## Facts

- McDowell Valley Vineyards, Inc., a California winery, bought “Altec” non-agglomerated cork closures for bottling premium wine.
- McDowell alleged defendants marketed Altec closures as preventing or eliminating “cork taint” and as suitable and defect-free for premium wine bottling.
- McDowell claimed Sabaté representatives orally reiterated that Altec closures would prevent cork taint.
- After using the closures, McDowell alleged its wine suffered cork taint (commonly associated with TCA), and that defendants’ representations were false.
- McDowell sued asserting state-law theories including breach of contract, breach of express and implied warranties, and fraud.
- The case was filed in California state court, removed to federal court, and defendants moved for partial summary judgment.
- The district court examined subject-matter jurisdiction before reaching the merits.

## Issues

1. Whether federal-question jurisdiction existed under 28 U.S.C. § 1331 because the CISG governed the sales contract.
2. Whether diversity jurisdiction existed under 28 U.S.C. § 1332 where the plaintiff and a corporate defendant were both California citizens and additional defendants were foreign corporations.

## Decision

- The court denied defendants’ motion for partial summary judgment.
- The court dismissed the action without prejudice for lack of subject-matter jurisdiction.
- The court held the CISG did not apply because the contracting parties’ places of business were not in different contracting states; the evidence showed the seller was Sabaté USA (California), not the French parent.
- The court held complete diversity was lacking because McDowell and Sabaté USA were both California citizens, and the presence of foreign defendants did not cure that defect.

## Legal Principles

- A federal treaty may supply federal-question jurisdiction only if it applies to the dispute; the CISG applies to contracts of sale of goods only when the parties’ places of business are in different contracting states.  
- For CISG applicability, the court looks to record evidence of the contracting party; a domestic subsidiary treated as the seller in the transaction will not be disregarded based on a theory that a foreign parent was the “true” seller absent supporting evidence.
- Diversity jurisdiction under 28 U.S.C. § 1332 requires complete diversity; a plaintiff sharing state citizenship with any defendant destroys diversity even if other defendants are foreign entities.
- When subject-matter jurisdiction is absent, a federal court must not adjudicate the merits and may dismiss without prejudice.

## Conclusion

The court concluded it lacked both federal-question and diversity jurisdiction because the CISG did not govern a transaction between California entities and complete diversity was defeated by a California defendant, so it denied the pending summary-judgment motion and dismissed without prejudice.


McDowell Valley Vineyards, Inc. v. Sabaté USA Inc., No. C-04-0708 SC, 2005 WL 2893848 (N.D. Cal. Nov. 1, 2005)