Continental Motion Pictures v. Allstate Film Co.

• Decision Date: 03 May 1984
• Docket Number: No. CV 83-2858-ER (MCX).,CV 83-2858-ER (MCX).
• Citation: 590 F. Supp. 67
• Parties: CONTINENTAL MOTION PICTURES, a Panamanian corporation, Plaintiff, v. ALLSTATE FILM COMPANY, a Nevada corporation; Len Turner, Defendants. ALLSTATE FILM COMPANY, a Nevada corporation, Counter-Claimant, v. CONTINENTAL MOTION PICTURES INC., a Panamanian corporation, Continental Service Organization, Inc., a/k/a American Cinema Services, Inc., a California corporation, Hans Eduardo Sarlui, an individual, Counter-Defendants.
• Court: U.S. District Court — Central District of California

590 F. Supp. 67

CONTINENTAL MOTION PICTURES, a Panamanian corporation, Plaintiff, v. ALLSTATE FILM COMPANY, a Nevada corporation; Len Turner, Defendants.

ALLSTATE FILM COMPANY, a Nevada corporation, Counter-Claimant, v. CONTINENTAL MOTION PICTURES INC., a Panamanian corporation, Continental Service Organization, Inc., a/k/a American Cinema Services, Inc., a California corporation, Hans Eduardo Sarlui, an individual, Counter-Defendants.

No. CV 83-2858-ER (MCX).

United States District Court, C.D. California.

May 3, 1984.

Alan Arnold, Wolver & Wolver, Los Angeles, Cal., for plaintiff.

Arthur J. Pollock, Los Angeles, Cal., for defendants.

ORDER DENYING MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION

RAFEEDIE, District Judge.

I. INTRODUCTION

Defendants Len Turner ("Turner") and All State Film Company ("All State") seek to dismiss plaintiff's complaint¹ for breach of contract, fraud, and negligent misrepresentation on the ground that the Court allegedly lacks diversity jurisdiction² over this action because defendant Turner is a citizen of California and defendants allege plaintiff Continental Motion Pictures ("Continental") has a dual corporate citizenship including a principal place of business in Los Angeles. Defendants also claim that the count for negligent misrepresentation is barred by the State's statute of limitations.

The defendants' first basis for dismissal is that diversity does not exist because the plaintiff as a corporation has dual citizenship under Section 1332(c), including its place of incorporation and its principal place of business. Defendants argue on what appears to be circumstantial evidence that the plaintiff has a principal place of business in the Los Angeles area. If this allegation were true and Section 1332(c) applies to alien corporations, diversity jurisdiction would be defeated.

Plaintiff counters that 28 U.S.C. Section 1332(c)'s dual citizenship of corporations does not apply to alien corporations. Plaintiff further argues that even if Section 1332(c) were held to be applicable, plaintiff does not have a principal place of business in this district, though plaintiff concedes that some portion of its worldwide business is conducted in this district.

Defendants' second argument is that California Code of Civil Procedure Section 340(3) provides a one-year statute of limitations for negligence actions such as this. Defendants argue that any negligence occurred on or before June 26, 1981, the date on which the contract was entered. Defendants argue that the action which was filed on May 5, 1983 is therefore barred under Section 340(3).

Plaintiff filed a Supplemental Memorandum of Points and Authorities regarding the applicability of Cal.Civ.Pro. Code § 340(3) and argued that this section applies only to enumerated intentional torts and negligent acts leading to the death or injury of a person. Section 339(1), cited to the Court as the controlling section, provides a two-year statute of limitations. Plaintiff points to the date that the contract was signed, June 26, 1981, as the relevant date. This date is within the two years of the date on which the complaint was filed.

For the reasons set out below, the defendants' motion to dismiss is denied in its entirety without prejudice.

II. ANALYSIS

A. Diversity Jurisdiction

Section 1332(a)(2) provides diversity jurisdiction in this Court for disputes between citizens of a state and citizens of a foreign state. Under this section, this Court would have jurisdiction over this complaint. Defendants argue, however, that under Section 1332(c), all corporations, even alien corporations, have two places of citizenship. Defendants further argue that a corporations' principal place of business under Section 1332(c) means a corporation's principal place within the United States.

This is an uncertain area of the law. The traditional view is that the enactment of Section 1332(c) in 1958, which provides for the dual citizenship of corporations, has no effect on foreign corporations and their principal places of business need not be considered. Thus, an alien corporation under the traditional view has a single place of citizenship which is the foreign state in which it is incorporated. 6J. Moore, W. Taggart & J. Wicker, Moore's Federal Practice. ¶ 0.753 (2d ed. 1981) ("while the question is not entirely free of doubt, the status of alien corporations is probably unaffected by the amendatory Act."); 13 C. Wright, A. Miller and K. Graham, Federal Practice and Procedure, Section 3628 (1975).

1. The Traditional View

The first, and leading, case to consider the applicability of Section 1332(c) to alien corporation was Eisenberg v. Commercial Union Assurance Co., 189 F.Supp. 500 (S.D.N.Y.1960) Eisenberg presented a New York citizen suing a corporation incorporated in Great Britain. The corporation's principal place of business in the United States was New York. Thus, if the court applied Section 1332(c), diversity could be defeated.³ The court rejected the defendant's argument that diversity was defeated and stated the rule many courts have adopted:

Defendant's position is that it has its principal place of business in the State of New York and that therefore, under the express terms of subdivision (c), it is to be deemed a citizen of New York and there is no diversity of citizenship between it and plaintiff New York citizen.

It is to be noted that the statute differentiates between States of the United States and foreign states by the use of a capital S for the word when applied to a State of the United States. Subdivision (c), therefore, in dealing with the place of incorporation refers only to a corporation incorporated in a State of the United States. When subdivision (c) goes on to deal with principal place of business it refers to the same corporation and thus only to a corporation incorporated in a State of the United States. The subdivision is not susceptible of the construction as if it read "all corporations shall be deemed citizens of the States by which they have been incorporated and of the States where they have their principal places of business." Unless a corporation is incorporated by a State of the United States it will not be deemed a citizen of the State where it has its principal place of business.

500 F.Supp. at 501-02.

Thus, for diversity purposes, under the traditional view, an alien corporation has a single citizenship — the place of its incorporation.⁴

The plaintiff argues that the Ninth Circuit's view conforms with Eisenberg and cites Zurich Insurance Co. v. Sigourney, 278 F.2d 826 (9th Cir.1960). In Zurich, the Ninth Circuit was presented with an Oregon plaintiff suing his former employer and its insurer. The employer was an Illinois corporation and the insurer was a Swiss corporation. The Court concluded without analysis that diversity was proper:

Jurisdiction of the district court was properly based upon diversity of citizenship. Appellee Sigourney is a citizen and resident of the State of Oregon. Appellant Mack Trucks, Inc., is an Illinois corporation, and appellant Zurich Insurance Company is a Swiss corporation.

Id. at 828. The court did not consider the principal place of business for either corporation.⁵

No court has relied on this portion of Zurich. Indeed, a later Northern District decision required a showing of the principal place of business of an alien corporation in order to ascertain whether diversity jurisdiction properly could be asserted. In Stenhouse v. Jacobson, 193 F.Supp. 694, 695-96 (N.D.CA.1961), the court dismissed a complaint with leave to amend for failure to allege the principal place of business of defendant corporations established by act of the British Parliament:

Plaintiff must set forth affirmatively not only the state by which these corporations have been incorporated, but also the state where each of them has its principal place of business (See Brandt v. Bay City Super Market, D.C., 182 F.Supp. 937; Pasternack v. Dalo, D.C., 17 F.R.D. 420; and Cameron v. Hodges, 127 U.S. 322, 8 S.Ct. 1154, 32 L.Ed. 132).

The Stenhouse case is often cited as representing the alternative or minority view of the impact of Section 1332(c) on alien corporations. Neither of the cases relied upon by Stenhouse, however, involved an alien corporation; rather, Brandt and Pasternak dealt with failure to allege the principal place of business for domestic corporations and did not address the issue of the impact on alien corporations. The Cameron case predates the 1958 amendment and therefore could not have construed Section 1332(c). Thus, while the Ninth Circuit may not have intended to adopt any position as to the applicability of Section 1332(c) in its Zurich decision, Stenhouse does not provide persuasive reasoning for rejecting the traditional rule proposed by Eisenberg.

2. The Emerging Rule

Eisenberg, however, admitted that it might be incorrect if its view that Section 1332(c) did not apply to alien corporations and presented an alternative rationale for its denial of the motion to dismiss. The alternative rationale, which has been receiving increased support from courts and commentators, is that if an alien corporation is to be deemed a citizen of its principal place of business, Section 1332(c) means the corporation's principal place of business anywhere in the world, not merely within the United States.⁶ For the reasons set forth by Eisenberg and other courts that have considered the question, this Court adopts Eisenberg's alternative rationale. Eisenberg presented the following rationale for applying Section 1332(c) to alien corporations and reading the principal place of business to be worldwide:

The purpose of the amendment which made a corporation a citizen of the State where it had its principal place of business as well as of the state where it was incorporated was to reduce the number of cases which would come to the Federal courts under the diversity jurisdiction.

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