China Basin Properties v. Allendale Mut. Ins., C-91-2790 SBA (ENE).

• Decision Date: 17 August 1992
• Docket Number: No. C-91-2790 SBA (ENE).,C-91-2790 SBA (ENE).
• Citation: 818 F. Supp. 1301
• Court: U.S. District Court — Northern District of California
• Parties: CHINA BASIN PROPERTIES, LTD., Plaintiff, v. ALLENDALE MUTUAL INSURANCE CO., et al., Defendants.

818 F. Supp. 1301

CHINA BASIN PROPERTIES, LTD., Plaintiff, v. ALLENDALE MUTUAL INSURANCE CO., et al., Defendants.

No. C-91-2790 SBA (ENE).

United States District Court, N.D. California.

August 17, 1992.

Law Offices of Dennis C. Birkhimer, San Francisco, CA, for plaintiff.

Pillsbury Madison & Sutro, Bernard Zimmerman, Mark Schallert, San Francisco, CA, for defendants Banta Corp. and One Pass, Inc.

ORDER GRANTING MOTION TO DISMISS

ARMSTRONG, District Judge.

On August 12, 1991, plaintiff China Basin Properties, Inc., ("China Basin") filed the instant complaint in the Superior Court for the State of California, in and for the City and County of San Francisco, against defendant Allendale Mutual Insurance Company ("Allendale"). On August 27, 1991, Allendale removed the action to this Court on the basis of diversity jurisdiction, pursuant to 28 U.S.C. § 1441(b). On January 16, 1992, plaintiff amended its complaint to add Banta Corporation ("Banta") and One Pass, Inc. ("One Pass"), as defendants to this action. Thereafter, China Basin voluntarily dismissed Allendale from this action.

The parties are now before the Court on defendant One Pass' motion to dismiss the complaint on the ground that there is no diversity of citizenship between the parties. After having considered the papers submitted and the arguments of the parties, for the reasons set forth below, the Court grants One Pass' motion to dismiss.

I. BACKGROUND

One Pass, a Delaware corporation, operated a video recording and post-production studio in San Francisco, California. One Pass was a wholly-owned subsidiary of Banta, a Wisconsin corporation. On or about July 23, 1987, China Basin and One Pass entered into a lease agreement for premises located in the China Basin Building located in San Francisco. On June 12, 1991, the leased premises were substantially destroyed by fire. The fire also destroyed much of the equipment and other property owned by One Pass.

After the fire, One Pass moved its business to another location in San Francisco. Cecchetti Depo. at 27:24-28:8, Zimmerman Decl., Ex. C. By September 13, 1991, however, One Pass had decided to cease its business operations. Id. at 26:19-22. Thus, by mid-November 1991, all of the video equipment salvaged from the fire had been sold, id. at 40:13-24, Antonio Decl., Ex. A, and with the exception of Roy Cecchetti and one other employee, all remaining personnel had been terminated by One Pass, id. at 33:6-8. Subsequently, an account manager with "Scanline" took over responsibility for the details of the winding down, such as tying up loose ends and paying final bills. Id. at 67:12-68:9.

At the time of the fire, the premises leased by One Pass were insured under a policy issued by Allendale and obtained by Banta. In mid-November 1991, Banta, on behalf of One Pass, negotiated with Allendale and settled One Pass' property loss damage claim for $6.5 million. Bardack Decl. Ex. Al. ¶¶ 3-5. Allendale subsequently paid $6.5 million in insurance proceeds to Banta, which Banta then credited to One Pass. Cecchetti Depo. at 47:13-15, Antonio Decl., Ex. A.

On January 16, 1992, China Basin filed its first amended complaint in this action which advances claims against Allendale, One Pass and Banta. Plaintiff brings this action to recover the insurance loss proceeds paid to Banta. The crux of plaintiff's complaint is that One Pass breached its lease obligations by failing to name China Basin as an additional insured under the Allendale policy, and that both Banta and One Pass have improperly refused to pay certain insurance proceeds as required by the lease.

On May 21, 1992, One Pass filed the instant motion to dismiss on the ground that there is no diversity between it and China Basin. One Pass contends that the only date relevant for the purposes of determining diversity in this action is January 16, 1992 — the date China Basin filed its first amended complaint and named One Pass as a defendant. One Pass maintains that because it was a defunct corporation as of that date, the Court should consider the state of California as its last principal place of business for diversity purposes. Moreover, because plaintiff China Basin is also a California resident, there is no diversity to support jurisdiction in this Court.

In response, China Basin offers three arguments as to why One Pass should not be considered a resident of California. First, as a defunct corporation, One Pass' citizenship for diversity purposes is determined exclusively by its state of incorporation, Delaware. Second, at the time the amended complaint was filed, the bulk of One Pass' business was being directed by Banta in Wisconsin. Because Banta exercised extraordinary dominion and control over One Pass' affairs, Wisconsin, Banta's principal place of business, is imputed to One Pass. And finally, because One Pass is really the alter ego of Banta, One Pass' citizenship is the same as Banta's.

II. DISCUSSION

A. Complete Diversity Between the Parties Is Required For Jurisdiction to Attach

Under 28 U.S.C. § 1332, there must be complete diversity of citizenship between all plaintiffs and all defendants. 28 U.S.C. § 1332(a)(1) (1992); Carden v. Arkoma Assocs., 494 U.S. 185, 199, 110 S.Ct. 1015, 1023, 108 L.Ed.2d 157 (1990). A corporation has dual citizenship for purposes of diversity jurisdiction — the state where it is incorporated and the state where it has its principal place of business. 28 U.S.C. § 1332(c)(1) (1992).¹ Diversity is determined as of the time of the filing of the complaint. Co-Efficient Energy Systems v. CSL Indus., 812 F.2d 556, 557 (9th Cir.1987). In the case of an amended complaint which joins new parties, however, the diversity must exist at the time of the amendment. Lewis v. Lewis, 358 F.2d 495, 502 (9th Cir.1966).

In a diversity case, the burden of proving all jurisdictional facts is on the party asserting jurisdiction. See McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 7, 80 L.Ed. 1135 (1936); Fenton v. Freedman, 748 F.2d 1358, 1359 n. 1 (9th Cir.1984). The diversity statute is strictly construed, and any doubts are resolved against finding jurisdiction. Kantor v. Wellesley Galleries, Ltd., 704 F.2d 1088, 1092 (9th Cir.1983).

B. One Pass' Principal Place of Business Was in California

There is a split of authority as to the proper test to determine the citizenship of a defunct or inactive corporation.² Some courts look to both the state of incorporation and the location of the corporation's last place of business activity. Comtec, Inc. v. National Technical Schools, 711 F.Supp. 522, 525 (D.Ariz.1989); Wm. Passalacqua Builders v. Resnick Developers S., 608 F.Supp. 1261, 1263 (S.D.N.Y.1985). Other courts, however, look only to the place of incorporation. Gavin v. Read Corp., 356 F.Supp. 483, 486 (E.D.Pa.1973). Recently, the Fifth Circuit adopted a middle ground approach, holding that the place of an inactive corporation's last business activity is relevant, but not dispositive, in determining its principal place of business. Harris v. Black Clawson Co., 961 F.2d 547, 550-51 (5th Cir.1992).³ One Pass relies on Comtec for the proposition that it is a citizen of both its state of incorporation, Delaware, and its last principal place of business, California. In Comtec, defendant Comtec moved to dismiss the action for lack of diversity jurisdiction. Like One Pass, Comtec was a defunct corporation at the time the complaint was filed.

The Comtec court ruled that for purposes of diversity jurisdiction, California, its last principal place of business, would be considered its principal place of business. Comtec, 711 F.Supp. at 525. The court rejected the plaintiff's suggestion that when a corporation has ceased its business activity, diversity jurisdiction is determined only by reference to the state of incorporation. Id. In reaching its decision, the court reasoned that such a conclusion would be inconsistent with the language of section 1332(c), which expressly states that corporate diversity is based on both the place of incorporation and principal place of business. Id. at 524. The court explained that "by using the conjunction `and,' Congress intended for all of the requirements of the statute to be fulfilled." Id. at 524.⁴ The court concluded that the lack of diversity precluded it from asserting jurisdiction over the case, and remanded the action to state court. Id. at 525-26; accord Wm. Passalacqua Builders, 608 F.Supp. 1261 (cited with approval in Comtec).

Nevertheless, China Basin, without advancing any substantive analysis, contends that this Court should follow Gavin instead of Comtec. In Gavin, plaintiff (a Pennsylvania citizen) brought an action against an out-of-state corporation. The defendant corporation's principal place of business was Pennsylvania; however, it was no longer engaged in any business activity at the time the complaint was filed. Gavin, 356 F.Supp. at 486. Since the defendant was an inactive corporation, the court looked only to the corporation's place of incorporation to determine its citizenship, and ruled that there was diversity of citizenship. Id. The court premised its analysis on the assumption that a defunct corporation is in the same situation as a corporation which has been granted a charter but has not commenced business. Id. Since neither corporation is conducting any business, the court reasoned that only the corporation's place of incorporation is germane for ascertaining the citizenship of the corporation.

The problem with Gavin is that it is premised upon faulty reasoning — namely, that a defunct corporation should be viewed in the same light as an inactive corporation. Unlike an inactive corporation, a defunct corporation had, at one time, been conducting business. As a result, the defunct corporation has established some connection with the state where it conducted its business. This distinction is significant because diversity jurisdiction...