Opinion
No. C 00-04717 WHA
January 11, 2002
ORDER REMANDING CASE
INTRODUCTION
Plaintiff moves for dismissal of his Americans with Disabilities Act cause of action under FRCP 41 and for remand of the remaining state claims, also based on disability discrimination, for lack of subject-matter jurisdiction. This order DISMISSES the ADA claim and REMANDS the case to the Superior Court of the State of California, City and County of San Francisco.
STATEMENT
Plaintiff, Juanito M. Burgos, filed suit in state court on November 13, 2000, against his former employer defendant United Airlines, Inc. The complaint alleged causes of action for disability discrimination under the ADA, the California Fair Employment Housing Act (FEHA), the California Unruh Act, and tortious violation of public policy. On December 19, 2000, United timely removed on two independent jurisdictional grounds of federal question pursuant to 28 U.S.C. § 1331 and diversity of citizenship pursuant to 28 U.S.C. § 1332. Plaintiff was and is a citizen of California. United was a citizen of Delaware, its state of incorporation. Its worldwide headquarters were located in Elk Grove Township, Illinois. Its principal place of business is the issue to be decided.
The trial is scheduled to begin on March 18, 2002, and the deadline to file dispositive motions is imminent. On November 5, 2001. upon receipt of the notice of plaintiff's deposition, his counsel, Richard Rogers, called defendant's counsel, Barbara Antonucci, claiming that he would not be able to defend plaintiff's deposition any time before January 2002. Soon thereafter, parties jointly stipulated to a continuance of trial and pre-trial dates. The continuance of the trial date was denied for insufficient cause.
On November 21, 2001, defendant attempted again to schedule a date for plaintiff's deposition. On November 30, 2001, Mr. Rogers informed Ms. Antonucci that he would be unable to defend plaintiffs deposition at any time prior to the discovery cut off on December 21, 2001, due to judicially imposed continuances of trials originally set for September and October 2001 that occurred on December 5 and December 10, 2001. Mr. Rogers is also "set" for trials on January 11, February 4, February 11, and March 4, 2002. This motion followed.
ANALYSIS Dismissal of ADA claim
Pursuant to FRCP 41(a)(2), plaintiff moves for dismissal for his ADA claim. Defendant does not oppose. Plaintiffs ADA claim is dismissed without prejudice. This eliminates all federal-question jurisdiction.
Subject-Matter Jurisdiction
The question is whether the Court has original jurisdiction over plaintiffs state claims through diversity of citizenship pursuant to 28 U.S.C. § 1332. To answer this, the citizenship of United must be determined since plaintiff was and is a citizen of California. United maintains that diversity jurisdiction exists since it is incorporated in Delaware and supposedly has its principal place of business in Illinois (Opp. 1-2).
A corporation shall be deemed a citizen of any state by which it has been incorporated and of the state where it has its principal place of business. 28 U.S.C. § 1332 (c)(1). "The party asserting jurisdiction has the burden of proving all jurisdictional facts." Federal courts generally apply "one of two tests to determine in which state a corporation has its principal place of business: the place of operations and the nerve center test." Industrial Tectonics v. Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990). Under the nerve-center test, a corporation's principal place of business is where its executive and administrative functions are performed. Under the place-of-operations test, a corporation's principal place of business is the state in which it performs a "substantial predominance' of corporate business operations. Montrose Chem. Corp. of Cal. v. American Motorists Ins. Co., 117 F.3d 1128, 1134 (9th Cir. 1997).
The Court of Appeals for the Ninth Circuit has made clear that the "`nerve center' test should be used only when no state contains a substantial predominance of the corporation's business activities." The place-of-operations test is primary because the Ninth Circuit held that "where a majority of a corporation's business activity takes place in one state, that state is the corporation's principal place of business, even if the corporate headquarter's are located in a different state." Industrial Tectonics, supra, 912 F.2d at 1094.
To determine whether a corporation performs a "substantial predominance" of corporate business operations in any one state, the Ninth Circuit in Tosco Corp. v. Communities for a Better Environment, 236 F.3d 495 (9th Cir,. 2001), resolved the question of whether courts compare the corporation's business activity in the state at issue to its activity in all other states combined or whether the comparison is simply between contending states. Tosco held that for a state to substantially predominate it need not host a majority, i.e., more than fifty percent, of the corporate activity nationwide. What is required is that one state must contain an amount of business activity that is "significantly larger" than any other state in which the corporation conducts business. Id. at 500.
A number of factors must be examined: location employees, tangible property, production activities, sources of income, and sales. Ibid. The party invoking diversity jurisdiction, therefore, must establish under the Tosco test that the state at issue does not contain a substantial predominance of its business activity. Doubt must be resolved against said party. Ghaderi v. United Airlines, Inc., 136 F. Supp.2d 1041, 1047 (N.D. Cal. 2001).
1. The Evidence
United submitted evidence on a variety of specific areas comparing its business activity in California to Illinois. Plaintiff submitted no evidence beyond a declaration on the diverging paths taken by federal law under the ADA and disability discrimination law under the FEHA. The figures herein represent United's 2000 domestic operations except where indicated.
A. Location of Employees
In 2000, United employed 102,100 persons (Campuzano Decl. ¶ 5). In California were 24,400 employees while Illinois had 18,600 employees (id. at ¶¶ 6, 8). Of the 9,300 pilots, 2,700 were located in California while 2,600 were in Illinois (id. at ¶ 9). Of the 21,150 flight attendants, 6,500 were in California while 4,300 were in Illinois (id. at ¶ 10). Of the 8,000 ramp employees, 2,000 were in California while 2,400 were in Illinois (id. at ¶ 14). Of the 7,300 managers, 1,900 were in California while 3,300 were in Illinois (id. at ¶ 11). Of the 9,300 customer service representatives, 2,100 were in California while 1,300 were in Illinois (id. at ¶ 13). Of the 5,000 reservation employees, 1,100 were in California while 1,200 were in Illinois (id. at ¶ 10). of the 14,900 mechanics, 7,000 were in California while 2,000 were in Illinois (id. at ¶ 15). Clearly, United had more employees located in California than Illinois.
B. Location of Tangible Property
Of the more than $3.76 billion spent for asset replacement of tangible property in 1999 (with numbers remaining substantially the same in 2000), $1.36 billion was spent for California while $794 million was expended for Illinois (Smith Decl. ¶ 7, Exh. A). of the $1.36 billion expended for acquisition and land costs in 2001 (with numbers substantially the same in 2000), $631 million was spent for California while $240 million was expended for Illinois (Smith Decl. ¶ 11, Exh. B). Based on the above, it is reasonable to infer that significantly more tangible property was located in California than in Illinois since hundred of millions more dollars was spent in California for asset replacement and acquisition.
C. Location of Production Activities
Of the total number of passengers who departed on United flights, 27% left from California while 19% of the total departed from Illinois (Kaldahl ¶ 6). Of the total number of all United flights, 19% departed from California while 18% departed from Illinois (Kaldahl ¶ 4). Of the 3.4 billion total pounds of cargo transported by United, 980 million pounds were from or through California while 610 million pounds were from or through Illinois (Cohen Decl. Exh. A). In all respects, more production activity of transporting passenger and cargo occurred in California than in Illinois.
D. Sources of Income
Of the total worldwide "itinerary revenue" generated by United, 22% was from California while 10% was from Illinois (Kaldahl ¶ 5). Of the $1.1 billion in total cargo revenue generated, $415 million was in California while $219 million was in Illinois (Cohen Decl. Exh. A). Again, California clearly generated more income than Illinois.
E. Location of Sales
No evidence was proffered as to where United's sales took place.
Arguably, it could be where the reservation employees are located. That, however, is unsubstantiated as nothing in the record demands the factual leap that where the reservations were made is equivalent to where sales took place.
2. Discussion
Plaintiff invokes Ghaderi v. United Airlines, Inc., 136 F. Supp.2d 1041 (N.D. Cal. 2001), a decision issued March 16, 2001, by Magistrate Judge Brazil regarding United's principal place of business for 1999 under the substantial-predominance standard. Using the same type of data comparisons for calendar year 1999, Ghaderi's disposition was that United had not met its burden of proving its business in California did not constitute a "substantial predominance" of United's corporate activity. Critical to this was Judge Brazil's discussion on the doctrinal nondefinition of "significantly" from the Tosco substantial-predominance standard. This lack of definition, Judge Brazil stated, necessitated that this inquiry be addressed on a case-by-case basis informed and guided by well-established policies underlying the rationale and function of diversity jurisdiction. Ghaderi held:
where the corporate party attempting to invoke diversity jurisdiction has a significant presence in both states of comparison, the difference between the magnitude of activity in the two states need not be very large to be considered "substantial."
Id. at 1047-48.
This order reaches the same result based on the following. United argues that activity levels in areas like location of employees, tangible property, production activities, and sources of income are not "significantly larger" in California than in Illinois (Opp. 3). The evidence as presented by United displays the differences in absolute numeric or percentage terms between these states as they relate to their respective nationwide totals. It is necessary, however, to zero in on the side-by-side, or state-by-state comparison. For example, a corporation sold 100 widgets nationwide with 50 in State A and 25 in State B. Expressing the difference between State A and State B as 50% versus 25%, respectively, or as a difference of 25% in total nationwide sales activity does not adequately highlight the fact that the level of activity in State A is twice as much as State B. It is the twice as much that counts.
In all activity areas examined, either California or Illinois ranked first or second amongst all other states nationwide. As such, a comparison between these two states (where United conducts either the most or second most business) truly does yield the one state where United's business activities is substantially predominate in the United States.
A. Tosco Factors Favor California
As to the location of employees irrespective of position, there was 31% more activity in California than in Illinois. Employee positions dealing with United's consumers and the traveling public, however, are most probative. This is because where the corporation "has the most public contact and greatest potential for litigation helps reduce the federal court diversity case load, which is a primary goal of the `principal place of business' provision of the diversity statute." Local contact alleviates the problems of local prejudice against outsiders. Industrial Tectonics, supra, 912 F.2d at 1094. Significantly, there were 51% more flight-attendant activity and 61% more customer-service activity in California than in Illinois.
Less probative are positions having little or no contact with its consumers and the traveling public. For example, there were 73% more manager activity and 20% more ramp-employee activity in Illinois than in California. In light of the policy considerations behind diversity jurisdiction, this showing cannot undercut the fact that significantly larger flight-attendant activity and customer-service activity (positions that exist purely to serve consumers) occurred in California.
As to the location of tangible property, there was 71% more activity in terms of dollars spent in California than in Illinois. The activity in California was significantly larger than in Illinois. This activity excluded aircrafts, spare aircraft parts, and spare aircraft engines. Those are movable assets not fixed or identified with any venue (Smith Decl. ¶¶ 7-9). As to acquisition and land costs, there was 162% more activity in terms of dollars spent in California than in Illinois. United owns land in Illinois purported to be worth five million dollars in 2000 (Smith Decl. ¶ 4). United does not own any real property in California (id. at ¶ 3). It did, however, lease substantial property in this state, including airport terminals, hangers, and offices (id. at ¶ 6). United did not assign an annual monetary value to the lease, but it was likely to have had substantial value in light of the level of operations conducted in California
As to location of production activities, there was 58% more activity in terms of cargo pounds transported from or through California than Illinois. For passengers, there was 42% more passenger activity in terms of number of passengers on board when the aircraft departed in California than in Illinois.
As to sources of income, there was 89% more activity in terms of cargo revenue generated in California than in Illinois. Also, there was 120% more "itinerary revenue in California than in Illinois.
B. United's Contentions
United contends the "principal place of business determination must begin with an overall review of all the corporation's business activities" and concludes that "if a corporation does not conduct a `substantial predominance' of its business activity in any single state, then the state where the corporate headquarters is located is a corporation's principal place of business" (Opp. 9). Tosco, however, expressly held:
[t]hus, "substantial predominance" does not require the majority of a corporation's total business activity to be located in one state, but instead, requires only that the amount of corporation's business activity in one state be significantly larger than any other state in which the corporation conducts business.236 F.3d at 500.
United also contends that since the plaintiff in Tosco did not break down a comparison of California business activities to those of any other individual state that left the Tosco court little alternative but to hold that the Plaintiff's presence in California significantly outweighed its presence in any other state (Opp. 9-10). United argues Tosco is distinguishable because here, unlike there, the comparison has been set forth. This order will follow the command of Tosco and reject United's interpretation of it.
United contends that Breitman v. May Co. California, 37 F.3d 562 (9th Cir. 1994), is most factually analogous to this case and requires application of the nerve-center test (Opp. 10). The Breitman court found the place-of-operations test inappropriate since the May Company had corporate operations in over thirty states. 37 F.3d at 564. No other analysis was conducted. The Breitman decision was issued seven years before Tosco. This order will follow Tosco.
United contends the Ghaderi decision was wrongly decided (Opp. 15). First, United argues that Ghaderi was wrong to have stated "there is a preference in the Ninth Circuit for the place of operations test" (Opp. 15). This preference is a correct statement of law. See Industrial Tectonics, supra, 912 F.2d at 1094. Second, United concludes Ghaderi "transmogrifies `substantial predominance' in one state into `not insubstantial difference' between the two" (Opp. 15). As illustrated above, however, the differences in levels of activity between Illinois and California are large on a side-by-side basis. Third, United contends that Judge Brazil's decision in Ho v. Ikon Office Solutions, 143 F. Supp.2d 1163 (N.D. Cal. 2001), "clearly undermines" the Ghaderi decision (Opp. 16). This misconstrues Ho. The decision applied the nerve-center test and distinguished Ghaderi on the facts. Ho, supra, 143 F. Supp.2d at 1167-68.
In light of the foregoing, United had not met the burden of proving its California business operations within the Tosco factor areas did not constitute a "substantial predominance" over Illinois. Based on the place-of-operations test, United was a California citizen in 2000 since its principal place of business was. Since diversity of citizenship did not exist, the Court lacks subject-matter jurisdiction over the remaining state-law claims.
Supplemental Jurisdiction
In the absence of federal-question and diversity jurisdiction in this action, the Court has discretion to retain the state-law claims under its supplemental jurisdiction. 28 U.S.C. § 1367 (c)(3). The factors a court should weigh in its exercise of discretion are economy, convenience, fairness, and comity. "[I]n the usual case in which federal-law claims are eliminated before trial, the balance of factors . . . will point toward declining to exercise jurisdiction over the remaining state law claims." Gini v. Las Vegas Metropolitan Police Dept., 40 F.3d 1041, 1046 (9th Cir. 1994) (emphasis in original); see also, Berg v. First State Ins. Co., 915 F.2d 460, 468 (9th Cir. 1990). Remand is a clear option in a situation like this. Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 357 (1988).
The problem is that voluntary dismissal of the federal claim has come late in litigation (only a few weeks before trial). A legitimate concern exists whether plaintiffs counsel are resorting to an "eject button" to escape the pendency of an imminent trial. Usually, a plaintiff appreciates the certainty of imminent trial. But in this case, there is reason to believe plaintiffs counsel have not done their homework.
As to economy, the Court has expended only modest effort in supervising this case. As to convenience, it would be just as easy to try this case in state court as in federal court, both being local. As for fairness, state court will provide just as fair a proceeding as federal court. The only unfairness is loss to United of its possible tactical advantage if it is now truly more prepared for trial than opposing counsel. A remand to state court might open the door to a new round of discovery. Arguably, this would be unfair to United and a windfall to plaintiff. Be that as it may, that would be for a state court judge to decide. The undersigned is sure state court judges will take into account fairness considerations in setting a new schedule.
On comity, the entire case now turns on state-law issues with which state court judges will be more familiar. Although no particularly novel issues of state law are truly present, this Court feels it is better for state court judges to apply state law on state-law claims so as to eliminate unnecessary conflicts in the case law. It is a close call but the balance tips in favor of remand.
CONCLUSION
The case is REMANDED to state court as the ADA claim is DISMISSED.
IT IS SO ORDERED.