Circle Indus. USA v. Parke Construction Group, Docket No. 98-9539

• Decision Date: 01 August 1998
• Docket Number: Docket No. 98-9539
• Parties: (2nd Cir. 1999) CIRCLE INDUSTRIES USA, INC., Plaintiff-Appellant, v. PARKE CONSTRUCTION GROUP, INCORPORATED, Defendant-Appellee
• Court: U.S. Court of Appeals — Second Circuit

Page 105

183 F.3d 105 (2nd Cir. 1999)

CIRCLE INDUSTRIES USA, INC., Plaintiff-Appellant, v. PARKE CONSTRUCTION GROUP, INCORPORATED, Defendant-Appellee.

Docket No. 98-9539

August Term, 1998

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT

Argued: June 9, 1999.

Decided: July 15, 1999.

Appeal from an order and final judgment of the United States District Court for the Eastern District of New York (Sterling Johnson, Jr., Judge) denying plaintiff-appellant's motion to remand this action to state court, awarding defendant-appellee attorneys' fees pursuant to 28 U.S.C. § 1447(c) for opposing the remand, and confirming an arbitration award rendered in favor of defendant-appellee.

Affirmed in part and reversed in part.

JEFFREY S. DUBIN, Law Office of Jeffrey S. Dubin, Garden City, NY, for plaintiff-appellant.

ROBERT MAHONEY, Friedman Siegelbaum LLP, Roseland, NJ (Lindsey H. Taylor, on the brief), for defendant-appellee.

Before: LEVAL and SOTOMAYOR, Circuit Judges, and POLLACK,^*. District Judge.

SOTOMAYOR, Circuit Judge:

Plaintiff-appellant Circle Industries USA, Inc. ("Circle") initially brought this action in the Supreme Court of the State of New York, County of Nassau, suing to vacate an arbitration award rendered in favor of defendant-appellee Parke Construction Group, Inc. ("Parke"). When Parke removed the case to the District Court for the Eastern District of New York, Circle moved to remand the action to state court. On September 15, 1997, the district court (Johnson, J.) found that federal jurisdiction existed on the basis of diversity of citizenship and denied Circle's motion to remand. The district court also ordered Circle to pay the attorneys' fees incurred by Parke in opposing the remand motion. On October 23, 1998, the district court entered a final judgment confirming the challenged arbitration award. For the reasons to be discussed, we affirm the district court's denial of Circle's motion to remand as well as its judgment confirming the arbitration award, but reverse the district court's grant of attorneys' fees to Parke under 28 U.S.C. § 1447(c) (1994).

BACKGROUND

Circle is a New York corporation with its principal place of business in New York. Parke was incorporated in Georgia in 1993 for the sole purpose of entering into a joint venture with Circle to work on several construction projects in the Atlanta metropolitan area. Between 1993 and the fall of 1995, Parke's registered office was located in Georgia and its registered agent, Greg Lubonty, resided there. In the spring of 1995, the parties agreed to phase out the joint venture, and Parke performed its last construction work in Georgia in the fall of 1995. Parke also closed its office in Georgia at that time. The corporation's registered agent, Lubonty, then left the state, and all mail addressed to Parke was forwarded to Parke's president, John Bowe, in New York. Parke's activity since late 1995 has been limited to collecting its various accounts in Georgia and prosecuting this action in New York.

This litigation arose from a dispute over Circle's alleged wrongful diversion of money from the joint venture. Parke filed suit against Circle in federal district court in Georgia, seeking injunctive relief. That action was dismissed when the parties submitted their dispute to binding arbitration before an arbitrator from the American Arbitration Association ("the AAA") in New York, as required under the terms of the joint venture agreement.

In November of 1996, the arbitrator conducted a five-day hearing on the parties' claims. During the proceedings, Circle introduced twenty-eight exhibits and Parke twenty-seven, each of which was marked as an exhibit personally by the arbitrator upon submission. The arbitrator reviewed some of the exhibits as they came into evidence and glanced cursorily at others. On March 25, 1997, after the parties submitted post-hearing briefs, the arbitrator declared the proceedings closed and informed the parties that he would render a decision within the next month.

On April 14, 1997, an AAA administrator contacted counsel for the parties to request duplicate copies of the exhibits, explaining that the AAA could not locate the original exhibits. After receiving copies from Parke's counsel, the AAA informed Circle that it was forwarding these copies to the arbitrator. Circle objected that it had not had an opportunity to review Parke's submissions and, on April 18, faxed the AAA to request that the arbitrator "schedule a proceeding at which both sides may review and submit the required Exhibits." The fax further stated: "Circle's Exhibits, which were lost by the Association, are voluminous. Please have the arbitrator submit a list of which exhibits he does not have, so that we do not have to unnecessarily produce Exhibits." Parke's counsel also faxed a letter to the AAA on the same day, confirming that Parke had supplied only those exhibits originally admitted into evidence and stating that Parke would object to Circle's submission of any documents not admitted at the hearing. The AAA responded to neither party's letter. On April 23, 1997, the arbitrator entered a $146,590.00 award in favor of Parke, along with $3,144.06 for AAA fees and expenses.

On May 6, 1997, Circle filed this petition in the Supreme Court of New York, County of Nassau, seeking to vacate the arbitration award on the basis of alleged procedural errors in the arbitrator's handling of the misplaced exhibits. Parke subsequently removed the action to the United States District Court for the Eastern District of New York and cross-moved to confirm the award. Circle then moved to remand the case to state court, claiming lack of diversity of citizenship between the parties. The district court denied Circle's remand motion and ordered Circle to pay $2,493.89 to cover the attorneys' fees Parke incurred in opposing the motion. The court also issued an order denying Circle's petition to vacate the arbitration award and granting Parke's cross-motion to confirm the award.

DISCUSSION

I. Diversity of Citizenship

A defendant is entitled to remove a state court action to federal court on the basis of diversity of citizenship between the parties, provided that the defendant is not a citizen of the forum state. See28 U.S.C. § 1441(b) (1994). For purposes of diversity jurisdiction, a corporation is a citizen of its state of incorporation and of the state that serves as its principal place of business. See28 U.S.C. § 1332(c) (1994). Because it is undisputed that Parke is incorporated in Georgia, removal was proper unless New York qualifies as Parke's principal place of business.

In Pinnacle Consultants, Ltd. v. Leucadia National Corp., 101 F.3d 900, 907 (2d Cir. 1996), this Court held that an inactive corporation's principal place of business is the state in which it last transacted business. Seealso Wm. Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933 F.2d 131, 141 (2d Cir. 1991) ("[W]hen a corporation has ceased business activity, diversity jurisdiction . . . is determined not only by its state of incorporation, but also by the place it last transacted business"). Since 1995, Parke has been inactive, engaged only in winding down its affairs in Georgia by hiring an attorney to collect its accounts receivable in that state and in defending itself in this New York action. Although Parke's sole officer and director presently lives in New York and he receives the corporation's mail there, these contacts do not alter its citizenship because the corporation is not transacting business through these activites. Circle's only other possible argument that Parke last transacted business in New York rests on the fact that Parke is engaged in this legal action. In Passalacqua, however, this Court did not find that participating in a lawsuit in New York qualifies as "transacting business" for jurisdictional purposes. See 933 F.2d at 131, 141. We see no reason to revisit that issue on the facts presented here.

The joint venture in this case did business only in Georgia, last operated an office in Georgia, and hired lawyers in Georgia to collect its remaining accounts receivable. For diversity purposes, then, Parke is thus a citizen only of Georgia.

II. Award of Attorneys' Fees

Under 28 U.S.C. § 1447(c), a district court may award attorneys' fees when it remands a case to state court based on lack of subject matter jurisdiction:

If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded. An order remanding the case may require payment of just costs and any actual expenses, including attorney fees,...