New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

Commercial Litigation and Arbitration

New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
Commercial Litigation and Arbitration
« Back to Complex Lit Blog

Federal Jurisdiction — Principal Place of Business of an Inactive Corporation — Circuit Split

Download PDF

Snyder v. Advanced Academics, Inc., 2015 U.S. Dist. LEXIS 44014 (W.D. Okla. April 3, 2015):

A. Circuit Split: Principal Place of Business of an Inactive Corporation

There is a split among the circuits on the issue of how to determine the PPB of a "dissolved" or "inactive" corporation for purposes of § 1332.1  The Third and Eleventh Circuits maintain the bright-line rule that an inactive corporation has no principal place of business; it is a citizen only of its state of incorporation. Holston Invs., Inc. B.V.I. v. LanLogistics Corp., 677 F.3d 1068, 1071 (11th Cir. 2012); Midlantic Nat'l Bank v. Hansen, 48 F.3d 693, 696 (3d Cir. 1995). In contrast, the Second Circuit holds that an inactive corporation is a citizen of its state of incorporation and its last principal place of business. Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131, 141 (2d Cir. 1991).

The Fifth Circuit takes a middle-ground position. It maintains that "while the place of an inactive corporation's last business activity is relevant to determine its principal place of business, it is not dispositive." Harris v. Black Clawson Co., 961 F.2d 547, 551 (5th Cir. 1992). In that circuit, when "a corporation has been inactive in a state for a substantial period of time, ... that state is not the corporation's principal place of business." Id. "The question of substantiality must be decided [*4]  on a case-by-case basis." Id. at 551 n.10.

The Fourth Circuit focuses on the nature of the corporation's activities at the time the action was commenced to determine whether that activity "was sufficient to make it a citizen of the state of such activity." Athena Auto., Inc. v. DiGregorio, 166 F.3d 288, 291 (4th Cir. 1999). That court reasons, "[e]ven when a corporation has ceased all operations and has become inactive, the continuing impact of its business in a given locale could linger on to an extent sufficient to give it a geographical identity there as its principal place of business. Indeed, a corporation's winding up of its business affairs may well constitute a significant activity and consume a considerable period of time." Id.

In Coffey v. Freeport McMoran Copper & Gold, 581 F.3d 1240, 1245-46 (10th Circuit 2009), the Tenth Circuit upheld the district court's holding that the business activities of one of the defendants was substantial enough to constitute "transacting business" for purposes of § 1332. In that case, the defendant corporation had been acquired by another company prior to filing, and since then, had engaged in environmental remediation activities in response to legal claims from its prior operations.  Id. at 1246. The district court concluded that this clean-up activity, conducted in Oklahoma, "suffices to establish Oklahoma as BZC's [*5]  principal place of business." Id.  Because Coffey was decided prior to Hertz, the court applied the "total activity of the company" test in its PPB analysis, instead of the nerve center test. Id. But this case is still instructive, like the pre-Hertz cases from other circuits outlined above. Coffey directs courts to first consider the activities of the corporation at the time of filing to determine if those activities are sufficient to constitute "transacting business" for purposes of § 1332, even if there was a substantial change in the corporation's ownership prior to filing. If the court finds that the corporation was "transacting business" at the time of filing, it should then find the "nerve center" of those activities, as directed by Hertz. If not, if the corporation was truly "inactive," then Coffey does not provide an answer.

Share this article:

Facebook
Twitter
LinkedIn
Email

Recent Posts

Criminal Spoliation Can Be A Due Process Violation — Defendant Must Show That (1) The Evidence Had Exculpatory Value Before It Was Destroyed, (2) Defendant Is Unable to Obtain Comparable Evidence by Reasonable Means, and (3) Bad Faith Failure to Preserve

1) Rule 11 Sanctions: “No First Amendment Exception to a Rule 11 Violation” — “[T]he First Amendment Covers Novel, Nonfrivolous Arguments, But Many Frivolous Arguments Are Also Novel” (Good Quotes) — Frivolous To Continue To Make Rejected Novel Arguments; (2) FRAP 38 Sanctions: District Court In Best Position to Set Sanctions, Attorney’s Fees and Costs

3 Prerequisites for Inherent Power and § 1927 Sanctions in Second Circuit: (1) Bad Faith, (2) Conduct That Is Entirely Without Color [Thus, An Ill-Motivated Colorable Position Appears to Be Protected in the Second Circuit], and (3) Improper Purpose— “To Gain A Strategic Advantage” Is An Improper Purpose — Due Process Satisfied by Opponent’s Motion and Multiple Court Conferences, After Which Target Was Allowed to Submit Additional Letters

Inherent Power Sanctions — Untimeliness as Laches — Laches Properly Applied to Deny Sanctions Motion — Note Waived Defenses to Laches

Rule 37(c)(1) Sanctions: Substantial Justification or Harmless Error (Ninth Circuit Factors) — Erie: When State Supreme Court Has Not Squarely Addressed an Issue, Circuit Must Predict How It Would Rule, Using Intermediate Appellate Decisions, Decisions from Other Jurisdictions, Statutes, Treatises And Restatements for Guidance

(1) Appellate Review of Inherent Power Sanctions (7th Circuit): Factual Findings Reviewed for Clear Error, Choice of Sanction for Abuse of Discretion — 4-Element Test for Reversal; (2) Sanctions and Class Actions: Monetary Sanctions Properly Imposed on Defendants for Improper Communications with Class Members (Represented Parties) — “[I]f The Class And The Class Opponent Are Involved In An Ongoing Business Relationship, Communications From The Class Opponent To The Class May Be Coercive” (Good Quote); (3) Monetary Sanctions under Goodyear v. Haeger: If Same Fact-Gathering Would Have Been Conducted Absent The Misconduct, No But-For Causation — But Only “Rough Justice” Required, “Not Accountant-Like Precision” (Good Quote) — Once Misconduct Is Clear, Time Spent Ferreting It Out Compensable under Goodyear; (4) Goodyear Did Not Overrule Long-Standing Rule That Courts May Impose Modest Civil Monetary Sanctions to Curb Litigation Abuse; (5) Appellate Jurisdiction Lacking Where Sanctioned Attorney Fails to File Notice of Appeal and Lawyer’s Intent to Appeal Not Apparent from Client’s Notice; (5) Rule 11 Improper Purpose — Party May Have Many Purposes for Pursuing Claim — As Long As Claim Is Supported by Good Faith Belief in the Merits, “A Parallel Reason Does Not Violate Rule 11” — To Deny A Motion for Sanctions, The District Court Need Not Address Every Argument: “Arguments Clearly Without Merit Can, And For The Sake Of Judicial Economy Should, Be Passed Over In Silence” (Good Quote); Non-Monetary Sanction on Counsel: Complete Twice The Required Amount Of Professional Responsibility Hours For Her Next Continuing Legal Education Cycle Imposed By The State Bar

(1) Spoliation: Sanctions Are Warranted Only If the Movant Establishes That A Reasonable Trier of Fact Could Find That The Destroyed Evidence Would Support A Claim Or Defense — § 1927 Sanctions: “Courts Often Refuse to Award Sanctions When Both Parties Contributed to the Waste of Judicial Resources” (Good Quote)

No Sanctions Imposed on Counsel Who Submitted A.I.-Generated Phony Cases Without Checking Them in Good Faith on The Mistaken Assumption They Had Been Provided by Highly Respected Co-Counsel Rather Than His Criminally-Convicted, Disbarred Client — No Sanctions on Client Who Had No Access to LEXIS or Westlaw to Check the Phony Cases and Submitted Them in Good Faith: “It Would Have Been Downright Irrational For Him To Provide Fake Cases For [His Lawyer] To Include In The Motion Knowing They Were Fake —

(1) Electronic Spoliation — Rule 37(e)(2) Dismissal Sanction — Temporal Proximity of Spoliation to Production Due Date = Circumstantial Evidence of Intent; (2) While Discovery Sanctions Are Reviewed For Abuse Of Discretion, Findings Of Fact Related To Discovery Sanctions Are Reviewed For Clear Error; (3) Dismissal under Rule 37(e)(2) Plus Attorney’s Fees under Inherent Power Appropriately Combined [But see 2015 Advisory Committee Note: “New Rule 37(e) … authorizes and specifies measures a court may employ if information that should have been preserved is lost, and specifies the findings necessary to justify these measures. forecloses reliance on inherent authority or state law to determine when certain measures should be used.”]; (4) Compensatory Sanctions under Goodyear v. Haeger Appropriately Include Fees and Costs Resulting from Attempts to Settle Spoliation Motion

(1) FRAP 38 Sanctions Inapt for Appeal That Is Weak — “Borderline Frivolous” — Test Is Whether Appellant Should Have Known the Appeal Had Absolutely No Chance of Success — (2) Lay Opinion Testimony under Rule 701: Nub of Helpfulness Requirement Is to Exclude Testimony When the Witness Is No Better Suited Than the Jury to Assess the Issue; (3) Appeals: No Appeal from Denial of Motion for Judgment As a Matter of Law Unless Appellant Made That Motion Before Case Was Submitted to Jury

Archives
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

New York Office

© 2024 Joseph Hage Aaronson LLC  
Disclaimer | Attorney Advertising Notice | Legal Notice