Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 91 Civ. 0341 (DNE).

• Decision Date: 21 August 1998
• Docket Number: No. 91 Civ. 0341 (DNE).,91 Civ. 0341 (DNE).
• Citation: 18 F.Supp.2d 297
• Parties: BONNIE & COMPANY FASHIONS, INC. and Bonnie Boerer, individually, Plaintiffs, v. BANKERS TRUST COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

18 F.Supp.2d 297

BONNIE & COMPANY FASHIONS, INC. and Bonnie Boerer, individually, Plaintiffs, v. BANKERS TRUST COMPANY, Defendant.

No. 91 Civ. 0341 (DNE).

United States District Court, S.D. New York.

August 21, 1998.

COPYRIGHT MATERIAL OMITTED

Michael M. Rosenbaum, Richard M. DeAgazio, Budd Larner Gross Rosenbaum, New York City, for Bonnie & Company Fashions, Inc., Bonnie Boerer.

David B. Eizenman, Roni Schneider, Loeb and Loeb, New York City for Bankers Trust Co.

OPINION & ORDER

EDELSTEIN, District Judge.

This case involves a commercial dispute over a factoring agreement. The facts and procedural history of this action have been previously set forth and thus familiarity is assumed. See Bonnie & Co. Fashions, Inc. v. Bankers Trust Co., 945 F.Supp. 693 (S.D.N.Y.1996). Accordingly, only the facts necessary to resolve the instant matter will be reviewed. Currently before this Court is Defendant's, Bankers Trust Company ("BTC"), motion to dismiss for want of subject matter jurisdiction.

Facts

Bonnie & Company Fashions, Inc. ("Bonnie & Co.") was incorporated in New Jersey on October 11, 1983 for the purpose of manufacturing and selling of women's clothing. On December 1, 1983, Bonnie & Co. applied for authority to conduct business in New York. Bonnie & Co. then entered into a factoring agreement with BTC in June 1984. Complaint ¶ 8. On January 2, 1990, Bonnie & Co. notified BTC that it had adopted a plan of liquidation and that it was terminating the Factoring Agreement 60 days thereafter. (Letter from M. David Baker, Esq. to John F. Contrucci of 1/2/90.)

On January 15, 1991, Plaintiffs initiated this action based upon diversity jurisdiction. The Complaint alleges that Plaintiffs are New Jersey citizens and that the corporation's principal place of business was New Jersey. Complaint ¶ 1. The Complaint also states that BTC is a New York corporation, with its principal place of business in New York. Id. ¶ 2. Defendant, until new, had never challenged this court's jurisdiction.¹

Defendant alleges that Bonnie & Co.'s principal place of business was New York and thus diversity jurisdiction is lacking. Accordingly, BTC asserts that this action must be dismissed. In support of their allegations, Defendant argues that Plaintiffs are judicially estopped from arguing that Bonnie & Co.'s principal place of business was anywhere but New York because Plaintiffs represented to the United States District Court for the Southern District of Florida that the corporation was a New York Citizen. See Bankers Trust Company's Supplemental Memorandum of Law in Support of Motion to Dismiss at 1-2.

In the alternative, Defendant argues that Bonnie & Co.'s last principal place of business was New York. In support of this argument, Defendant asserts that the company's actions indicate that its principal place of business was New York. BTC states that 1407 Broadway, New York, New York was the place where Bonnie & Co. had its main office, and had its most extensive contract with and greatest impact upon the general public. Memorandum of Law in Support of Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction at 3-4. Defendant also states that Bonnie & Co.'s "Additional Terms" to its form contracts establish that Bonnie & Co.'s principal place of business was New York. For example, BTC notes that the "Additional Terms" provided that customer requests for authorization to return merchandise must be made to 1407 Broadway, New York, New York, see Additional Terms of Contract ¶ 3 between customers and Bonnie & Co. shall be brought in a New York State court and governed by New York law. Id. ¶ 4.

Moreover, BTC argues that Plaintiffs made representations that demonstrate that Bonnie & Co.'s principal place of business was New York. For instance, Defendant states that in Bonnie & Co.'s application to conduct business in New York, Bonnie & Co. identified its office as 1407 Broadway, New York, New York. See Application of Bonnie & Co. and Company Fashions, Inc. for Authority to Conduct Business in the State of New York ¶ 4 attached to Affidavit of David B Eizenman in Support of Defendants Motion to Dismiss ("Eizenman Aff.") as Ex. 3. Additionally, BTC maintains that in the Factoring Agreement, Bonnie & Co. represented and warranted that 1407 Broadway, New York, New York was its principal place of business, and the office where its books and records would be maintained. See Factoring Agreement ¶ 4.3 attached to Eizenman Aff. as Ex. 4; Certificate of Resolutions and Incumbency attached to Eizenman Aff. as Ex. 4. BTC further asserts that Bonnie & Co.'s bookeeper testified that 1407 Broadway, New York, New York was its business. Deposition of Zeena Kaufman at 39.

Plaintiffs, in response, argue that Bonnie & Co.'s principal place of business, at all times, was New Jersey. First, Plaintiffs contend that Bonnie & Co.'s principal place of business prior to adopting its plan of liquidation was New Jersey. Plaintiffs' Memorandum of Law in Opposition to Bankers Trust Co.'s Motion to Dismiss for Lack of Subject Matter Jurisdiction at 2. In support of this assertion Plaintiffs state that although some administrative functions were performed in the company's showroom in New York, "Bonnie & Co.'s true `locus of operations' and `nerve center' were in New Jersey" where the company's director and key employees formulated corporate policy and performed all of the design work.² Id. Additionally, Plaintiffs state that New Jersey was where the company's inventory was maintained, invoiced and shipped to customers. Id.

Second, Plaintiffs argue that Bonnie & Co.'s last principal place of business after liquidation was New Jersey. Plaintiffs claim that Bonnie & Co. did not become an inactive corporation until ten months after its New York office was closed. Id. at 1-2. In that time period, Plaintiffs assert, the company conducted "substantial business activity" at its headquarters in New Jersey. Id. at 2. The business activity, conducted by full-time employees, included collecting $4 million in outstanding receivables from sales, reconciling Bonnie & Co.'s factor account with BTC and reconciling and paying sales commissions. Id.

Discussion

Judicial Estoppel

BTC argues that Plaintiffs are judicially estopped from claiming that Bonnie & Co.'s principal place of business is New Jersey because Plaintiffs, in a previous litigation, represented to a United States District Court for the Southern District of Florida that Bonnie & Co. was a New York citizen with its principal place of business in New York. On June 27, 1990, Plaintiffs filed with the United States District Court for the Southern District of Florida removal papers in a Florida action in which they stated that Bonnie & Co. was a "New York corporation with its principal place of business in New York," and was a New York citizen. Notice of Removal at 1, eMTe Corp. v. Bonnie & Co. & Co. Fashions, Inc. No. 90-1497 (S.D.Fl. 1990) attached as Exhibit 1 to Affidavit of John D. Boykim, Esq. in Further Support of Motion to Dismiss ("Boykim Aff."). Thereafter, in February 27, 1991 and April 29, 1991 Plaintiffs again represented that Bonnie & Co. was a New York corporation.³ See Stipulation, eMTe Corp. No. 90-1497 attached as Ex. 2 to Boykin Aff; April 29, 1991 Joint Pre-Trial Stipulation, eMTe Corp. No. 90-1497 attached as Ex. E to Schneider Aff.

Judicial estoppel prevents a party in a legal proceeding from asserting a position that is inconsistent with one which the party has previously set forth in a prior legal proceeding. Bates v. Long Island Railroad Co., 997 F.2d 1028, 1037 (2d Cir.1993). The purpose behind the doctrine is to protect both the sanctity of the oath "by demanding absolute truth and consistency in all sworn positions", and the integrity of the judicial process "by avoiding the risk of inconsistent results in two proceedings." Id. at 1037-38. Thus, the party invoking judicial estoppel must establish that "(1) the party against who judicial estoppel is being asserted advanced an inconsistent factual position in a prior proceeding, and (2) the prior inconsistent position was adopted by the first court in some manner." AXA Marine and Aviation Ins., Ltd. v. Seajet Industries, Inc., 84 F.3d 622, 628 (2nd Cir.1996) citing Bates, 997 F.2d at 1038.

The Second circuit has recently held that "estoppel only applies when a tribunal in a prior proceeding has accepted the claim at issue by rendering a favorable decision." Simon v. Safelite Glass Corp., 128 F.3d 68, 72 (2d Cir.1997). By doing so, the Second Circuit has limited "judicial estoppel to situations where the risk of inconsistent results with its impact on judicial integrity is certain." Id.

Here, BTC has met the first element by establishing that Plaintiffs, on more than one occasion in the Florida action, set forth that Bonnie & Co. was a New York citizen for diversity purposes. However, BTC falls short on the second element. Plaintiffs' inconsistent statement was not adopted by the Florida District Court in any manner. Indeed, even Plaintiffs' notice of removal, BTC's best chance for establishing judicial adoption of Plaintiffs' prior inconsistent position, does not suffice. A notice of removal cannot trigger judicial estoppel because under 28 U.S.C. § 1446, notice of removal is not treated as a motion or application to the court. Instead, the notice is effective without judicial approval, unless a remand is ordered. Adler v. Adler, 862 F.Supp. 70, 72 (S.D.N.Y.1994) (citing Ullah v. Federal Deposit Ins. Corporation, 852 F.Supp. 218, 220 (S.D.N.Y.1994)). Therefore, the court does not adopt what is contained in the notice of removal. Accordingly, Plaintiffs' prior inconsistent position could not have been adopted by the prior court.⁴ Whereas BTC cannot meet its burden as to the second element of the Second Circuit's test for judicial estoppel, their motion for judicial estoppel must be denied. See A.I. Trade Finance v. Centro...