Midlantic Nat. Bank v. Hansen

• Decision Date: 28 March 1995
• Docket Number: Nos. 93-5120,93-5160,s. 93-5120
• Citation: 48 F.3d 693
• Parties: MIDLANTIC NATIONAL BANK, Appellee, v. E.F. HANSEN, Jr.; G. Eileen Hansen; Hansen Bancorp, Inc., Appellants.
• Court: U.S. Court of Appeals — Third Circuit

Page 693

48 F.3d 693

63 USLW 2518

MIDLANTIC NATIONAL BANK, Appellee, v. E.F. HANSEN, Jr.; G. Eileen Hansen; Hansen Bancorp, Inc.,

Appellants.

Nos. 93-5120, 93-5160.

United States Court of Appeals, Third Circuit.

Argued March 8, 1994.

Decided Feb. 13, 1995.

Sur Petition for Rehearing

March 28, 1995.

David L. Braverman (argued) Fellheimer, Eichen & Braverman, Philadelphia, PA, for appellants.

Richard W. Hill (argued) and Gary A. Kruse, McCarter & English, Newark, NJ, for appellee.

Before: MANSMANN, LEWIS and SEITZ, Circuit Judges.

OPINION OF THE COURT

LEWIS, Circuit Judge.

This case presents the jurisdictional question of the citizenship of an inactive corporation under the federal diversity statute. We conclude that an inactive corporation is a citizen of the state of its incorporation only. Having so concluded, and thus having determined that the district court had, and we have, jurisdiction, we are also called upon to address the meaning of the term "joint applicant" under the Equal Credit Opportunity Act. Because we agree with the district court's conclusion that one of the defendants, Mrs. Eileen Hansen, was a joint applicant for a loan for purposes of the Act, we will affirm.

I.

Midlantic National Bank ("Midlantic") is a national banking association with its principal place of business in Edison, New Jersey. Appellants Elmer and Eileen Hansen are citizens of Pennsylvania and are the joint owners of all the issued and outstanding stock of Hansen Bancorp, Inc. ("HBI"). HBI, now inactive, is a corporation organized under the laws of the state of Delaware. HBI owned the stock of two thrift institutions, the Hansen Savings Bank of Florida and the Hansen Savings Bank, SLA, in New Jersey. ¹

Beginning in 1985, the Hansens obtained several loans from Midlantic. The Hansens used the first Midlantic loan to finance the purchase of a New Jersey thrift institution During 1987 and 1988 the Hansens used an additional Midlantic loan to purchase a controlling interest in a Florida thrift later renamed the Hansen Savings Bank of Florida (HSB of FL). This loan was secured by a pledge of HSB of FL stock. At this time the Hansens consolidated their indebtedness to Midlantic into a single loan in the amount of $13 million.

                the Raritan Valley Savings and Loan Association located in East Brunswick, New Jersey.  As collateral for this loan, the Hansens pledged the Raritan stock to Midlantic.  As part of their loan application, the Hansens submitted a Consolidated Statement of Net Worth and a Consolidated Income Statement.  The Notes to the Consolidated Statement of Net Worth, which explain the basis of consolidation, report that "E.F., Jr. and G.E. Hansen, his wife, operate their business, Hansen Properties ("Hansen"), as a sole proprietorship."   The Notes then list limited partnerships of which the Hansens were the only partners or the only principals.  (Plaintiffs/Appellees' Appendix ("Pa.") at 487)  In addition, on the Acquisition Agreement between Raritan Valley Financial Corporation and the Hansens, the Hansens are listed as joint purchasers of the Raritan stock
                

In February, 1989, the Hansens and Midlantic executed a Second Amended and Restated Loan Agreement, by which terms the Hansens and HBI were jointly and severally liable on a $13,166,666.69 term note payable to Midlantic. At the same time, the Hansens signed a separate One Million Dollar Term Note payable to Midlantic, under which they were also jointly and severally liable. One month later the Hansens signed an additional note for two million dollars. For all these loans the Hansens pledged as security the stock in HBI and its subsidiaries, HSB of FL and the Hansen Savings Bank, SLA.

In March of 1989, the Hansens borrowed an additional two million dollars from Midlantic, and in mid-1990, the Hansens and Midlantic executed two Demand Notes for $100,000 each.

By September of 1990, the Hansens were in default on several of their Midlantic loans. The parties then entered into a Loan Coordination, Security and Intercreditor Agreement, in which Midlantic agreed to postpone acceleration of sums due under the already executed notes until the earlier of either June 30, 1991, or a default under the Intercreditor Agreement. By 1992 the Hansens were in default on the Intercreditor Agreement.

In January, 1992, the Office of Thrift Supervision and the Resolution Trust Corporation seized control of the Hansens' Florida and New Jersey thrifts. HBI was rendered inactive by this seizure. ² Midlantic initiated this collection action six months later, on June 25, 1992, for the recovery of the amounts loaned by Midlantic to the Hansens. Midlantic's complaint bases the existence of subject matter jurisdiction upon 28 U.S.C. Sec. 1332.

The district court denied a motion to dismiss for lack of subject matter jurisdiction filed by the Hansens and, on January 6, 1993, granted Midlantic's motion for summary judgment. On January 26, 1993, the district court entered final judgment in favor of Midlantic. The Hansens filed their notice of appeal on February 25, 1993. In their appeal of the district court's entry of summary judgment, the Hansens challenge the existence of federal diversity jurisdiction as well as the propriety of Midlantic's requiring Mrs. Hansen to sign the loan applications. In turn, Midlantic claims that the Hansens failed to file a timely notice of appeal. Because we find that the Hansens' notice of appeal was timely filed, we will consider the issues raised therein. Because we agree with the district court on all of the issues raised, we will affirm.

II.

First, we must address whether the district court had jurisdiction over the subject To satisfy the jurisdictional requirements of 28 U.S.C. Sec. 1332(a)(1), the federal diversity statute, diversity must be complete; that is, no plaintiff can be a citizen of the same state as any of the defendants. Carden v. Arkoma Assocs., 494 U.S. 185, 187, 110 S.Ct. 1015, 1016-17, 108 L.Ed.2d 157 (1992); Quaker State Dyeing & Finishing Co. v. ITT Terryphone Corp., 461 F.2d 1140, 1142 (3d Cir.1972). Whether diversity jurisdiction exists is determined by examining the citizenship of the parties at the time the complaint was filed. See Smith v. Sperling, 354 U.S. 91, 93 n. 1, 77 S.Ct. 1112, n. 1, 1 L.Ed.2d 1205 (1957) (stating that jurisdiction is tested by the facts as they exist when the action is brought). Thus, the question before us is whether HBI was a citizen of New Jersey in June of 1992, when Midlantic filed its complaint. If so, diversity of citizenship would not be complete since Midlantic is also a citizen of New Jersey.

matter in this case. We exercise plenary review over issues of jurisdiction. Mellon Bank v. Farino, 960 F.2d 1217, 1220 (3d Cir.1992).

For purposes of diversity jurisdiction, "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business...." 28 U.S.C. Sec. 1332(c). The Hansens contend that HBI's principal place of business was New Jersey at the time Midlantic filed its complaint. ³ The five month period between the time when HBI ceased to conduct business activities and the time Midlantic filed its complaint did not, the Hansens argue, dissipate HBI's local character for diversity purposes. HBI's principal place of business for diversity purposes, according to the Hansens, was HBI's last principal place of business, that is, New Jersey.

In addressing the jurisdictional question in this case, we must resolve the issue of HBI's citizenship under 28 U.S.C. Sec. 1332(c), bearing in mind that HBI was an inactive corporation at the time the complaint was filed. ⁴ The issue of the citizenship under Section 1332(c) of an inactive corporation is one of first impression in this circuit. Essentially, the question before us is whether an inactive corporation can be deemed to have a "principal place of business" at all.

We gave meaning to the phrase "principal place of business" in Kelly v. United States Steel Corp., 284 F.2d 850 (3d Cir.1960), concluding that "corporate activities" determine the corporation's principal place of business. Kelly, 284 F.2d at 854. Inasmuch as we consider the actual business activities of the corporation to be determinative of the corporation's principal place of business, we conclude that as a general matter, an "inactive" corporation (that is, a corporation conducting no business activities) has no principal place of business, and is instead a citizen of its state of incorporation only.

We thus further conclude that HBI, which was inactive at the time Midlantic filed its complaint, had no principal place of business under Section 1332 when this suit was commenced. When this lawsuit was commenced, HBI was a citizen of its state of incorporation only, namely, Delaware. We therefore find that complete diversity is present in this case.

We acknowledge that the conclusion we reach today with regard to the citizenship of an inactive corporation conflicts with that reached by the Courts of Appeals for the The Second Circuit opined that when a corporation ceases business activity, it is to be deemed a citizen both of its state of incorporation and of the state in which "it last transacted business...." Wm. Passalacqua Builders v. Resnick Developers, 933 F.2d 131, 141 (2d Cir.1991). In so holding the Second Circuit placed principal reliance upon notions of congressional intent:

Second and Fifth Circuits, the only two of our sister courts of appeals to have addressed the matter.

To allow inactive corporations to avoid inquiry into where they were last active would give them a benefit Congress never planned for them, since under such a rule a defunct corporation, no matter how local in character, could remove the case to federal court based on its state of incorporation.

Wm. Passalacqua Builders, 933 F.2d at 141. ⁵

The Fifth Circuit adopted a more flexible approach, holding that...