Ho v. Ikon Office Solutions, Inc., CIV. C-00-03719 WDB.

• Decision Date: 21 June 2001
• Docket Number: No. CIV. C-00-03719 WDB.,CIV. C-00-03719 WDB.
• Citation: 143 F.Supp.2d 1163
• Parties: Byron HO, Plaintiff, v. IKON OFFICE SOLUTIONS, INC., Defendant.
• Court: U.S. District Court — Northern District of California

143 F.Supp.2d 1163

Byron HO, Plaintiff, v. IKON OFFICE SOLUTIONS, INC., Defendant.

No. CIV. C-00-03719 WDB.

United States District Court, N.D. California.

June 21, 2001.

Bruce J. Highman, Law Office of Highman, Highman & Ball, San Francisco, CA, for plaintiff.

Heather M. Sager, Mark S. Spring, Carlton DiSante & Freudenberger, LLP, San Francisco, CA, for defendant.

ORDER DENYING MOTION TO REMAND AND CASE MANAGEMENT ORDER

BRAZIL, United States Magistrate Judge.

I. Introduction

Following the Ninth Circuit's ruling in Tosco Corp. v. Communities for a Better Environment, 236 F.3d 495 (9th Cir.2001), the court raised sua sponte the question of Ikon's corporate citizenship.

In order to determine Ikon's "citizenship," we must identify the state that is most appropriately considered Ikon's "principal place of business."¹ If Ikon's principal place of business is a state other than California the court must retain jurisdiction. If, however, we conclude that California is Ikon's principal place of business the parties are not diverse and the court must remand.

II. Policy Underlying Diversity Statute

The primary purpose of the diversity statute is to avoid prejudice against "outsiders."² Corporations who have minimal contact with the public in a particular state are not likely to be recognized as "locals." The Congress that provided for diversity jurisdiction was concerned that a local jury sitting in state court might exhibit bias in favor of a "local" party who was suing an out-of-state party. Because federal courts draw from a wider jury pool, removal to federal court, so the theory goes, provides a more neutral forum. In contrast, parties who have a great deal of contact with the public in a particular state are not likely to be considered outsiders and, therefore, are not likely to be victims of discrimination by "local" jurors sitting in state court.

III. Discussion

A. The Applicable Law

In the Ninth Circuit the court must apply one of two tests in order to identify Ikon's "principal place of business." If any state contains a "substantial predominance" of Ikon's corporate business activities, the court applies the "place of operations" test. Industrial Tectonics, Inc. v. Aero Alloy ["ITI"], 912 F.2d 1090 (9th Cir.1990). The state that substantially predominates, if any, is Ikon's principal place of business.

In applying the substantial predominance test, the courts are to compare, one at a time, the state in issue to each other individual state in which the company is present. "[D]etermining whether a corporation's business activity substantially predominates in a given state plainly requires a comparison of that corporation's business activity in the state at issue to its business activity in other individual states. [citations omitted.] Thus, `substantial predominance' does not require the majority of a corporation's total business activity to be located in one state, but instead, requires only that the amount of [the] corporation's business activity in one state be significantly larger than any other state in which the corporation conducts business." Tosco, 236 F.3d at 500.

The alternative test for identifying a corporation's principal place of business is to be used only if, applying the "place of operations" test as clarified in Tosco, the party seeking to invoke federal jurisdiction proves that "no state contains a substantial predominance of the corporation's business activities." Tosco, 236 F.3d at 500 quoting ITI, 912 F.2d at 1094. That alternative test is known as the "nerve center" test. Under it, the state in which the corporation's core executive and administrative functions are carried out is its "principal place of business."

The courts developed the "nerve center" test knowing that, under the law as fashioned by Congress, only one state could be deemed a corporation's "principal place of business" — and that there would be instances in which a corporation's activities would be spread so thoroughly and so relatively evenly among many states that the only principled basis for identifying the one state that should be deemed the corporation's principal place of business would be by locating the place where the corporation chose to center ultimate power over corporate policy and administration. In other words, there would be circumstances in which mapping a corporation's operations would fail to identify a true center of corporate activity — because that activity was spread so relatively evenly and so widely among such a substantial number of states. See ITI, 912 F.2d at 1093 ("courts generally assign greater importance to the corporate headquarters when no state is clearly the center of corporate activity") (emphasis added).

Plaintiff contends that California contains a substantial predominance of Ikon's corporate business activity. Accordingly, plaintiff moves the court to deem California Ikon's principal place of business and to remand the case to the state court.

Ikon asserts that it maintains a relatively small presence in every state and that no state substantially predominates. In that setting, Ikon argues, the court must apply the nerve center test. According to Ikon, Pennsylvania constitutes its nerve center. Thus, according to Ikon, the court has diversity jurisdiction.

The law places the burden of persuasion on these issues on the party seeking to invoke the court's diversity jurisdiction. ITI, 912 F.2d at 1092. Ikon must prove, under the Tosco test, that no state contains a substantial predominance of its business activity.

B. Comparison of Ikon's Presence in Various States

We utilize the analysis in Tosco as an aide to determining whether application of the place of operations test, as we applied it in Ghaderi, would be consistent with Congress' intentions as reflected in the diversity jurisdiction statute and with Ninth Circuit case law. See, Ghaderi v. United Airlines, Inc., 136 F.Supp.2d 1041 (N.D.Cal.2001).

In order to determine whether any state contains a "substantial predominance" of Ikon's corporate activity we consider several factors, among those "the location of [Ikon's] employees, tangible property, production activities, sources of income, and where sales take place." Tosco, 236 F.3d at 500 citing ITI, 912 F.2d at 1094.

The parties submitted evidence on a variety of factors relating to Ikon's business activities in California and in other states. We summarize that evidence below with respect to each factor.

1. Employees

As this court previously has stated, at least for some kinds of companies, the location of a corporation's employees is important evidence about where the corporation interacts with the public. Ghaderi, 136 F.Supp.2d at 1045.

First, we consider the number of local people Ikon employs in a given state. Ikon employs a total of 39,600 employees. It employs people in all 50 states. The evidence supports a finding that no single state contains as much as 10% of Ikon's employees. See, Declaration of Thomas Reiter in Support of Defendant Ikon Office Solutions' Opposition to Motion to Remand, filed June 6, 2001 ("Reiter Decl."), at ¶ 8. California maintains the largest percentage of Ikon's employees, 8.6%. Ikon employs 7.4% of its employees in Texas, 4.9% of its employees in Pennsylvania, 4.9% of its employees in New York and 4.8% of its employees in Florida.

In addition to employment relationships, we evaluate the number of Ikon's employees who interact with consumers in a particular state. The evidence Ikon has submitted supports a finding that 3072 California employees (7.76% of Ikon's total number of employees) interact with the public. Additionally, 2,620 Texas employees (6.62% of Ikon's workforce), 1,813 New York employees (4.58% of Ikon's workforce), 1,698 Florida employees (4.29% of Ikon's workforce) and 985 Pennsylvania employees (2.49% of Ikon's workforce) interact with the public. Reiter Decl., at ¶ 9.

The evidence demonstrates that Ikon has greater contact with the public in California than in any other state — but that the corporation's contact is spread relatively evenly among many states and that the percentage of public contact that occurs in California is less then 10% of the national total.

2. Consumers/ (Service Provided)

Ikon's primary business activities are "sales and service." Reiter Decl. at ¶ 9. Ikon submitted evidence about the distribution of employees who interact with the public. See, section 1 above. Ikon does not, however, set forth evidence from which we can determine the number of local consumers to whom its employees make or solicit sales and to whom they provide service. For example, all of Ikon's employees in a particular state may interact with the public, but if they are all selling to and servicing the same five clients Ikon's public contact is minimal. Without evidence relating to the number of clients in each state we cannot meaningfully evaluate this factor.

3. Tangible Property

The evidence supports a finding that Ikon owns 166,662 square feet of real property. Reiter Decl. at ¶ 10. Over fifty five percent of that property is located in Georgia, 20.7% is located in Missouri and 11.7% is located in Arizona. Ikon also leases property in Pennsylvania and Illinois.

The record demonstrates that Ikon neither owns nor leases any property in California.

4. Sources of Income

In the last fiscal year, Ikon earned $4.4 billion in revenue. Sales and servicing in California generated 7.9% of this revenue. Texas business activities generated 5.4% of Ikon's revenue; Florida business activities generated 5.3%; Pennsylvania business activities generated 4.6%; New York business activities generated 4.1%, and Massachusetts business activities generated 3.6%. No state generated more than 10% of Ikon's annual revenue. Reiter Decl., at ¶ 11.

Ikon earned more revenue in California than any other state — but, like its employees, its revenues were widely distributed among a large number of states — no one of which...