Kaufman v. General Insurance Company of America

• Decision Date: 20 March 1961
• Docket Number: Civ. No. 815-60 T.
• Citation: 192 F. Supp. 238
• Court: U.S. District Court — Southern District of California
• Parties: Henry KAUFMAN and Evelyn Kaufman, Plaintiffs, v. GENERAL INSURANCE COMPANY OF AMERICA, a corporation, Defendant.

192 F. Supp. 238

Henry KAUFMAN and Evelyn Kaufman, Plaintiffs, v. GENERAL INSURANCE COMPANY OF AMERICA, a corporation, Defendant.

Civ. No. 815-60 T.

United States District Court S. D. California, Central Division.

March 20, 1961.

George E. Danielson, Los Angeles, Cal., for plaintiffs.

Bolton, Groff & Dunne, by Gene E. Groff, Los Angeles, Cal., for defendant.

TOLIN, District Judge.

This is an action by an insured to recover on an insurance policy for alleged theft of certain personal property in the amount of $78,424.70.

Originally filed in the Superior Court of the State of California, the case was removed to this Court by a petition which alleged subject matter jurisdiction on the grounds that plaintiffs and defendant are of diverse citizenship and that the amount in controversy exceeds $10,000.00. 28 U.S.C. § 1332, as amended 72 Stat. 415 (1958).

Although an answer has been filed, and the case is at issue, plaintiffs now challenge the subject matter jurisdiction of this Court and move to remand the case to the State Court on the ground that there is no diversity of citizenship between the parties. While this motion is somewhat belated, six months having elapsed between the petition for removal and the motion to remand, nevertheless the parties may properly challenge the jurisdiction of the Court at any time prior to judgment. Fed.R.Civ.P. 12(h) (2), 28 U.S.C.A. Moreover, the Court has sua sponte power to remand a removed case whenever it appears that subject matter jurisdiction is lacking. 28 U.S.C. § 1447(c).

The pertinent facts are not in dispute. Plaintiffs are citizens of California. Defendant, General Insurance Company of America, is incorporated under the laws of the State of Washington and has its principal place of business in Seattle. Defendant is also qualified, licensed to engage in, and engaging in the general insurance business in the State of California with offices in Los Angeles County.

On these facts plaintiffs make two contentions in support of their motion to remand: (1) That since a foreign corporation must, in order to do business in California, comply with the same requirements as a domestic corporation see Cal.Corp.Code § 6400 et seq., the foreign corporation should be deemed a California corporation for purposes of diversity of citizenship; and (2) That under a "proper" construction of 28 U. S.C. § 1332, as amended 72 Stat. 415 (1958), a corporation is deemed a citizen of any state wherein it has "a" principal place of business.

1. Plaintiffs' First Contention

This argument is entirely lacking merit. The purpose of the California requirements for qualification of foreign corporations to do business within the state is to protect local citizens and local business from any unfair practices and to insure business responsibility by setting a uniform standard for doing business.

These requirements have nothing to do with diversity of citizenship jurisdiction, which exists essentially as a protection to the out-of-state litigant against local and provincial prejudices. To follow plaintiffs' contention would be to reverse the very purpose and policy of diversity jurisdiction by practically eliminating it from the Federal Courts. In addition to this basic contradiction of a Federal policy, considering the defendant as a "California corporation" for these purposes carries a legal fiction to absurd lengths.

2. Plaintiffs' Second Contention

This second argument is based upon a construction of the statute which confers jurisdiction upon this Court when there is diversity of citizenship between the parties, and more especially to one of the 1958 changes to that statute, which limited Federal jurisdiction when corporations are parties. The question is just how much this change attenuated the subject matter jurisdiction of this Court.

Prior to the 1958 changes, 28 U.S.C. § 1332(a) merely provided inter alia that there was original jurisdiction in the district courts in suits between "citizens of different States". The statute did not mention corporations specifically. However, under the Federal judicial decisions corporations were deemed to be included within the term "citizens" for purposes of diversity of citizenship see e. g., Barrow S.S. Co. v. Kane, 1898, 170 U.S. 100, 18 S.Ct. 526, 42 L.Ed. 964 and were citizens of the State of incorporation only see e. g., St. Louis & S. F. Ry. v. James, 1896, 161 U.S. 545, 16 S.Ct. 621, 40 L.Ed. 802; In re Keasbey & Mattison Co., 1895, 160 U.S. 221, 16 S.Ct. 273, 40 L.Ed. 402. For a general history of diversity jurisdiction see 1 Moore's Federal Practice, Par. 0.60 8.—4 at 635-645 (2d ed. 1960).

As amended by the 1958 changes, 28 U.S.C. § 1332(c) now provides:

"For the purposes of this section * * *, 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." (Emphasis added.)

Plaintiffs contend that this provision means that a corporation may be deemed a citizen of any state in which it has "a" principal place of business. Hence, the argument goes, for purposes of determining diversity of citizenship, any given corporation must be deemed a citizen of all of the states in which it has a principal place of business (or, in effect, any state in which it is licensed to do business or is doing business), and thus the diversity jurisdiction of this Court has been greatly reduced by the amendments to § 1332 of Title 28 of the United States Code.

This argument, of the two grounds for remand urged by plaintiffs, is clearly nearer to being a substantial contention.

Some examination of the question is required because sporadic remands have been made¹ upon the acceptance of this theory, and the fact that this has occurred is now urged upon the Court as establishing the validity of the theory.

Turning first to the text of the statute itself, the plain language indicates that, at most, a corporation may be deemed a citizen of two states: one, the state in which it is incorporated; and two, the state wherein it has its principal place of business, if that state is different from the state of incorporation. The use of the terms "State" and "its" in the amended Act—both terms used in the singular—indicates that one principal place of business was intended. Moreover, it should be noted that the statute specifies "principal place of business". If more than one place were contemplated, would not "places" have been used?

Furthermore, the adjective "principal" has been defined as follows: "Highest in rank, authority, or importance; chief; directing; head * * *." Webster, New International Dictionary, at 1966 (2d ed. unabridged 1956). The same source notes that the word was used "formerly also in comparative and superlative degrees". Ibid. (Emphasis added.)

In light of this definition, we need only impute to the legislative draftsmen a working knowledge of current English usage to reach the result suggested above.

Another indication of the meaning of the language under construction is afforded by the contrast in words employed in different parts of the statute. While it is deemed that a corporation is a citizen of "any" state by which it is incorporated, it is provided only a few words later that it is a citizen of "the" state wherein it has its principal place of business. It would appear that if Congress had meant "any" in both places, the statute would have so stated. One of the fundamental principles of legal drafting dictates that different words should be used only where different meanings are intended.

Turning next to the legislative history of the 1958 amendment, the Congressional reports conclusively...