Brewer v. Smithkline Beacham Corp.. D/B/A Glaxosmithklinetina Lewis

• Decision Date: 24 March 2011
• Docket Number: 10–4445,Civil Action Nos. 10–4443,10–4444,10–5198,10–4446,10–4447,10–4448,10–5199.
• Citation: 774 F.Supp.2d 720
• Parties: Anne BREWER, et al.v.SMITHKLINE BEACHAM CORPORATION d/b/a GlaxoSmithKlineTina Lewis, et al.v.SmithKline Beacham Corporation d/b/a GlaxoSmithKlineJacob Dean, et al.v.SmithKline Beacham Corporation d/b/a GlaxoSmithKlineHeather Ruttinger, et al.v.SmithKline Beacham Corporation d/b/a GlaxoSmithKlineKayla Bell, et al.v.SmithKline Beacham Corporation d/b/a GlaxoSmithKlineIsabella Andrea Moore, et al.v.SmithKline Beacham Corporation d/b/a GlaxoSmithKlineChristine Hess on behalf of her minor child Holden Cotesv.GlaxoSmithKline, et al.Christine Hess on behalf of her minor child Kaden Cotesv.GlaxoSmithKline, et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

774 F.Supp.2d 720

Anne BREWER, et al.

v.SMITHKLINE BEACHAM CORPORATION d/b/a GlaxoSmithKlineTina Lewis, et al.

v.SmithKline Beacham Corporation d/b/a GlaxoSmithKlineJacob Dean, et al.

v.SmithKline Beacham Corporation d/b/a GlaxoSmithKlineHeather Ruttinger, et al.

v.SmithKline Beacham Corporation d/b/a GlaxoSmithKlineKayla Bell, et al.

v.SmithKline Beacham Corporation d/b/a GlaxoSmithKlineIsabella Andrea Moore, et al.

v.SmithKline Beacham Corporation d/b/a GlaxoSmithKlineChristine Hess on behalf of her minor child Holden Cotes

v.GlaxoSmithKline, et al.Christine Hess on behalf of her minor child Kaden Cotes

v.GlaxoSmithKline, et al.

Civil Action Nos. 10–4443

10–4446

10–4444

10–4445

10–4448

10–4447

10–5198

10–5199.

United States District Court, E.D. Pennsylvania.

March 24, 2011.

W. Steven Berman, Napoli Kaiser & Assoc., Marlton, NJ, Edward Blizzard, Blizzard McCarthy and Nabers L.L.P., Houston, TX, Rosemary Pinto, Feldman & Pinto PC, Philadelphia, PA, for Anne Brewer, et al.Joseph E. O'Neil, Carolyn L. McCormack, Lavin O'Neil Ricci Cedrone & DiSipio, Philadelphia, PA, Andrew Thomas Bayman, Robert K. Woo, King and Spalding, Atlanta, GA, for SmithKline Beacham Corporation d/b/a GlaxoSmithKline.

MEMORANDUM OPINION

SAVAGE, District Judge.

Introduction

In ruling on the remand motions before us, we are confronted with an atypical factual scenario that requires us to apply the Supreme Court's “nerve center” test enunciated in Hertz Corp. v. Friend, ––– U.S. ––––, 130 S.Ct. 1181, 175 L.Ed.2d 1029 (2010), to determine the citizenship of a holding company that is the sole member of the defendant limited liability company. In doing so, we consider how a corporation's status as a holding company factors into the jurisdictional calculus where the actual defendant is an operating limited liability company whose sole member is a holding company that delegates its operational decision-making to the operating company.

We conclude that, in this case, for purposes of determining the citizenship of a limited liability company whose sole member is a holding company that does not direct or control the operations of the limited liability company, we look to the “nerve center” of the limited liability company to which the holding company has delegated the operational decision-making. This conclusion is based upon the rationale of the Hertz holding and the unusual circumstances surrounding the relationship between the limited liability company and the holding company that owns an investment in it. Therefore, because the defendant's “nerve center” is located in Pennsylvania and under 28 U.S.C. § 1441(b) an action is not removable when any defendant is a citizen of the state in which the action was brought, we shall grant the motions for remand.

Procedural History

After the defendant removed these eight pharmaceutical liability cases from the state court, the plaintiffs moved for remand. They contend there is an absence of complete diversity, depriving the federal court of subject matter jurisdiction. They argue that applying the “nerve center” test for determining a corporation's citizenship as recently formulated by the Supreme Court in Hertz, the defendant's principal place of business is in Philadelphia, Pennsylvania. The plaintiffs contend that because there is a lack of complete diversity, removal is improper. Without any further argument, they also cite 28 U.S.C. § 1441(b) as a ground for remand.

Opposing remand, defendant GlaxoSmithKline LLC (“LLC”), formerly SmithKlineBeecham Corporation (“SKB”), counters that there is complete diversity because it is a Delaware citizen for jurisdictional purposes and none of the plaintiffs is a Delaware citizen. Invoking the Third Circuit's holding in Zambelli Fireworks Mfg. Co., Inc. v. Wood, 592 F.3d 412 (3d Cir.2010), it argues that its citizenship, as a limited liability company, is that of its sole member, GlaxoSmithKline Holdings (Americas) Inc. (“Holdings”), a Delaware corporation that is headquartered there. It asserts that Holdings's principal place of business is in Delaware, where it is incorporated and holds its board of directors meetings. Thus, it contends that the defendant's citizenship is other than Pennsylvania, resulting in complete diversity and permitting removal under §§ 1441(a) and (b).

The Companies

GlaxoSmithKline plc (“PLC”) is an incorporated United Kingdom company that is at the top of the GlaxoSmithKline (“GSK”) global group of companies. PLC is a pharmaceutical and consumer healthcare company whose business involves sales, manufacturing, research and development in pharmaceutical and consumer healthcare worldwide.¹

GlaxoSmithKline LLC (“LLC”) is the entity through which PLC conducts its pharmaceutical and consumer healthcare business in the United States.² Until October 27, 2009, PLC conducted its pharmaceutical and consumer healthcare business in the United States through SKB. SKB's headquarters and principal place of business were in Philadelphia. The senior officers of SKB directed and controlled the activities of SKB from their Philadelphia offices at One Franklin Plaza.³

In October of 2009, SKB was converted from a Pennsylvania corporation to a Delaware limited liability company to accomplish a joint venture between Pfizer and GSK to research, develop and market HIV drugs. To avoid substantially adverse tax consequences and to assure legal continuity for the protection of intellectual property and contract rights, SKB had to transfer its assets to a Delaware corporation and then to a Delaware limited liability company. Delaware was chosen because, unlike Pennsylvania, it allows a corporation to convert to a limited liability company without liquidating or dissolving the corporation.⁴ Thus, after converting the Pennsylvania corporation into a Delaware corporation, SKB transferred its assets to the newly formed GlaxoSmithKline LLC in Delaware with Holdings as its sole member, which had been the sole shareholder of SKB.

SKB did not dissolve when it was converted to LLC. As perceived by its Rule 30(b)(6) witness, Julian Heslop, LLC is “simply a continuation of what used to be SKB,” with LLC having “the same rights and obligations that it always had, and it “can be sued in exactly the same way.” ⁵ According to the limited liability company agreement forming LLC, SKB's senior officers, board of directors and members of the Executive Committee continued in their same positions for LLC.⁶ The agreement dictates that SKB's board of directors shall serve as the “manager” of LLC, stating that LLC's “business and affairs ... shall be managed by” SKB's board.⁷

Although LLC is registered in Delaware, the limited liability company agreement recites LLC's “business address” as One Franklin Plaza in Philadelphia. Heslop describes this Philadelphia “business” address as LLC's headquarters or “principal place of business.” The agreement further requires that the books, records and accounts of LLC's business and financial condition be kept in Philadelphia, and that the board of directors meet there as well. ⁸ Approximately 1800 employees work in LLC's Philadelphia offices. The Philadelphia offices house the marketing, communications, finance, IT, HR, sales, administration and other corporate functions of LLC.⁹

The senior officers of LLC direct and control LLC's pharmaceutical and consumer healthcare business.¹⁰ Of the ten senior officers who direct and control LLC's business and make LLC's business decisions, eight do so from Philadelphia; one from King of Prussia, Pennsylvania; and one from North Carolina.¹¹ Additionally, three of the four directors of LLC are based in Philadelphia.¹²

LLC has one member, Holdings.¹³ Holdings is a Delaware corporation that was formed in 1999. Before SKB was converted to LLC in October of 2009, Holdings was the sole shareholder of SKB. In other words, SKB was a wholly-owned corporate subsidiary of Holdings.¹⁴ With SKB's conversion to an LLC, Holdings now owns an investment in LLC.¹⁵

Holdings is a holding company, not an operating company. It has an investment in LLC and has intra-group accounts with other GSK companies.¹⁶ Its “activities” are approving the timing and amount of dividends up the GSK corporate chain, as well as holding and managing intra-group assets and liabilities.¹⁷ Its directors monitor the investment that Holdings has in LLC, which is one of its “principal investments.” ¹⁸ Holdings also serves as the top United States company for the tax return of the GSK group. In its corporate capacity, Holdings does not have operations, such as manufacture or sales of goods or services. It has no infrastructure.¹⁹

Against this backdrop, we must determine the defendant's principal place of business to establish its citizenship. Thus, we now review the applicable legal standard.

Determining Citizenship for Diversity Jurisdiction

A limited liability company's citizenship, in the Third Circuit and in all other circuits that have considered the issue, is determined by the citizenship of its members. Zambelli, 592 F.3d at 418. A limited liability company is treated as a partnership rather than a corporation. Id. at 420. Thus, we must look to the citizenship of each of the limited liability company's members when performing the diversity jurisdiction analysis.

The only member of LLC is Holdings, a corporation. For diversity jurisdiction purposes, a corporation is a citizen of the state where it is incorporated and has its principal place of business. 28 U.S.C. § 1332(c)(1).

The principal place of business is the place “where a corporation's officers direct, control, and coordinate the corporation's activities”—its “nerve center.” Hertz Corp., 130 S.Ct. at 1192. It is not the state where the corporation conducts much of its business activities, but rather the place within the state from which it directs, controls and coordinates those activities, usually its headquarters. Id. at 1193. It is where the “brain” of the corporation is located. Id....