereinafter the term "citizen" refers to a citizen of the United States and the term "alien" refers to a citizen or subject of a foreign state.)
The totality of the judicial power of the federal courts is conferred by Article III of the United States Constitution. Pertinent to this case is that portion of Section 2 of Article III which provides that "the judicial power shall extend . . . to Controversies . . . between Citizens of different States . . . and between a State, or the Citizens thereof, and foreign States, Citizens or Subjects." Congress has implemented this grant of judicial power in 28 U.S.C. § 1332 in which it defines (and limits) the diversity jurisdiction of the federal district courts.
The present case raises the question whether under the Constitution and under § 1332 the federal district court has jurisdiction to hear a case in which the citizen parties are diverse, but on each side of the case there is an alien. In order to answer this question it is necessary to review pertinent developments in the law dealing with actions in the federal courts in which aliens are parties.
Five situations have been dealt with by the courts or by statute: (i) actions between aliens alone (A v. A);
(ii) actions between aliens in which a citizen has been joined on one side or the other (e.g., A and C v. A); (iii) actions between a citizen and an alien (e.g., C v. A); (iv) diversity actions between citizens of different states with an alien on one side or the other (e.g., C and A v. C ); (v) diversity actions between citizens of different states with an alien on each side (C and A v. C and A). The latter situation is the one presented in this case.
The Supreme Court has ruled that there is no federal jurisdiction over actions solely between aliens. Sadat v. Mertes, 615 F.2d 1176, 1183 (7th Cir. 1980); Kramer v. Caribbean Mills, Inc., 394 U.S. 823, 824, 23 L. Ed. 2d 9, 89 S. Ct. 1487 n.2 (1969); Jackson v. Twentyman, 27 U.S. 136, 2 Pet. (27 U.S.) 136, 7 L. Ed. 374 (1829).
Notwithstanding the joinder of a citizen with an alien in an action in which an alien appears on each side, the courts have denied jurisdiction. See, e.g., Ed and Fred, Inc. v. Puritan Marine Insurance, 506 F.2d 757 (5th Cir. 1975), modified by, Goar v. Compania de Vapores, 688 F.2d 417 (5th Cir. 1982); IIT v. Vencap, Ltd., 519 F.2d 1001 (2d Cir. 1975); Lavan Petroleum Co. v. Underwriters at Lloyds, 334 F. Supp. 1069 (S.D.N.Y. 1971). One rationale for this result has been that when there is an alien on each side, complete diversity is lacking, since for diversity purposes aliens are deemed to be citizens of a single state regardless of the number of foreign countries of which they are nationals. Dadzie v. Leslie, 550 F. Supp. 77, 79 (E.D. Pa. 1982); see Moore's Federal Practice, Para. 0.75 [1.-2] at p. 709.6. A better rationale might be that the mere joining of a citizen with an alien in a suit between aliens is too easy a subterfuge to evade the rule that federal courts do not have jurisdiction over actions between aliens.
In 1875 the Judiciary Act of 1789 was amended to permit suits between citizens and aliens. Field v. Volkswagenwerk AG, 626 F.2d 293, 296 (3d Cir. 1980); Ryan v. Ohmer, 233 F. 165, 166 (D.N.Y. 1916). The current version of this provision is found in 28 U.S.C. § 1332(a)(2), as amended by the Foreign Sovereign Immunities Act of 1976, Pub. L. No. 94-583, § 3, 90 Stat. 2891. Section 1332(a)(2) provides in pertinent part:
(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $10,000, exclusive of ...