Jet Midwest Int’l v. Jet Midwest Group, No. 18‑1311, 932 F.3d 1102 (8th Cir. 08/02/19)
In a dispute involving the recovery of attorney fees between business entities from diverse jurisdictions involved in cross‑border transactions, the 8th U.S. Circuit Court (the “Court”) took up a case reminiscent of a law school civil procedure class. Jet Midwest Group LLC, a limited liability company made of members who were U.S. citizens from a variety of states (“JMG”), and Jet Midwest International Co. Ltd., a Hong Kong limited company with principal operations in Beijing, China (“JMI”), entered into a loan agreement (the “Loan”) for $6.5 million. The Loan contained a provision that allowed for JMI, as lender, to recover attorney fees incurred in not only the enforcement of the Loan but also for those costs incurred in the preparation of the Loan. JMG ultimately defaulted on the Loan.
When JMI sued JMG for breaching the Loan, the district court granted summary judgment to JMI on the merits of the breach. JMI then looked to the court for reimbursement of attorney fees. This motion was denied and JMI filed an appeal. The Court first took up whether each entity’s citizenship had been properly established in the lower court, and thus, whether the diversity of citizenship was satisfied. Subject matter jurisdiction is based on the “complete diversity” of citizenship of the litigants in federal court where the claim exceeds $75,000. As the amount under the Loan satisfied the dollar threshold, the diversity of the parties was paramount. On appeal, JMG argued that JMI did not establish the citizenship of its members and thus failed in establishing this diversity. This was a case of first impression in determining citizenship of a Hong Kong domiciled limited company so the Court looked to the 7th U.S. Circuit Court for guidance. The 7th Circuit had determined that due to linguistic differences and business practices between foreign entities and American corporate law, the courts should look to whether the foreign entity acts and is treated in a similar fashion to a corporation under the respective jurisdiction’s law. Based on this reasoning, the Court held that JMI was a corporation under 28 U.S.C. 1332 and was not required to prove the citizenship of its members, instead relying on its incorporation and principal of place of business location – China. The Court then affirmed the lower court’s decision that subject matter jurisdiction existed.
The Court then reviewed whether the lower court had improperly dismissed JMI’s motion for attorney fees. In reviewing the Loan, the lower court held that the drafting party’s decision to omit the words “reasonable fees” in respect of enforcing the Loan while those words were included in respect of the preparation of the Loan was evidence that the intent of the parties was not to include both sets of fees. The Court found this view to be prohibitively narrow and took a much more expansive view of the Loan’s language. First, the Court looked to the peculiarities of Hong Kong law, which governed the Loan, and found that Hong Kong treated attorney fees in different ways in respect of payment mechanics. Hong Kong law does not expressly provide for the recovery of attorney fees in the preparation of an agreement and as these costs are generally predictable, the parties were able to include an amount directly within the Loan. However, Hong Kong common law does provide a standard protocol for the award of enforcement fees and as these costs are unpredictable, an actual amount was not necessary nor proper to be in included in the document. The Court reasoned that these differences in Hong Kong law explained the drafting differences and was thus not indicative of the parties’ intent. JMG’s argument would have had the effect of severely limiting any sort of recovery. In its final point of support in ruling for JMI, the Court focused on the use of the phrase “all costs and expenses” as evidence that the parties intended that JMG would pay JMI’s attorney fees.
Article courtesy of Michael Robson of Greenberg Traurig, LLP