Chamberlain Mfg. Corp. v. Maremont Corp., 92 C 0356.

• Decision Date: 13 August 1993
• Docket Number: No. 92 C 0356.,92 C 0356.
• Citation: 828 F. Supp. 589
• Parties: CHAMBERLAIN MANUFACTURING CORPORATION, an Iowa corporation, Plaintiff, v. MAREMONT CORPORATION, a Delaware corporation, and Arvin Industries, Inc., an Indiana corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

828 F. Supp. 589

CHAMBERLAIN MANUFACTURING CORPORATION, an Iowa corporation, Plaintiff, v. MAREMONT CORPORATION, a Delaware corporation, and Arvin Industries, Inc., an Indiana corporation, Defendants.

No. 92 C 0356.

United States District Court, N.D. Illinois, E.D.

August 13, 1993.

Andrew R. Laidlaw, Debra Ann Winiarski, Timothy J. Haley, Edward James Santiago, Daniel Michael Blouin, Seyfarth, Shaw, Fair-weather & Geraldson, Chicago, IL, for plaintiff.

Michael B. Nash, Michael B. Nash, P.C., Chicago, IL, Charles R. Donnenfeld, Earl J. Silbert, Ellen Kabcenell Wayne, Adam S. Hoffinger, Robert A. Salerno, James T. Phalen, Jeffrey A. Tomasevich, Schwalb, Donnenfeld, Bray & Silbert, Washington, DC, for defendants.

MEMORANDUM OPINION AND ORDER

ALESIA, District Judge.

Before the court is Magistrate Judge Guzman's Report and Recommendation dated February 5, 1993 on the motion to dismiss for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) filed by defendant Maremont Corporation ("Maremont") and defendant Arvin Industries, Inc. ("Arvin"), Maremont's parent corporation. The Magistrate Judge recommends granting defendants' motion to dismiss because he concluded that the principal place of business of defendant Maremont is Carol Stream, Illinois, as Maremont asserts, and this conclusion destroys diversity jurisdiction. Plaintiff Chamberlain Manufacturing Corporation ("Chamberlain") objects to this recommendation. Therefore, the court will conduct de novo review of those portions of the Report and Recommendation to which plaintiff objects. 28 U.S.C. § 636.

Both parties agree that the Seventh Circuit has unequivocally adopted the "nerve center" test to determine where a corporation has its principal place of business for purposes of jurisdiction based on diversity of citizenship. Wisconsin Knife Works v. National Metal Crafters, 781 F.2d 1280, 1282 (7th Cir.1986). However, the parties disagree as to what factors should be considered in determining the location of a corporation's nerve center.

The Magistrate Judge enumerated ten factors that he considered relevant to the "nerve center" determination: (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 directors' meetings; (9) where all orders are received and filled; and (10) where all correspondence is conducted. Report and Recommendation, at 4 (citing Sabo v. Standard Oil Co., 295 F.2d 893, 894 (7th Cir.1961); Kanzelberger v. Kanzelberger, 782 F.2d 774, 777 (7th Cir. 1986)).

Plaintiff argues that the Magistrate Judge considered factors irrelevant to the determination of where a corporation's "nerve center" is located and should have limited the inquiry to four factors: (1) where important corporate decisions are made; (2) where the corporations's general counsel, directors, officers and shareholders are located; (3) where the corporation is funded and where the corporation's primary bank account exists; and (4) where its corporate headquarters are located. Plaintiff's Objections, at 1 (citing Ratner v. Hecht, 621 F.Supp. 378, 380 (N.D.Ill. 1985)). Thus, plaintiff submits that the Magistrate Judge concentrated on factors which are irrelevant under the "nerve center" test. Plaintiff's Objections, at 2.

Specifically, plaintiff asserts that the Magistrate Judge should not have taken into account where tax returns are filed, where Maremont's records and audits are kept, where Maremont's credit card and collection matters are handled, where Maremont's orders are received and filled, and where Maremont's correspondence is conducted. Plaintiff's Objections, at 2. Plaintiff suggests that these considerations might be proper under the "place of operations" or "center of corporate activity" tests for determining a corporation's place of business but not under the "nerve center" test adopted in the Seventh Circuit. Plaintiff's Objections, at 2-3. Furthermore, plaintiff argues that the Magistrate Judge misconstrued both Sabo and Kanzelberger because rather than setting forth only "nerve center" factors, the court in each of those cases also described in dicta some of the operational activities that the corporation carried out in the pertinent state. Sabo, 295 F.2d at 893-94; Kanzelberger, 782 F.2d at 777. Thus, plaintiff argues that the court in Kanzelberger did not hold that operational activities were to be analyzed under the "nerve center" test. Rather, plaintiff points out, the Kanzelberger court explained its discussion of "extraneous" factors by stating that "not only the nerve center, but the body" of this corporation was in the state determined to be the principal place of business. Id. at 778. Therefore, the court must determine what factors may be considered under the "nerve center" analysis and whether the Magistrate Judge properly evaluated the applicable factors to determine Maremont's principal place of business.

In Wisconsin Knife, where the Seventh Circuit explicitly adopted the "nerve center" test, the court noted that some courts use a more vague standard whereby "they look not just to where the corporation has its headquarters but also to the distribution of the corporation's assets and employees." Wisconsin Knife, 781 F.2d at 1282. In contrast, the Seventh Circuit adopted a simpler test because "jurisdiction ought to be readily determinable." Id. However, the court also noted that "there are cases where the corporation's headquarters may be divided between states and cases where the nominal headquarters isn't really the directing intelligence of the corporation, and those cases could give trouble even under a simple "nerve center" test." Id. at 1282-83. Beyond these broad statements, Wisconsin Knife provides little guidance in close cases.

The parties have cited and the court knows of no case that enumerates exclusive factors to consider when applying the "nerve center" test. As defendants point out, the Ratner court stated that "the tests do not limit the inquiry to certain factors or activities to the exclusion of others." Ratner, 621 F.Supp. at 381. However, as plaintiff points out, in Ratner the court also found that no single test is determinative, a concept rejected in Wisconsin Knife, where the Seventh Circuit held that the "nerve center" test must be applied in all cases. Thus, there exists no clear precedent as to whether the "nerve center" test requires the court to consider only certain limited factors.

Certain considerations warrant the limiting of factors to be taken into account under the "nerve center" test. First, as previously stated, the Seventh Circuit, in Wisconsin Knife, selected the "nerve center" test over other alternative tests because it is simpler and "jurisdiction ought to be readily determinable." Wisconsin Knife, 781 F.2d at 1282. Certainly, the consideration of fewer factors would simplify the process of determining a corporation's principal place of business. Second, if any and all otherwise relevant factors could be considered, there would be no logical explanation for the Seventh Circuit to have selected a particular test. For example, the Seventh Circuit did not opt for the "center of corporate activity" test, which looks to where the corporation's day-to-day management takes place, or the "locus of the operations of the corporation" test, focusing on where the bulk of the corporation's actual physical operations are located. See, e.g., Topp v. Compair, Inc., 814 F.2d 830, 834 (1st Cir.1987). These considerations warrant that the factors of the "nerve center" test be limited.

The precise factors for that test, however, are less than clear. The court will apply the "nerve center" test in light of the significance of the Seventh Circuit having chosen one test rather than other alternative tests, the goal of making jurisdiction readily determinable and what the court can glean from Wisconsin Knife. Wisconsin Knife indicates that the court should look for the corporation's brain and will ordinarily find it where the corporation has its headquarters. Wisconsin Knife, 781 F.2d at 1282. Hence, this court concludes that any factors involving, to continue the metaphor, any part of the body other than the brain are irrelevant to this test. Accordingly, the court agrees with plaintiff that only the factors which deal with the brains of the organization should be considered for the "nerve center" test and factors dealing with "day-to-day operating responsibilities" of Maremont should be disregarded. For example, Wisconsin Knife criticized courts that use more vague standards whereby they look to the distribution of the corporation's assets and employees. 781 F.2d at 1282. Therefore, these factors will not be considered. The court will look to the "nerve center" factors set forth in Ratner because they tend to distinguish the brain from other parts of the corporation's body — vital organs though they may be — whereas other factors do not help differentiate among numerous states where the corporation has a presence.

Plaintiff argues that all of the "nerve center" factors set forth in Ratner point to Maremont being principally based in Indiana. First, at the time this action was filed, all of Maremont's directors and seven out of ten of Maremont's officers resided in Indiana. Maremont's CEO, CFO, Treasurer, Assistant Treasurer, Secretary, Human Resources Vice-President and General Counsel all worked in Indiana. See Defendant Maremont Corporation's Responses to Plaintiff's Second Set of Interrogatories, Response to Interrogatory No. 56. Thus, Maremont's highest ranking officers maintain offices in Indiana. Second, plaintiff argues that because Maremont's highest level officers and all of...