CIVIL ACTION NO. 02-3344, SECTION "R" (3).
June 19, 2003.
ORDER AND REASONS
Before the Court is plaintiff's motion to remand. Defendant removed this action on the grounds that complete diversity exists between the parties or that plaintiff's complaint necessarily raises a substantial federal question.
For the following reasons, the Court DENIES plaintiff's motion to remand because it finds that it has diversity jurisdiction.
In March of 1990, the Parish of Jefferson and Cox Cable Jefferson Parish, Inc. entered into a cable franchise contract. Plaintiff alleges that Cox Communications Louisiana, LLC ("Communications LLC") notified plaintiff that it would no longer remit a five percent fee on data services revenue. Plaintiff also alleges that defendant stopped paying a five percent fee on revenue from telecommunications services and that defendant underpaid fees for video and audio services. On October 11, 2002, plaintiff sued defendant in state court for breach of contract, seeking to recover the five percent franchise fees on defendant's voice and data services. Communications LLC removed the case to this Court, asserting diversity and federal question jurisdiction. Plaintiff moved to remand. To resolve plaintiff's motion to remand, the Court must first resolve factual questions about the defendant's citizenship. Specifically, the Court must determine who is the sole member of Communications LLC and what is its principal place of business. This follows because the citizenship of an LLC is determined by the citizenship of its members. See Carden v. Arkoma Assocs., 494 U.S. 185, 195-96 (1990); Temple Drilling Co. v. La. Ins. Guar. Ass'n, 946 F.2d 390, 393 (5th Cir. 1991).
The Member of Communications LLC
Defendant has undergone several corporate changes since 1990. In April of 1996, Cox Cable Jefferson Parish changed its name to Cox Communications Louisiana, Inc. ("Communications"). In April of 1997, Communications merged with Cox Communications Roanoke, Inc. into CoxCom, Inc. On June 29, 2001, CoxCom formed Cox Communications Louisiana, LLC ("Communications LLC") with CoxCom as its sole member. On July 16, 2001, Cox Communications LLC Management, Inc. ("Management") was incorporated in Delaware. In an "Assignment and Assumption of Franchises and FCC Licenses" dated December 1, 2001, CoxCom transferred the 1990 Franchise Agreement to Communications LLC. The Assignment identified CoxCom as the sole member of Communications LLC.
See Pl.'s Ex. 1, attached to Mot. to Remand.
See Pl.'s Ex. 2, attached to Mot. to Remand.
See Pl.'s Exs. 4, 6, attached to Mot. to Remand.
See Def.'s Ex. C, attached to Mot. in Opp'n to Pl.'s Mot. to Remand; Sullivan Decl. ¶ 3.
See Pl.'s Ex. 5, attached to Mot. to Remand; Sullivan Decl. ¶ 4.
Defendant asserts that Management, not CoxCom, has been the sole member of Communications LLC since December 1, 2001. Plaintiff disputes this assertion for two reasons. First, plaintiff argues that defendant's evidence does not establish that a membership transfer from CoxCom to Management took place and, if it did, whether it occurred on December 1, 2001 or anytime before plaintiff filed its complaint on October 11, 2002. Second, plaintiff relies on several post-December 1, 2001 corporate documents that indicate that defendant itself understood CoxCom to be the sole member of Communications LLC after December 1, 2001.
Plaintiff also states that before reading defendant's brief in opposition to remand, it had never heard of an entity known as Management Inc. Plaintiff states that the 1990 Franchise Agreement requires defendant to obtain plaintiff's approval of any change in ownership or control. ( See Ex. A §§ 10, 2.2.05.) Defendant objects to plaintiff's interpretation of this clause, but also questions the relevance of plaintiff's argument in the context of the Court's diversity inquiry. The Court agrees. Whether Management was established in violation of a contractual provision is irrelevant to the Court's inquiry as to whether Management is the sole member of Communications LLC and where its principal place of business lies.
After the Court heard oral argument on the issue, the Court allowed plaintiff to take additional depositions and ordered the parties to provide additional briefing. Having considered all of the available evidence, the Court is satisfied that Management is the sole member of Communications LLC. The defendant submitted evidence that on December 1, 2001, as part of the same restructuring in which CoxCom transferred the 1990 Franchise Agreement to Communications LLC, CoxCom sold all of its Louisiana cable assets to Communications LLC in a Bill of Sale and Assignment of Assets. Further, on December 1, 2001, CoxCom transferred its sole membership interest in Communication LLC to Management in an Assignment and Substitution of Member Agreement. An Amended and Restated Operating Agreement dated December 1, 2001 reflects Management's new role as sole member of Communications LLC. Shauna Sullivan, the Assistant Corporate Secretary of CoxCom and Associate General Counsel for Cox Enterprises, Inc., authenticated the Assignment and Substitution of Member Agreement and the Amended and Restated Operating Agreement submitted. Sullivan's testimony clears up any doubts about the timing and existence of the membership transfer.
See Def.'s Ex. 1, Bill of Sale and Assignment of Assets, attached to Def.'s Suppl. Mem.
See Def.'s Ex. E, Assignment and Substitution of Member Agreement, attached to Mot. in Opp'n to Pl.'s Mot. to Remand; Ex. 2, Unanimous Written Consent of the Bd. of Directors of CoxCom, Inc., attached to Def.'s Suppl. Mem.; Ex. 3, Unanimous Written Consent of the Bd. of Directors of Cox Communications LLC Management, Inc., attached to Def.'s Suppl. Mem.
See Def.'s Ex. F, "Amended and Restated Operating Agreement," attached to Mot. in Opp'n to Pl.'s Mot. to Remand.
See Sullivan Decl., Def.'s Ex. 2 ¶ 5, attached to Def.'s Mot. in Opp'n to Pl.'s Mot. to Remand.
Further, Heather Belville, a paralegal and corporate records administrator, testified that she was generally responsible for obtaining executive signatures on corporate governance documents for hundreds of Cox companies. She stated that although she could not testify from personal knowledge as to when the documents at issue were signed, in her experience, "if they needed signing by December 1st, they got signed." Belville explained that it is the corporation's business practice to make sure documents are signed by or before the execution or effective date indicated in the documents. She stated that in her thirty years of experience, documents are always signed on or before the day indicated in the documents. She testified that she has never backdated documents, and that it is company policy not to backdate documents. She further noted that the documents in issue were kept in the defendant's "year-end closing binder," which is kept in a vault.
Belville Depo., Pl.'s Ex. 11 at 26, attached to Pl.'s Suppl. Br. in Supp. Mot. to Remand.
See id. at 39-40, 57-58, 61.
See id. at 62.
See id. at 58-59.
See id. at 55-56.
Further, on January 25, 2002, Shauna Sullivan executed an Assistant Secretary's Certificate in connection with the June 29, 2001 Operating Agreement between Communications LLC and CoxCom, which stated that CoxCom is the sole member of Communications LLC. Defendant explains that this fling was the result of "inadvertent record-keeping errors." Sullivan testified that she prepared the January 25, 2002 Certificate based on corporate records available to her at that time. Sullivan noted that "not all final execution documents and records reflecting corporate changes as of December 1, 2001 had been delivered to and recorded by my office as of January 25, 2002," including the December 1, 2001 Assignment and Substitution of Member Agreement. Sullivan stated that this Agreement is now part of the corporate records of Communications LLC and Management. The Court finds Sullivan's explanation believable. Mistakes in recordkeeping such as Sullivan's are plausible, considering the sheer quantity of Cox's subsidiary companies and the breadth of Cox's corporate governance issues.
See Pl.'s Ex. 6, attached to Pl.'s Mot. to Remand.
Def.'s Opp'n to Mot. to Remand at 9.
See Sullivan Decl., Def.'s Ex. 2 ¶ 6, attached to Def.'s Mot. in Opp'n to Pl.'s Mot. to Remand.
For example, Heather Belville testified that she is responsible for handling the corporate records of over 300 Cox-related companies. ( See Belville Depo., Pl.'s Ex. 11 at 8, attached to Pl.'s Suppl. Br. in Supp. Mot. to Remand.) Sullivan testified that she is the corporate secretary for more than 100 Cox-related companies. ( See Sullivan Depo., Pl.'s Ex. 9 at 8, attached to Pl.'s Mot. to Remand.) This testimony reveals that it would be nearly impossible for an executive or employee of one Cox subsidiary to be aware personally of all of Cox's corporate activities and structural changes.
Lastly, on March 1, 2002, Jack Grant sent a letter to plaintiff's counsel stating, "On December 1, 2001, as part of an internal corporate restructuring, the cable television franchise held by CoxCom, Inc. in Jefferson Parish was transferred to Cox Communications Louisiana, LLC." In the letter, which summarizes the changes in the name of the franchisee since 1990, Grant refers to the January 25, 2002 Assistant Secretary's Certificate showing that CoxCom is the sole member of Communications LLC. Because the Court is now satisfied that this Certificate was erroneous due to a lag in recordkeeping, Grant's letter does nothing to prove that CoxCom, rather than Management, was the sole member of Communications LLC after December 1, 2001.
Pl.'s Ex. 8, attached to Pl.'s Mot. to Remand.
Management's Ties to Louisiana and Georgia
Having found that Management is the sole member of Communications LLC, the Court turns to facts about Management's connections to Louisiana and Georgia. Plaintiff provides ample evidence of Communications LLC's operations in and ties to Louisiana. Except for Management's ownership of Communications LLC, however, plaintiff provides scant evidence of Management's activity in or ties to Louisiana. The only fact plaintiff cites is that Latino, who works in Louisiana as Vice President of Engineering for Communications LLC, is also Vice President of Engineering for Management. Plaintiff points to no other Management personnel in Louisiana.
See Sullivan Decl. ¶ 8, Def.'s Ex. 1, attached to Def.'s Mot. in Opp'n to Pl.'s Mot. to Remand.
Defendant, on the other hand, provides evidence that Communications LLC, not Management, owns the cable system and operates it in Louisiana through its own employees. Defendant notes that Management does not maintain an office or address in Louisiana. Further, Management's sole and principal corporate headquarters are located in Atlanta. Although Management does not have employees in Georgia, except possibly its officers, all of Management's corporate, management, and financial decisionmaking and recordkeeping takes place in Atlanta. All three directors of Management reside in Georgia, and ten of Management's eleven officers, including its President, Treasurer, Secretary, and six of its Vice Presidents, reside in Georgia. Management's sole business is the ownership and management of the membership interest in Communications LLC. In addition, Management is not qualified to do business in any state other than Georgia.
See Def.'s Suppl. Mem. in Opp'n to Pl.'s Mot. to Remand at 4.
See Hatcher Decl. ¶ 9, Def.'s Ex. 3, attached to Def.'s Mot. in Opp'n to Pl.'s Mot. to Remand.
See Hatcher Depo. at 98-99, 112-13, attached to Pl.'s Mot. to Remand; Hatcher Decl. ¶ 9.
See Sullivan Decl. ¶ 8.
See Hatcher Depo. at 85; Hatcher Decl. ¶ 9.
See Sullivan Decl. ¶ 7.
A. Diversity Jurisdiction
As noted, the citizenship of an unincorporated entity such as a limited liability company for diversity purposes is determined by the citizenship of each of its members. See Carden v. Arkoma Assocs., 494 U.S. 185, 195-96 (1990); Temple Drilling Co. v. La. Ins. Guar. Ass'n, 946 F.2d 390, 393 (5th Cir. 1991). The sole member of LLC is Management Inc. A corporation is considered to be a citizen of the state in which it is incorporated, as well as the state in which it has its principal place of business. See 28 U.S.C. § 1332(c)(1). It is undisputed that Management is incorporated in Delaware. The disputed issue is whether Management has its principal place of business in Louisiana or in Georgia.
The Fifth Circuit applies the "total activity" test to determine a corporation's principal place of business. See J.A. Olson 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)). The total activity test incorporates two earlier tests: the "nerve center" test and the "place of activity test." See id. (citing Village 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. Under the place of activity test, "the state in which the corporation carries out its operations is its principal place of business." Id. "The 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. Further, the location of a corporation's principal place of business "is a fact question that follows no single inflexible test dependent solely upon the sites of the nerve center or upon the situs of activities of the corporation." Id. at 406. The nerve center test and the place of activity test therefore embrace general rules "regarding the determination of a particular corporation's principal place of business." Id. at 409. The Fifth Circuit has explained these general rules:
(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, (citations omitted); (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, (citation omitted); 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. (citation omitted).Id. at 411.
These general rules are to be applied on a case-by-case basis to determine a corporation's principal place of business. See id. at 410, 411. In balancing the particular facts of each case, courts should consider the following factors:
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."Muirfield (Delaware), L. P. v. Pitts, Inc., 17 F. Supp.2d 600, 604 (W.D. La. 1998) (quoting Olson, 818 F.2d at 411-12)). In addition to these factors, courts should consider 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.'" Id. (quoting Olson, 818 F.2d at 412)).
In Village Fair Shopping Center Co. v. Sam Broadhead Trust, 588 F.2d 431 (5th Cir. 1979), the corporation in question was incorporated in Delaware, had its only office in New York, and owned real estate in Mississippi. See Village Fair, 588 F.2d at 433. The officers of the corporation and two of the three shareholders were residents of New York. See id. Additionally, the corporation made all of its business decisions in New York. See id. In addition to owning real estate in Mississippi, the corporation was qualified to do business in Mississippi. See id. Under the "total activity" test, the Fifth Circuit determined that "the single passive investment in the Mississippi [real estate]" did not outweigh the managerial activity conducted in New York. Id. at 434. The Fifth Circuit 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.
Further, 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 Texas or in Nauru, a small island republic in the South Pacific. See Nauru, 138 F.3d at 163. The corporation'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 of Nauru. See id. Additionally, the corporation maintained its only offices in Nauru. See id. The court 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. The Fifth Circuit held 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. In applying the "total activity" test, the Fifth Circuit found that the district court did not err in concluding that Nauru was the location of the corporation's principal place of business. See id. See also Kelly Investment, inc. v. Continental Common Corp., 2001 WL 686904, *2-6 (E.D. La. 2001) (citing Nauru, 138 F.3d 160; Village Fair Shopping Center Co., 588 F.2d 431) (holding that under Fifth Circuit law, defendants' principal places of business were in Texas, not Louisiana, because defendants' primary activity of investing in and managing property in Louisiana was passive, their sole corporate offices were in Texas, their corporate decisions took place in Texas, all their officers and directors were residents of Texas, and they had no contacts with Louisiana besides being qualified to do business there); Muirfield, 17 F. Supp.2d at 604-05 (citing Nauru, 138 F.3d 160; Village Fair Shopping Center Co., 588 F.2d 431) (finding Virginia, not Louisiana, was defendant's principal place of business for same reasons)
The Court finds that Village Fair and Nauru apply here. Communications LLC owns and operates the cable system in Louisiana, not Management. Management owns a single membership interest in Communications LLC. Management was established for the sole purpose of owning and managing this membership interest. 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 Kelly, 2001 WL 686904 at *3-6; Muirfield, 17 F. Supp.2d at 605. Accordingly, the third general rule prescribed by the Fifth Circuit in Olson is the most applicable of the three rules to 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). Although Management's membership interest is in an LLC that operates in Louisiana, Management has its headquarters in Atlanta, Georgia. All of the directors and ten of the eleven officers of Management are residents of Georgia. The financial affairs of Management are directed from Georgia, and corporate meetings, if held, are in Georgia. Management's records are kept in Georgia. That Management conducts scant actual business relating to its membership interest in Communications LLC does not compel the conclusion that it is without a "brain," as plaintiff suggests. See Kelly, 2001 WL 686904 at *3 (rejecting plaintiff's argument that defendant was without a "brain" because of its lack of significant corporate activity). Finally, aside from owning the membership interest of Communications LLC, the only other contact that Management has with Louisiana is that one of its eleven officers is a resident of Louisiana and works for Communications LLC. Management does not maintain offices or employees in Louisiana.
Although plaintiff argues that The activities of Communications LLC in Louisiana should be imputed to Management for purposes of determining its principal place of business, this argument fails under Fifth Circuit precedent. Just as the Nauru court did not impute the activities of the defendant's subsidiaries to the defendant for purposes of determining the defendant's principal place of business, this Court will not impute the activities of Communications LLC to Management.
For the foregoing reasons, the Court finds that Management is a Georgia resident and that diversity exists. The Court therefore DENIES plaintiff's motion to remand.