On August 12, 2014, the Eleventh Circuit published a decision discussing jurisdiction and business entity structure in the context of a Jones Act lawsuit. The plaintiffs were three injured sea workers, each of whom collected maintenance and cure. Those were the benefits that the injured sea workers and other employees agreed to in their contracts with Cunard Celtic Hotel Services, Ltd. The plaintiffs became unsatisfied with the extent of their maintenance and cure, believing that the contracts impermissibly limited their compensation. So, they filed a class action against Carnival Corporation and Carnival PLC.
The Defendants’ corporate structure was particularly important here. Cunard operated “under the corporate umbrella of Carnival Corporation & PLC–the dual-listed company (“DLC”) comprised of Carnival Corporation (a Panamanian corporation headquartered in Miami, FL) and Carnival PLC (a British corporation headquartered in Southampton, England).”
The district court dismissed the plaintiffs’ lawsuit, determining that the court did “not have personal jurisdiction over the dual-listed corporation Carnival Corporation and PLC.” The plaintiffs appealed, asking the Eleventh Circuit to determine whether, under the laws of Florida, the Carnival Corporation & PLC, a dual-listed company, was subject to suit as a corporation, according to the doctrine of estoppel, or under a joint venture theory of liability. It was not.
The Eleventh Circuit first explained the structure of a DLC:
A dual-listed company (DLC) is a corporate structure that binds two separate corporations into a unified economic enterprise, but allows the participating entities to maintain their individual legal identities. The arrangement is established through the execution of an equalization agreement, a contract that defines and governs the relationship between the two companies. Such a structure bears many merger-like qualities, such as common ownership of assets and integrated management, but also exhibits some hallmarks of corporate independence, such as separate stock exchange listings. Almost always utilized by corporations of disparate national origin, DLCs are employed for a variety of reasons, including the advantages they potentially offer in the areas of tax, investor/public relations, and regulatory oversight.
But is a dual-listed company suable as a corporation? No. “Indeed, regardless of whether an entity exhibits qualities common to corporations, it is not properly subject to treatment as a corporation absent incorporation, the fundamental act of corporate creation and the dividing line between corporations and non-corporations.”
Further, Carnival & PLC was not estopped from denying that it was a corporation, even if it had publicly promoted itself as a single entity. The plaintiffs lodged an interesting argument called “corporation by estoppel,” which the state of Florida codified:
No body of persons acting as a corporation shall be permitted to set up the lack of legal organization as a defense to an action against them as a corporation, nor shall any person sued on a contract made with the corporation or sued for an injury to its property or a wrong done to its interests be permitted to set up the lack of such legal organization in his or her defense.
The Eleventh Circuit reasoned that “the doctrine of corporation by estoppel is most appropriately used to maintain the expectations of parties to a contract, allowing a ‘corporation [to] sue and be sued as if it exited if the parties to the contract behaved as if it existed.’” But here, the plaintiffs had employment contracts with Cunard, not Carnival & PLC. The plaintiffs never alleged that they believed they were contracting with Carnival & PLC, or that Carnival & PLC was a legal entity capable of being sued. Accordingly, the doctrine of corporation by estoppel was not applicable.
The court also determined that Carnival & PLC was not suable as a joint venture. The plaintiffs sought to liken DLCs to “a joint venture on steroids.” Not so. A joint venture is “an association of persons or legal entities to carry out a single business enterprise for profit.” Even though DLCs and joint ventures are collaborative in nature, “the scopes of the two structures are diametrically distinct, thereby rendering inappropriate the application of Florida’s joint venture laws to Carnival Corporation & PLC.”
Finally, the Eleventh Circuit concluded its opinion with a zinger–essentially stating that the plaintiffs outfoxed themselves:
Our ruling today–that Carnical Corporation & PLC is not properly suable in this action–may appear, at first glance, to produce a harsh and unfair result. However, the Seafarers could have pressed their claims against another entity. Indeed, it seems abundantly clear that the Seafarers could have brought an action against Carnival PLC (the Cunard Line’s parent company), but chose not to, instead making a tactical decision to pursue potentially broader claims against Carnival Corporation & PLC. The Seafarers rolled the dice in targeting Carnival Corporation & PLC exclusively in this case; unfortunately for them, that roll did not pay off.