Corporate Charters and the Problem of Talismanic Federal Question Jurisdiction
7 Preview of Supreme Court Cases 243 (March 1992)
6 Pages Posted: 20 Feb 2013
Date Written: March 7, 1992
This article previews the issues and arguments in S.B. and J.G. v. The American National Red Cross, on the Supreme Court’s 1991-92 appellate docket. The issue in American National Red Cross v. S.G. and A.E. is whether the language in the Red Cross's corporate charter, which specifies that it has the right "to sue and be sued in courts of law and equity, State or Federal" vests federal courts with original jurisdiction over lawsuits in which the Red Cross is a party.
This spring the Supreme Court is faced with an arcane question of federal court jurisdiction that will determine whether the American National Red Cross will be able to defend lawsuits in federal court rather than state court. The Red Cross's appeal to the Supreme Court arises from the tragic circumstance of the lawsuit's anonymous female plaintiff who contracted AIDS through an HIV-infected blood transfusion. It is questionable, however, whether the language of the Red Cross corporate charter confers jurisdiction on a federal court to hear this case.
During approximately two hundred years of interpreting the scope of federal court jurisdiction, the Supreme Court has addressed corporate charter language problems only four times, with mixed results. Thus, the case of the American National Red Cross v. S.G. and A.E. confronts modern tragedy with ancient doctrine.
The Red Cross's appeal is of great practical importance to that organization because the Red Cross anticipates multiple AIDS-related lawsuits in the future, and the Red Cross prefers to litigate these cases in federal court. The Red Cross's appeal also is of great importance to the federal government, because Congress has created a large number of federal corporations with statutory language identical or similar to the language in the Red Cross charter. For academicians, this case is of great theoretical interest because the Supreme Court will have to clarify the relationship of corporate charter language with the reach of federal court "arising under" jurisdiction. In academic parlance, the Court will again have to address whether certain talismanic phraseology is necessary or sufficient to confer jurisdiction on a federal court.
The debate over technical construction of "sue-and-be-sued" clauses centers on whether the particular language confers a capacity to sue or rather authorizes jurisdiction of the federal courts. Thus, the Supreme Court has viewed two linguistic formulations as merely conferring a capacity to sue, while construing two other formulations as providing a jurisdictional basis. Construing the Red Cross charter language in light of precedent and legislative history, the Eighth and First Circuits currently disagree whether the charter language is capacity-conferring or jurisdiction-conferring, and the lower federal courts are similarly split.
Factors that the Supreme Court may assess include whether the charter language must name a specific federal court as a jurisdictional forum; whether the clause must invoke jurisdiction-conferring phraseology such as "courts having competent jurisdiction," and whether the legislative history of the charter clause evidences a clear intention on the part of the congressional drafters to expand federal court jurisdiction. Further, a policy argument that centers on the desirability of the American National Red Cross to have federal court jurisdiction to litigate blood supply cases may play some role in the Court's deliberations.
Finally, the Court may also consider the policy implications of construing the Red Cross charter language in a fashion that raises questions about identical or similar language in an array of other federally chartered governmental entities. Thus, if the Court chooses to definitively clarify the jurisdiction-conferring status of sue-and-be-sued clauses in corporate charters, the Court is likely to reaffirm the theory and holding of Osborn-D'Oencb, without a requirement that charter language specify a particular federal court. On the contrary, if the Court requires more than Osborn-D'Oench language to confer federal court jurisdiction, then the Court will effectively open to challenge the corporate charter provisions of a number of other federal instrumentalities.
Keywords: Federal court jurisdiction, federal question jurisdiction, corporate charters, Oborn v. Bank of the U.S., American Red Cross, Congressionally chartered corporations, HIV litigation, tainted blood litigation, SB and JG v. The American National Red Cross
Suggested Citation: Suggested Citation