Professional corporations are jurisdictional corporations.

Byline: David Ziemer

A law firm organized as a professional corporation is a citizen, for diversity purposes, of its state of incorporation, and principal place of business, just like a traditional business corporation, the Seventh Circuit held on Sept. 22.

Donald Hoagland, as receiver for Midwest Transit, Inc., filed suit in an Illinois state court against Sandberg, Phoenix & von Gontard, P.C., a law firm incorporated, and having its principal place of business, in Missouri. The suit alleged legal malpractice.

The firm removed the suit to federal district court on the basis of diversity of citizenship. The district court entered judgment for the firm after determining that Hoagland had not proved the elements of legal malpractice under Illinois law, and Hoagland appealed.

The court directed the parties to address whether removal was proper, and before addressing the merits of the malpractice suit, the court addressed removal, holding that diversity jurisdiction was present, in a decision written by Judge Richard A. Posner, and joined by Judge William Bauer. Judge Frank Easterbrook wrote a separate, concurring opinion.

The court found that Hoagland is a citizen of Illinois, and notwithstanding the law firm's connections to Missouri, three of its 22 shareholders are citizens of Illinois. Thus, if the firm is not to be treated as any other corporation, but as a partnership or other noncorporate enterprise, complete diversity would be lacking and the suit must be dismissed for lack of federal jurisdiction.

The court noted, in Cote v. Wadel, 796 F.2d 981, 983 (7th Cir. 1986), it joined the Second Circuit, in the case of Saxe, Bacon & Bolan, P.C. v. Martindale-Hubbell, Inc., 710 F.2d 87, 89 (2d Cir. 1983), holding that for purposes of diversity jurisdiction, a professional corporation should be treated like any other corporation, rendering the members' citizenship irrelevant.

Since Cote, every other jurisdiction to consider the issue has also held in accordance with that decision: Schneider ex rel. Estate of Schneider v Fried, 320 F.3d 396, 399, 400 (3d Cir. 2003); Ocean Ships, Inc. v. Stiles, 315 F.3d 111, 114, 115 n. 1 (2d Cir. 2002); Edell & Associates, P.C. v. Law Offices of Peter G. Angelos, 264 F.3d 424, 427 (4th Cir. 2001); and Duffey v. Wheeler, 820 F.2d 1161, 1162 (11th Cir. 1987).

In additon, the Seventh Circuit reaffirmed Cote in Saecker v. Thorie, 234 F.3d 1010 (7th Cir. 2000), and, in a case involving a nonprofit corporation, held...