Beightol v. Capitol Bankers Life Ins. Co.

• Decision Date: 20 February 1990
• Docket Number: Civ. A. No. 89-C-1207.
• Citation: 730 F. Supp. 190
• Parties: Richard E. BEIGHTOL and Martin F. Traynor, Plaintiffs, v. CAPITOL BANKERS LIFE INS. CO. and North American Life Assurance Co., Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

730 F. Supp. 190

Richard E. BEIGHTOL and Martin F. Traynor, Plaintiffs, v. CAPITOL BANKERS LIFE INS. CO. and North American Life Assurance Co., Defendants.

Civ. A. No. 89-C-1207.

United States District Court, E.D. Wisconsin.

February 20, 1990.

Kenan J. Kersten, Kersten & McKinnon, Milwaukee, Wis., for plaintiffs.

Clay R. Williams, Gibbs, Roper, Loots & Williams, Milwaukee, Wis., and Thomas C. Kayser, Robins, Kaplan, Miller & Ciresi, Minneapolis, Minn., for defendants.

DECISION AND ORDER

REYNOLDS, Senior District Judge.

FACTS

On August 23, 1989, the plaintiffs commenced wrongful termination of employment and misrepresentation claims against the defendants in the Circuit Court for Milwaukee County, Wisconsin. On September 22, 1989, defendants filed a petition to remove plaintiffs' complaint to this court. Defendants claim that removal is proper pursuant to Title 28 U.S.C. § 1441(b) because neither of the defendants is a citizen of Wisconsin and this court has subject matter jurisdiction over plaintiffs' complaint. Defendants claim that jurisdiction exists pursuant to 28 U.S.C. § 1332 because the amount in controversy exceeds $50,000 and the dispute is between citizens of different states.

On October 12, 1989, plaintiffs moved this court to remand their complaint and to award them the attorney's fees and costs they have expended on their remand motion. Plaintiffs claim that this court does not have subject matter jurisdiction over their complaint because there is not complete diversity of citizenship between the plaintiffs and defendants.

The plaintiffs are both citizens of Wisconsin (Complaint ¶ 1). The defendant North American Life Assurance Co. ("North American Life") is a foreign corporation based in Ontario, Canada. The defendant Capitol Bankers Life Insurance Co. ("Capitol Bankers") is a wholly-owned subsidiary of North American Life (Bradford Aff. ¶ 5). Capitol Bankers, however, was incorporated in Minnesota and does business in fifty (50) states (Beightol Aff. Exh. 1). The parties dispute Capitol Bankers' principal place of business.

Plaintiffs argue that Capitol Bankers' principal place of business is Wisconsin and therefore complete diversity of citizenship does not exist between the plaintiffs and all of the defendants. The defendants argue that Capitol Bankers is the "alter ego" of North American Life and therefore its principal place of business is Ontario, Canada. This court finds that there is not complete diversity between the plaintiffs and defendants because Capitol Bankers' principal place of business is Wisconsin. Thus, this court lacks subject matter jurisdiction to hear plaintiffs' complaint, and plaintiffs' motion to remand is granted. This court, however, finds that defendants' position on removal was justifiable and made in good faith, and therefore plaintiffs' motion for attorney's fees and costs is denied.

ANALYSIS

I. SUBJECT MATTER JURISDICTION

The United States Supreme Court has repeatedly held that each defendant must be a citizen of a different state than each plaintiff in order for a federal court to have subject matter jurisdiction under the federal diversity statute, 28 U.S.C. § 1332. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806); Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 373, 98 S.Ct. 2396, 2402, 57 L.Ed.2d 274 (1978). In addition, 28 U.S.C. § 1332(c) states:

For the purposes of this section and section 1441 the removal section of this title, a corporation shall be deemed a citizen of any State in which it has been incorporated and of the State where it has its principal place of business.

Federal district courts disagree as to how § 1332(c) should be applied to foreign chartered corporations.¹ This court, however, does not have to consider how this section applies to North American Life because it finds that Capitol Bankers is a citizen of Wisconsin.

Pursuant to § 1332(c), a corporation that is incorporated in the United States is a citizen of the state in which it is incorporated and a citizen of the state in which it has its principal place of business. Thus, Capitol Bankers is a citizen of Minnesota (Beightol Aff. ¶ 5) and the state in which it has its principal place of business.

Federal courts have generally used three separate but overlapping tests to determine a corporation's principal place of business: 1) the "nerve center" test which searches for the state from which the corporation's activities are controlled and directed; 2) the "center of corporate activity" test which searches for the state where the corporation's day-to-day management is conducted; and 3) the "locus of the operations" test which searches for the state where the majority of the corporation's physical operations are located. Topp v. Compair Inc., 814 F.2d 830, 834 (1st Cir.1987).

The Seventh Circuit has adopted the nerve center test and has stated, "We look for the corporation's brain, and ordinarily find it where the corporation has its headquarters." Wisconsin Knife Works v. National Metal Crafters, 781 F.2d 1280, 1282 (7th Cir.1986); see also In re Air Crash Disaster Near Chicago, 644 F.2d 594, 620 (7th Cir.1981) cert. denied 454 U.S. 878, 102 S.Ct. 358, 70 L.Ed.2d 187 (1981); Celanese Corp. of America v. Vandalia Warehouse Corp., 424 F.2d 1176, 1178 (7th Cir.1970). The Seventh Circuit has considered the following factors to be important in determining the location of a corporation's nerve center:

1) the location of the general offices;

2) the residence of officers and department heads;

3) where management decisions are made;

4) where income tax returns are filed;

5) the location of the records and audits;

6) where credit card and collection matters are handled;

7) the location of the principal bank account;

8) the location of the board of director's meetings;

9) where all orders are received and filled; and

10) where all correspondence is conducted.

Sabo v. Standard Oil Co., 295 F.2d 893, 894 (7th Cir.1961); Kanzelberger v. Kanzelberger, 782 F.2d 774, 777 (7th Cir.1986). The defendants, however, argue that the nerve center test does not determine Capitol Bankers' principal place of business. Defendants claim that Capitol Bankers is a subsidiary and "alter ego" of North American Life, and therefore North American Life's principal place of business, Ontario, Canada, is imputed to Capitol Bankers.

The general rule concerning the citizenship of a subsidiary corporation is that:

A subsidiary corporation which is incorporated as a separate entity from its parent corporation is considered to have its own principal place of business; and, accordingly, may possess dual citizenship if such place is located in a different state from that in which it is chartered.

1 Moore's Federal Practice, ¶ 0.77(1.-2) at 717.10 (1988). There are, however, some federal courts that have noted the following exception to the general rule: "There is an exception to this rule: the subsidiary takes the citizenship of the parent when it is not really a `separate entity.'" Burnside v. Sanders Associates, Inc., 507 F.Supp. 165, 166 (N.D.Tex.1980), aff'd, 643 F.2d 389 (5th Cir.1981); but cf. J.A. Olson Co. v. City Of Winona, Miss., 818 F.2d 401 (5th Cir.1987). This exception is the "alter ego" doctrine which defendants refer to and rely upon for imputing North American Life's principal place of business to Capitol Bankers.

The defendants, however, cite no cases, and this court is unaware of any, where this doctrine has been used to create subject matter jurisdiction by imputing the parent's principal place of business to a subsidiary. See e.g. J.A. Olson Co., 818 F.2d at 414; Topp, 814 F.2d at 837; Freeman v. Northwest Acceptance Corp., 754 F.2d 553, 557-59 (5th Cir.1985); Panalpina Welttransport GMBH v. Geosource, Inc., 764 F.2d 352, 354-55 (5th Cir.1985); Fritz v. American Home Shield Corp., 751 F.2d 1152, 1154 (11th Cir.1985); Bonar, Inc. v. Schottland, 631 F.Supp. 990, 997-98 (E.D. Pa.1986); Amarillo Oil Co. v. Mapco, Inc., 99 F.R.D. 602, 603-05 (N.D.Tex.1983); de Walker v. Pueblo Int'l, Inc., 569 F.2d 1169, 1172-73 (1st Cir.1978); Quaker State Dyeing & Finishing Co. v. ITT Terryphone Corporation, 461 F.2d 1140, 1142 (3rd Cir. 1972); Adams v. Republic Steel Corp., 621 F.Supp. 370, 374-75 (W.D.Tenn.1985); Armstrong v. Goldblatt Tool Co., 609 F.Supp. 736, 738 (D.Kan.1985); Grimandi v. Beech Aircraft Corp., 512 F.Supp. 764, 774-76 (D.Kan.1981); Fitzgerald v. Seaboard System R.R., Inc., 647 F.Supp. 205, 208 (S.D.Ga.1985); R.W. Int'l, Inc. v. Borden Interamerica, Inc., 673 F.Supp. 654, 658-59 (D. Puerto Rico 1987); Burnside, 507 F.Supp. at 168. The federal district and circuit courts have repeatedly upheld the independence of the subsidiary corporation while giving lip service to the alter ego doctrine.² The courts' primary reason for not imputing the parent's principal place of business to the subsidiary is the Supreme Court's holding in Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634 (1925).

In Cannon, the Supreme Court considered the relationship between a parent and subsidiary corporation and upheld the independent corporate entity of the subsidiary. The critical aspect of Cannon is that the Court reached its holding even though it found that:

Through ownership of the entire capital stock and otherwise, the defendant parent corp. dominates the Alabama subsidiary corporation, immediately and completely; and exerts its control both commercially and financially in substantially the same way, and mainly through the same individuals as it does over those selling branches or departments of its business not separately incorporated which are established to market the Cudahy products in other States.

Cannon, 267 U.S. at 335, 45 S.Ct. at 251. Although Cannon concerned the issue of personal jurisdiction rather than subject matter jurisdiction, its reasoning and holding apply with equal force to the latter. See Freeman, 754 F.2d at 557-58. Thus,...