Befitel v. Global Horizons, Inc., CIV. 06-00366ACK-KSC.

• Decision Date: 13 November 2006
• Docket Number: No. CIV. 06-00366ACK-KSC.,CIV. 06-00366ACK-KSC.
• Citation: 461 F.Supp.2d 1218
• Parties: Nelson BEFITEL, State of Hawaii, Director of Labor and Industrial Relations, Plaintiff, v. GLOBAL HORIZONS, INCORPORATED, a California corporation registered to do business in Hawaii, Defendant.
• Court: U.S. District Court — District of Hawaii

461 F.Supp.2d 1218

Nelson BEFITEL, State of Hawaii, Director of Labor and Industrial Relations, Plaintiff, v. GLOBAL HORIZONS, INCORPORATED, a California corporation registered to do business in Hawaii, Defendant.

No. CIV. 06-00366ACK-KSC.

United States District Court, D. Hawai`i.

November 13, 2006.

Gary S. Ige, Mark J. Bennett, Office of the Attorney General, Honolulu, HI, for Plaintiff.

James A. Stanton, Stanton Law Group, Honolulu, HI, Kari E. Hong, The Law Offices of Kari E. Hong, Oakland, CA, for Defendant.

ORDER ADOPTING THE FINDINGS AND RECOMMENDATION TO REMAND ACTION

KAY, Senior District Judge.

BACKGROUND

On May 30, 2006, Nelson Befitel, the Director of Labor and Industrial Relations, State of Hawaii ("Plaintiff') filed a Complaint in the District Court of the First Circuit, Honolulu Division against Global Horizons, Inc. ("Defendant") for unpaid Unemployment Insurance Contributions, employment and training assessments, and penalties and interest pursuant to Chapter 383 of the Hawaii Revised Statutes ("H.R.S."). Plaintiff seeks a judgment of $177,232.56 in this action from Defendant, a California corporation. Defendant removed this action to federal court on June 30, 2006, alleging complete diversity between the parties.

On July 27, 2006, Plaintiff filed a Motion to Remand the civil action back to the state district court. Defendant filed an Opposition to the motion on August 25, 2006, and Plaintiff filed a Reply on September 1, 2006. Magistrate Judge Chang (the "Magistrate") held a hearing on September 13, 2006, and granted Plaintiffs Motion to Remand. The Magistrate then issued his Findings and Recommendation to Remand Action on September 25, 2006 ("F & R").

On October 10, 2006, Defendant submitted Objections to Magistrate Judge's Findings and Recommendation to Remand Action ("Defendant's Objection"). Then, on October 20, 2006, Plaintiff filed a Response to Defendant's Objections to the F & R ("Plaintiffs Response"). On October 26, 2006, Defendant filed a Motion for Leave to File a Reply to Plaintiffs Response, along with its Reply ("Defendant's Reply").

FINDINGS AND RECOMMENDATION

Defendant objects to the F & R, in which the Magistrate made the following four findings:

(1) Plaintiffs claims are in the nature of assumpsit because Plaintiff seeks to collect a sum certain from Defendant.

(2) Plaintiff, the Director of the Department of Labor and Industrial Relations, brought this action pursuant to section 383-71(a), Hawaii Revised Statutes and the State of Hawaii is the real party in interest.

(3) Plaintiff is not a separate political subdivision and is not like a county or municipality, but instead is acting as an arm of the State of Hawaii.

(4) The State of Hawaii is not a citizen for the purposes of diversity.

F & R at 2. Based on these findings, the Magistrate recommended that "Plaintiffs Motion be GRANTED as the Court does not have subject matter jurisdiction in this case." Id.

STANDARD

A district court reviews de novo a magistrate's findings and recommendation that an action be remanded to state court. See 28 U.S.C. § 636(b)(1)(C); Fed.R.Civ.P. 72(b); L.R. 74.2. The court may accept, reject or modify and accept as modified the same. 28 U.S.C. § 636(b)(1)(C); Fed. R.Civ.P. 72(b); L.R. 74.2. De novo review means the district court must consider the matter anew, as if it had not been heard before and as if no decision previously had been rendered. See Ness v. Commissioner of Internal Revenue Service, 954 F.2d 1495, 1497 (9th Cir.1992). The district court must arrive at its own independent conclusion about those portions of the magistrate's ruling to which objections are made, but a de novo hearing is not required. United States v. Remsing, 874 F.2d 614, 617-18 (9th Cir.1989); L.R. 74.2.

DISCUSSION

I. Defendant's Motion for Leave to File a Reply

Defendant filed a Motion for Leave to File a Reply to Plaintiffs Response to its objections to the F & R. Local Rule 74.2 states that "[n]o reply in support of the objections or cross-objections ... shall be filed without leave of the court." Id. Defendant bases its request on the brevity of the reply (approximately 300 words) and its belief that the reply will help clarify the issues for the Court. The Court GRANTS Defendant's Motion for Leave to File a Reply for good cause.

II. Defendant's Objection to the F & R

Defendant removed this action to federal court claiming diversity jurisdiction exists between the parties pursuant to 28 U.S.C. § 1332(a)(1), which states "[t]he district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between citizens of different States ...." 28 U.S.C. § 1332(a)(1). In diversity cases, the burden of proving all jurisdictional facts rests on the party seeking jurisdiction. Kanter v. Warner-Lambert Co., 265 F.3d 853, 857-58 (9th Cir.2001). Diversity jurisdiction is to be strictly construed and any doubts are to be resolved in favor of remand to the state court. See Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.1992); Kantor v. Wellesley Galleries, Ltd., 704 F.2d 1088, 1092 (9th Cir.1983).

It is undisputed that Defendant is a California corporation, and therefore is a citizen of California. 28 U.S.C. § 1332(c)(1). The matter before the Court is whether Plaintiff is considered a citizen of the State of Hawaii for diversity purposes, and specifically whether Nelson Befitel, acting as the Director of Labor and Industrial Relations, operates as an "arm or alter ego of the State" or a "political subdivision." Moor v. County of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 36 L.Ed.2d 596 (1973).

It is clear that a state is not a citizen for the purposes of diversity jurisdiction. Id. Also, an "arm or alter ego of the State" is not a citizen for diversity purposes. Id. However, relying on the rule that corporations are citizens of the state in which they are formed, the Supreme Court has repeatedly held that political subdivisions, such as counties, are citizens. Id. at 718, 93 S.Ct. 1785 (citing Illinois v. City of Milwaukee, 406 U.S. 91, 97, 92 S.Ct. 1385, 31 L.Ed.2d 712 (1972)). The Magistrate concluded that Plaintiff operates as an arm of the State of Hawaii, and not as a separate political subdivision. F & H at 2, ¶ 3. Defendant objects and the Court reviews that determination de novo.

A. Diversity Jurisdiction Analysis

Defendant contends that the Magistrate erred in failing to apply the Eleventh Amendment immunity analysis as prescribed in Jackson v. Hayakawa, 682 F.2d 1344 (9th Cir.1982). As Defendant explains, the Ninth Circuit does not appear to have explicitly ruled as to whether the precise Eleventh Amendment immunity test also applies to the determination of citizenship for the purposes of diversity jurisdiction. However, the Ninth Circuit has recognized that "a similar rule controls the determination of diversity jurisdiction when individual state officers or agencies are named in lieu of the state" as the Eleventh Amendment analysis. Ronwin v. Shapiro, 657 F.2d 1071, 1073 (9th Cir. 1981). The weight of authority from other circuits supports this similarity. Maryland Stadium Authority v. Ellerbe Becket Inc., 407 F.3d 255, 260-61 (4th Cir.2005) (adopting the same four factor Eleventh Amendment immunity analysis for diversity jurisdiction analysis); University of South Alabama v. American Tobacco Co., 168 F.3d 405, 412 (11th Cir.1999) (holding that although the "question of diversity jurisdiction is distinct from that of immunity," the analysis of citizenship determinations for Eleventh Amendment immunity and diversity jurisdiction are the same); Tradigrain, Inc. v. Mississippi State Port Authority, 701 F.2d 1131, 1132 (5th Cir. 1983) (concluding that the Eleventh Amendment immunity and diversity jurisdiction analyses are "virtually identical"); University of Rhode Island v. A. W. Chesterton Co., 2 F.3d 1200, 1202-03 n. 4 (1st Cir.1993) (rejecting two proposed distinctions between the Eleventh Amendment and diversity considerations).

The Ninth Circuit acknowledges one distinction between diversity jurisdiction and Eleventh Amendment immunity. A state, or its alter ego, may waive its Eleventh Amendment privilege, but cannot create diversity jurisdiction. Fifty Associates v. Prudential Insurance Company of America, 446 F.2d 1187, 1192 (9th Cir. 1970). The First Circuit addressed this distinction and found that it did not create any differences between the inquiry into "relevant attributes of autonomy" !or immunity or diversity purposes. University of Rhode Island, 2 F.3d at 1203 n. 4. The assessment of the validity of an immunity waiver occurs after a determination that an entity is an alter ego of the state, and thus the right to waive immunity has no bearing on whether that entity exists as an arm of the state or a political subdivision. Id.

Plaintiff objects to an application of the Eleventh Amendment immunity analysis to a consideration of citizenship for diversity jurisdiction purposes. Plaintiffs Response at 4-6. Plaintiff argues simply that the State of Hawaii is the real party to the lawsuit, and under Moor, diversity jurisdiction does not exist. 411 U.S. at 717, 93 S.Ct. 1785. However, by endorsing the Moor analysis, Plaintiff actually promotes a very similar set of factors to assess the identity of an entity for diversity jurisdiction purposes as those factors utilized in the Ninth Circuit's Eleventh Amendment immunity analysis that was codified in Jackson.

The Ninth Circuit implements a five-factor balancing test to determine whether an entity is a state agency for Eleventh Amendment immunity purposes. Jackson, 682 F.2d at 1350; see also Belanger v. Madera Unified School Dist., 963 F.2d 248, 250-51 (9th Cir.1992); Mitchell v. Los Angeles Community College Dist., 861 F.2d 198, 201 (9th Cir.1988). The five factors of the Jackson test are "(1) whether a money judgment...