J.A. Olson Co. v. City of Winona, Miss.

• Citation: 818 F.2d 401
• Decision Date: 03 June 1987
• Docket Number: No. 86-4408,86-4408
• Parties: J.A. OLSON COMPANY, Plaintiff-Appellant, v. CITY OF WINONA, MISSISSIPPI, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 401

818 F.2d 401

55 USLW 2694

J.A. OLSON COMPANY, Plaintiff-Appellant, v. CITY OF WINONA, MISSISSIPPI, Defendant-Appellee.

No. 86-4408.

United States Court of Appeals Fifth Circuit.

June 3, 1987.

Frank T. Moore, Jr., Jackson, Miss., Ira S. Broadman, Phoenix, Ariz., for plaintiff-appellant.

Walker W. Jones, III, Jackson, Miss., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Mississippi.

Before WILLIAMS, JOLLY and DAVIS, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

In this case we address the question whether the principal place of business of a corporation that has its executive offices in Chicago and its sole manufacturing plant in Mississippi is an Illinois or Mississippi entity for purposes of diversity jurisdiction.

J.A. Olson Company (Olson), is an Illinois corporation with its sole manufacturing plant in Winona, Mississippi. It brought suit in federal court against the City of Winona (Winona), an incorporated municipality of Mississippi, basing jurisdiction on diversity of citizenship. After appropriate discovery, Winona moved to dismiss for lack of jurisdiction on the ground that diversity of citizenship was lacking because Olson's principal place of business was in Mississippi. The district court agreed; furthermore, the court refused to apply the alter ego doctrine to impute to Olson the principal place of business of its parent, Stamatakis Industries, Inc., on the ground that that doctrine is only available to defeat jurisdiction and not, as it would here, create jurisdiction. Accordingly, the district court granted Winona's motion and dismissed Olson's complaint. This appeal followed.

I

Olson, a wholly owned subsidiary of Stamatakis, is engaged in the manufacture of wooden picture and mirror frames, molding in lengths, and cornices. Its only manufacturing plant and storage facility is located in Winona, Mississippi. The plant also houses the administrative offices that provide accounting, bookkeeping, payroll and data processing services and a photography studio used to prepare Olson's sales catalogues. Olson also has a retail showroom in Winona that accounts for approximately three percent of the company's sales. Proceeds from these sales are remitted directly to Olson at Winona. At the time of the hearing the plant employed 113 people, ¹ with an annual payroll in 1984 of over $1.7 million.

Bea Sullivan, as the general manager of the plant, generally oversees the functions of the facility. She is authorized to hire and fire employees, supervise employee training, and process employee grievances and workers' compensation claims. She also has input into decisions regarding the scheduling of production.

Olson maintains three bank accounts in Winona, two payroll accounts and one general account. Checks on these accounts, which are funded as needed by Olson's Chicago office based on information provided by Winona personnel, are processed in the Winona data processing office. Mr. Stamatakis is the authorized signatory on all the Winona accounts but his name is signed mechanically in Winona. Accounts receivable and payable are also handled by personnel at Winona.

In 1985, the plant purchased approximately $200,000 in supplies locally and over $500,000 in supplies in Mississippi. Olson belongs to the Mississippi Economic Council, the Mississippi Manufacturers Association, and the Mississippi Glass Association; Olson is not a member of any such organization in any other state. In sum, Olson has its base of operations in the State of Mississippi.

Much of its operation, however, is directed from outside the State of Mississippi. Olson's corporate office, as well as that of Stamatakis, is located in Chicago, Illinois. The Chicago office maintains Olson's corporate records, prepares and files Olson's corporate tax returns, compiles Olson's financial reports, and negotiates insurance coverage for Olson. Ninety-seven percent of the proceeds of Olson's sales are remitted to the Chicago office and deposited in a bank there. After consultation with the manager of Olson's Winona plant, Olson's corporate treasurer, Donald Kes, transfers the necessary funds from Chicago to Olson's bank accounts in Winona. According to Roger Miller, an executive vice president of Olson, most if not all of the major corporate and financial decisions are made in the Chicago office.

Miller, whose office is located in Dallas, Texas, visits Winona about once a month, but his address as shown on his business card and stationery is that of Olson's Winona plant. He coordinates Olson's marketing efforts, including the hiring of independent sales representatives, the extension of credit to customers, and determination of pricing. He consults with Bea Sullivan, the Winona plant manager, regarding hiring decisions at the plant, and he is also responsible for decisions regarding the equipment and the number of employees needed at the plant.

Olson's other business functions are conducted in scattered locations. Olson's thirty-five to thirty-seven salespeople, termed by Sullivan as independent contractors, live in their different sales areas throughout the country. The majority of sales, however, are made through leased showrooms in Dallas and Atlanta where Olson employs only part-time secretaries. Donald Lull, Olson's controller, lives and works in St. Paul and Olson's independent auditor lives in Phoenix.

II

Under 28 U.S.C. Sec. 1332(a), ² a corporation is deemed to be a citizen of both the state of its incorporation and the state of its principal place of business. Here, Winona, a Mississippi municipality, clearly is a citizen of Mississippi. Olson, by reason of the state of its incorporation, is a citizen of Illinois. Under section 1332(c), Olson is also a citizen of the state of its principal place of business. The situs of Olson's principal place of business for purposes of section 1332(c) is determinative of whether a federal court can exercise diversity jurisdiction over this case; if Olson's principal place of business is Illinois, the requisite diversity is present, but if Olson's principal place of business is Mississippi, the case must be dismissed for lack of jurisdiction.

III

Our court has stated that we apply the "total activity" test to determine principal place of business. Anniston Soil Pipe Co. v. Central Foundry Co., 329 F.2d 313, 313 (5th Cir.1964), aff'g, 216 F.Supp. 473 (N.D.Ala.1963). We have, however, failed to give form to that term except to say that it incorporates two tests that we have also neglected to explicate: the "nerve center" test and the "place of activity" test. Village Fair Shopping Center v. Sam Broadhead Trust, 588 F.2d 431, 433-34 (5th Cir.1979). In this case we attempt to give meaning to the "total activity" test as a means of determining a corporation's principal place of business.

Because the purpose of the "total activity" test is to determine principal place of business as that term is used in section 1332(c), the test must necessarily be expounded in a manner to effectuate the statutory purpose. Accordingly, we look first to the statute and its legislative history.

Next we look to the tests that we have stated comprise the "total activity" test. We will see that under the "nerve center" test, the state in which the corporation has its nerve center, or "brain," is its principal place of business, and under the "place of activity" test, the state in which the corporation carries out its operations is its principal place of business. Although this simplistic explanation of the two tests may make them appear to be conflicting principles, we will see that the two tests actually are in harmony because they are applied in different factual situations. 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. In the end, we will see that "total activity," "nerve center," and "place of activity" are hardly more than terms we use in resolving the ultimate question: what is the principal place of business of the corporation.

IV

Diversity jurisdiction exists for the purpose of providing a federal forum for out-of-state litigants where they are free from prejudice in favor of a local litigant. See Jerguson v. Blue Dot Investments, Inc., 659 F.2d 31, 33 (5th Cir.1981), cert. denied, 456 U.S. 946, 102 S.Ct. 2013, 72 L.Ed.2d 469 (1982); S.Rep. No. 1830, 85th Cong., 2d Sess., reprinted in 1958 U.S.Code Cong. & Admin.News 3099, 3102 (hereinafter "S.Rep."). Before 1958, a corporation was deemed a citizen only of its state of incorporation. Id. at 32. In 1958, Congress adopted an amendment to section 1332(c) to make a corporation a citizen not only of the state in which it was incorporated but also of the state of its principal place of business. See 28 U.S.C. Sec. 1332(c) (hereafter the 1958 amendment). The amendment was intended to reduce the case load of the federal courts ³ and to remedy abuses of diversity jurisdiction. Freeman v. Northwest Acceptance Corp., 754 F.2d 553, 558 (5th Cir.1985); Jerguson, 659 F.2d at 32. According to the Senate Report, the former statute had

given rise to the evil whereby a local institution, engaged in a local business and in many cases locally owned, is enabled to bring its litigation into the Federal courts simply because it has obtained a corporate charter from another State....

....

... [The amendment] will eliminate [from federal diversity jurisdiction] those corporations doing a local business with a foreign charter but will not eliminate those corporations which do business over a large number of States, such as railroads, insurance companies, and other corporations whose businesses are not localized in one particular State. Even such a corporation, however, would be regarded as a citizen of that one of the States in which was located its...