Industrial Tectonics, Inc. v. Aero Alloy

• Decision Date: 29 August 1990
• Docket Number: No. 86-6705,86-6705
• Citation: 912 F.2d 1090
• Parties: INDUSTRIAL TECTONICS, INC., Plaintiff-Appellant, v. AERO ALLOY, a California corporation; Die Cast Products, Inc., a California corporation, aka Metal Products Group, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1090

912 F.2d 1090

INDUSTRIAL TECTONICS, INC., Plaintiff-Appellant, v. AERO ALLOY, a California corporation; Die Cast Products,

Inc., a California corporation, aka Metal Products

Group, Defendants-Appellees.

No. 86-6705.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 1, 1990.

Decided Aug. 29, 1990.

Mark Schaeffer, Augustini, Wheeler & Dorman, Los Angeles, Cal., for plaintiff-appellant.

Margot A. Metzner, Hufstedler, Miller, Kaus & Beardsley, Los Angeles, Cal., for defendants-appellees.

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

Before NELSON, BRUNETTI and O'SCANNLAIN, Circuit Judges.

BRUNETTI, Circuit Judge:

Appellant Industrial Tectonics, Inc. ("ITI"), a Michigan corporation, brought this action in federal district court against appellees Die Cast Products, Inc. ("DCPI"), a California corporation, and Aero Alloys ("Aero"), a California corporation. ITI alleged diversity jurisdiction. The district court dismissed ITI's action, finding that ITI's principal place of business was California, and that diversity jurisdiction did not exist. We affirm.

STATEMENT OF FACTS

ITI is incorporated under the laws of the State of Michigan and owned by three individual stockholders, each of whom resides in Michigan. ¹ Additionally, ITI's corporate headquarters are located primarily in Michigan. ²

ITI manufactures high precision ball and roller bearings. Many of the bearings are used for the control rods of nuclear reactors.

ITI conducts its manufacturing operations in two plants. One plant, located in Michigan, manufactures balls. The other plant, located in California, manufactures bearings, including both ball bearings and roller bearings. The Michigan plant supplies the California plant with balls used to manufacture ball bearings. However, the California plant makes its own rollers for use in roller bearings.

The California plant is larger than the Michigan plant. The California plant accounts for more than 61% of ITI's fiscal sales, measured in dollars, and more than 69% of its operating income. The California plant also accounts for more than 64% of ITI's receivables and more than 75% of its inventories. More than 63% of the corporation's equipment is located in California. The net book value of the California plant is $1,780,290, as compared with $938,784 for the Michigan plant. Although each plant employs approximately the same total number of people, the California plant employs more than 56% of the hourly employees, presumably those involved in actual production. Of the nearly $400,000 paid in wages, more than 53% is paid to California employees.

On August 26, 1981, ITI filed its complaint against DCPI and Aero in the district court for the Central District of California. The district court, sua sponte, raised the issue of diversity jurisdiction and questioned ITI's assertion that its principal place of business was in Michigan. Because DCPI and Aero are California corporations, diversity jurisdiction would not exist if ITI's principal place of business were California.

At the district court's request, ITI submitted affidavits on the jurisdictional issue. All parties also submitted legal briefs. The district court dismissed the case for lack of diversity jurisdiction, finding that ITI's "activities in California clearly exceed all of the activities in Michigan" and that ITI's activities in Michigan are "substantially ... related to [ITI's] California activities." The district court entered its order of dismissal on November 6, 1986. On December 3, 1986, ITI appealed to this court.

ANALYSIS

For the purposes of diversity jurisdiction, a corporation is a citizen of any state where it is incorporated and of the state where it has its principal place of business. 28 U.S.C. Sec. 1332(c) (West 1989). The party asserting jurisdiction has the burden of proving all jurisdictional facts. See McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 785, 80 L.Ed. 1135 (1936); Fenton v. Freedman, 748 F.2d 1358, 1359, n. 1 (9th Cir.1984).

Defendants-appellees DCPI and Aero are both California citizens because they are incorporated in California. ITI is not incorporated in California. Thus, ITI can establish federal diversity jurisdiction by proving that California is not its principal place of business.

Federal courts generally use one of two tests for locating a corporation's principal place of business. See 1 J. Moore, Moore's Federal Practice p 0.77 (2d ed. 1989). Under the "nerve center test," developed in Scot Typewriter Co. v. Underwood Corp., 170 F.Supp. 862, 865 (S.D.N.Y.1959), a corporation's principal place of business is where its executive and administrative functions are performed. Under the "place of operations test," developed in Inland Rubber Corp. v. Triple A Tire Service, Inc., 220 F.Supp. 490, 496 (S.D.N.Y.1963), the principal place of business is the state which "contains a substantial predominance of corporate operations." ³ See Co- Efficient Energy Systems v. CSL Industries, 812 F.2d 556, 558 (9th Cir.1987).

The primary issue in this case is which of the above tests should be used to determine ITI's principal place of business. A decision on this issue requires an examination of the two separate lines of cases cited by the parties.

The first line of cases holds that, where a corporation conducts "substantially all" of its operations in one state and its headquarters are located in another state, the state of operations is the corporation's principal place of business. See Bialac v. Harsh Bldg. Co., 463 F.2d 1185, 1186 (9th Cir.1972), cert. denied, 409 U.S. 1060, 93 S.Ct. 558, 34 L.Ed.2d 512 (1972); Lurie Co. v. Loew's San Francisco Hotel Corp., 315 F.Supp. 405, 416 (N.D.Cal.1970). In dismissing ITI's action, the district court relied on Bialac and Lurie. However, as ITI correctly points out, both Bialac and Lurie are distinguishable from the present case. In both Bialac and Lurie, the corporation conducted essentially all of its business in one state. In contrast, although ITI conducts the majority of its business in California, it conducts more than one-third of its business in Michigan, where its headquarters are located. Thus, neither Bialac nor Lurie directly governs this case.

The second line of cases holds that, where a corporation conducts business in many states, and does not conduct a substantial predominance of its business in any single state, the state where the corporate headquarters are located is the corporation's principal place of business. As appellees point out, all of these cases are distinguishable from the present case.

In Egan v. American Airlines, Inc., 324 F.2d 565 (2d Cir.1963), the Second Circuit applied the "nerve center" test in holding that American Airlines principal place of business was New York. In Egan, however, American Airlines did not conduct a majority of its activities in any state, and conducted substantial operations in many states. Id. at 566. The Egan court was forced to use the "nerve center" test because appellants could not "point to any single state which should be more properly regarded as American's principal place of business." Id. By contrast, appellees in the present case have demonstrated that a majority of ITI's business takes place in California, and that ITI conducts business in only two states.

Similarly, in Riggs v. Island Creek Coal Co., 542 F.2d 339 (6th Cir.1976), and United Nuclear Corp. v. Moki Oil & Rare Metals Co., 364 F.2d 568 (10th Cir.), cert. denied, 385 U.S. 960, 87 S.Ct. 393, 17 L.Ed.2d 306 (1966), the Sixth and Tenth Circuits focused on the "nerve center" test, but only because there was no state where the majority of corporate operations was conducted. Riggs, 542 F.2d at 342; United Nuclear Corp., 364 F.2d at 570. Thus, neither of these cases is relevant to determining ITI's principal place of business.

In short, courts generally assign greater importance to the corporate headquarters when no state is clearly the center of corporate activity, and assign greater importance to the location of the corporate business when substantially all business operations take place in a single state. See Lurie Co., 315 F.Supp. at 411-13. However, no case cited by the parties dictates which test to apply when the corporation has substantial operations in only two states, and the corporate headquarters are located in one of those two states.

In the present case, ITI operations are divided between only two states: California and Michigan. ITI's operations are not so spread out that one must look to the corporate headquarters to find a principal place of business; most corporate activity apparently occurs in California. On the other hand, one cannot say that "substantially all" of the business takes place in California; nearly one-half of the corporation's business takes place in Michigan, and the headquarters are, for the most part, also...