## Facts

- Donald Hoagland, acting as receiver for Midwest Transit, Inc., sued Sandberg, Phoenix & Von Gontard, P.C. for legal malpractice in Illinois state court.
- The law firm removed the case to federal court based on diversity jurisdiction.
- After trial, the district court entered judgment for the law firm, finding Hoagland failed to prove legal malpractice.
- On appeal, the Seventh Circuit required supplemental briefing because the record did not adequately specify party citizenship, and diversity was the only possible basis for federal jurisdiction.
- The supplemental briefs established Hoagland was a citizen of Illinois, and his citizenship (as receiver) controlled absent collusive appointment.
- The law firm was a professional corporation incorporated in Missouri with its principal place of business in Missouri; three of its shareholders were citizens of Illinois.

## Issues

1. For diversity jurisdiction under 28 U.S.C. § 1332, is a professional corporation treated as a corporation (citizenship based on incorporation and principal place of business) or as an unincorporated entity (citizenship based on all members/shareholders)?
2. If diversity jurisdiction exists, should the district court’s judgment for the defendant on the legal malpractice claim be reversed?

## Decision

- The Seventh Circuit held that a professional corporation is treated as a corporation for diversity jurisdiction purposes.
- The law firm was therefore a citizen only of Missouri (state of incorporation and principal place of business), and its shareholders’ citizenships were irrelevant.
- Because Hoagland was an Illinois citizen and the law firm was a Missouri citizen, complete diversity existed and federal subject-matter jurisdiction was proper.
- The court affirmed the district court’s judgment for the law firm on the malpractice claim.

## Legal Principles

- For diversity jurisdiction, a professional corporation is treated like any other corporation; citizenship is determined by state of incorporation and principal place of business, not by shareholder citizenship.
- In an action brought by a receiver, the receiver’s citizenship controls for diversity unless the appointment was made to manufacture jurisdiction (28 U.S.C. § 1359).
- Complete diversity is required; if a defendant entity were classified as unincorporated, shared citizenship with the opposing party would defeat diversity.

## Conclusion

The court confirmed diversity jurisdiction by classifying a professional corporation as a corporation for § 1332 purposes and, with jurisdiction secure, affirmed the defense judgment because the plaintiff failed to prove legal malpractice.


Hoagland v. Sandberg, Phoenix & Von Gontard, P.C., 385 F.3d 737 (7th Cir. 2004)