Opinion
Civil Action. No. 05-CV-5556.
December 21, 2005
MEMORANDUM
Presently before the Court are Plaintiff's Motion to Remand (Doc. No. 6), Defendants' Response thereto (Doc. No. 7) and Plaintiff's Reply (Doc. No. 15). For the reasons that follow, Plaintiff's Motion is GRANTED.
On October 7, 2005, Plaintiff We the People USA, Inc. ("WTP") commenced a civil action against Defendants Ira Distenfield, Linda Distenfield and IDLD, Inc. in the Court of Common Pleas for Chester County. On October 25, 2005, Defendants filed a notice of removal based on diversity jurisdiction. On November 14, 2005, Plaintiff filed a motion to remand, alleging that the parties were not diverse. At issue in this case is the location of Plaintiff's principal place of business on October 7, 2005, the day on which this case was filed. Plaintiff claims that its principal place of business on October 7, 2005 was in California, whereas, defendants allege that it was in Pennsylvania.
It is undisputed that defendants are citizens of California, plaintiff is a citizen of Delaware and the amount in controversy is greater than $75,000.
I. FACTUAL BACKGROUND
On March 7, 2005, plaintiff's predecessor in interest, We The People Acquisition Corporation, and defendants entered into an Asset Purchase Agreement, whereby plaintiff agreed to purchase certain assets of IDLD, a California corporation owned by Defendants Ira and Linda Distenfield. On the same date, Defendant Ira Distenfield was employed by WTP as its Chief Executive Officer ("CEO") and Defendant Linda Distenfield was employed by WTP as its President. Both Ira and Linda Distenfield's employment was principally based in Santa Barbara, California. See Pl.'s Mot. at Ex. E, Employment Agreement at 1;id. at Ex. F, Employment Agreement at 1. On October 6, 2005, Defendants Ira and Linda Distenfield were terminated for "cause."
At the time, IDLD, Inc. was known as We The People Forms and Services Centers USA, Inc. Compl. ¶ 7. IDLD, Inc. and its prior incarnation, We The People Forms and Services Centers USA, Inc., have always had their principal place of business in California.
The next day, October 7, 2005, plaintiff commenced this action. Plaintiff alleges that defendants made material misrepresentations and engaged in fraudulent and other tortious conduct designed to induce plaintiff to purchase defendants' assets at an artificially inflated price. See Pl.'s Mot. at 1-2. The complaint states claims for fraud in the inducement, negligent misrepresentation, breach of fiduciary duty, breach of contract and promissory estoppel. Compl. ¶¶ 93-143.
According to Donald Gayhart, plaintiff's current president, at the time WTP commenced this action, WTP had a corporate office in Santa Barbara, California and one in Berwyn, Pennsylvania. Pl.'s Mot. at Ex. D, Gayhart Decl. ¶ 3. On October 7, 2005, most of plaintiff's employees worked at the California office, a majority of its processing capabilities were at the California office, and all of its franchise sales employees were in the California location. Id. ¶¶ 7, 8, 9. The Pennsylvania office had no processing capabilities.Id. ¶ 8. Defendants do not dispute these assertions.
According to Defendant Ira Distenfield, the following people were employed in the Pennsylvania office on October 7, 2005: Melissa Soper, General Manager; Roy Hibberd, General Counsel and Senior Vice-President of Franchise Relations; Mike Thackary, Vice President of Operations; Chuck Stouch, Director of Finance and Administration; Mike Marcus, Vice President of Informational Services; Don Gayhart, President; Jeffrey Weiss, Chairman. Pl.'s Mot., Distenfield Aff. ¶ 3. Defendant Ira Distenfield also stated that the sales office, corporate office, franchise inquiry department, and press inquiry department were located in Pennsylvania. Id. ¶ 4. Plaintiff notes that Defendant Ira Distenfield could not have known what was happening at WTP after he was terminated; however, plaintiff does not specifically deny defendant's assertions. Pl.'s Reply at 3 n. 1.
II. LEGAL STANDARD
District courts have original jurisdiction over civil matters when the parties have diversity of citizenship and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332(a). For purposes of determining diversity, a corporation is considered to be a citizen of any state in which it is incorporated and the state where it has its principal place of business. Id. § 1332(c)(1). The determination of where the principal place of business is located is primarily a question of fact. Shahmoon Industries, Inc. v. Imperato, 338 F.2d 449, 451 (3d Cir. 1964). The party asserting jurisdiction must prove factual matters relating to jurisdiction by a preponderance of the evidence. Samuel-Bassett v. Kia Motors Am., Inc., 357 F.3d 392, 398 (3d Cir. 2004) (noting the Supreme Court's decision in McNutt v. General Motors Acceptance Corp. of Indiana, 298 U.S. 178 (1936)).
The Third Circuit has repeatedly stated that courts must be mindful of the Congressional intent to limit jurisdiction in diversity cases and resolve doubts in favor of remand. See Samuel-Bassett, 357 F.3d at 403; Boyer v. Snap-On Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990); Abels v. State Farm Fire Cas. Co., 770 F.2d 26, 29 (3d Cir. 1985).
III. DISCUSSION
Currently at issue is whether plaintiff had its principal place of business in California, as plaintiff contends, or Pennsylvania, as defendants contend, on October 7, 2005. See Freeport-McMoRan, Inc. v. K N Energy Inc., 498 U.S. 426, 428 (1991) (noting the "well-established rule" that diversity of jurisdiction is assessed at the time the action is filed);Midlantic National Bank v. Hansen, 48 F.3d 693, 696 (3d Cir. 1995). If plaintiff's principal place of business was in California on the date in question, then diversity does not exist, as both defendants and plaintiff would be citizens of California. However, if plaintiff's principal place of business was in Pennsylvania, then the jurisdictional requirements would be satisfied. This Court must determine whether defendants have shown by a preponderance of the evidence that plaintiff's principal place of business was in Pennsylvania on October 7, 2005.
In the Third Circuit, the "center of corporate activities" test is used to determine the location of a corporation's principal place of business. Kelly v. United States Steel Corp., 284 F.2d 850 (3d Cir. 1960). The "most significant factor" in determining the "center of corporate activity" is "the headquarters of day-to-day corporate activity and management decisions." Quaker State Dyeing Finishing Co. v. ITT Terryphone Corp., 461 F.2d 1140, 1143 (3d Cir. 1972); see also Kelly, 284 F.2d. at 854. The focus should be on where the day-to-day corporate activities occurred rather than where occasional policy decisions were made. Kelly, 284 F.2d at 854. In Kelly, the Third Circuit also considered other factors, although to a lesser extent. Id. These factors include the percentage of employee personnel, the amount of corporate property and the production capacity at the different locations.Id.; see also Mennen Co. v. Atlantic Mutual Insurance Co., 147 F.3d 287 (3d Cir. 1998) (considering secondary factors); Quaker State, 461 F.2d at 1143 (same).
Plaintiff argues that prior to the termination of the CEO and the President on October 6, 2005, WTP's principal place of business was in California. Pl.'s Reply at 3. On March 7, 2005, WTP bought substantial assets from WTP Forms and Services Centers, Inc., currently known as IDLD, Inc. Defendant Ira Distenfield, who was the CEO of WTP Forms and Services Centers at the time of its purchase, was hired concurrently with the execution of the Asset Purchase Agreement as the CEO of WTP. At the same time, Defendant Linda Distenfield was hired as WTP's President. According to their employment agreements, the President and the CEO were "principally based" in California. A majority of the processing capabilities and a majority of employees were in California. According to plaintiff, the fact that the CEO, the President, the majority of employees and the majority of processing capabilities were in California provides evidence that the day-to-day corporate activities of WTP were in California at the time of the Asset Purchase Agreement and remained so on October 6, 2005. Id. Plaintiff argues that on October 7, 2005, "just hours" after the President and CEO were terminated, the principal place of business remained in California; after all, moving the day-to-day center of corporate activity is a difficult feat to accomplish over night. In further support of this contention, plaintiff cites a newspaper article published on October 11, 2005 in which the new president of WTP was quoted as saying that it was "still the intention . . . that We The People remain headquartered [in Santa Barbara, California]." Pl.'s Reply at 3.
Plaintiff claims that defendants have conceded that WTP's principal place of business was in California prior to Defendants Ira and Linda Distenfield's terminations. Pl.'s Reply at 3 n. 1. This Court cannot find any such concession in defendants' pleadings.
Neither side disputes that, should the lawsuit be brought today, plaintiff's principal place of business would be in Pennsylvania.
Defendants, on the other hand, argue that WTP's day-to-day corporate activity and management was conducted in Pennsylvania on October 7, 2005. In support of this contention, defendants note that seven of plaintiff's key personnel were based in Pennsylvania and WTP's sales office, corporate office, franchise inquiry department and press inquiry department were headquartered in Pennsylvania. Defs' Memo. at 7. In his affidavit, Defendant Ira Distenfield stated that the new CEO and President, the General Manager, the General Counsel, the Vice-President of Operations, the Vice-President of Informational Services and the Director of Finance and Administration were based in the Pennsylvania office on October 7, 2005. The fact that a number of the key players were located in Pennsylvania on the date in question provides support for defendants' contention that WTP's principal place of business was located in Pennsylvania. However, at issue is not the number of corporate personnel located in a particular place, but rather the location of the day-to-day corporate activity. Plaintiff has provided evidence suggesting that the day-to-day decisions were made in California for seven months, up to and including October 6, 2005, and that on October 7, 2005, WTP had yet to decide whether it would keep the day-to-day operations in California or move them to Pennsylvania. Defendants have not refuted plaintiff's evidence.
This Court disregards defendants' arguments that do not pertain to the applicable time period, e.g. in an affidavit dated November 30, 2005, defendants provide an undated copy of WTP's webpage, which states that the corporate office is in Pennsylvania.
Defendants do not provide this Court with any information regarding the location of other key personnel. It might be the case that defendants' list of key personnel is exhaustive and that, therefore, all key personnel were based out of the Pennsylvania office on the date in question. However, defendants have not set forth any evidence in support of this contention.
One might have expected the plaintiff to provide a list of key personnel who were in California on the date in question. Sometimes that which speaks loudest is that which remains unsaid. However, plaintiff does not shoulder the burden of proof on this issue.
As neither defendants nor plaintiff has provided full information on the location of key personnel, this Court will proceed under the assumption that seven key personnel were in Pennsylvania and that there may or may not have been others in California or elsewhere.
In his affidavit, Defendant Ira Distenfield stated that WTP's sales office, corporate office, franchise inquiry department and press inquiry department are located in Pennsylvania. Distenfield Aff. ¶ 4. Plaintiff counters with the fact that while WTP had a corporate office in Pennsylvania, it also had one in California. In addition, plaintiff notes that the majority of processing capabilities, the majority of employees, and all franchise sales employees were in California. Again, defendants have not provided the necessary connection between their evidence and the "center of corporate activities" test. Merely stating that certain offices were located in Pennsylvania does not address the more important question of where the center of corporate activities was located.
Defendant Ira Distenfield did not specifically state that this was the case on October 7, 2005.
This Court finds that while there is support for defendants' contention that WTP's principal place of business was in Pennsylvania, there is also support for plaintiff's contention that WTP"s principal place of business was in California. Neither party has convinced this Court of the location of WTP's principal place of business on October 7, 2005. Specifically, based on the evidence presented by both parties, this Court finds it equally likely that the day-to-day corporate activities were occurring in California on the date in question as it does that they were occurring in Pennsylvania. Since defendants had the burden of proving that Pennsylvania was the principal place of business by a preponderance of the evidence and this Court finds that defendants have not met that burden, this Court must find for plaintiff.
The Court notes that an analysis of Kelly's secondary factors supports plaintiff's position, as the majority of employees and the majority of processing capabilities were located in California. However, the list of secondary factors inKelly was not meant to be exhaustive. Kelly, 284 F.2d at 854. The fact that WTP's sales office, franchise inquiry department and press inquiry department were located in Pennsylvania should be taken into consideration when weighing the secondary factors. Even after analyzing the secondary factors, this Court finds that it is equally likely that California was the principal place of business as it does that Pennsylvania was.
IV. CONCLUSION
Accordingly, this Court grants Plaintiff's Motion. An appropriate order follows.