Homestake Lead Co. of Mo. v. Doe Run Resources, C 03-0326 MHP.

• Decision Date: 15 September 2003
• Docket Number: No. C 03-0326 MHP.,C 03-0326 MHP.
• Citation: 282 F.Supp.2d 1131
• Parties: HOMESTAKE LEAD COMPANY OF MISSOURI, Plaintiff, v. DOE RUN RESOURCES CORPORATION, and Does 1-10, Defendants.
• Court: U.S. District Court — Northern District of California

282 F.Supp.2d 1131

HOMESTAKE LEAD COMPANY OF MISSOURI, Plaintiff, v. DOE RUN RESOURCES CORPORATION, and Does 1-10, Defendants.

No. C 03-0326 MHP.

United States District Court, N.D. California.

September 15, 2003.

COPYRIGHT MATERIAL OMITTED

James Thompson Hendrick, William Curtis Rogers, Thelen Reid & Priest LLP, San Francisco, CA, for Plaintiff.

Andrew Rothschild, Lewis, Rice & Fingersh, L.C., St. Louis, MO, David Eiseman, Jennifer A. Kash, Quinn Emanuel Orquhart Oliver & Hedges, San Francisco, CA, for Defendants.

MEMORANDUM AND ORDER RE MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS

PATEL, Chief Judge.

Plaintiff Homestake Lead Company ("Homestake") brings this action against defendant Doe Run Resources Corporation ("Resources") seeking declaratory relief with respect to Resources' duty to defend and indemnify Homestake in a series of tort cases. Homestake alleges an obligation on the part of Resources to reimburse outstanding legal expenses and costs, to defend Homestake in ongoing cases, to indemnify Homestake against judgments, settlements, and other adverse payments that may occur in such cases, and to pay Homestake's costs, expenses and attorneys' fees. Now before the court is Resources' motion to compel arbitration and stay proceedings. Before considering the arguments and submissions, however, this court raised sua sponte a jurisdictional question as to whether there was complete diversity among the parties. Now, having considered parties' responsive papers on the jurisdictional question, as well as all submissions concerning the motion to compel arbitration, and for the reasons set forth below, the court rules as follows.

BACKGROUND¹

On November 1, 1986, Homestake and Resources, then known as St. Joe's Mineral Corporation, entered into an agreement ("Partnership Agreement") whereby, among other things, the parties would contribute certain lead mining assets and liabilities to a partnership named The Doe Run Company. The stated purpose of the partnership was to conduct "lead business" from mining to distribution in domestic and international markets. Rothschild Dec., Exh. A ("Partnership Agreement") § 2.04. Although Homestake is incorporated in California and Resources in New York, both parties owned extensive lead mine and mill assets in Missouri, where the partnership was formed.

Among the assets and liabilities transferred to the partnership by Resources were those related to smelting and other facilities located near the city of Herculaneum, Missouri. Operations there were implicated a series of tort suits beginning in 1995, ("the Herculaneum cases").

The Partnership Agreement includes provisions governing indemnity and reimbursement of partners, Id. Art. XII, as well as those describing the resolution of disputes among partners, Id. Art. XIV. Article XII obliges the partnership to reimburse, with interest, any amount paid by a partner "with respect to any liability, obligation, undertaking, damage or claim for which the Partnership shall or may, pursuant to contract or applicable law, be liable or responsible." Id. Art. XII, Article XIV requires that "[a]ny dispute or difference between the Partners arising out of or in connection with this Agreement or as to the rights or liabilities of any Partner hereunder" be referred to the partnership committee and/or senior officials of the partners or their affiliates for resolution. Should such measures fail to resolve the dispute or difference, it shall "upon notice of arbitration given by one of the Partners, be referred to and finally settled by a panel of three arbitrators," in St. Louis, Missouri, and in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Id. §§ 14.02-14.03.

In May, 1990, Homestake sold its shares and interest in the partnership to a third party, Fluor Corporation.

On November 12, 1991, Homestake filed a complaint for Breach of Contract and Declaratory Relief against Doe Run and other entities in Orange County Superior Court. A series of three settlement agreements followed. Def.'s Mot. Compel Arbitration § 2; Rothschild Dec., Exhs. C ("1993 Agreement"), D ("1994 Agreement"), and E ("1997 Agreement").

In the 1994 Agreement, Doe Run Company agreed to indemnify and fully defend Homestake

with respect to any and all matters concerning Doe Run or its operations which relate to actions or activities that occurred or which are alleged by any third party to have occurred on or after November 1, 1986, as to which Doe Run has an obligation under the Partnership Agreement or by operation of law to indemnify Homestake as a partner or former partner in Doe Run ....

1994 Agreement ¶ 1. The 1994 Agreement, like the 1993 Agreement, includes no arbitration clause and no forum selection clause.

Also in 1994, St. Joe's Mineral Corporation succeeded to 100% interest in the Partnership, and changed its name to The Doe Run Resources Corporation.

Beginning in 1995, Homestake and Resources, among others, were sued in a series of cases alleging bodily injury and property damages related to operations at the Herculaneum Smelter, ("the Herculaneum cases"). The alleged damages date from at least 1969 and continue up through 1990 and later. Homestake had tendered the defense of three early cases (among eleven cases, to date) to Resources by January, 1996. In the correspondence that followed, Resources acknowledged an obligation to indemnify Homestake for its defense costs and actual damages, but parties agreed to reserve issues regarding indemnity for punitive damages to a later time.

The 1997 Agreement followed up on these arrangements and provided that Doe Run was legally responsible for any and all on-site liabilities with respect to St. Joe sites (including the Herculaneum smelter) or any other sites owned or operated by The Doe Run Company, whether those liabilities arose before or after November 1, 1986. It confirmed that Doe Run must defend and indemnify Homestake against any third party claims pertaining to these on-site liabilities, which are defined as "all liabilities of any kind" resulting operations at and immediately adjacent to the sites in question. 1997 Agreement ¶¶ 1-3. The 1997 Agreement does not include an arbitration clause. The only discussion of dispute resolution instead contemplates the possibility of litigation by referencing attorneys' fees "[i]n the event of litigation." Id. ¶ 14.

Homestake has tendered the defense of eight additional third-party suits following the 1997 Agreement, most recently in July, 2002. Homestake's demands for defense and indemnity, as well as an April 25, 2002 request for reimbursement of legal bills through February, 2002 in the amount of $308,306.36, have not been satisfied to date. Homestake has now filed with this court a complaint for declaratory relief and damages, with jurisdiction pursuant to 28 U.S.C. section 1332, diversity of the parties.

JURISDICTIONAL QUESTION

Federal diversity jurisdiction requires that all parties to an action are citizens of different states or citizens or subjects of a foreign state. 28 U.S.C. § 1332(a). For diversity purposes, a corporation is considered a citizen of any state in which it was incorporated and of the state where it has its principal place of business. 28 U.S.C. § 1332(c)(1).

The court raised the jurisdictional question sua sponte pursuant to Homestake's failure to state a principal place of business in its complaint. Parties were invited to submit responsive pleadings on whether or not this court has diversity jurisdiction over the action.

Homestake contends that this court has diversity jurisdiction because (1) the appropriate jurisdictional test is the Fourth and Fifth Circuits' "functional approach" whereby a corporation that has been inactive for a substantial period of time, like Homestake, is considered a citizen only of its state of incorporation, and because (2) California is properly Homestake's only state of citizenship even if the "last business activity" test is used instead.

Resources maintains that the appropriate diversity jurisdiction test is the Second Circuit's "last business activity" test, and that under this test Homestake is properly a citizen of Missouri and the parties in this action are not diverse.

Parties' positions on the appropriate jurisdictional test for an inactive corporation reflect two of three positions adopted by various circuit courts. The circuits agree that the congressional intent behind section 1332(c)(1) was to block an otherwise local corporation from bringing litigation in federal court simply because it was incorporated in another state. See Comtec, Inc. v. Nat'l Technical Schs., 711 F.Supp. 522, 523-24 (D.Ariz.1989). Substantial disagreement, however, has emerged over how the statute should apply to defunct corporations. The Third Circuit, focusing on the present tense in "the state where it has its principal place of business," has posited that citizenship via a principal place of business ends when a company becomes inactive, and a defunct corporation only retains citizenship in the state of its incorporation. See Midlantic Nat'l Bank v. Hansen, 48 F.3d 693, 696 (3d Cir.1995), cert. dismissed, 515 U.S. 1184, 116 S.Ct. 32, 132 L.Ed.2d 914 (1995). The Second Circuit, noting that Congress gave no indication that principal place of business citizenship should end if a business becomes inactive, opined that such an interpretation would stray from the plain meaning of the phrase "a corporation is considered a citizen of the state in which it was incorporated and the state where it has its principal place of business." The Second Circuit accordingly provides for citizenship in the state in which a corporation conducted its last business transactions. See Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131, 141 (2d Cir.1991). The Fourth and Fifth Circuits—wary of the awkward results these bright-line rules might render²...