Topp v. CompAir Inc., 86-1628
| Decision Date | 05 November 1986 |
| Docket Number | No. 86-1628,86-1628 |
| Citation | 814 F.2d 830 |
| Parties | Lee J. TOPP, Plaintiff, Respondent, v. COMPAIR INCORPORATED, Compair Limited, Siebe Plc and E. Barrie Stephens, Defendants, Petitioners. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Jack B. Middleton with whom Robert E. Jauron, Ralph F. Holmes and McLane, Graf, Raulerson & Middleton, Professional Ass'n, Manchester, N.H., were on brief for defendants, petitioners.
Robert A. Shaines with whom Daniel C. Hoefle and Shaines & McEachern Professional Ass'n, Portsmouth, N.H., were on brief for plaintiff, respondent.
Before CAMPBELL, Chief Judge, TORRUELLA, Circuit Judge, and PIERAS, * District Judge.
This is an interlocutory appeal taken by defendants below from a decision of the United States District Court for the District of New Hampshire denying defendants' motion to dismiss. Defendants had moved to dismiss for lack of complete federal diversity jurisdiction because plaintiff and one of the defendants, CompAir Inc., were allegedly both citizens of New Hampshire. The court disagreed, finding that CompAir Inc. is not a citizen of New Hampshire and ruling, therefore, that there was complete diversity of citizenship.
This action was brought in federal court by Lee J. Topp alleging breach of contract, wrongful termination of employment and tortious interference with contractual relations against the defendants: CompAir Inc.; CompAir Ltd.; Siebe plc; and E. Barrie Stephens. Defendant CompAir Ltd., a United Kingdom corporation, is a large parent corporation with many wholly owned subsidiaries. One of those subsidiaries is CompAir Inc., the defendant that is the focus of the diversity of citizenship controversy. CompAir Inc. is incorporated in Delaware. It provides administrative and financial services such as insurance, loans and car rentals for itself and for its operating subsidiaries located in five states. It maintains an office and conducts some business activities in Kingston, New Hampshire.
CompAir Ltd.--the parent corporation of CompAir Inc.--was in turn wholly owned by Imperial Continental Gas Association, a United Kingdom company. In July 1985 Imperial Continental Gas sold the stock of CompAir Ltd. to Siebe plc, another defendant in this case. Siebe plc is a United Kingdom corporation whose chief executive officer is E. Barrie Stephens, another defendant in this case.
Plaintiff Lee J. Topp is a citizen of New Hampshire. Until his discharge, he was the president of CompAir Inc. He was also one of the directors of CompAir Ltd.--the parent corporation. As president of CompAir Inc., he oversaw the operations of CompAir Inc. and its various subsidiaries in the United States. As a director of CompAir Ltd., he had oversight responsibilities for other subsidiaries owned by CompAir Ltd. On August 1, 1985, E. Barrie Stephens called Topp at Topp's office in Kingston, New Hampshire, and informed him that as of August 31, 1985 he would be discharged from his positions as president of CompAir Inc., and director of CompAir Ltd. Stephens asked Topp to remain in his position as president of CompAir Inc. through August 31, 1985.
On August 30, 1985 Topp filed this suit 1 alleging wrongful termination. The original complaint recited that plaintiff is a citizen of New Hampshire and that, inter alia, defendant CompAir Inc. is a corporation organized under the laws of Delaware, with a principal place of business at Kingston, New Hampshire. Defendants moved for dismissal because of a lack of complete diversity since plaintiff and one defendant were both residents of New Hampshire. See 28 U.S.C. Sec. 1332(c) (1982) (); Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 373, 98 S.Ct. 2396, 2402, 57 L.Ed.2d 274 (1978) ().
Subsequently, Topp amended his complaint, deleting the statement that New Hampshire was CompAir Inc.'s principal place of business. The amended complaint stated that CompAir Inc. is a Delaware corporation doing business in New Hampshire, Maine, Michigan, Florida and California. 2 Defendants pressed their claim that there was a lack of complete diversity, insisting that CompAir Inc.'s principal place of business is New Hampshire, and thus it is a citizen of New Hampshire.
The district court received supporting affidavits and held a hearing on the diversity of citizenship issue. The court, concluding that CompAir Inc. was not a citizen of New Hampshire, stated,
Thus, where the corporation is a holding company or part of a large corporate enterprise, the "nerve center" test is most appropriate. Even in the case of an operating company, the principal place of business may be deemed to be the location from which the corporation is run, i.e., where the major business decisions are made.
The evidence is fairly clear that, to use the vernacular, "the shots were called from England." The proof of this was the circumstances surrounding the firing of the plaintiff by E. Barrie Stephens, who had never met the plaintiff. It was the company in England that made the major business decisions, including hiring and firing of employees of CompAir Inc. and other subsidiaries.
In response, defendants filed a motion for reconsideration, arguing that the evidence was insufficient to support the piercing of the corporate veil between CompAir Inc., and its parent companies CompAir Ltd. and Siebe plc. The district court asked defendants to submit additional evidence to show that CompAir Inc. maintained its own accounting systems, records, operating, purchasing and sales staff in New Hampshire. In response, defendants produced the affidavit of C. Perry Harrison, the secretary/treasurer of CompAir Inc., which stated,
On August 30, 1985 CompAir Inc. separately maintained its own general ledger at its Kingston, New Hampshire offices, had its own accounting system, and maintained several bank accounts, including a benefits plan account, a money market account, and operating account, a payroll account, and an English pound account, all managed from the Kingston [New Hampshire] office in the name of CompAir Inc.
CompAir Inc. has filed its own federal and state unemployment taxes, social security contributions, and excise taxes. Such filings recite Kingston, New Hampshire as the address of the corporation.
CompAir Inc. maintained its executive offices in the Kingston, New Hampshire facility owned by CompAir Inc.'s subsidiary, CompAir Kellogg Inc. CompAir Inc.'s offices were designated as such and constituted a distinct portion of the building.
On August 30, 1985, CompAir Inc. had three paid employees. Lee J. Topp was the President and Chief Executive Officer, Carolyn Morgan was the Secretary, and I was the Vice President and Chief Financial Officer.... [T]he affairs of CompAir, Inc. were executed substantially from CompAir Inc.'s Kingston, New Hampshire offices. Mr. Topp was present at these offices throughout the week ending August 30, 1985.
Because CompAir Inc. is a holding company, CompAir Inc. has no formal purchasing or sales departments. CompAir Inc. sold no products; rather, it performed administrative functions for its subsidiaries which manufactured and sold products. Services, such as insurance, loans, or car rentals, were purchased by CompAir Inc. for itself and its subsidiaries from its Kingston offices.
As Secretary of the corporation, I maintained the corporate minutes book, which was maintained at the Kingston office.
I likewise maintained the register of the unissued shares of stock of CompAir Inc. at the Kingston office.
In addition to its other business activities, CompAir Inc. also acted as a banking exchange for its United States subsidiaries. Subsidiaries of CompAir Inc. could, and did, on numerous occasions borrow money from CompAir Inc. CompAir Inc. would obtain the money by making available its excess cash, by borrowing excess cash from other subsidiaries at the prime interest rate, or by borrowing against a three million dollar line of credit it maintained in its name with a bank. By allowing its subsidiaries to borrow at the prime interest rate, CompAir Inc. enabled its subsidiaries to pay lower interest rates than would otherwise be available. By borrowing excess cash from its subsidiaries at the prime rate, CompAir Inc. enabled its subsidiaries to earn more on their money than they would on certificates of deposit.
At the prior hearing held by the district court, the same Mr. Harrison testified that Topp, as president of CompAir Inc., received his paychecks from CompAir Inc. He also testified that generally he dealt with Topp (as president of CompAir Inc.) on financial matters that affected operations, but that when a financial issue went beyond an operational financial matter, he would refer the question to David Cutler, who was the senior financial officer of CompAir Ltd.
Plaintiff Topp continued to insist that CompAir Inc. could not act on financial matters without the express permission of CompAir Ltd., and that CompAir Inc.'s sole function was as a financial conduit for CompAir Ltd. He also insisted that he was actually and always employed by CompAir Ltd., even though he served as president of CompAir Inc.
After receiving this evidence from both parties, the district court reaffirmed its prior order denying the motion to dismiss and stated While the court reaffirmed its order of January 13, 1986 it is candidly puzzled as the law appears to be in a nebulous area as applied to the facts of this case....
Accordingly the court respectfully requests that the issue of diversity be considered by the First Circuit on interlocutory appeal.
We accepted the interlocutory appeal, finding that the issue of CompAir...
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