Long v. Silver

• Decision Date: 02 March 2001
• Docket Number: No. 00-1612,00-1612
• Citation: 248 F.3d 309
• Parties: (4th Cir. 2001) D. JOSEPH LONG, individually and derivatively as a shareholder of Regency Home Fashions, Incorporated, Plaintiff-Appellee, v. LOUIS L. SILVER, individually and in his fiduciary capacity as a shareholder of Regency Home Fashions, Incorporated and as trustee of the express of the Louis L. Silver living trust; ALL UNKNOWN BENEFICIARIES of the Louis L. Silver Living Trust; RONALD GROSSMAN,individually and in his fiduciary capacity as an officer and shareholder of Regency Homes, Incorporated; KEVIN CREEGAN, individually and in his fiduciary capacity as an officer and shareholder of Regency Homes, Incorporated; REGENCY HOME FASHIONS, INCORPORATED, Defendants-Appellants, and HERTZ, HERSON & COMPANY, LLP, certified public accountants, Defendant. Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 309

248 F.3d 309 (4th Cir. 2001)

D. JOSEPH LONG, individually and derivatively as a shareholder of Regency Home Fashions, Incorporated, Plaintiff-Appellee, v. LOUIS L. SILVER, individually and in his fiduciary capacity as a shareholder of Regency Home Fashions, Incorporated and as trustee of the express of the Louis L. Silver living trust; ALL UNKNOWN BENEFICIARIES of the Louis L. Silver Living Trust; RONALD GROSSMAN,individually and in his fiduciary capacity as an officer and shareholder of Regency Homes, Incorporated; KEVIN CREEGAN, individually and in his fiduciary capacity as an officer and shareholder of Regency Homes, Incorporated; REGENCY HOME FASHIONS, INCORPORATED, Defendants-Appellants and HERTZ, HERSON & COMPANY, LLP, certified public accountants, Defendant.

No. 00-1612

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: March 2, 2001

Decided: April 27, 2001

Appeal from the United States District Court for the Western District of North Carolina, at Statesville. Carl Horn, III, Chief Magistrate Judge.

(CA-00-22-5-H)

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] COUNSEL ARGUED: Alan Meredith Ruley, BELL, DAVIS & PITT, P.A., Winston-Salem, North Carolina, for Appellants. Paul E. Culpepper, TATE, YOUNG, MORPHIS, BACH & TAYLOR, Hickory, North Carolina, for Appellee. ON BRIEF: James R. Fox, BELL, DAVIS & PITT, P.A., Winston-Salem, North Carolina, for Appellants. Thomas C. Morphis, Sr., TATE, YOUNG, MORPHIS, BACH & TAYLOR, Hickory, North Carolina, for Appellee.

Before WILKINS, WILLIAMS, and TRAXLER, Circuit Judges.

Vacated and remanded by published opinion. Judge Williams wrote the opinion, in which Judge Wilkins and Judge Traxler joined.

OPINION

WILLIAMS, Circuit Judge:

Louis L. Silver, Ronald Grossman, Kevin Creegan, and Regency Home Fashions, Inc. (collectively, "Regency"), appeal from the magistrate judge's denial of their motion to compel arbitration and to stay litigation pending arbitration.¹ Relying upon a line of cases that has been rejected by this Circuit, the magistrate judge held that D. Joseph Long's claims against Regency did not fall within the ambit of the two arbitration agreements at issue. We conclude that the magistrate judge used the improper legal standard for determining whether Long's claims were arbitrable and hold that Long's claims against Regency significantly relate to the two agreements at issue. Accordingly, we vacate the magistrate judge's order and remand the case to the magistrate judge with instructions to compel arbitration and to stay litigation pending the arbitration.

I.

In 1972, Long entered into an agreement with the Silver-Pilzer Corporation ("the 1972 Agreement"). The 1972 Agreement recognizes Long as a current employee and 20% owner in the Regency Bedspread Corporation, of which Silver-Pilzer was an 80% owner. It provides that Long would become a full-time employee in an executive capacity and a 5% equity owner of the Silver-Pilzer Corporation, in exchange for redeeming his stock in the Regency Bedspread Corporation in favor of Silver-Pilzer and for other consideration. The 1972 Agreement further states that Long will continue to be employed by Silver-Pilzer or one of its subsidiaries for as long as he remains a shareholder in Silver-Pilzer. The remainder of the 1972 Agreement deals primarily with Long's ability to dispose of his Silver-Pilzer shares during his employment and upon termination of his employment. The 1972 agreement contains a very broad arbitration clause that provides,

[a]ny and all disputes . . . arising out of or in connection with this Agreement, or with respect to the construction and interpretation thereof, or concerning the rights of any one or more parties hereto against any one or more parties hereto, or the respective obligations of each party hereto to each other party hereto, shall be determined by arbitration in accordance with . . . the then existing rules of the American Arbitration Association.

(J.A. at 64.) The name of Regency Bedspread Corporation subsequently was changed to Regency Home Fashions, Inc. ("the Corporation"), and Long's shares in Silver-Pilzer became shares in the Corporation.

On May 12, 1999, all the shareholders in the Corporation entered into a Shareholders' Agreement ("the 1999 Agreement"). The 1999 Agreement provides for general restrictions on share transfers, a right of first refusal for non-selling shareholders, and the redemption of each shareholder's stock upon termination of that person's employment with the Corporation or upon that person's death. The 1999 Agreement also includes a very broad arbitration clause that provides,

[t]his agreement shall be construed and enforced in accordance with the laws of the State of New York applicable to contracts and agreements executed and to be performed wholly in New York. The parties hereby irrevocably and unconditionally agree that any dispute arising out of or relating to this Agreement or the breach, termination or validity thereof will be submitted by the parties to binding arbitration by a single arbitrator to take place in New York City under the rules of the American Arbitration Association then in effect.

(J.A. at 81-82.) The 1999 Agreement further provides that it "supersedes any and all prior agreements" that pertain to its subject matter. (J.A. at 83.)

Long claims that the shareholders threatened to terminate his employment if he did not sign the 1999 Agreement, and that on May 13, 1999, Silver sent Long a letter informing him that if Long signed the 1999 Agreement, Silver would maintain Long as an employee until he reached the age of 70. Despite this promise, approximately six months after Long signed the 1999 Agreement, Silver fired Long.

II.

On January 19, 2000, Long filed this civil action in the General Court of Justice for the State of North Carolina, Superior Court Division alleging nine claims arising from his shareholder and employment relationship with the Corporation: (1) frustration of reasonable expectation; (2) breach of fiduciary duties; (3) breach of contract; (4) failure to distribute profits proportionately; (5) fraud; (6) civil conspiracy; (7) unfair and deceptive trade practices; (8) punitive damages; and (9) a shareholder's derivative action. Specifically, Long alleged that Silver diverted funds properly belonging to the Corporation for Silver's personal use and that the other shareholders, who became shareholders in 1999, breached their fiduciary duties to the Corporation and to Long by contributing to Silver's schemes to divert funds.

On February 4, 2000, Regency removed the action to the United States District Court for the Western District of North Carolina pursuant to diversity jurisdiction under 28 U.S.C.A.S 1332 (West 1993 & Supp. 2000). On March 2, 2000, Regency moved to stay the litigation and to compel arbitration based upon the arbitration clauses in the 1972 and 1999 Agreements. On April 28, 2000, the magistrate judge entered an order denying Regency's motion. On May 8, 2000, Regency filed a notice of appeal with this Court.

III.

Before turning to the merits of Regency's appeal, we first must determine whether diversity jurisdiction is proper. ² Although the magistrate judge noted that removal "appears to be proper," and jurisdiction has not been challenged by Long, (J.A. at 103), Long alleges in his Complaint that Regency Home Fashions' principal place of business is North Carolina. If this assertion is true, we are bound to dismiss for lack of subject matter jurisdiction because Long also is a citizen of North Carolina. See 28 U.S.C.A.S 1332(c)(1) (providing that a corporation is a citizen of "any State by which it has been incorporated and of the State where it has its principal place of business").

In Mullins v. Beatrice Pocahontas Corp., 489 F.2d 260 (4th Cir. 1974) (per curiam), we noted that two divergent approaches exist for purposes of ascertaining the "principal place of business" of a corporation under S 1332(c). "One approach makes the home office, or place where the corporation's officers direct, control, and coordinate its activities, determinative. The other looks to the place where the bulk of corporate activity takes place." See id. at 262 (internal quotation marks omitted); see also Peterson v. Cooley , 142 F.3d 181, 184 (4th Cir. 1998) (noting that we have adopted neither test to the exclusion of the other).

The facts that are determinative of the Corporation's principal place of business are not in dispute. Regency Home Fashion's corporate headquarters, sales, and financial offices are located in New York. In addition, the Corporation's president, CEO, and other top officers are all residents of New York. It has one manufacturing plant in North Carolina. The Corporation has no other presence in North Carolina.

Regardless of whether the nerve center or the place of operations test applies, we hold that Regency Home Fashions' principal place of business is New York because the undisputed facts establish that the bulk of the corporate activity takes place in New York and that the Corporation's "home office" is located in New York. See Peterson, 142 F.3d at 184 (noting that when a corporation has"multiple centers of manufacturing, purchasing, or sales," we focus on "the place where the bulk of corporate activity takes place" as opposed to the corporation's "home office" (internal quotation marks omitted)).

We note that the nature of a corporation's presence in a particular state is determined on a case by case basis. See Athena Automotive, Inc. v. DiGregorio, 166 F.3d 288, 291 (4th Cir. 1999). Long, however, has declined to present any factors to the district court or to this Court that support a finding that the bulk of Regency Home Fashions' activities takes place in North Carolina rather than in New York. Indeed, when questioned at oral argument, counsel for Long represented that Long never intended to argue that diversity jurisdiction...