Opinion
CIVIL ACTION NO. 03-10723-DPW
January 8, 2004
MEMORANDUM AND ORDER REGARDING PLAINTIFF'S MOTION TO REMAND
Robert Rautenstrauch, a citizen of Massachusetts, brought this action in Massachusetts state court against his former employer, Stern/Leach Company. Stern/Leach removed the case to this Court on the basis of diversity of citizenship. Rautenstrauch now moves to remand, contending that there is no diversity of citizenship because Stern/Leach has its principal place of business in Attleboro, Massachusetts and is therefore a Massachusetts citizen. I will grant Rautenstrauch's motion.
I. BACKGROUND
A. Relevant Facts
Stern/Leach is a Delaware corporation and a wholly-owned subsidiary of the Cookson Group, based in Providence, Rhode Island. Its official corporate headquarters are at One Cookson Place, Providence, Rhode Island. Stern/Leach's main manufacturing facility is at 49 Pearl Street, Attleboro, Massachusetts; it has other manufacturing facilities in Massachusetts and Rhode Island, and sales offices in New York, Texas, California, Hawaii, the United Kingdom, and Hong Kong.
In 1996, Rautenstrauch, then residing in New York, became a Stern/Leach employee when Stern/Leach acquired his employer, Heraeus Precious Metal Refining ("PMR") in Alden, New York. In April 1997, Stern/Leach closed the PMR facility and terminated all PMR employees, including Rautenstrauch.
In August 1997, Rautenstrauch accepted a position as a process engineer at Stern/Leach's Attleboro plant, based on an alleged oral promise of five years' employment. In late 2000, plant management moved Rautenstrauch to a new office within the plant, and soon afterwards, he developed a severe allergy to a substance used near the new office. Rautenstrauch requested to move his office away from the offending area, but Stern/Leach refused. In the summer of 2001, Stern/Leach terminated Rautenstrauch's employment.
B. Procedural History
On March 13, 2003, Rautenstrauch brought an action in Massachusetts Superior Court, alleging Massachusetts state law claims of promissory estoppel, misrepresentation, and handicap discrimination. On April 11, 2003, Stern/Leach removed the action to this Court on the grounds of diversity of citizenship. Rautenstrauch moved to remand on the grounds that Stern/Leach is in fact a citizen of Massachusetts. At a scheduling conference with the parties on June 5, 2003, I entered an order reserving the motion for remand, established a discovery schedule as to both remand issues and the merits and making available the Alternative Dispute Resolution program of this court. On November 23, 2003, the ADR Provider reported that further efforts to settle this case were unlikely to be productive. Consequently, I now take up the motion to remand.
The parties, without notice to the court or any effort to modify the scheduling order, simply chose to ignore the merits discovery schedule. As a consequence, they reported at the hearing on the remand motion that no merits discovery had been conducted yet.
II. ARGUMENT
A. Legal Standard
For purposes of determining whether diversity of citizenship exists, "a corporation shall be deemed to be 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 court must identify the principal place of business of a corporation, even if the corporation has not made such an identification for itself. Media Duplication Servs., Ltd, v. HDG Software, Inc., 928 F.2d 1228, 1236 (1st Cir. 1991). The burden of proving a corporation's principal place of business rests upon the party asserting existence of diversity jurisdiction. Id. at 1236; 13B Charles Alan Wright, Arthur R. Miller Edward H. Cooper,Federal Practice Procedure § 3625, at 640 (1984 Supp. 2003). Absent circumstances that would justify piercing a corporate veil, a separately incorporated subsidiary corporation "is considered to have its own principal place of business," even if the parent corporation owns all the stock and there is substantial overlap of directors and management. Topp v. CompAir Inc., 814 F.2d 830, 835 (1st Cir. 1987) (internal quotation marks omitted); de Walker v. Pueblo Int'l, Inc., 569 F.2d 1169, 1172-73 (1st Cir. 1978).
In the First Circuit, a corporation's principal place of business is determined by "[t]hree distinct, but not necessarily inconsistent tests."de Walker, 569 F.2d at 1171.
First, under the "center of corporate activity" test, a corporation's principal place of business is "where the corporation's day-to-day management takes place." Id. at 1172; Kelly v. United States Steel Corp., 284 F.2d 850, 854 (3d Cir. 1960).
Second, under the "locus of the operations of the corporation" test, the principal place of business is "where the bulk of the corporation's actual physical operations are located." Topp, 814 F.2d at 834; Inland Rubber Corp. v. Triple A Tire Serv., Inc., 220 F. Supp. 490 (S.D.N.Y. 1963).
Third, under the "nerve center" test, a corporation's principal place of business is "the center `from which (a multifaceted corporation's) officers direct, control and coordinate all activities without regard to locale, in the furtherance of the corporate objective.'" de Walker, 569 F.2d at 1172 (quoting Scot Typewriter Co. v. Underwood Corp., 170 F. Supp. 862, 865 (S.D.N.Y. 1959). The nerve center test is most appropriate where no other test yields a meaningful result, such as for holding companies, or large corporations with "complex and farflung activities." Topp, 814 F.2d at 834; Lugo-Vina v. Pueblo Int'l, Inc., 574 F.2d 41, 44 n. 2 (1st Cir. 1978). Some courts and commentators have gone further and stated that "`the nerve center test should be restricted to instances in which the place of operations logically cannot be used to determine a corporation's principal place of business.'"Savis, Inc. v. Warner Lambert, Inc., 967 F. Supp. 632, 638 (D.P.R. 1997) (quoting Wright, Miller Cooper, supra, § 3625, at 635).
It is important to bear in mind that these three tests are really models of corporate structure. The "center of corporate activity" model is appropriate for a corporation where day-to-day management is concentrated in one location; the "locus of the operations" model is appropriate for a corporation having physical operations, a majority of which take place in one state; and the "nerve center" model is appropriate for a corporation where executives at one central office direct all corporate activities conducted in diverse jurisdictions. At any one corporation, it is unlikely that all three models will fit neatly. The cautionary notes sounded by commentators and courts against over-applying the nerve center test, for example, can be reinterpreted as an observation that many corporations simply do not have a powerful central headquarters that directs all activities at far-flung offices. Thus, while "[a]11 three tests tend often to merge and overlap," Topp, 814 F.2d at 834, courts must be careful to consider the fit of model to reality, and not try to shoehorn a corporation into an inappropriate description simply to apply a test.
B. Center of Corporate Activity
The record indicates that Stern/Leach's management functions are divided into two broad categories. Providence-based executives have responsibility for broad categories such as human resources, high-level strategy, and corporate governance policy for Stern/Leach, as well as other closely held (and closely integrated) Cookson Group subsidiaries. On the other hand, Stern/Leach's day-to-day management, and actual production, appear to take place in Attleboro.
Stern/Leach's President, Richard Smith, is based in Attleboro, and the CEO, Richard Powers, is based in Providence. Smith, not Powers, manages the day-to-day operations. Smith testified that "[w]e handle operations in Attleboro." (Smith Dep., Pl.'s Supp. Memo. Ex. 2, at 20.) When asked to describe the power division between himself and Powers, Smith stated that "I have probably 98 percent of the operational responsibility. Strategic and policy certainly comes from Mr. Powers and the executive committee." (Id. at 36.) He later explained that Powers's exclusive authority includes functions such as benefits, legal work, auditing, salary increases, and medical coverage, as well as certain product decisions related to new product lines or pricing. (Id. at 36-37.) In contrast, when asked "who's in charge" of "the day-to-day operations of the Stern/Leach business," Smith responded "Myself. Taking direction from Rich [Powers]." (Id. at 37.) Smith also explained that, while "from a management point of view and a legal point of view" Stern/Leach is a Rhode Island company, it is "an Attleboro operation," and "95 percent of day-to-day operations for Stern/Leach Hallmark Sweet are done there." (Id. at 39.) Smith considers the 49 Pearl Street facility in Attleboro, Massachusetts, to be the headquarters of Stern/Leach. (Id. at 40.)
In addition to Smith, other key Stern/Leach executives — Chief Financial Officer (and Treasurer) James "Austin" Carr, Vice President of Manufacturing and Engineering Tony Cervone, Vice President of Sales and Marketing Mike Merolla, and security chief Bob Enos — are based in Attleboro, and report directly to Smith. (Id. at 26-28.) These executives do not focus strictly on management of the specific facilities in Attleboro. When Stern/Leach purchased PMR — where Rautenstrauch worked at the time — Carr traveled from Attleboro to New York "to bring [PMR] into the fold . . . to incorporate them into [Stern/Leach]. . .[and] to find out a way to get the right people in place and the right team in place to incorporate it into our organization." (Carr Dep., Pl.'s Supp. Memo. Ex. 4, at 30-31.) Lou DiCola, who reported directly to Smith, was sent from Attleboro to New York to manage PMR, and Smith himself visited New York approximately three days a month to supervise the operation. (Smith Dep., Pl.'s Supp. Memo. Ex. 2, at 17-18.)
Nor was the PMR acquisition an unusual extension of authority by Attleboro-based executives. Powers testified that all the personnel in Stern/Leach's sales offices in New York, Texas, Hawaii, and Los Angeles report to Merolla in Attleboro. (Powers Dep., Pl's Supp. Memo. Ex. 5, at 24-25.) Stern/Leach's international sales offices in the United Kingdom and Hong Kong report to Smith. (Smith Dep., PL's Supp. Memo. Ex. 2, at 30.)
Against this, Stern/Leach offers virtually no evidence to suggest that Stern/Leach's day-to-day management takes place anywhere but Attleboro. Therefore, I find that Stern/Leach's "center of corporate activity" is in Massachusetts.
C. Locus of Operations
The "locus of operations" test also suggests that Stern/Leach's principal place of business is in Attleboro. Stern/Leach has a mere eight employees at its official corporate headquarters in Providence. (Powers Dep., PL's Supp. Memo. Ex. 5, at 13.) On the other hand, Stern/Leach has approximately 450 Massachusetts-based employees, of whom about 365 work at the mill at 49 Pearl Street in Attleboro, and the remaining 85 work at two different Stern/Leach plants in Attleboro, both of which are also managed by Smith. (Smith Dep., PL's Supp. Memo. Ex. 2, at 26; see also Ojeda Aff. ¶ 15.) Indeed, Rautenstrauch himself was once briefly assigned to Stern/Leach's "Vennerbeck" facility in Lincoln, Rhode Island, where some 100 employees work, and observed that the highest executive and management direction came from Attleboro. (Rautenstrauch Aff. ¶ 19.) Finally, the overwhelming majority of Stern/Leach's products are made in Attleboro: 80-85% by dollar value, or 67-70% by weight. (Smith Dep., Pl's Supp. Memo. Ex. 2, at 31, 33.)
The exact corporate structure, and interrelations of employees, is potentially confusing. Cookson's Precious Metals Division, which operates through the legal entity Stern Metals, Inc., centrally manages several separately incorporated entities, including Stern/Leach. (Powers Dep., Pl's Supp. Memo. Ex. 5, at 13-16.) Stern/Leach's eight employees in Providence are apparently technically employed by Stern Metals, Inc. (Id. at 13, 23.)
Stern/Leach offers no evidence that Attleboro is not "where the bulk of the corporation's actual physical operations are located," Topp, 814 F.2d at 834. Therefore, I find that Stern/Leach's "locus of operations" is in Massachusetts.
D. Nerve Center
Having found that Massachusetts is both the center of corporate activity and the locus of operations for the defendant, I have some question whether it is necessary or appropriate to apply the "nerve center" test. Moreover, it does not appear that the defendant is the type of entity with far flung and complex activities for which the "nerve center" test is designed. Nevertheless, in the interest of completeness and because Stern/Leach ultimately relies principally on the argument that One Cookson Place, Providence, Rhode Island is its "nerve center," I will take up "never center' analysis.
To identify the nerve center, the First Circuit has produced a lengthy list of factors, which may be divided into two rough categories: formalities and governance.
First, the court must examine corporate formalities: the location of the corporate headquarters; where the corporate income tax return is filed; where corporate records are kept; where principal bank accounts are held; and the official headquarters as designated in the charter or other official corporate documents. Topp, 814 F.2d at 837-38; see also Taber Partners I v. Merit Builders, Inc., 987 F.2d 57, 59 (1st Cir. 1993). Most of these factors point to Providence. In its filings with the Secretaries of State of each state in which it has sales or manufacturing facilities, Stern/Leach identifies its headquarters as One Cookson Place, Providence, Rhode Island. Its corporate documents, including Articles of Incorporation and Bylaws, identify Providence as its official headquarters, and those documents are maintained in Providence. Its federal tax returns and Securities Exchange Commission compliance forms are filed from Providence, and all its corporate bank accounts are maintained there. (Ojeda Aff. ¶¶ 5-10.)
Rautenstrauch also points out that Stern/Leach's web site lists its "Home Office" as 49 Pearl Street, Attleboro, Massachusetts. (Pl's Supp. Mem. Ex. 1.) I ascribe little weight to this identification, because (1) it is not an official corporate document of the kind envisioned by Topp, (2) it identifies a "home office," which is potentially a different concept than a principal place of business, and (3) it also identifies another "home office" in Lincoln, Rhode Island. To be sure, it is not meaningless that Stern/Leach holds itself out to the world as having a "home office" in Attleboro, but not in Providence — and in fact the Rhode Island "home office" listed is not One Cookson Place, Providence, but rather the Vennerbeck manufacturing plant. Ultimately, I find the web site "home office" identification to have some, but not much, value. Cf. Media Duplication Servs., 928 F.2d 1228, at 1236-37 (noting that plaintiff's stationery identified the "Corporate Office" as being in California, but placing only minimal weight on this identification because "it remains entirely unclear what functions the California `Corporate Office' performed and the relation of that office to MDS's other activities"); de Walker, 569 F.2d at 1171 (noting that annual reports listed an "executive office" in New York, but declining to draw inferences without further evidence of activities taking place in New York office).
In contrast, I find Stern/Leach's statement that it is "located in Attleboro, Massachusetts," made in a position statement before the Massachusetts Commission Against Discrimination relating to this dispute, to carry no weight in this matter. (Pl.'s Supp. Mem. Ex. 3, at 1-2.) A company may be "located" in many states, but only has one principal place of business.
Second, the court must examine corporate governance: where directors' meetings are held and officers are elected; where accounting, auditing, and legal work are done; where major policy decisions are made; and where the personnel who direct the daily operations of the corporation are located. See Taber Partners I, 987 F.2d at 59-60; Topp, 814 F.2d at 837-38. These factors point to Rhode Island. Directors' meetings and election of officers take place in Rhode Island. Accounting, auditing, and legal work are conducted in Providence. Major policy decisions are made by a nine-member Executive Committee, which meets in Rhode Island. Four Executive Committee members work in Rhode Island, three work in Massachusetts, and two work elsewhere. The committee is chaired by Powers, who works in Rhode Island. (Ojeda Aff. ¶¶ 11-13.) On the other hand, the Executive Committee meets just four times per year (Powers Dep., PL's Supp. Memo. Ex. 5, at 28), and as stated above, day-to-day operations are managed by Smith in Attleboro.
The most compelling argument in favor of a Providence nerve center is the authority exercised by Powers, the Chairman and CEO. Smith acknowledged that "[s]trategic and policy [responsibility] certainly comes from Mr. Powers and the executive committee." (Smith Dep., PL's Supp. Memo. Ex. 2, at 36.) Even in the area of day-to-day operations, Smith stated that he was in charge, but "[t]aking direction from Rich [Powers]." (Id. at 37.) According to Smith, Powers gives direction on certain product and pricing decisions, and maintains customer and other relationships that Smith lacks. (Id. at 37-38.) Powers visits the Attleboro facility approximately once a week for one to three hours, and converses with manufacturing, sales, and operating personnel; he has done so since assuming his present position. (Powers Dep., Pl.'s Supp. Memo. Ex. 5, at 28.)
The nerve center question is closer than the center of corporate activity or locus of operations inquiries, because it is obvious that some authority flows from Providence to Attleboro. On balance, however, I find that these factors — corporate formalities, formal corporate governance, and the actual responsibility exercised by Powers — do not suffice to establish a Rhode Island nerve center. A nerve center is a location from which control "radiates out to [the corporation's] constituent parts and from which its officers direct, control and coordinate all activities without regard to locale." Scot Typewriter Co., 170 F. Supp. at 865. The evidence does not establish that all or even most Stern/Leach activities are directed, controlled, and coordinated from Rhode Island. Rather, it suggests that most operational decisions are made in Attleboro, a few very important operational decisions are made in Providence, and most decisions having little or nothing to do with operating Stern/Leach's actual metals business — i.e., the human resources, legal, auditing, accounting, and similar functions that the Cookson Group finds convenient to handle centrally — are made in Providence. To the extent that farflung Stern/Leach offices report to a central office, it appears to be Attleboro, not Providence. In short, there is no single "nerve center."
Therefore, I find that a single "nerve center" model of corporate structure does not readily apply to Stern/Leach, and it would be an artificial and arbitrary exercise to determine where such a nerve center would be located. Were such a determination required, I would find that the nerve center is in Massachusetts, not Rhode Island.
I note the apparent anomaly that, if the principal place of business is in Massachusetts, then an employee working at Stern/Leach's corporate headquarters in Providence could sue it in the United States District Court for the District of Rhode Island. This is not a paradox, but rather a predictable result of § 1332(c)(1)'s scheme by which a corporation may only be a citizen of two states even if it has a significant presence in three or more.
III. CONCLUSION
For the reasons set forth above, I find that Stern/Leach's principal place of business is in Attleboro, Massachusetts, and therefore Stern/Leach, like Rautenstrauch, is a citizen of Massachusetts. Since there is no diversity of citizenship between the parties, this Court lacks jurisdiction. Therefore, Rautenstrauch's motion to remand is GRANTED.