Cent. West Va. Energy Co. v. Mountain State Carbon Llc

Decision Date13 April 2011
Docket NumberNo. 10–1486.,10–1486.
Citation636 F.3d 101
PartiesCENTRAL WEST VIRGINIA ENERGY COMPANY, INCORPORATED, a West Virginia corporation; A.T. Massey Coal Company, Incorporated, a Virginia corporation, Plaintiffs–Appellants,v.MOUNTAIN STATE CARBON, LLC, a Delaware Limited Liability Company; SNA Carbon, LLC; Severstal Wheeling, Incorporated, a Delaware corporation; Severstal North America, Incorporated, a Delaware corporation; OAO Severstal, a Russian Joint Stock Company, Defendants–Appellees.
CourtU.S. Court of Appeals — Fourth Circuit

OPINION TEXT STARTS HERE

ARGUED: Robert M. Stonestreet, Dinsmore & Shohl, LLP, Charleston, West Virginia, for Appellants. Gregory J. Krock, Buchanan, Ingersoll & Rooney, PC, Pittsburgh, Pennsylvania, for Appellees. ON BRIEF: W. Henry Jernigan, Jr., David E. Rich, Dinsmore & Shohl, LLP, Charleston, West Virginia, for Appellants. David B. Fawcett, Buchanan, Ingersoll & Rooney, PC, Pittsburgh, Pennsylvania, for Appellees.Before DUNCAN, DAVIS, and WYNN, Circuit Judges.Reversed by published opinion. Judge WYNN wrote the opinion, in which Judge DUNCAN and Judge DAVIS concurred.

OPINION

WYNN, Circuit Judge:

For federal diversity jurisdiction purposes, a corporation is a citizen of the states in which it has been incorporated and in which it has its principal place of business. In Hertz Corp. v. Friend, ––– U.S. ––––, 130 S.Ct. 1181, 1186, 175 L.Ed.2d 1029 (2010), the Supreme Court clarified that the phrase ‘principal place of business' refers to the place where the corporation's high level officers direct, control, and coordinate the corporation's activities.”

In this case, seven of Defendant Severstal Wheeling, Inc.'s eight officers, including its chief executive officer, chief operating officer, and chief financial officer, set corporate policies and oversee significant corporate decisions out of Dearborn, Michigan. Accordingly, under Hertz, Dearborn, Michigan is Severstal Wheeling's principal place of business. We therefore conclude that the district court erred in holding otherwise and reverse.

I.

Plaintiff Central West Virginia Energy Co. (Central Energy), a West Virginia coal sales company, brought this suit in federal district court in April 2009. Central Energy filed an amended complaint, along with Plaintiff A.T. Massey Coal Company (Massey Coal), a Virginia corporation, in June 2009. Plaintiffs sued Mountain State Carbon, LLC (Mountain State), its member companies, one of which is Severstal Wheeling, and its parent companies, all of which are in the steel business. Plaintiffs alleged that Mountain State wrongfully refused to accept coal deliveries in breach of a coal supply agreement with Central Energy. According to the complaint, Mountain State's refusal of the coal was the result of an illegal scheme on the part of Mountain State and its affiliated companies to shift the costs of the 20082009 economic downturn onto Central Energy and Massey Coal.

Mountain State and Severstal Wheeling filed a motion to dismiss the complaint due to a lack of diversity, the basis of federal jurisdiction in this case. Specifically, Mountain State and Severstal Wheeling argued that Severstal Wheeling's principal place of business is in Wheeling, West Virginia. And because both Central Energy and Severstal Wheeling are West Virginia citizens, they contended, diversity jurisdiction did not exist. Central Energy and Massey Coal opposed the motion.

While the motion was pending, the United States Supreme Court issued a decision clarifying how federal courts are to determine principal place of business— Hertz, 130 S.Ct. 1181. On March 31, 2010, citing Hertz, the district court granted Mountain State's and Severstal Wheeling's motion and dismissed the complaint for lack of subject matter jurisdiction. In its memorandum opinion and order dismissing the case, the district court focused on the fact that Severstal Wheeling's self-described day-to-day operations such as ‘purchasing, sales, transportation, engineering, human resources, and accounting/financial functions' are all handled in Wheeling” and noted Severstal Wheeling's “visibility in and involvement with the Wheeling community.” Central Energy and Massey Coal appealed.

II.

Central Energy and Massey Coal argue that the district court erred in its application of Hertz when it determined that Severstal Wheeling's principal place of business was Wheeling, West Virginia, despite the fact that Severstal Wheeling's officers control the company's policies and high-level decisions from Dearborn, Michigan. We agree.

A.

This case was brought in federal court on the basis of diversity jurisdiction. Under 28 U.S.C. § 1332, a federal district court has original jurisdiction over all civil actions where the amount in controversy exceeds $75,000, exclusive of interest and costs, and is between citizens of different states. 28 U.S.C. § 1332(a)(1). With the exception of certain class actions,1 Section 1332 requires complete diversity among parties, meaning that the citizenship of every plaintiff must be different from the citizenship of every defendant. Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996). For purposes of diversity jurisdiction, the citizenship of a limited liability company (such as Mountain State) is determined by the citizenship of all of its members (such as Severstal Wheeling). Gen. Tech. Applications, Inc. v. Exro Ltda, 388 F.3d 114, 121 (4th Cir.2004). Further, a corporation (such as Severstal Wheeling) “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).

B.

In the past, this Circuit has employed two tests to determine a corporation's principal place of business. Athena Auto., Inc. v. DiGregorio, 166 F.3d 288, 290 (4th Cir.1999). Under the first test, the “nerve center test,” the home office from which the corporation's officers direct, control, and coordinate the corporation's activities is its principal place of business. Id. Under the second test, the “place of operations test,” the place where the bulk of corporate activity occurs is the principal place of business. Id. Refusing to adopt either test to the exclusion of the other, the Fourth Circuit had held that the application of one test may be more appropriate than the other depending on the facts of a particular case. Id.; see also, e.g., Peterson v. Cooley, 142 F.3d 181, 184 (4th Cir.1998).

With its recent Hertz decision, however, the Supreme Court made clear that, for purposes of diversity jurisdiction, a corporation's principal place of business is always its “nerve center.” Hertz, 130 S.Ct. at 1186. The plaintiffs in Hertz were two California citizens who sued the Hertz car rental company in California state court on behalf of a putative class of California citizens. Id. Hertz removed the case to federal court on the basis of diversity, contending that its principal place of business was New Jersey, where it maintained its headquarters. Id. The district court looked at Hertz's business activities, found that a plurality of the business activities took place in California, and granted the plaintiffs' motion to remand to state court. The Ninth Circuit affirmed. Friend v. Hertz Corp., 297 Fed.Appx. 690 (9th Cir.2008).

The Supreme Court rejected the lower courts' business activity reasoning. Instead, the Court focused on the location of the corporation's officers who direct, control, and coordinate the company's business and clarified that that location, the corporation's “nerve center,” is, in all cases, the principal place of business. Thus, the Court unanimously stated:

In an effort to find a single, more uniform interpretation of the statutory phrase ... [w]e conclude that “principal place of business” is best read as referring to the place where a corporation's officers direct, control, and coordinate the corporation's activities. It is the place that Courts of Appeals have called the corporation's “nerve center.” And in practice it should normally be the place where the corporation maintains its headquarters—provided that the headquarters is the actual center of direction, control, and coordination, i.e., the “nerve center,” and not simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion).

....

We ... recognize that the use of a “nerve center” test may in some cases produce results that seem to cut against the basic rationale for 28 U.S.C. § 1332, see supra, at 1188. For example, if the bulk of a company's business activities visible to the public take place in New Jersey, while its top officers direct those activities just across the river in New York, the “principal place of business” is New York. One could argue that members of the public in New Jersey would be less likely to be prejudiced against the corporation than persons in New York—yet the corporation will still be entitled to remove a New Jersey state case to federal court. And note too that the same corporation would be unable to remove a New York state case to federal court, despite the New York public's presumed prejudice against the corporation.

We understand that such seeming anomalies will arise. However, in view of the necessity of having a clearer rule, we must accept them. Accepting occasionally counterintuitive results is the price the legal system must pay to avoid overly complex jurisdictional administration while producing the benefits that accompany a more uniform legal system.

Hertz, 130 S.Ct. at 1192–94.

C.

In this case, the record shows that the place where Severstal Wheeling's “officers direct, control, and coordinate the corporation's activities” is Dearborn, Michigan. Hertz, 130 S.Ct. at 1192. Seven of Severstal Wheeling's eight corporate officers—including its chief executive officer, chief operating officer, chief financial...

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