‘Domicile’ vs. ‘Residence’ vs. ‘Citizenship’ in Federal Court Jurisdiction – More Semantic Hairsplitting?

Strabala v. Zhang, 318 F.R.D. 81 (Ill. N.D. 2016), featured here for its detailed discussion of e-mail evidence, provides an equally thorough analysis of the differences between residence and domicile in the Federal court jurisdiction calculus.

In the Federal litigation scheme, the party asserting Federal court jurisdiction bears the burden of proving subject matter jurisdiction by a preponderance of the evidence.

The plaintiff here alleged that the Northern District had original jurisdiction based on 28 U.S.C. § 1332(a)(2) – the diversity of citizenship statute that vests Federal courts with jurisdiction over claims between “citizens of a State and citizens or subjects of a foreign state.”

The defendants were unquestionably Chinese citizens – a foreign state under Section 1332.  The plaintiff’s citizenship, though, was unclear.  While plaintiff claimed he was a citizen of Illinois, the defendants disputed this; they pointed to the plaintiff’s home in China as proof that he wasn’t really an Illinois citizen and so was stateless.  A “stateless” citizen can’t invoke Federal court diversity jurisdiction.

Though colloquially used interchangeably, under Federal law, the terms citizenship and residence have important differences.  Citizenship equals domicile, not residence.  The term residence denotes where a person lives while domicile carries both a physical and mental dimension.

Domicile is “the place where that individual has a true, fixed home and principal establishment” and the place where the person intends to eventually return.  A person can have multiple residences but only one domicile.

Objective factors a court considers to determine domicile include “current residence, voting registration and voting practices, location of personal and real property, location of financial accounts, membership in unions and other associations, place of employment, driver’s license and automobile registration, and tax payments.”  But no lone citizenship/domicile factor is conclusive; each case turns on its own facts.

Applying these factors, the Court noted that since plaintiff was based in Illinois from the late 1980s through 2006 (when plaintiff moved first to Houston, TX then to Shanghai), the Court required defendants to show that plaintiff not only currently lived outside of Illinois but also had no intention of returning to Illinois.

The Court credited the plaintiff’s declaration (sworn statement) of intent to keep an Illinois domicile.  Other factors weighing in favor of finding subject matter jurisdiction included (1) plaintiff and his wife never sold there Chicago condominium or removed furniture from it when they moved to Houston in 2006, (2) for several months they lived in corporate housing provided by plaintiff’s Houston employer (an architecture firm), (3) plaintiff’s wife divided her time equally between Chicago and Houston while plaintiff spent about 50% of his time in Shanghai, 40% in Houston and 10% in Chicago.

The plaintiff’s Texas drivers’ license and Houston condo purchase weren’t enough to tilt the citizenship question to the defendants (who, again, argued that the plaintiff wasn’t an Illinois citizen) since the plaintiff swore under oath that he intended to keep an Illinois domicile and defendant had no facts to refute this.

Rejecting the defendants’ argument that plaintiff’s domicile was Shanghai, the Court focused on the following facts: (1) plaintiff lived in a furnished hotel with a lease of one year or less and owned no real property or car in Shanghai, (2) plaintiff’s Chinese work permit had to be renewed annually; and (3) plaintiff’s wife spent six months out of the year in Chicago.

Other pro-Illinois domicile factors cited by the Court included the plaintiff’s testimony (via declaration) that he has had a landline telephone number with a Chicago area code for over two decades and plaintiff’s LinkedIn profile that listed his employment locations as Shanghai, Seoul, and Chicago.

Afterwords:

For Federal subject matter jurisdiction based on diversity of citizenship to attach, the plaintiff must be a citizen of a State (as opposed to a foreign country).  This case provides an exhaustive application of the various factors a court considers when deciding the site of a Federal plaintiff’s domicile in a complex fact pattern and emphasizes the differences between residence and domicile.

 

 

‘Bankruptcy Planning,’ Alone, Doesn’t Equal Fraudulent Intent to Evade Creditors – IL ND

A Northern District of Illinois bankruptcy judge recently rejected a creditor’s attempt to nix a debtor’s discharge for fraud.  The creditor alleged the debtor tried to escape his creditors by shedding assets before his bankruptcy filing and by not disclosing estate assets in his papers.  Finding for the debtor after a bench trial, the Court in Monty Titling Trust I v. Granrath, 15 AP 00826 illustrates the heavy burden a creditor must meet to successfully challenge a debtor’s discharge based on fraud.

The Court specifically examines the contours of the fraudulent conduct exception to discharge under Code Section 727(a)(2) and Code Section 727(a)(4)’s discharge exception for false statements under oath.

Vehicle Trade-In and Lease

The court found that the debtor’s conduct in trading in his old vehicle and leasing two new ones in his wife’s name in the weeks leading up to the bankruptcy filing was permissible bankruptcy planning (and not fraud).  Since bankruptcy aims to provide a fresh start to a debtor, a challenge to a discharge is construed strictly against the creditor opposing the discharge.  Under the Code, a court should grant a debtor’s discharge unless the debtor “with intent to hinder, delay or defraud a creditor” transfers, hides or destroys estate property.

Under the Code, a court should grant a debtor’s discharge unless the debtor “with intent to hinder, delay or defraud a creditor” transfers, hides or destroys property of the debtor within one year of its bankruptcy filing. 11 U.S.C. s. 727(a)(2)(A).  Another basis for the court to deny a discharge is Code Section 727(a)(4) which prevents a discharge where a debtor knowingly and fraudulently makes a false oath or account.

To defeat a discharge under Code Section 727(a)(2), a creditor must show (1) debtor transferred property belonging to the estate, (2) within one year of the filing of the petition, and (3) did so with the intent to hinder, delay or defraud a creditor of the estate.  A debtor’s intent is a question of fact and when deciding if a debtor had the requisite intent to defraud a creditor, the court should consider the debtor’s whole pattern of conduct.

To win on a discharge denial under Code Section 727(a)(4)’s false statement rule, the creditor must show (1) the debtor made a false statement under oath, (2) that debtor knew the statement was false, (3) the statement was made with fraudulent intent, and (4) the statement materially related to the bankruptcy case.

Rejecting the creditor’s arguments, the Court found that the debtor and his wife testified in a forthright manner and were credible witnesses.  The court also credited the debtor’s contributing his 401(k) funds in efforts to save his business as further evidence of his good faith conduct.  Looking to Seventh Circuit precedent for support, the Court found that “bankruptcy planning does not alone” satisfy Section 727’s requirement of intent.  As a result, the creditor failed to meet its burden of showing fraudulent conduct by a preponderance of the evidence.

Opening Bank Account Pre-Petition

The Court also rejected the creditor’s assertion that the debtor engaged in fraudulent conduct by opening a bank account in his wife’s name and then transferring his paychecks to that account in violation of a state court citation to discover assets.  

The court noted that the total amount of the challenged transfers was less than $2,000 (since the most that can be attached is 15% gross wages under Illinois’ wage deduction statute) and the debtor’s scheduled assets exceeded $4 million.  Such a disparity between the amount transferred and the estate assets coupled with the debtor’s plausible explanation for why he opened a new bank account in his wife’s name led the Court to find there was no fraudulent intent.

Lastly, the court found that the debtor’s omission of the bank account from his bankruptcy schedules didn’t rise to the level of fraudulent intent.  Where a debtor fails to include a possible asset (here, a bank account) in his bankruptcy papers, the creditor must show the debtor acted with specific intent to harm the bankruptcy estate.  Here, the debtor testified that his purpose in opening the bank account was at the suggestion of his bankruptcy lawyer and not done to thwart creditors.  The court found these bankruptcy planning efforts did not equal fraud.

Afterwords:

1/ Bankruptcy planning does not equate to fraudulent intent to avoid creditors.

2/ Where the amount of debtor’s challenged transfers is dwarfed by scheduled assets and liabilities, the Court is more likely to find that a debtor did not have a devious intent in pre-bankruptcy efforts to insulate debtor assets.

 

Uber and Lyft Users Unite! City of Chicago Beats Back Cab Drivers’ Constitutional Challenge to City Ridesharing Ordinance

An association representing Chicago taxicab drivers recently lost their attempt to invalidate a City of Chicago ridesharing ordinance as unconstitutional.

The crux of the cab drivers claim in Illinois Transportation Trade Ass’n v. City of Chicago, was that a City ordinance governing Transportation Network Providers (TNPs) like Uber and Lyft was too mild and didn’t subject TNPs to the same level of government oversight as Chicago cab drivers; especially in the areas of licensing and fair rates. (For example, TNPs are free to set their own rates by private contracts; something taxicabs can’t do.)

The cab drivers argued the Ordinance’s less onerous TNP strictures made it hard if not impossible for the City cabs to compete with TNPs for consumer business.

The Seventh Circuit struck down all of the plaintiffs claims and in doing so, discussed the nature of constitutional challenges to statutes in the modern, ridesharing context.

Deprivation of Property Right Without Compensation

The Court rejected the plaintiffs’ first argument that allowing TNPs to enter the Chicago taxicab market deprived plaintiffs of a property interest without compensation.

Finding that a protected property right does not include the right to be free from competition, the Court noted the City wasn’t depriving the plaintiffs of tangible or intangible property.  All the Ordinance did was codify Chicago cab drivers’ exposure to a new form of competition – competition from ridesharing services like Uber and Lyft.

And since the right to be free from competition is not a legally valid property right, the plaintiffs’ misappropriation of property theory failed.  The Court wrote that to indulge the plaintiffs’ argument that it had a property right in eliminating transportation service competition would give taxi drivers an unfair monopoly on all commercial transportation.

Equal Protection Claim: Cab Drivers and TNPs Should Be Subject to the Same Regulations

Striking down the plaintiffs’ equal protection claims, the Court framed the issue as whether “regulatory differences between Chicago taxicabs and Chicago TNPs are arbitrary or defensible.”  It found the regulatory variations were indeed defensible.  In reaching this holding the Court focused on the salient differences between taxicabs and TNPs including their distinct business models and levels of driver oversight and screening, as well as stark differences in consumer accessibility: where riders can hail a cab on any street, TNP users must first sign up with the TNP and install an app on their smartphone to hire TNP drivers.

A Dog Differs From a Cat and a Taxi Differs from a TNP Like Uber

In the end, it was the blatant qualitative differences between cab service and TNPs that carried the day and sealed the fate of plaintiffs’ constitutional challenge to the Ordinance.  The Court found there were measurable differences between taxis and TNPs in the areas of business model, driver screening and rate-setting, among others, that justified the City’s different regulatory schemes.

The Court found that the watered-down (according to Plaintiffs, anyway) TNP Ordinance rightly recognized the glaring differences between taxis and TNPs and was rationally related to the City’s interest in fostering competition in commercial transportation business.

Afterwords:

This case presents an interesting application of established constitutional equal protection principles to a progressive electronic commerce context.

In the end the case turned on whether leveling the competitive playing field to the cab drivers’ liking by striking down the Ordinance resulted in stifled competition.  Since the Court said the answer to the question was “yes,” the taxi drivers’ constitutional challenge failed.