Opinion
03 Civ. 6568 (HB)
September 25, 2003
OPINION ORDER
Plaintiff Sterling Fifth Associates ("Sterling") moves to remand this matter to the New York State Supreme Court. For the following reasons, Sterling's motion is granted.
I. BACKGROUND
Sterling and Carpentille Corporation ("Carpentille") are partners in 575 Fifth Associates ("the Partnership"), a New York partnership whose sole asset is property located at 575 Fifth Avenue ("the Property"). On July 14, 2003, Carpentille served notice on its partners that it intended to force the sale of the Property, pursuant to a provision of the Second Amended and Restated Agreement of Partnership ("the Partnership Agreement"). Although a sale at the proposed price ($250 million) would, according to Sterling, yield at least $8 million less than what the partnership owes to its lenders, Carpentille apparently stands to benefit from this sale because its affiliate Lodina Corporation N.V. ("Lodina"), a lendor to the Partnership, would be paid over $100 million and Carpentille would receive consideration from Lodina for accelerating the sale.
The third partner, First Stone Associates, is not a party to this lawsuit.
On August 5, Sterling filed a lawsuit in New York Supreme Court and on that same day also sought temporary and preliminary injunctive relief to prevent Carpentille from exercising this option to sell. Sterling asserts in its verified compliant that Carpentille owes Sterling fiduciary and contractual duties which will be breached by the proposed sale. The parties agreed to extend the deadline to proceed with the sale of the property to August 20, 2003. On August 19, 2003, a hearing on plaintiff's preliminary injunction was heard before Justice Karla Moskowitz, who enjoined Carpentille from forcing the sale of the property. Justice Moskowitz ordered expedited discovery and set a trial date of November 17, 2003. On August 22, 2003, Sterling amended its complaint to name Lodina as a defendant. On August 26, 2003 Carpentille submitted its first set of document requests. On August 28, 2003, Carpentille and Lodina filed a notice of removal pursuant to 28 U.S.C. § 1441 on the basis of diversity jurisdiction, and Sterling on September 10, 2003 filed the instant motion to remand. Sterling contends that defendants' removal was improper because Carpentille's principal place of business is New York — rather than Kuwait, as Carpentille asserts — and thus this Court lacks subject-matter jurisdiction because the parties are not diverse. In the alternative, Sterling contends that Carpentille waived its right to removal.
The parties met with the Court on September 5, 2003 to establish an expedited briefing schedule.
Lodina is incorporated in the Netherlands Antilles and its principal place of business is Kuwait.
II. DISCUSSION
Carpentille and Lodina, as the parties seeking the jurisdiction of this Court, bear the burden that removal from New York Supreme Court was proper. See, e.g., United Food Commercial Workers Union, Local 919, AFL-CIO v. CenterMark Properties Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994) (citing McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936)). "In resolving a motion to remand, courts must be mindful of considerations of federalism and the limited jurisdiction conferred on subject matter jurisdiction courts and should `strictly construe[ ]' the federal removal statute, resolving all doubts `in favor of remand.'" Vasura v. Acands, 84 F. Supp.2d 531, 533 (S.D.N.Y. 2000) (quoting Miller v. First Security Investments, Inc., 30 F. Supp.2d 347, 350 (E.D.N.Y. 1998)). The case must be remanded to state court if the party who seeks a federal forum fails to satisfy its burden. See, e.g., United Food Commercial Workers Union, 30 F.3d at 301.
A. Carpentille's principal place of business
Carpentille is incorporated in Delaware and licensed to do business in New York. It is co-owned by National Investments Company, a public shareholding company based in Kuwait which owns 49% of Carpentille's outstanding shares, and Gulf Investments Company, a public shareholding company based in Bahrain which owns the remaining 51% of the outstanding shares. See Al Majid Decl. ¶ 4-6. Carpentille's sole asset is its interest in the Partnership, whose sole asset is the Property. Carpentille contends that its principal place of business is Kuwait. Sterling contends that Carpentille represents to the public that its principal place of business is New York, that it actively conducts business in New York, and that it has a limited presence in Kuwait.
According to Yousef S. Al Majid, the President and a director of Carpentille, Carpentille at all relevant times maintained and maintains its principal place of business in Kuwait, where it shares office space with its controlling shareholder, National Investments Company. See Al Majid Decl. ¶ 4. All three of Carpentille's officers and directors are Kuwaiti citizens who reside and work in Kuwait, and it has no employees or officers and directors who work or reside in New York. See Al Majid Decl. ¶ 7, 13. The authority to sign for or on behalf of the company rests solely with its officers and directors in Kuwait, all policy decisions are made by its officers in Kuwait, and all key documents related to the Property and Partnership were executed by its officers in Kuwait. See Al Majid Decl. ¶ 8. Although Carpentille has no bank account of its own, its parent National Investments Company maintains a bank account in Kuwait and a correspondent bank in New York. Finally, Carpentille notes that the partnership agreement defines "business day" with respect to Carpentille as "a legal day for transaction of business in Kuwait and is not an Islamic holiday" while "business day" for the other partners is defined as any day "which is not a legal holiday in New York." Hans Decl. Ex C ¶ 2.6.
Carpentille's other officers are Fuad A. Al Khamis, vice president and secretary, and Waleed A. Al A7.737.7, a vice president.
With respect to Sterling's evidence of Carpentille's operations in New York and its lack of operations in Kuwait, Sterling notes that the information on file with the New York Department of State lists Carpentille's "principal executive office" as an attorney formerly at Lord Day Lord, Barrett Smith in New York. Carpentille wrote in its 2001 franchise tax return, dated February 13, 2003, that its principal place of business outside of Delaware is New York. Sterling makes clear that Carpentille actively participates in the decisionmaking as well as the day-to-day operations of the Partnership, which business it conducts through its New York-based agents, accountants and lawyers, UBS Realty Investors LLC, PriceWaterhouseCoopers LLP, and King Spalding LLP. Sterling contends that its "regular communications" and "substantive discussions concerning the Partnership's operations are with Carpentille's representative in New York, not anyone in Kuwait." Katz Aff. ¶¶ 13, 14. Sterling also contends that Carpentille's presence in Kuwait is minimal-for example, Carpentille has no day-to-day operations or payroll of its own in Kuwait. See Katz Aff. ¶¶ 21, 22. Moreover, Carpentille is not registered with the Ministry of Economy and Commerce to do business in Kuwait, as foreign companies must be under Kuwaiti law; Carpentille is not listed with the Kuwait Chamber of Commerce as a domestic company nor listed in any Kuwaiti business directories.
The phone number listed for Carpentille has a 212 area code. It lists as its directors Fuad A. Al — Khamis and Seraj Al-Baker, c/o UBS Realty Investors LLC, in New York, New York.
It is well-settled that there are two general tests that courts apply to determine a corporation's principal place of business and that which test the court should use "depends on the structure and nature of the corporation." See Peters v. Timespan Comms. Inc., No. 97 Civ. 8750 (DC), 1999 WL 135231, at *5 (S.D.N.Y. Mar. 12, 1999); see also R.G. Barry Corp. v. Mushroom Makers, Inc., 612 F.2d 651, 655 (2d Cir. 1979). Under the so-called "nerve-center test," "[w]here corporate operations are spread across numerous states, courts have tended to emphasize those factors that identify the place where overall corporate policy originates." R.G. Barry Corp., 612 F.2d at 655. "[T]he principal place of business of a far-flung corporate enterprise is `the nerve center from which it radiates out to its constituent parts and from which its officers direct, control and coordinate all activities without regard to locale, in the furtherance of the corporate objective." Id. The second test is commonly called the "bulk-of-activities test" or the "place-of-operations test," and is generally used when the corporation's operations are centralized. See R.G. Barry Corp., 612 F.2d at 655. Under this test, courts "deemphasize the concentration on the corporate `nerve center' and focus instead upon the state in which a corporation has its most extensive contacts with, or greatest impact on, the general public." R.G. Barry Corp., 612 F.2d at 655. Sterling cites a number of cases for the proposition that "[w]here a corporation has a sole business purpose of owning, operating or developing a single business interest or asset, courts have deemed the location of that interest or asset to be a persuasive determinant of the corporation's principal place of business." Plaintiffs Mem. of Law in Support of its Motion to Remand 15 (citing e.g., Pine Ridge Realty Corp. v. Block Co., No. 97-2076, 1997 WL 292136 (D. Kan. May 16, 1997) and Delalande, Inc. v. Fine, 545 F. Supp. 268, 272 (S.D.N.Y. 1982)).
At issue in Delalande was the principal place of business of a Delaware corporation that was organized by a French conglomerate as a holding company to acquire stock in a certain company. See Delalande, 545 F. Supp. at 269. Judge Brieant rejected the argument that the company's principal place of business was France, where its parent — the ultimate decisionmaker — was located, and held instead that its principal place of business was New York. Central to this result was that "the management and implementation of these decisions and policies are effectuated principally in New York." Id., at 272. Judge Brieant also noted that, as here, the company represented in several official documents, such as its Delaware corporate franchise tax filing, that its principal place of business was New York. See id. at 272-73. The second case that Sterling relies on is Pine Ridge Realty. There the District Court in Kansas held that the principal place of business of a corporation whose sole purpose and sole asset was a commercial real estate venture in Kansas was Kansas, rather than Connecticut where the corporation's headquarters and employees were allegedly located. The court noted that the Tenth Circuit rejected the nerve-center test and the corporate-activities test and instead adopted an approach that looks to the corporation's total operations. See id. at *3 (citing Amoco Rocmount Co. v. Anshultz Corp., 1 F.3d 909, 914-15 (10th Cir. 1993)). The court explained that the principal place of business of a corporation engaged in a single line of business is the state where its operating functions are located rather than its executive and administrative offices — the so called "single-line-of-business rule." See id. The court considered and rejected the contention that the existence of a management contract meant that the operations were assumed by another, independent company:
The court was unpersuaded by the vice president's affidavit, which stated that its only office, all employees, all corporate records, all accounting, and all business and strategic decisions occurred in Connecticut, because there was evidence that the corporation did not have its own offices and that its officers were not even aware of when or how they were appointed to their positions. See Pine Ridge Realty, 1997 WL 292136, at *2-*3.
The explicit purpose of PERG and its partners was to own, operate, and develop the Kansas site. They still own the real estate and have chosen to operate it by delegating responsibilities to other entities, presumably under the owners' ultimate control. In that way, the Block companies act for the owners as would employees at the place of operations. The sole business activity of PERG and Pine Ridge remains the oversight and control of the commercial development in Kansas; accordingly, the site of that development in Kansas predominates in the court's analysis.See id. at *5.
While Delalande is favorable to Sterling's contention that the location of the asset that the corporation controls is important, other courts in this District have taken a different view. See Refco Properties Inc. v. Trump, No. 94 Civ. 2124 (CSH), 1995 WL 412423 (S.D.N.Y. July 12, 1995) (holding that the principal place of business of a holding company that participated in a partnership that owned a hotel in New York was Illinois, where the holding company's parent and employees were located)
The instant dispute involves a fact pattern that falls somewhere between Delalande and Refco. It resembles Delalande to the extent, for example, that Carpentille submitted filings that stated its principal place of business was New York. It resembles Refco to the extent that its officers and directors and employees and its office space were shared with a parent. Sterling argues with some force that Carpentille's asset-management agreement with UBS is also important because it gives Carpentille a New York-based presence, and that this agreement distinguishes this case from Refco. It appears that although Refco's Illinois-based employees shared space with the employees of its parent company, these employees performed all duties in connection with the partnership, and thus, Refco did not retain any agents in New York. Here, while UBS provided advisory services to Carpentille under the asset-management agreement and although the agreement specifically identifies UBS as an independent contractor, the agreement also grants to UBS considerable responsibility for the day-to-day operations of Carpentille's interest in the Partnership. The agreement delineates several services that UBS is to provide, such as services with respect to partnership matters and as to operational matters. As for partnership matters, the Agreement provides that UBS will, inter alia, "Ensure that managing partner performs duties and responsibilities as outlined in the partnership agreement," and "Represent [Carpentille] at partnership meetings and ensure that [Carpentille] is timely informed of acts which must be performed under the terms of the partnership agreement." As for operational matters, the Agreement provides that UBS will, inter alia, "Make visits to and inspect the property," and "Meet with the managing partner and building manager at least quarterly to review operations of the property."
The agreement also provides that UBS is to perform that following "disposition services:"
With respect to any sale during the term of this Agreement, UBS Brinson, Inc. will, in all cases subject to the prior written approval of Investor:
• interview, select and negotiate contract with investment sales broker,
• direct the preparation and distribution of basic sales materials,
• screen prospective purchasers,
• analyze and consult with investor regarding any offers to purchase received,
• negotiate with prospective purchaser the sales price and other terms and conditions,
• generally consult with and advise investor with respect to all aspects of the sale.
I do not need resolve the tension between Delalande and Refco — to the extent that there is any — because it is enough here to decide that I cannot help but have substantial doubts about Carpentille's proof with respect to its contention that its principal place of business is Kuwait. Put another way, Carpentille has failed to carry its burden. See Vasura, 84 F. Supp.2d at 533. It should be noted that in this motion to remand, both parties have taken positions opposite to ones they made to Justice Moskowitz at the hearing on August 19. Carpentille's counsel stated, in response to Judge Moskowitz's question about Sterling's ability to collect from Carpentille if successful, that Carpentille was "here in court today" and that "[Sterling] state[s] only that [Carpentille] sits in Kuwait, but the client is here." On the other hand, Sterling argued before Justice Moskowitz that "this is very important, your Honor, we are talking about a defendant Carpentille which, although it's a Delaware corporation, its center of gravity is in Kuwait." Aug. 19 Hearing Tr. 15. In my view, Carpentille's admission, given that it bears the burden to demonstrate its right to a federal forum, is more significant. Further and to simply make the cheese more binding, Al Majid's declaration, on which Carpentille relies for several of its contentions about its operations in Kuwait, fails to comply with 28 U.S.C. § 1746, under which this declaration was submitted. Section 1746 permits an unsworn declaration made under penalty of perjury to substitute for a sworn affidavit, but only if the claimant states that its contents are true and correct. 28 U.S.C. § 1746; but see LeBoeuf, Lamb. Greene MacRae, L.L.P. v. Worsham 185 F.3d 61, 66 (2d Cir. 1999). There is no such language here. Moreover, when executed outside the United States, such an unsworn statement must indicate that the statement is made under penalty of perjury under the laws of the United States of America. Again this declaration contains no such language. Here, the declarant simply states: "YOUSEF S. AL MAJID, pursuant to 28 U.S.C. § 1746 and under penalty of perjury declares and says . . . "Consequently, it is hard if not impossible for me to rely on the language to support the proposition that Carpentille's principal place of business is Kuwait.
Section 1746 provides in pertinent part:
Wherever . . . any matter is required or permitted to be supported, evidenced, established, or proved by the sworn declaration, verification, certificate, statement, oath, or affidavit, in writing of the person making the same . . ., such matter may, with like force and effect, be supported, evidenced, established, or proved by the unsworn declaration, certificate, verification, or statement, in writing of such person which is subscribed by him, as true under penalty of perjury, and dated, in substantially the following form:
(1) If executed without the United States: "I declare (or certify, verify, or state) under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. Executed on (date). (Signature)".
Because Carpentille has failed to shoulder its burden of proof it is unnecessary to reach Sterling's alternative argument, namely that Carpentille has waived the right to remove the case to federal court.
III. CONCLUSION
For the foregoing reasons, Sterling's motion to remand is granted. The Clerk of the Court is instructed to transfer the file to the New York Supreme Court, New York County, and to remove the matter from my docket.