Opinion
Civil Nos. 01-609 c/w 01-610 and 01-611, SECTION "T"(1)
June 5, 2001
Before this Court is a Motion to Remand filed on behalf of the Plaintiff, Kelly Investment, Incorporated ("Kelly"). Kelly seeks to have the above-captioned consolidated cases remanded to the Civil District Court for the Parish of Orleans, State of Louisiana, on the grounds that the Defendants are citizens of the State of Louisiana, and as such, 28 U.S.C. § 1441 (b) precludes them from removing these cases to Federal court. The Defendants oppose the Motion to Remand, claiming that they are corporate citizens of Nevada and Texas, not Louisiana, and therefore have properly removed the above-captioned cases pursuant to 28 U.S.C. § 1441 (a). Having studied the arguments of the parties, the legal memoranda and exhibits, the record, and the applicable law, the Court is fully advised on the premises and ready to rule.
ORDER AND REASONS
I. BACKGROUND
On February 6, 2001, Kelly filed three Petitions for Declaratory Judgment in the Civil District Court for the Parish of Orleans, State of Louisiana, naming Continental Common Corp. ("Common"), Continental Poydras Corp. ("Poydras"), Continental Baronne Corp. ("Baronne"), Transcontinental Realty Investors, Inc. ("TRI"), and Basic Capital Management, Inc. ("BCM") as Defendants. The Defendants removed the three actions to this Court on March 7, 2001, on the grounds that federal jurisdiction existed pursuant to 28 U.S.C. § 1332. After determining the cases to be related, this Court consolidated the three actions on March 27, 2001.
The Plaintiff filed the instant Motion to Remand on April 6, 2001, seeking to have the above-captioned cases remanded to the Civil District Court for the Parish of Orleans, State of Louisiana. Specifically, Kelly claims that Common, Poydras, and Baronne (collectively "the Continental Defendants") are all citizens of Louisiana, and as such, they are not entitled to remove the above-captioned actions to federal court. Accordingly, Kelly asserts that removal was improper pursuant to 28 U.S.C. § 1441 (b). The Continental Defendants oppose the Motion to Remand, claiming that they are corporate citizens of Texas and Nevada, not Louisiana; therefore, removal of the above-captioned consolidated cases was proper.
II. LAW AND ANALYSIS
A. The Law on Removal:
"[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441 (a). Federal courts have original jurisdiction over all civil actions in which the amount in controversy exceeds $75,000 and there exists complete diversity of citizenship between the respective parties. See 28 U.S.C. § 1332 (a). Accordingly, all such actions generally are removable to Federal court. However, a civil action is not removable if any defendant to the action is a citizen of the state in which the action is brought. See 28 U.S.C. § 1441 (b).
B. Determining the Citizenship of a Corporate Defendant
The instant Motion to Remand involves the citizenship of the Continental Defendants. For purposes of determining citizenship in diversity cases, a corporation is considered to be a citizen of the state in which it has been incorporated, as well as the state in which it has its principal place of business. See 28 U.S.C. § 1332 (c)(1). In this case, the Continental Defendants were incorporated in Nevada; therefore, they are considered to be citizens of that state for purposes of diversity jurisdiction. However, the parties are in disagreement over the location of the Continental Defendants' principle places of business.
In the Fifth Circuit, courts apply the "total activity" test to determine a corporation's principal place of business. See J.A. Olsen Co. v. City of Winona, 818 F.2d 401, 404 (5th Cir. 1987) (citing Anniston Soil Pipe Co. v. Central Foundry Co., 329 F.2d 313, 313 (5th Cir. 1964)). That test actually incorporates two earlier-developed tests: the "nerve center" test and the "place of activity test." See id. (citingVillage Fair Shopping Center v. Sam Broadhead Trust, 588 F.2d 431, 433-34 (5th Cir. 1979)). Under the "nerve center" test, "the state in which the corporation has its nerve center, or `brain,' is its principal place of business." Id. Whereas, under the "place of activity" test, "the state in which the corporation carries out its operations is its principal place of business." Id. In explaining the need for two separate inquiries, the Fifth Circuit expounded that "[t]he two tests have evolved because corporations are organized in different ways, and our analysis must be flexible enough to determine the place at which a given corporation actually does its principal business." Id. Additionally, the Olson court noted that the location of a corporation's principal place of business "is a fact question that follows no single inflexible test dependent solely upon the situs of the nerve center or upon the situs of activities of the corporation." Id. at 406.
In discussing the flexibility of the "total activity" test the Olson court explained that the "nerve center" test and the "place of activity" test merely stand for certain general rules "regarding the determination of a particular corporation's principal place of business." Id. at 409. The Fiflh Circuit described these general rules in the following manner:
[T]he principal place of business of a far-flung corporation will generally be its nerve center; the principal place of business of a corporation with significant administrative authority and activity in one state and lesser executive offices but principal operations in another state is generally the district of the former; and the principal place of business of a corporation with its corporate headquarters in one state and its single activity in another will generally be in the state of its operations.Id. (citations omitted).
However, the Olson court noted that these general rules are to be applied on a case-by-case basis, whereby courts balance the particular facts of each case to determine the ultimate question of the location of a corporation's principal place of business. See Id. at 410.
In balancing the particular facts of each case to determine a corporation's principal place of business, the Fifth Circuit court cited certain factors that it deemed significant. See id. at 411-12. Those factors include the following:
whether the nature of the business is active or passive, labor-intensive or management-demanding; the number of locations in which a corporation carries on its business; the importance of the activity in question to the corporation as a whole; and the extent of local contacts the corporation has with the community, including "the number of employees in the given locale and the extent to which the corporation participates in the community through purchase of products, supplies, supplies and services, sales of finished goods, and membership in local trade or other organizations."Muirfiled (Delaware), L.P. v. Pitts. Inc., 17 F. Supp.2d 600, 604 (W.D.L.A. 1998) (quoting Olson, 818 F.2d at 411-12)).
In addition to the aforementioned factors, the Fifth Circuit also considered the location of the corporation's nerve center and "`the exclusivity of decision making of the nerve center and the degree of autonomy delegated to other locations'" to be important factors in determining a corporation's principal place of business. Id. (quotingOlson, 818 F.2d at 412)).
C. The Arguments of the Parties with Respect to Principal Place of Business
In support of its Motion to Remand, the Plaintiff argues that Louisiana is the location of the Continental Defendants' principal places of business. Kelly claims that since each of the Defendants' single purpose is to own and manage property in Louisiana, then the principal place of business should be Louisiana, regardless of the fact that there exists executive offices in Texas. The Plaintiff cites several cases from other circuits in support of this argument. Furthermore, Kelly argues that this Court should disregard the existence of executive offices in Texas altogether because no significant corporate activity takes place in Texas. Kelly claims that "none of the [Continental Defendants] has a nerve center in Dallas. The Dallas `operations' are merely a shell. These corporations are without a `brain.'" See Plaintiffs Memorandum in Support of Motion to Remand, page 7. Kelly's position is that although the Defendants contract with a third-party to undertake the on-site management of the real property in Louisiana, those contracts should be seen as creating an agency relationship between the Defendants and Regis Realty, Inc. ("Regis"), the property management company. Kelly, therefore, argues that the actions of Regis in Louisiana should be imputed to the Defendants through this "agency" relationship, thereby evidencing an "active" business undertaking on the part of the Defendants in Louisiana. Kelly additionally argues that it is significant that the Continental Defendants are registered to do business in the State of Louisiana, but are not similarly registered to do business in the State of Texas. This, Kelly claims, is further proof that their principal places of business are in Louisiana. See id. at 11.
The Continental Defendants argue that their principal place of business is in Texas for several reasons. First, they argue that since the primary activity of the Continental corporations is the investment and management of real estate, which is a passive activity, the situs of the corporations' brains should be given greater significance than the location of the real property for purposes of determining the corporations' principal places of business. Additionally, the Defendants argue that not only are their corporate brains located in Texas, but their sole offices are maintained in Texas and all of the officers and directors are residents of Texas. The Defendants claim that these circumstances warrant a finding that the Continental Defendants' principal places of business are in Texas, not Louisiana. See Defendant's Memorandum in Opposition to Motion to Remand, pages 10-11.
D. Determining the "Principal Place of Business" in the Present Case
After examining the cases cited by the Plaintiff and Defendants in support of their respective positions, this Court finds two Fifth Circuit cases to be particularly instructive in this instance because both cases involve corporate defendants engaged in passive activities. First, inVillage Fair Shopping Center Co. v. Sam Broadhead Trust, supra, the corporation in question was incorporated in Delaware, had its only office in New York, but owned real estate in Mississippi. See Village Fair, 588 F.2d at 433. Aside from having its only office in New York, the officers of the corporation and two of the three shareholders were residents of New York. See id. Additionally, all of the corporation's business decisions were made in New York. See id. While the real estate owned by the corporation was located in Mississippi, the only other contact that the corporation had with that state was by virtue of the fact that it qualified to do business in Mississippi. See id. After applying the "total activity" test to the facts before it, the Fifth Circuit determined that "[t]he single passive investment in the Mississippi [real estate]" did not outweigh the managerial activity conducted in New York.Id. at 434. The Village Fair, court found the management activities conducted in New York to be "far more significant [than the fact that the corporation's asset was located in Mississippi] and . . . thus determinative of the corporation's principal place of business." Id.
The corporation was not likewise qualified to do business in New York, but the Court did not give that fact any significance one way or the other. See Village Fair, 588 F.2d at 433.
Second, in Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160 (5th Cir. 1998), the Fifth Circuit addressed whether a Delaware corporation's principal place of business was in Nauru, a small island republic in the south Pacific, or Texas. See Nauru, 138 F.3d at 163. In Nauru, the corporate defendant's only asset was a golf course located in Texas, and the corporation's sole purpose was to acquire that asset. See id. at 164. The corporation's directors were all citizens and residents of Nauru, and two of its three officers were residents ofNauru. See id. Additionally, the corporation maintained its only offices in Nauru. See id.
In Nauru, the Fifth Circuit explained that the "single exception to the lack of significant operations" in Texas was a country club that generated a significant amount of revenue and was operated by two of the Defendant's subsidiaries. Id. But, the Fifth Circuit ultimately determined that the operations of the subsidiaries were not to be imputed to the parent company for purposes of determining the parent's principal place of business. See id. Therefore, the Nauru court disregarded the operations of the subsidiaries for purposes of determining the Defendant's principal place of business. Finally, in applying the "total activity" test, the Fifth Circuit found that the district court did not err in concluding that Nauru, not Texas, was the location of the corporation's principal place of business. See id.
In the present case, each Continental Defendant owns a single piece of real estate located in New Orleans, Louisiana. Those corporations were established for the sole purpose of acquiring, owning, operating, and managing said real property. See e.g., Plaintiffs Motion to Remand, Exhibit "A," Articles of Incorporation of Continental Baronne, Inc., Article Nine. In the Fifth Circuit, such management-oriented activities are categorized as "passive" activities, thereby directing courts to look at the situs of the corporation's management function rather than the situs of the corporation's asset in determining the principal place of business. See Muirfield, 17 F. Supp.2d at 605 (citingNauru, 138 F.3d at 164; Village Fair Shopping Center Co., 588 F.2d at 431)). Accordingly, the third general rule prescribed by the Fifth Circuit in Olson applies in this case, stating that "when the activity of a corporation is passive and the `brain' of the corporation is in another state, the situs of the corporation's `brain' is given greater significance. . . ." Olson, 818 F.2d at 411 (citations omitted).
The Court notes that it cites only to the Articles of Incorporation of Continental Baronne, Inc., but the Articles of Incorporation of the other two Continental Defendants contain language evidencing the same sole purpose of each corporation.
While the situs of the Defendants' assets remains in Louisiana, the Defendant corporations have their only offices in Dallas, Texas. All officers and directors of the corporations are citizens of Texas. The financial affairs of the corporations are directed from Texas, and all of the corporate meetings are held in Texas. Checks of the Defendant corporations are written in Texas, and contracts on behalf of the Defendant corporations are negotiated by persons located in Texas. Aside from owning the real estate at issue, the only other actual contact that the Continental Defendants have with Louisiana is by virtue of the fact that they are qualified to do business in the state. The Defendants do not maintain offices, employees, or bank accounts in Louisiana.
See Defendant's Memorandum in Opposition to Motion to Remand, Exhibit "A," Affidavit of Robert A. Waldman, ¶ 7.
See id. at ¶ 7 (citing Plaintiff's Global Exhibits "A" and "B").
See id. at 68.
See Deposition of Robert Waldman, page 56.
See Deposition of Robert Waldman, pages 55-57.
While the Plaintiffs argue that the activities of Regis in Louisiana should be imputed to the Defendants for purposes of determining their principal places of business, this Court disagrees. Just as the Nauru court declined to impute the activities of the defendant's subsidiaries to the defendant for purposes of determining that defendant's principal place of business, this Court refuses to impute the actions of Regis to the Continental Defendants. Therefore, this Court finds the agency argument to be unpersuasive in the present case.
Despite the obvious similarities between the present case and the cases of Village Fair and Nauru, the Plaintiff further argues that the present case is more similar to that of Hoover v. Lanois, No.CIV.A. 00-1266, 2000 WL 1708300, at *6 (E.D.La. Nov. 13, 2000)(Schwartz, J.), which involved a corporation that owned an operated a recording studio in Louisiana.Hoover, 2000 WL 1708300, at *6. The court in that case determined that the corporation's principal place of business was Louisiana, not the Isle of Jersey, despite the fact that the corporation's upper management and headquarters were located in the Isle of Jersey. See id. The Court inHoover concluded that all of the corporation's daily operations took place in Louisiana, and therefore, Louisiana was the true location of its principal place of business. This Court finds, however, that Hoover is distinguishable from the present case in that Hoover involved a corporate defendant engaged in an "active" business in Louisiana, whereas the Continental Defendants in this case are engaged in "passive" operations in the state of Louisiana. As noted earlier, the "active"/"passive" distinction is a key factor in applying the Fifth Circuit's "total activity" test. Accordingly, this Court finds that the present case is distinguishable from Hoover. Furthermore, in Hoover, the Defendant corporation merely asserted that its principal place of business was a state other than the State of Louisiana, without ever presenting evidence that one particular state was the actual site of its principal place of business; whereas, in the present case, the Defendants can point to specific facts in support of the claim that Texas is the location of their principal places of business.
III. CONCLUSION
For the reasons stated above, this Court finds that Continental Defendants are citizens of Nevada and Texas for purposes of determining diversity jurisdiction. As such, the Defendants were entitled to remove the above-captioned actions to this Court pursuant to 28 U.S.C. § 1441 (a), and this Court properly exercised jurisdiction over the above-captioned matter pursuant to 28 U.S.C. § 1332. Accordingly,
IT IS ORDERED that the Plaintiffs Motion to Remand be, and the same is hereby, DENIED.