Inland Rubber Corporation v. Triple A Tire Service, Inc.
| Decision Date | 13 August 1963 |
| Citation | 220 F. Supp. 490 |
| Parties | INLAND RUBBER CORPORATION, Plaintiff, v. TRIPLE A TIRE SERVICE, INC., Triple A Tire Service of N. Y., Inc., Philmore Finkelstein, Irving Nissenberg and Charles Katz, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Winer, Neuberger & Sive, New York City, for plaintiff, David Sive, New York City, of counsel.
Hays, Sklar & Herzberg, New York City, for defendants, Howard A. Heffron, and Frederick F. Greenman, Jr., New York City, of counsel.
Defendants move to dismiss this action, which sounds in tort and in contract, for lack of jurisdiction of this court of the subject matter. Plaintiff claims that jurisdiction is based on diverse citizenship of the parties (28 U.S.C. § 1332(a) (1)); specifically, it alleges that plaintiff is a citizen of Ohio and that defendants are citizens of New York. Defendants maintain that the corporate plaintiff is in fact a citizen of New York, and that, hence, there is no diversity of citizenship.
Plaintiff, Inland Rubber Corporation (Inland), is incorporated in Ohio and is the wholly owned subsidiary of Mansfield Tire and Rubber Corporation (Mansfield), also an Ohio corporation. Mansfield is in the business of manufacturing rubber tires, primarily at its Ohio plant; it has approximately thirty-two corporate subsidiaries.
Mansfield acquired Inland in 1950. From that time until in or about March, 1962, Inland bought tires manufactured by Mansfield for resale throughout the country. In March, 1962, as the result of a management policy decision, the bulk of Inland's sales force was transferred to Mansfield. Mansfield purchased, at that time, and assigned to Inland in April, 1962, a business engaged in selling rubber tires, primarily truck tires; such selling was chiefly effected by telephone solicitations to using customers. This business, originally incorporated in 1950 as Tire Mart, Inc., had the name VTR, Inc., when purchased by Mansfield.
Upon the assignment of the assets of VTR, Inc. by Mansfield to Inland, the bulk of Inland's activity became centered in New York and Florida. Inland qualified to do business in those states after the April, 1962 assignment.
At the time this action was commenced, in October, 19621, the business of Inland consisted of a "dealer division", selling tires to dealers, and a "direct sales division", the above-described enterprise purchased from VTR, Inc. In addition, Inland sold some tires to the federal government and also some tires for export.
The distribution of the executives and personnel of Inland was as follows: The President, Vice-President, Treasurer, and Secretary of Inland all resided in Mansfield, Ohio, the principal office of Mansfield.
These officers were paid by Mansfield and not by Inland, which had no salaried employees in Ohio; these same individuals were for the most part also the principal officers of many other of Mansfield's corporate subsidiaries. Some were also officers of Mansfield.
Both the export and the government contract business of Inland was handled in Mansfield, Ohio by Mansfield personnel. The total combined sales in these two areas constituted a small percentage of Inland's total sales.
All the other business of Inland was at least theoretically under the supervisory control of the corporation's principal officers in Mansfield, Ohio. However, the persons in day-to-day control of Inland's sales operations, and the sales staffs as well, were located in New York and Florida. The personnel at Inland's New York office numbered thirty-five, and at the Florida office twenty-two. The general manager, credit manager, assistant treasurer, and sales promotion manager, who were in general charge of Inland's operations in New York and Florida, were located in New York.
The locus of other property and activities of Inland was as follows:
Federal income taxes were computed and paid in Ohio. The directors' and shareholders' meetings were in Ohio. The corporate seal and minute book were kept in Ohio.
The New York and Florida offices were each directly billed by Mansfield for tires sold and payments were made from bank accounts locally maintained by each office. Of the combined total sales made by the New York and Florida operations in the period April 1, 1962 to October 31, 1962, the New York office accounted for 67%.
Income and expense statements for the operations in both states were prepared by the assistant treasurer in New York. Credit decisions were made, and credit information kept, by the credit manager in New York. Advertising matter and prospective customer lists originated and were maintained by the sales promotion manager in New York.
Mansfield charged Inland, as it did other of its subsidiaries, a general administration service charge or fee of 5% (of the cost of tires purchased by Inland from Mansfield) to pay for the services performed for the subsidiaries by Mansfield at its Ohio offices.
I conclude that the "principal place of business" of Inland, within the meaning of 28 U.S.C. § 1332(c) is in New York State. Since Inland is a New York State citizen and since it is conceded that the defendants are New York citizens, there is, therefore, no federal diversity jurisdiction over this cause and it must be dismissed.
It is generally agreed that the "principal place of business" of a corporation, for diversity purposes, depends on the geographical location of substantial corporate activity.
There is substantial disagreement, however, as to what relative weights should be given to (i) the overall direction and control of the corporation, and (ii) the bulk of the actual operations, or business, of the corporation, when, as is at least arguably true in the present case, these are located in different states.2
When this issue of priorities is treated in the abstract, it is, of course, a difficult one to answer. Nonetheless, I conclude that there is much in the legislative history of Section 1332(c) which makes it necessary to regard the locus of corporate operations as a more important factor than the locus of over-all policy direction or control in determining the "principal place of business" of a corporation.
The legislation which became Section 1332(c) was originally drawn by the Committee on Jurisdiction and Venue, of the Judicial Conference of the United States.3
The statute originally proposed by the Committee read ( 28 U.S.C. § 1332):
4
This suggested legislation was submitted to the Judicial Conference of the United States by the Committee on Jurisdiction and Venue in a report dated March 21, 1951.
On September 24, 1951, apparently after judicial conferences of some or all of the Circuits took the opportunity to review this proposed legislation, the Committee on Jurisdiction and Venue reported to the Judicial Conference as follows (in pertinent part):
5
In an "attachment" to its report, the Committee set forth the proposed statutory language as follows:
Further, the Committee explained its proposal as follows (in part):
The legislation was ultimately enacted in substantially this form.7
Several illuminating considerations are engendered by this legislative history.
The original proposal of the Committee on Jurisdiction and Venue, based on the locus where the bulk of the corporation's income-producing "business is transacted", turned principally, if not exclusively, upon the place of the physical, or business, operations of the corporation.8
Though I find nothing expressly on the point9, it seems reasonable to infer that the purpose behind the suggestion, and adoption, of the Bankruptcy Act's principal place of business standard was to promote certainty by incorporating into the statute a body of decisional law. If this is correct, then the substitution of this Bankruptcy Act formula should not be read in derogation of the intent, implicit in the original draft, to make controlling the locus of the corporation's actual operations.
Such an interpretation is further buttressed by the following observations:
Clearly, there exist many corporations whose activities are more or less evenly...
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...Rico is authorized to do business and has its principal place of business in Puerto Rico. See, Inland Rubber Corp. v. Triple A Tire Service, Inc., 220 F.Supp. 490, 495 (S.D.N. Y.1963). All of plaintiffs' supervisors were employed and carried out their responsibilities in Puerto Rico. See, L......
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...for purposes of the diversity of citizenship requirements of 28 U.S.C. § 1332(a) and (c). See Inland Rubber Corporation v. Triple A Tire Service, Inc., 220 F.Supp. 490 (S.D.N.Y.1963); Metro Industrial Painting Corp. v. Terminal Construction Co., 181 F.Supp. 130, 132-133 (S.D.N.Y.1960), aff'......
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...has its most extensive contacts with, or greatest impact on, the general public. For example, in Inland Rubber Corp. v. Triple A Tire Service, Inc., 220 F.Supp. 490 (S.D.N.Y.1963), a corporation chartered and headquartered in Ohio was found also to be a citizen of New York, because its prin......