Athena Automotive, Inc. v. DiGregorio

• Decision Date: 25 January 1999
• Docket Number: No. 98-1446,98-1446
• Citation: 166 F.3d 288
• Parties: ATHENA AUTOMOTIVE, INCORPORATED, Plaintiff-Appellee, v. John J. DiGREGORIO; J & D Automotive, Incorporated, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 288

166 F.3d 288

ATHENA AUTOMOTIVE, INCORPORATED, Plaintiff-Appellee, v. John J. DiGREGORIO; J & D Automotive, Incorporated Defendants-Appellants.

No. 98-1446.

United States Court of Appeals Fourth Circuit.

Argued Oct. 27, 1998.

Decided Jan. 25, 1999.

ARGUED: Jeffrey Warren Harab, Law Offices of Jeffrey W. Harab, P.C., Chevy Chase, MD, for Appellants. Stephen Joseph O'Brien, O'Brien & Long, Washington, D.C., for Appellee.

Before NIEMEYER and MICHAEL, Circuit Judges, and ANDERSON, United States District Judge for the District of South Carolina, sitting by designation.

Affirmed and remanded by published opinion. Judge NIEMEYER wrote the opinion, in which Judge MICHAEL and Judge ANDERSON joined.

OPINION

NIEMEYER, Circuit Judge:

For purposes of determining a federal court's subject matter jurisdiction based on diversity of citizenship, a corporation is considered to be a citizen of (1) the state of its incorporation and (2) the state "where it has its principal place of business." 28 U.S.C. § 1332(c)(1). The question of first impression presented by this appeal is whether a Georgia corporation, which had conducted business only in Maryland but had ceased those activities three years before commencement of this action, remained a Maryland citizen for purposes of diversity jurisdiction. We hold that at the time it commenced this action, the corporation was only a citizen of Georgia. Accordingly, we affirm the district court's ruling that complete diversity of citizenship existed in this corporation's suit against two Maryland citizens and remand for further proceedings.

I

Athena Automotive, Inc., a Georgia corporation, conducted an automobile repair business under the trade name "Brakes for Less" in Silver Spring, Maryland, until August 10, 1994, when it ceased all operations. The Silver Spring location was Athena Automotive's only place of business. Even though it ceased its business operations, Athena Automotive continued to maintain its corporate charter in good standing with the Georgia Secretary of State. Since 1994, however, Athena Automotive's only other activity has been to prosecute this litigation, which it commenced in August 1997. John T. Graham, a Virginia resident and a stockholder of Athena Automotive, has directed and continues to direct the corporation's litigation activities from his office in Fairfax, Virginia.

On August 8, 1997, Athena Automotive commenced this action in federal court in Maryland, naming as defendants John DiGregorio and J & D Automotive, Inc., a corporation owned by DiGregorio. DiGregorio is a Maryland resident, and J & D Automotive is a Maryland corporation with its principal place of business in Maryland. In the suit, Athena Automotive alleged that J & D breached its agreement to purchase the assets of Athena Automotive and that, through fraud, both DiGregorio and J & D obtained and converted to their own use Athena Automotive's assets. Athena Automotive demanded $270,000 in compensatory damages and $1 million in punitive damages.

DiGregorio and J & D Automotive filed a motion to dismiss this action for lack of subject matter jurisdiction, contending that Athena Automotive remained a Maryland citizen for diversity jurisdiction purposes because it conducted its last business there. The district court denied the motion, reasoning that complete diversity existed because the three years that elapsed between Athena Automotive's last business activity in Maryland and the date it filed this action was "sufficient to shed [Athena Automotive] of its local character."

The district court granted permission to DiGregorio and J & D Automotive to file an interlocutory appeal pursuant to 28 U.S.C. § 1292(b), and we did likewise.

II

Section 1332 of Title 28 confers subject matter jurisdiction upon federal courts over civil actions in which "the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs" and the action is between "citizens of different States." 28 U.S.C. § 1332(a)(1). In enacting this statute, Congress intended to "provide a separate forum for out-of-state citizens against the prejudices of local courts and local juries by making available to them the benefits and safeguards of the federal court." S.Rep. No. 1830, at 5 (1958), reprinted in 1958 U.S.C.C.A.N. 3099, 3101-02.

Courts have consistently interpreted § 1332 and its predecessors to require complete diversity such that the state of citizenship of each plaintiff must be different from that of each defendant. See Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978); Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806); United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 492 (4th Cir.1998). Because diversity jurisdiction depends on the citizenship status of the parties at the time an action commences, we must focus our jurisdictional inquiry solely on that time. See Freeport-McMoRan, Inc. v. K N Energy, Inc., 498 U.S. 426, 428, 111 S.Ct. 858, 112 L.Ed.2d 951 (1991); see also Leimbach v. Allen, 976 F.2d 912, 917 (4th Cir.1992); Mullins v. Beatrice Pocahontas Co., 489 F.2d 260, 261 (4th Cir.1974). This conclusion is supported by the governing language of § 1332 which speaks in the present tense of civil actions where the matter in controversy "is between citizens of different States" and, in the case of a corporation, where the corporation "has its principal place of business." 28 U.S.C. § 1332(a)(1), (c)(1) (emphasis added). Because jurisdiction attaches at the commencement of an action, even if the citizenship of the parties changes after the commencement of the action so as to destroy complete diversity, subject matter jurisdiction is not destroyed, and the federal court continues to have authority to decide the case. See Freeport-McMoRan, 498 U.S. at 428, 111 S.Ct. 858.

With respect to the citizenship of a corporation for diversity purposes, § 1332 provides, "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. § 1332(c)(1). To determine where a corporation has its principal place of business, we have recognized two tests, the "nerve center test" and the "place of operations test." See Peterson v. Cooley, 142 F.3d 181, 184 (4th Cir.1998) (citing Mullins, 489 F.2d at 262). For instance, when a corporation engages primarily in the ownership and management of geographically diverse investment assets, we apply the "nerve center test," which establishes the corporation's principal place of business as that place where the corporation "makes the 'home office,' or place where the corporation's officers direct, control, and coordinate its activities." Id. But when the corporation has "multiple centers of manufacturing, purchasing, or sales," we apply the "place of operations test," focusing on "the place where the bulk of corporate activity takes place." Id.

In the case before us, Athena Automotive maintained no place of business on August 8, 1997, the date it commenced this action. This appeal therefore presents the novel question of what the citizenship for diversity jurisdiction purposes of an inactive corporation is. Although we have not addressed this question until now, several other circuits have, each reaching a different conclusion.

The Second Circuit has concluded that an inactive corporation is a citizen of both the state of its incorporation and the state where "it last transacted business." Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131, 141 (2d Cir.1991) (emphasis added). The court rested its conclusion on the presumption that a corporation must have a principal place of business for diversity jurisdiction purposes because even a defunct corporation could still be "local in character." Id. The Third Circuit, on the other hand, has concluded that an...