Lurie Company v. Loew's San Francisco Hotel Corp.

• Decision Date: 27 July 1970
• Docket Number: Civ. No. 49175.
• Court: U.S. District Court — Northern District of California
• Parties: The LURIE COMPANY, a California corporation, Plaintiff, v. LOEW'S SAN FRANCISCO HOTEL CORP., a Delaware corporation, Defendant.

315 F. Supp. 405

The LURIE COMPANY, a California corporation, Plaintiff, v. LOEW'S SAN FRANCISCO HOTEL CORP., a Delaware corporation, Defendant.

Civ. No. 49175.

United States District Court, N. D. California.

July 27, 1970.

Frederick P. Furth, San Francisco, Cal., for plaintiff.

Moses Lasky, Brobeck, Phleger & Harrison, San Francisco, Cal., for defendant.

ORDER

JAMESON, District Judge.

Defendant has moved to dismiss for lack of jurisdiction on the grounds that (1) the complaint fails to allege diversity of citizenship in that it fails to allege the principal place of business of either plaintiff or defendant; and (2) the principal place of business of defendant is in fact in the state of California, and as California is the state of incorporation of the plaintiff, there is no diversity of citizenship.

A hearing was held on July 16, 1970. Prior thereto the respective parties either submitted affidavits or conducted appropriate discovery through depositions and written interrogatories. Written briefs were filed and oral arguments were presented at the hearing.

Rule 12(d) of the Federal Rules of Civil Procedure provides for a preliminary hearing for determining before trial defenses raised by motions specified in Rule 12(b). It is "advisable generally to decide such defenses as * * * lack of jurisdiction * * * promptly after they are raised, and not defer them to the trial." 2A Moore's Federal Practice 2354, ¶ 12.16.

As a general rule the "trial court may, in its discretion, hear and determine issues of fact as to jurisdiction by receiving oral testimony and other evidence * * * or by receiving and weighing affidavits."¹ After weighing the evidence "received upon an inquiry into the facts as to jurisdiction, the court properly makes findings as to the existence or nonexistence of requisite jurisdictional facts and draws conclusions of law upon which to predicate its order." Williams v. Minnesota Mining & Manufacturing Co., S.D.Cal.1953, 14 F.R.D. 1, 5.

The complaint alleges that plaintiff is a California corporation and defendant a Delaware corporation. There is no allegation with respect to the principal place of business of either corporation.²

28 U.S.C. § 1332(c), as amended in 1958, provides that for the purpose of determining diversity of citizenship "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." The complaint is defective in failing to allege a necessary fact to confer diversity jurisdiction, i. e., the principal place of business of the respective parties. Brandt v. Bay City Super Market, N.D.Cal.1960, 182 F.Supp. 937. Plaintiff contends, however, that the defendant corporation has its principal place of business in the State of New York. For the purpose of determining this motion, it is assumed that the complaint has been amended to contain this allegation.³

Accordingly we are concerned with the question of whether the defendant's principal place of business within the meaning of § 1332(c) is in California, as defendant contends, or in New York, as plaintiff contends.

The defendant, Loew's San Francisco Hotel Corporation, was incorporated in Delaware in 1967 for the purpose of leasing and operating the Hotel Mark Hopkins in San Francisco. It conducts no corporate activities in Delaware, but has a statutory office in the suite of the Prentiss Hall corporation system. It is a wholly owned subsidiary of Loew's Theaters Inc., which has its principal or home office in New York City. Defendant's officers and directors are also officers and directors of the parent corporation. They receive no salary from the defendant.

Defendant qualified to do business in California four days after it was incorporated. It has never qualified to do business in New York or any state other than California. Its sole business is the operation of the Hotel Mark Hopkins and its only assets are the leasehold of the hotel, a second deed of trust on the hotel, and supplies, cash, and receivables arising from the operation of the hotel. The leasehold and trust were acquired under the agreements which are at issue in this action. These agreements were executed in San Francisco.

The initial meeting of the directors was held in San Francisco. Subsequent meetings have been held in the New York office of the parent corporation, where the corporate seal, minute book, and other corporate records are kept.

All income of the defendant is earned in San Francisco. It files income tax returns in the state of California and pays corporate income taxes to that state. It pays no income or franchise tax to the state of New York. Defendant has five bank accounts, all maintained in San Francisco banks.

The officers of the defendant live and maintain their offices in New York, as do its chief legal advisers, chief fiscal officer, insurance adviser, officers in charge of leasing commercial space and supervising the preparation of tax returns, and accounting supervisor. Approximately 480 other employees, all engaged in operation of the Hotel Mark Hopkins in San Francisco, work and reside in California, and most of them are full time employees. All employees, other than the officers and hotel manager and auditor, are hired and fired in San Francisco. All payroll is paid in San Francisco, except the salary of the hotel manager. The local manager is responsible for collective bargaining agreements with the union employees.

The parent corporation is also the sole stockholder in several other hotel operating corporations, each of which operates one hotel in a state other than California. The expenses of the executive offices are charged, in varying percentages, to the parent's theater operations and several hotel operating subsidiaries. Two percent of the expenses of the executive offices are charged to the defendant, and the portion of certain supervisory services charged to the defendant ranges from two to six percent.

The officers and directors of the parent corporation formulate the "overall policy" for all of the hotels and review their operating records. The New York office handles the national advertising for all of the hotels, the preparation of tax returns and payment of taxes, the negotiation and execution of license agreements, leases, and other types of concession agreements,⁴ the billing of concessionaires and permanent guests, the hiring and firing of local managers, payment of the local managers, and maintains the corporate records, including ledgers,⁵ insurance policies and leases. Separate corporate records are maintained for each corporation, separate income tax returns are filed, and separate financial statements are issued.

The total cost of the operations of the defendant incurred in San Francisco averages about $500,000 per month, and the total charge for every type of service performed by anyone outside of California, in New York or elsewhere, has averaged about $15,000 per month.⁶ The defendant in San Francisco has its own purchasing department and buys virtually all of its supplies, beverages and other operating requirements. Capital expenditures exceeding $500 on any one item require the approval of the New York office. They are made upon the recommendation of the hotel manager and usually included in the annual budget.

In support of its contention that New York is the defendant's "principal place of business", plaintiff argues that (1) "defendant has repeatedly declared, throughout its corporate history, that its principal place of business is New York"; (2) the officers and directors of defendant maintain their offices in New York and "overall" policy decisions are made there; and (3) New York is the "center of corporate activity" or "place of operations" by reason of (a) the involvement of New York personnel in the day to day management of defendant, and (b) the "degree of centralization in the management of the parent corporation and its subsidiaries."

On its first point plaintiff refers to four documents: Annual reports for 1967 and 1968, filed with the Secretary of State of Delaware, in which defendant lists its principal place of business outside Delaware as 1540 Broadway, New York, New York, which is the home office address of the parent corporation;⁷ an "Application for Extension of Time for Filing Return" submitted to the Franchise Tax Board of California, in which defendant's "address" is given as 1540 Broadway, New York; and a "Statement and Designation by Foreign Corporation" filed with the Secretary of the State of California, in which the same address is given by defendant as the "location and address of its main office."

In support of its contention that day-to-day operations are controlled by the New York office, plaintiff argues, inter alia, that room charges are controlled by the home office;⁸ the home office in structed defendant on how to answer complaint letters⁹ and what types of scotch and bourbon to use; while operating expenses are paid from the account of the defendant, the only persons authorized to draw on this account are the defendant's officers who reside in New York;¹⁰ the scope of the hotel menu was approved by the New York food department;¹¹ the hotel adopted five of seven salad dressings recommended by the New York office; and a daily revenue report is compiled in New York on the basis of information transmitted from San Francisco via "Dataphone" and the local manager does not receive the report for five or six days.¹²

The hotel manager testified in his deposition that he directs the "day-to-day activities of the hotel" and makes "the day-to-day decisions that have to be made"; that he does not report to anyone concerning the day-to-day operations, and that no decision he has made has been "countermanded by anyone whose office is in New York." He would call on the home office in an "emergency". Similar testimony was given by the hotel auditor.

In summary, the...