Federal Beef Processors, Inc. v. CBS INC.

• Decision Date: 03 May 1994
• Docket Number: Civ. No. 94-5009.
• Citation: 851 F. Supp. 1430
• Parties: FEDERAL BEEF PROCESSORS, INC., Plaintiff, v. CBS INC.; CBS News Division, a division of CBS Inc.; 48 Hours; and Leendelle McClean, Defendants.
• Court: U.S. District Court — District of South Dakota

851 F. Supp. 1430

FEDERAL BEEF PROCESSORS, INC., Plaintiff, v. CBS INC.; CBS News Division, a division of CBS Inc.; 48 Hours; and Leendelle McClean, Defendants.

Civ. No. 94-5009.

United States District Court, D. South Dakota, Western Division.

May 3, 1994.

Ronald W. Banks, Banks, Johnson & Colbath, Rapid City, SD, for plaintiff.

Steven J. Helmers and Craig A. Pfeifle, Lynn Jackson Shultz & Lebrun, Rapid City, SD, for defendants.

MEMORANDUM OPINION AND ORDER DENYING MOTION TO REMAND AND GRANTING SUMMARY JUDGMENT

BATTEY, District Judge.

PROCEDURAL HISTORY

Before the Court are two motions which involve interrelated issues. Defendants CBS Inc. (CBS) and Leendelle McClean (McClean) have filed a joint motion for partial summary judgment alleging that McClean is entitled to summary judgment on the claims plaintiff Federal Beef Processors, Inc. (Federal) has asserted against McClean. Also pending is Federal's motion to remand this action to state court. Both motions require this Court to determine whether it has subject matter jurisdiction over this action.

FACTS

In December 1993, CBS, with the assistance of an employee of Federal, acquired a videotape of meat processing operations at Federal's beef slaughter plant in Rapid City, South Dakota. CBS intended to broadcast the videotape on its "48 Hours" program on February 9, 1994. On January 20, 1994, Federal initiated this action in South Dakota state court against CBS and McClean.

Federal's first amended complaint asserts the following claims: (1) breach of the duty of loyalty owed by an employee and aiding and abetting such a breach; (2) trespass; (3) violation of the Uniform Trade Secret Act as adopted by South Dakota; (4) invasion of privacy; (5) civil conspiracy to commit trespass, to invade privacy, and to breach a duty of loyalty; (6) willful deceit; and (7) commercial bribery. Federal seeks relief in the form of a temporary restraining order and a permanent injunction prohibiting CBS from broadcasting the videotape and requiring CBS to turn the tape and any copies over to Federal. Federal also seeks damages, costs, and attorneys' fees.

On February 7, 1994, the state trial court issued a preliminary injunction ordering CBS not to broadcast the videotape until the merits of Federal's claims were determined. CBS appealed to the South Dakota Supreme Court. The South Dakota Supreme Court agreed to hear the appeal and set the matter for hearing in March. The South Dakota Supreme Court, however, refused to grant an emergency stay of the trial court's order. CBS then petitioned United States Supreme Court Justice Harry A. Blackmun for an emergency stay. Finding that the state court's order was a prior restraint in violation of the first amendment to the United States Constitution, Justice Blackmun granted the emergency stay on February 9, 1994. CBS thereafter broadcast the video recording as planned.

On February 18, 1994, CBS and McClean removed the action to this Court. The defendants allege that this Court has subject matter jurisdiction over this action because the adverse parties are residents of different states and the amount in controversy exceeds $50,000. See 28 U.S.C. § 1332.

The two motions currently pending are CBS and McClean's motion for summary judgment and Federal's motion to remand. The resolution of these motions involves the following issues:

1. whether Federal's principal place of business is located in South Dakota and

2. whether Federal has any possibility of recovering against McClean.

DISCUSSION

A. Federal's Principal Place of Business

Defendants removed this action invoking the Court's "diversity jurisdiction." Diversity jurisdiction exists if the adverse parties are all residents of different states and the amount in controversy exceeds $50,000. See 28 U.S.C. § 1332. For diversity jurisdiction to exist, no defendant can be a resident of the state in which the plaintiff resides.

Here, it is undisputed that defendant McClean is a resident of South Dakota and defendant CBS is a resident of New York. Therefore, this Court lacks jurisdiction if Federal is a resident of either New York or South Dakota. Federal alleges it is a resident of South Dakota.

While individuals can be residents of but a single state at any one time, corporations like Federal are citizens of both the state of incorporation and the state where the corporation's principal place of business is located. Blakemore v. Missouri Pac. R.R., 789 F.2d 616, 618 (8th Cir.1986); 28 U.S.C. § 1332(c)(1). Although Federal initially contended that it was incorporated under the laws of South Dakota, it has since conceded that Federal's place of incorporation is Minnesota. Therefore, if Federal is to be considered a resident of South Dakota, it must be because Federal's principal place of business is located in South Dakota.

The determination of a corporation's principal place of business is a mixed question of law and fact, but mainly one of fact. Blakemore, 789 F.2d at 618; North Star Hotels Corp. v. Mid-City Hotel Assocs., 696 F.Supp. 1265, 1269 (D.Minn.1988). The party invoking federal jurisdiction bears the burden of establishing the existence of diverse citizenship among adverse parties. Blakemore, 789 F.2d at 618; North Star Hotels Corp., 696 F.Supp. at 1269.

The federal courts have developed three different tests to determine a corporation's principal place of business. The "nerve center" test locates the principal place of business in the state from which a corporation's decision-making authority and over-all control emanate. White v. Halstead Indus., Inc., 750 F.Supp. 395, 397 (E.D.Ark. 1990); North Star Hotels Corp., 696 F.Supp. at 1269-70; Associated Petroleum Producers, Inc. v. Treco 3 Rivers Energy Corp., 692 F.Supp. 1070, 1074 (E.D.Mo.1988); and Mahoney v. Northwestern Bell Tel. Co., 258 F.Supp. 500, 502 (D.Neb.1966), aff'd per curiam, 377 F.2d 549 (8th Cir.1967). The "corporate activities" test locates the corporation's principal place of business in the state where the substantial majority of a corporation's production or service activities occur. White, 750 F.Supp. at 397; North Star Hotels Corp., 696 F.Supp. at 1269-70; Associated Petroleum Producers, Inc., 692 F.Supp. at 1074; and Mahoney, 258 F.Supp. at 502.

Finally, some courts have employed a "total activities" test under which all of a corporation's activities are considered. White, 750 F.Supp. at 397; North Star Hotels Corp., 696 F.Supp. at 1269-70; Associated Petroleum Producers, Inc., 692 F.Supp. at 1074; and Mahoney, 258 F.Supp. at 502. Under the total activities test, if a corporation has its nerve center in one state and its production occurs in only a single other state, the latter state assumes greater importance in determining where the corporation's principal place of business is located. White, 750 F.Supp. at 397; North Star Hotels Corp., 696 F.Supp. at 1270; Associated Petroleum Producers, Inc., 692 F.Supp. at 1074; Mahoney, 258 F.Supp. at 502. However, where a corporation has its nerve center in one state and its production or service activities are divided over two or more states, the nerve center assumes greater weight in determining where the corporation's principal place of business is located. White, 750 F.Supp. at 397; North Star Hotels Corp., 696 F.Supp. at 1270; Associated Petroleum Producers, Inc., 692 F.Supp. at 1074; Mahoney, 258 F.Supp. at 502.

This Court has been unable to find any Eighth Circuit case directly indicating which test it would adopt to determine a corporation's principal place of business. In any event, the differences between the tests are largely semantic. Mahoney, 258 F.Supp. at 502. Most courts, regardless of which test they purport to endorse, consider all the facts and circumstances of a corporation's business activities and do not necessarily succumb to the temptation of placing labels on the process of analysis. See White, 750 F.Supp. at 398; North Star Hotels Corp., 696 F.Supp. at 1270; Associated Petroleum Producers, Inc., 692 F.Supp. at 1074; Mahoney, 258 F.Supp. at 502. Accordingly, the Court now turns to the analysis of these facts and circumstances.

Federal conducts business in at least three states. It owns and operates beef processing facilities in West Fargo, North Dakota, and Rapid City, South Dakota. In addition, its corporate offices are located in Minneapolis, Minnesota.¹ All of Federal's corporate officers and directors reside in Minnesota as do four employees — three salespersons and a cattle buyer for the North Dakota facility. Marshall Chernin, who manages both plants for Federal, resides in Minnesota.

Federal is a subsidiary corporation which is wholly owned by GFI America, Inc. (GFI). Federal and GFI share the same officers and directors, and their corporate headquarters are both located at the same Blaisdell Avenue address in Minneapolis. GFI owns and operates a large meat processing facility at the Blaisdell Avenue address. Howard Goldberger, who is the executive vice-president of GFI and the president of Federal, asserts that the two corporations have always maintained separate employees, books, accounts, records, and minutes. Federal's South Dakota plant was originally purchased and financed by GFI in May 1990. GFI then transferred the South Dakota plant to Federal in December 1992.

Federal employs 293 employees at its North Dakota plant compared to 330 employees at its South Dakota plant. The North Dakota plant is 90,000 square feet and the South Dakota plant is 120,000 square feet. Federal supports a feed lot in connection with its South Dakota plant, although it does not own the feed lot. Similarly, Federal leased a stockyard adjacent to its North Dakota plant in connection with operations at that facility. The initial investment in the North Dakota plant was $880,000 compared to $1,300,000 at the South Dakota plant. The operating debt at the South Dakota plant is approximately four times the amount of the operating...