Opinion
Civil Action No. 00-1266 Section "A"
November 13, 2000
Before the Court is plaintiff Barbara Hoover's ("Hoover's") Motion to Continue the November 8, 2000 hearing in connection with the defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction. The defendants, Daniel Lanois ("Lanois) and Kingsway Music Corporation ("KMC"), timely filed a formal response to the foregoing motion noting, inter alia, that: (1) the plaintiff's Motion to Continue is moot; (2) plaintiff's requested expedited discovery is overbroad and, for the most part, wholly irrelevant to the precise jurisdictional issue before the Court (i.e., the only issue before this Court is whether KMC's principal place of business is Louisiana for purposes of subject matter jurisdiction); and (3) plaintiff's suggestion that any discovery and/or expedited discovery is necessary is disingenuous, since the discovery sought would be redundant of discovery conducted by the plaintiff during the last eight years of identical litigation instituted by plaintiff in the Civil District Court for the Parish of Orleans, Louisiana.
Plaintiff filed formal opposition (Rec.Doc. No. 29) to the defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction which mooted the instant motion to continue to allow time for "necessary" discovery.
In this vein, counsel for the defendant has amply demonstrated to the Court that plaintiff previously conducted full and complete discovery regarding the defendants in the context of 8 years of relentless litigation efforts in the Civil District Court for the Parish of Orleans Louisiana regarding precisely the same subject matter/operative facts addressed to this Court for resolution in the captioned federal litigation.
It appears of record that the captioned federal proceeding is plaintiff's third lawsuit based on the same set of facts/circumstances instituted against precisely the same defendants, Lanois and KMC, and Kingsway U.S.A., Inc, and involves precisely the same issues and property located at 544 Esplanade Ave., New Orleans, Louisiana (i.e., the Germaine Wells mansion). The Court notes that the plaintiff failed to name Kingsway Music U.S.A., Inc., a Louisiana corporation, in the instant federal litigation. As explained herein below, Kingsway Music USA was the wholly owned subsidiary of KMC, which managed KMC's business in Louisiana including KMC's recording studio/property located at 544 Esplanade Avenue, New Orleans, Louisiana. The Court further observes that the joinder of Kingsway Music U.S.A., Inc. would destroy diversity since the plaintiff is a Louisiana citizen. The Court will address both the plaintiff's discovery motion and the defendants' Motion to Dismiss herein below.
In April 1992, the plaintiff in this cause, Barbara Hoover ("Hoover") filed her original petition against Daniel Lanois and Kingsway U.S.A., Inc. (attached as Exhibit "A" to defendants' Opposition to the Motion to Continue) in the Civil District Court for the Parish of Orleans numbered 92-6359 on the docket of that court. Via third amended complaint in CDC Action No. 92-6359 Hoover added KMC as a party defendant. See, Third Amended Petition (Exhibit "B" to defendants' Opposition). As in the case at bar, the state court action similarly focused of the music industry in New Orleans and the Kingsway Music studio property located at 544 Esplanade Street, New Orleans, Louisiana. The Civil District Court action referred to herein above entailed, inter alia, document production by the defendants, the taking of numerous depositions including the deposition of KMC, a full round of motion practice, and culminated in a final judgment in favor of the defendants and against the plaintiff Hoover dismissing her claims with prejudice. See, Defendants' Opposition, at Exhibits "C" through "D". Plaintiff is presently prosecuting her second state court petition to annul (Exhibit "E" to Opposition to Motion to Continue), which followed close on the heels of the dismissal with prejudice of her first such petition to annul judgment. Hoover's first state court petition to annul judgment was dismissed pursuant to defendants' dilatory exceptions and plaintiff was further ordered to pay $2,500.00 as sanctions. See, Judgment (Exhibit "G" to defendants' Opposition to Plaintiff's Motion to Continue)
I. Plaintiff's Motion to Continue and/or for Expedited Discovery is wholly with out Merit.
Plaintiff's Motion to Continue is dismissed as MOOT and her request for expedited discovery is DENIED as such requested discovery is unnecessary in several respects. The requested discovery is overbroad and is in large part irrelevant to the issue of whether or not the defendant's, Kingsway Music Corporation ("KMC's") principal place of business is Louisiana. It also can be fairly characterized as burdensome and vexatious, considering the eight years of identical litigation in the Civil District Court for the Parish Orleans instituted by plaintiff, which state court litigation foreshadowed the filing of the captioned federal proceeding.
The plaintiff's request for discovery which is hardly limited to the jurisdictional issue addressed to the Court was most apparently designed to delay the summary disposition of this matter on defendants' meritorious jurisdictional motion which is discussed herein below at Section II. The Court agrees with defense counsel's argument the requested discovery is overbroad and hardly aimed at ascertaining information likely to lead to any evidence relevant to the jurisdictional issue before the Court. The Court further agrees based upon pleadings and requested discovery in the prior lengthy state court litigation referred to herein above that such discovery has already been procured by the plaintiff in the prior state court proceedings.
Defense counsel aptly notes that information and documents requested regarding the defendant Lanois are wholly irrelevant to the jurisdictional issue involving the defendant KMC, and the balance of her requests which pertain to KMC are overbroad, irrelevant, and redundant of prior extensive discovery most apparently conducted by plaintiff with respect to the same defendants in prior longstanding state court litigation regarding the same subject matter which state court litigation was finally resolved in favor of the defendants and against Hoover. Defense counsel draws this Courts attention to the fact that Hoover has unnecessarily requested corporate resolutions, which she already has in her possession. In this vein, defendants point to plaintiff's memorandum in opposition to the FRCP Rule 12(b)(1) Motion to Dismiss, wherein plaintiff refers to one such corporate resolution in her possession, a copy of which plaintiff attached as Exhibit "5" to her memorandum in opposition to the defendants' FRCP Rule 12(b)(1) Motion to Dismiss.
The Court remains unpersuaded by plaintiff's unsupported assertions either that the requested expedited discovery is necessary or that any such document production would be responsive to the jurisdictional issue before this Court. The Court is convinced that the plaintiff has not only had the opportunity to, but did, in fact, conduct extensive discovery with regard to KMC, et al, and has also had more than ample opportunity to glean and digest information and documents obtained in prior discovery so is to permit a timely response to the defendants' motion to dismiss this federal complaint for lack of subject matter jurisdiction.
A district court has broad discretion in all discovery matters. The Court is of the opinion that it is acting well-within the boundaries of sound discretion. While discovery always entails some degree of cost and inconvenience, in light of the fact that plaintiff has already conducted full and complete discovery in the context of eight years of state court litigation, it does not appear that redundant discovery would add any significant facts, and would only serve to unnecessarily multiply the expense and burden to the defendants and further protract the captioned proceedings over which this Court lacks subject matter jurisdiction.
The Court is mindful of the tenet that dismissal for lack of subject matter jurisdiction, prior to trial and prior to giving the plaintiff an opportunity for discovery, should be granted sparingly. However, the plaintiff in this case has had more than ample opportunity for discovery prior to even filing the instant lawsuit. It cannot be seriously disputed in light of the lengthy litigation which presaged the instant federal litigation that discovery of facts that plaintiff in this case now seeks again are no longer peculiarly within the knowledge of the opposing parties. In fact, the plaintiff Hoover has submitted to this Court, a copy of a corporate resolution which she again seeks in the context of federal discovery. The documents and information now sought in federal discovery on an expedited basis are redundant, supererogatory and tedious. See KMC Corporate Resolution, attached as Exhibit "5" to Hoover's Memorandum in Opposition to the motion to dismiss. It is quite apparent from perusing the state court allegations and the allegations in the federal complaint that little if anything has changed, albeit the plaintiff anticipates that at some undetermined point in the future, KMC will sell its 544 Esplanade Street property. However, the pertinent window of inquiry is the time of the filing of the instant federal complaint, and not, what may happen in the future. Also, the Court reiterates that the lionshare of the general discovery sought by the plaintiff is inappropriate to the nature of the defendants' motion to dismiss.
Discovery and concomitantly, fact-finding, should be limited to the essentials necessary to determining the preliminary question of jurisdiction.
More to the point, this is not a case where the defendants are attempting to escape the grips of subject matter jurisdiction by failing to comply with discovery requests. The plaintiff's discovery requests are not designed to establish such jurisdiction and, in any event, plaintiff already possesses the documents/information requested.
Kamen v. American Telephone Telegraph Co., 791 F.2d 1006, 1011 (2nd Cir. 1986) (discovery is permitted only "where the facts are peculiarly within the knowledge of the opposing party"); St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir.), cert. denied, 110 S.Ct. 541 (1989).
The Fifth Circuit case of Villar v. Crowley, 990 F.2d 1489 (5th Cir. 1993) parallels this case in several salient particulars. The district court in Villar denied the Villars' request for additional discovery because of the extensive discovery conducted in the context of their two earlier California suits, which earlier litigation spanned a period of ten years. The district court concluded that the Villars would not discover anything they had not already learned in the first ten years of litigation, and further discovery in the federal proceedings would only serve to vex and harass the defendants. The Fifth Circuit affirmed the trial court's dismissal of the case, finding no abuse of discretion when it curtailed discovery under the circumstances presented. Id. at 1495. The fact that theVillar court dismissed the foreign defendants for lack of personal jurisdiction is a distinction without a difference.
II. Defendants' FRCP 12(b)(1) Motion to Dismiss for Lack of Subject Matter Jurisdiction is GRANTED.
The Court deems the defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction submitted for decision on the briefs and documents of record without the necessity of any oral hearing considering that: (1) the plaintiff has previously availed herself of the opportunity to conduct full and complete discovery with regard to the very same defendants in the context of eight years of state court litigation which concerned the very same subject matter addressed in her federal complaint; (2) the plaintiff has in fact already filed formal opposition to the defendants' FRCP Rule 12(b)(1) Motion to Dismiss such that the record is complete; and (3) this Court has determined on the basis of the written submissions that oral hearing is neither necessary, nor will it assist the Court in the disposition of this jurisdictional issue. Any further delay in disposing of the instant motion on the complete record before this Court and would only serve only to multiply costs of defending a suit over which this Court lacks subject matter jurisdiction. The Court explains its ruling hereinafter.
Hoover's suggestion that she has not had the opportunity to conduct full and complete discovery regarding the defendant corporation in this matter is, to put it politely, less than candid.
It should be clear from the foregoing, however, that the parties' jurisdictional dispute arises from the disagreement about KMC's principal place of business. If its principal place of business is Louisiana, there is no complete diversity of citizenship since the plaintiff is a Louisiana citizen, and this case should be dismissed for lack of subject matter jurisdiction.
"`A case is properly dismissed for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the case.'" Home Builders Ass'n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998) (quoting Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187 (2nd Cir. 1996)).
To defend a motion for dismissal under FRCP Rule 12(b)(1), the party asserting jurisdiction, the plaintiff in this case has the burden of demonstrating subject matter jurisdiction. The question of subject matter jurisdiction is an issue for the Court.
Boudreau v. United States, 53 F.3d 81, 82 (5th Cir. 1995),cert. denied, 116 S.Ct. 771 (1996).
Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir.), cert.denied, 102 S.Ct. 396 (1981).
The applicable law is that a court may base its disposition of a motion to dismiss for lack of subject matter jurisdiction on (1) the complaint alone; (2) the complaint supplemented by undisputed facts; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.
Robinson v. TCI/US West Communications Inc., 117 F.3d 900, 904 (5th Cir. 1997) (a court's jurisdictional findings of fact are reviewed for clear error); Williamson, 645 F.2d at 413 (the existence of disputed material facts "will not preclude the trial court from evaluating for itself the merits of jurisdictional claims").
Factual attacks challenge the existence of subject matter jurisdiction, irrespective of the pleadings, and matters outside of the pleadings, such as testimony and/or affidavits may be considered by the court. Whereas here, in the instant case, the facts necessary to sustain jurisdiction do not implicate the merits of the plaintiff's case:
Mortensen v. First Fed. Sav. Loan, 549 F.2d 884, 891 (3rd Cir. 1977), quoted in Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir.), cert. denied, 102 S.Ct. 396 (1981) and Chatham Condominium Associations v. Century Village, Inc., 597 F.2d 1002, 1012 (5th Cir. 1979). The Fifth Circuit has accepted the reasoning of the third circuit.
The trial court may proceed as it never could under 12(b)(6) or Fed.R.Civ.P. 56. Because at issue in a factual 12(b)(1) motion is the trial court's jurisdiction — its very power to hear the case — there is substantial authority that the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. In short, no presumption of truthfulness attaches to the plaintiff's allegations, and the existence of material facts will not preclude the trial court from evaluating jurisdictional claims."
Garcia v. Copenhaver, Bell Associates, M.D.'s, 104 F.3d 1256, 1261 (11th Cir. 1997) (citing Lawrence, 919 F.2d at 1529 (quoting Mortensen v. First Fed. Sav. Loan Ass'n, 549 F.2d 884, 891 (3rd Cir. 1977)).
The defendants, Lanois and KMC, have supported their attack on jurisdiction with affidavit and other documents, the plaintiff has the burden of responding to the facts so stated. A conclusory response or a restatement of the allegations of the complaint is insufficient.
Pursuant to the general diversity statute, "the district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, and is between citizens of different states." 28 U.S.C. § 1332(1). Further § 1332 states that for purposes of diversity jurisdiction, a corporation has dual citizenship — its state of incorporation and its principal place of business. 28 U.S.C. § 1332 (c)(1). In as much as KMC was incorporated in foreign state, the Court is concerned only with its principal place of business.
The Fifth Circuit has defined the "total activity" test for principal place of business in J. A. Olsen Co. v. City of Winona, Miss., 818 F.2d 401, 411 (5th Cir. 1987), as follows:
(1) when considering a corporation whose operations are far flung, the sole nerve center of that corporation is more significant in determining principal place of business. . . .; (2) when a corporation has its sole operation in one state and executive offices in another, the place of activity is regarded as more significant . . ., but (3) 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. . . ."Id. The Fifth Circuit explained that the determination of principal place of business is "fact-intensive," and thus, such decisions are made ad hoc. Id., at 412 n. 15.
Factors considered relevant in evaluating the "activity" of a corporation include: 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 and services, sales of finished goods, and membership in local trade or other organizations." Id at 411-12.
In assessing the "nerve center" of a corporation, the court saw as important "the exclusivity of decision making of the nerve center and the degree of autonomy delegated to other locations." Id., at 412. Also, "nerve-center considerations take on added significance when the activities of the corporation are far-flung or passive or management oriented as opposed to labor intensive activities." Id.
Turning to the defendants' contentions, they submit that the state of Louisiana is the location of 90% of KMC's tangible assets, that is: (1) the res at 544 Esplanade Ave which is referred to by the plaintiff as the Germaine Wells mansion); and (2) Kingsway USA, Inc., KMC's wholly owned subsidiary, which has the management responsibility for the Wells' mansion and maintains such property in all respects. The affidavit of John Charles Ellis, the Director of KMC, establishes that the property described in this lawsuit as the Germaine Wells Mansion, located at 544 Esplanade Avenue in New Orleans, Louisiana is owned by KMC and that it constitutes 90% of KMC's tangible assets. The remaining assets consist of music equipment and office furniture. It further establishes that KMC owns no other property in the United States or elsewhere. Also, it establishes that Kingsway USA, Inc., a Louisiana Corporation, is KMC's wholly owned subsidiary, and it is responsible for the management of the res located at 544 Esplanade St. Finally, the affidavit of Ehis establishes that KMC owns no portion of any other corporate entity.
Hoover's counter argument is that KMC was incorporated abroad in the Channel Islands. Defendants do not contend otherwise. Rather, the thrust of KMC's motion, and the only question before this Court on the preliminary jurisdictional issue is, whether KMC's principal place of business is in Louisiana, where most apparently all of its assets and business was located at the time of the filing of the instant complaint and throughout the pendency of the state court litigation which preceded the filing of the captioned federal complaint.
Plaintiff's suggestion as to the "why's" and the "wherefore's" regarding the incorporation of KMC in the Channel Islands, whether it was to manipulate the British tax structure or otherwise, is wholly irrelevant to the determination of whether subject matter jurisdiction exists in this case. Similarly, whether the defendant, Daniel Lanois, was or was not the beneficial owner of Kingsway Music USA Studio, in New Orleans, is similarly irrelevant.
"`The underlying purpose of diversity citizenship legislation . . . is to provide a separate forum for out-of-State citizens against the prejudices of local courts and local juries by making available to them the benefits and safeguards of the Federal courts. Whatever the effectiveness of this rule, it was never intended to extend to local corporations which because of a legal fiction, are considered citizens of another State. It is a matter of common knowledge that such incorporations are primarily initiated to obtain some advantage taxwise in the State of incorporation or to obtain the benefits of the more liberal provisions of the foreign State's corporation laws. Such incorporations are not intended for the prime purpose of doing business in the foreign State.'" Jerguson v. Blue Dot Inv., Inc., 659 F.2d 31, 33 (5th Cir. 1981) (quoting, S.Rep. No. 1830, 85th Cong., 2d Sess.).
Plaintiff's own allegations in this proceeding, along with her allegations in the quite similar state court litigation which foreshadowed the federal complaint confirm that Kingsway USA, Inc., KMC's wholly-owned subsidiary, incorporated and doing business in Louisiana, operated the New Orleans-based KMC recording studio, managing both its business in the music industry (which is in New Orleans), along with the studio property located at 544 Esplanade Avenue, New Orleans, Louisiana. In fact, according to the plaintiff, she was an employee/consultant of KMC in New Orleans, Louisiana, hired for the purpose of furnishing and decorating the studio/mansion, as well as, advising as to the types of music to be utilized in both concerts and recording — the business of the mansion/studio in New Orleans and that of KMC, as well. Not unlike the federal complaint, plaintiff's state court litigation against the defendants appear to be that the defendants failed to give her credit, recognition, and recompense for decorating and establishing the Kingsway Music Studio at KMC's Germaine Wells property in New Orleans, Louisiana.
It is noteworthy that Hoover's complaint in the captioned federal proceeding does not specifically assert that this Court has subject matter jurisdiction. It is only a liberal reading of the pro se complaint, regarding Hoover's business relationship in Louisiana with the defendants which apparently ended approximately ten years ago (i.e., in 1990), along with the incantation of § 1332, which leads the Court to assume that her federal complaint invokes the jurisdiction of this Court. As for herself, plaintiff asserts that she is a citizen of Louisiana. As to the defendant, Daniel Lanois, Hoover's complaint asserts that he is a citizen of the foreign state of Canada. As to the defendant, KMC, Hoover's complaint merely asserts that it was incorporated under the laws of the Isle of Jersey and has its "principle place of business in a State other than the State of Louisiana." However, the entire thrust of the plaintiff's allegations in the captioned matter focuses on, and in fact, concerns only, business activities of the defendants, Lanois and KMC, in Louisiana.
See, Plaintiff's First Amended and Restated Federal Complaint, at para. 1 (emphasis added).
As discussed above, to determine a corporation's principal place of business, this Court must apply the "total activity" test. Nauru Phosphate Royalties, Inc. v. Dracgo Daic Interests, Inc., 138 F.3d 160, 164 (5th Cir. 1998). Looking to the nature, location, importance and purpose of KMC's activities and degree to which those activities bring it in contact with Louisiana, the Court can only conclude that the state of Louisiana is KMC's principal place of business. After approximately eight years of litigation including full and complete discovery, the plaintiff cannot and does not assert that KMC's principal place of business is in any particular state or country, but merely asserts in a conclusory fashion that it is not in Louisiana. All indications are to the contrary, including plaintiff's assertion that KMC was incorporated in the Isle of Jersey merely for some tax advantage. In such a case, the principal place of business would not be the place of incorporation.
Based upon evidence relating to the total activities of KMC, one can only conclude that at the time this action was commenced and quite apparently in the years prior to the institution of this third lawsuit by the plaintiff, KMC's principal place of business was Louisiana, the site of its 544 Esplanade Street property (i.e., the Germaine Wells mansion/recording studio) and its wholly owned subsidiary, Kingsway USA, Inc., which managed all aspects of the aforesaid KMC's recording studio in New Orleans.
The record is clear. It inescapably follows that KMC's principal business was at all pertinent times maintaining and running the its music/recording studio at 544 Esplanade Avenue, its only property in the United States or elsewhere. This was accomplished through its only other asset, a Louisiana corporation, Kingsway Music USA, Inc.
In Grinter v. Petroleum Operation Support Service, 846 F.2d 1006 (5th Cir. 1988), the Fifth Circuit determined that the district court correctly applied the "place of activities" test and determined Possi's principal place of business was in Louisiana. The district noted that the Metairie, Louisiana offices had significant autonomy and that the majority of Possi's employees lived and worked in Louisiana, the majority of its property was in Louisiana, and the overwhelming majority of its operations are conducted in Louisiana. The court further noted that when a corporations physical operations are concentrated in one state, the place of operations is frequently determinative of the corporations principal place of business. Id. at 1008.
After eight years of litigation in the state court with the same defendant corporation KMC (and Kingsway USA, Inc. which was not named defendant in the federal lawsuit for obvious reasons), plaintiff brings nothing to this Court's attention relevant to the preliminary jurisdictional inquiry, much less anything that would sufficiently convince this Court KMC's principal place of business is not in Louisiana.
As stated in J. A. Olson, "[t]he principal place of business of a corporation with its corporate headquarters in one state and its single activity in another will generally be the state of its operations." Whereas KMC's upper management may be in the Isle of Jersey, essentially all of KMC's day to day operations are in Louisiana and concern its music studio and its wholly owned subsidiary, a Louisiana corporation, which manages the day to day affairs of its music recording business location on Esplanade Avenue.
818 F.2d 401 (5th Cir. 1987).
Id. at 409.
The "nerve center" equation deals with corporations which are "engaged in far-flung and varied activities which are carried on in different states." Id. at 407 ("[T]he corporations activities are dispersed to the point that no place in which corporation conducts operations or activities can be denoted `principal.'"). The "place of activity" measure is pertinent when a corporation has significant administrative authority and activity in one location and lesser offices but principal operations in another.
Diversity jurisdiction cannot be invoked in a suit brought by a citizen of the state of Louisiana against a foreign corporation such as KMC, which has its principal place of business in Louisiana.
In Jerguson v. Blue Dot Investment, Inc., 659 F.2d 31 (1981), the Fifth Circuit considered whether a diversity jurisdiction could be invoked in a suit brought by a citizen of Florida against a Panamanian corporation with its principal place of business in Florida. Noting that section 1332(c), on its face, does not explicitly apply to foreign corporations or limit its application to domestic corporation, the court determined based on its examination of the statutory language and the historical treatment of corporations for diversity purposes that there was no diversity of citizenship. The Jerguson court noted that it is clear that Congress did not intend to limit the diversity jurisdiction of federal courts to those out-of-state citizens who may be subject to local bias. Id. at 35. Congress determined that there was no need for federal protection of a corporation with its principal place of business in the same state in which its legal adversary is a citizen, even though it is incorporated elsewhere. Id.
Accordingly and for all of the above and foregoing reasons,
IT IS ORDERED that plaintiff's Motion for Expedited Additional Discovery and/or to Continue the Motion to Dismiss is DENIED.
IT IS FURTHER ORDERED that the defendants' 12(b)(1) Motion to Dismiss for lack of subject matter jurisdiction is GRANTED.
The Clerk of Court is directed to enter judgment in this case dismissing it for lack of subject matter jurisdiction, each party to bear its own costs.