Danjaq, S.A. v. Pathe Communications Corp.

Decision Date12 November 1992
Docket NumberMGM-P,No. 91-55878,91-55878
Citation979 F.2d 772
PartiesDANJAQ, S.A., Plaintiff-Appellant, v. PATHE COMMUNICATIONS CORPORATION;athe Communications Co.; Tracinda Corporation; Kirk Kerkorian; MGM/UA Communications Co., Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Howard King, Gang, Tyre, Ramer & Brown, Los Angeles, Cal., for plaintiff-appellant.

Eric N. Landau, Christensen, White, Miller, Fink & Jacobs; and Howard Weitzman, Karen Randall, Mark A. Wooster and Lura L. Burton, Katten Muchin Zavis & Weitzman, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before: FEINBERG, * GOODWIN and SCHROEDER, Circuit Judges.

SCHROEDER, Circuit Judge:

This appeal involves two arcane issues of subject matter jurisdiction that are of first impression in this Circuit. Both issues relate to the determination of a corporation's principal place of business for purposes of diversity jurisdiction. The first is whether alien corporations are subject to 28 U.S.C. § 1332(c), which states that a corporation is a citizen both of its place of incorporation and the location of its principal place of business. We agree with the district court that an alien corporation, like a domestic corporation, is a citizen of both.

The second issue is whether the activities of a subsidiary corporation--not a party to the litigation--should be considered to determine the principal place of business of the parent. We hold that a subsidiary's activities should not be considered for this purpose, at least absent a showing that the subsidiary is merely an alter ego of its parent.

The final issue is to determine the principal place of business of Plaintiff-Appellant Danjaq, S.A., a Swiss corporation. We conclude the district court correctly determined that place to be California, where appellant's business activities are conducted. Switzerland, where the corporate offices are located, serves merely as Appellant's administrative headquarters. We affirm.

FACTUAL BACKGROUND

Danjaq is engaged in the development and production of motion pictures involving James Bond. In 1962, Danjaq and United Artists ("UA"), later succeeded by MGM/UA ("MGM"), entered into a Distribution Agreement whereby the latter was granted the exclusive commercial rights to the Bond movies.

Danjaq is incorporated in Switzerland, where its sole director, Gerald Schlaeppi, resides. Schlaeppi admittedly knows little about the film business and serves as a director of some fifteen other corporations. Laussane is the site of all Danjaq board of director and stockholder meetings, and is the location of all administrative records. All of Danjaq's financial transactions take place in Switzerland, including the payment of Swiss taxes.

Since 1986, Danjaq's sole shareholders have been Albert and Dana Broccoli. The Broccolis have resided in Los Angeles, California for over twenty years. Albert Broccoli co-founded Danjaq and is the principal decisionmaker for the development of the Bond films. Broccoli maintains an office in the MGM building in Culver City, California.

Much of the actual production of the Bond films is carried on by Eon Productions, Ltd. ("Eon"), which is based in London, England. Eon oversees the filming of the motion pictures, a duty that often takes it to various parts of the world depending upon the script. Generally, the final editing is completed by Eon in London.

In 1990, MGM was acquired by Pathe Communications, resulting in the formation of MGM-Pathe Communications ("MGM-Pathe"). Danjaq brought this action alleging breach of contract, breach of fiduciary duty, conspiracy to do the same, and copyright infringement. Specifically, Danjaq charged that the defendants were licensing the Bond movies in a manner contrary to the terms of the Distribution Agreement so as to help finance Pathe's acquisition of MGM.

The district court ruled that it had no jurisdiction to hear the first three claims because of a lack of diversity between the parties. The district court also held that the copyright claim against Pathe was meritless. Danjaq, S.A. v. MGM/UA Communications Co., 773 F.Supp. 194 (1991). Danjaq having abandoned the copyright claim, the only issue on appeal is whether the district court properly concluded jurisdiction was absent. There is no dispute that defendants' citizenship for diversity purposes is California. Thus, if Danjaq is found to be a citizen of California, then diversity is destroyed and jurisdiction does not exist.

DOES 28 U.S.C. § 1332

(c) APPLY TO ALIEN CORPORATIONS?

The first question we must consider is whether an alien corporation has dual citizenship for purposes of diversity jurisdiction. Danjaq contends that the diversity statute, in so far as it defines a corporation's citizenship as the place of incorporation and the location of its principal place of business, does not apply to alien corporations. The district court rejected this argument and we agree.

Before 1958, an alien corporation was considered a citizen solely of the foreign state in which it was incorporated for purposes of diversity jurisdiction. See, e.g., National S.S. v. Tugman, 106 U.S. 118, 1 S.Ct. 58, 27 L.Ed. 87 (1882). In that year, Congress amended the diversity statute by adding the following provision [A] corporation shall be deemed 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). The question presented is whether § 1332(c) applies to alien corporations.

The first case to decide whether § 1332(c) applies to alien corporations was Eisenberg v. Commercial Union Assurance Co., 189 F.Supp. 500 (S.D.N.Y.1960). The Eisenberg court held that § 1332(c) does not apply to alien corporations. The court reasoned that because that provision used a capital "S" to spell "State," Congress was referring to a state of the United States and not a foreign state. This was so, the court explained, because an earlier provision of the statute used a small "s" when referring to "foreign states." Id. at 502; see also James W. Moore and Donald T. Weckstein, Corporations and Diversity of Citizenship Jurisdiction: A Supreme Court Fiction Revisited, 77 Harv.L.Rev. 1426, 1435 (1964) ("There was no explicit congressional consideration of the effect of the amendment on alien corporations, and the text of the amendment suggests that this doctrine remains unaltered.").

The only two federal courts of appeals to entertain this issue have reached the opposite conclusion, holding instead that the statute does apply to alien corporations. See Cabalceta v. Standard Fruit Co., 883 F.2d 1553 (11th Cir.1989); Jerguson v. Blue Dot Investment Co., 659 F.2d 31 (5th Cir.), cert. denied, 456 U.S. 946, 102 S.Ct. 2013, 72 L.Ed.2d 469 (1981). Not only is the clear trend of authority in this direction, 1 but this approach better comports with Congress' reasons for enacting the 1958 amendment. Specifically, this amendment is based on the premise that an otherwise local corporation should not be able to invoke federal jurisdiction merely because it is incorporated in another state. Congress thus sought to curb the abuses of the diversity statute, which was enacted originally to protect foreign corporations from local bias. As the Senate report explained:

This fiction of stamping a corporation a citizen of the State of its incorporation has given rise to the evil whereby a local institution, engaged in a local business and in many cases locally owned, is enabled to bring its litigation into the Federal courts simply because it has obtained a corporate charter from another State.... This circumstance can hardly be considered fair because it gives the privilege of a choice of courts to a local corporation simply because it has a charter from another State, an advantage which another local corporation that obtained its charter in the home state does not have.

The underlying purpose of diversity of citizenship legislation ... is to provide a separate forum for out-of-State citizens against the prejudices of local courts and local juries by making available to them the benefits and safeguards of the Federal courts. Whatever the effectiveness of this rule, it was never intended to extend to local corporations which, because of a legal fiction, are considered citizens of another State....

S.Rep. No. 1830, 85th Cong., 2d Sess. 4 (1958). Given Congress' reasons, logic dictates that there be no distinction drawn between those corporations incorporated in a state of the United States and those incorporated in a foreign country for purposes of § 1332(c).

MAY A SUBSIDIARY'S ACTIVITIES BE CONSIDERED TO DETERMINE ITS
PARENT'S PRINCIPAL PLACE OF BUSINESS?

In order to determine where Danjaq's principal place of business is located, the following threshold question must be addressed: Should the activities of Danjaq's subsidiary Eon be considered to determine Danjaq's principal place of business? This issue is one that has been addressed by only a few courts.

Appellant argues that because Eon performs the lion's share of producing the Bond films, its principal place of business, London, is also Danjaq's principal place of business. We affirm the district court's contrary conclusion that Danjaq's principal place of business is where its own activities, not Eon's, are centered. Absent a showing that the subsidiary is merely an alter ego of its parent corporation, there is no justification for ignoring the separate corporate structures and looking to the subsidiary's activities to determine the parent's principal place of business.

Many courts have addressed the converse of the situation before us today: whether a parent's citizenship can be imputed to the subsidiary for purposes of determining the subsidiary's principal place of business. The general rule derived from these cases...

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