Macginnitie v. Hobbs Group, LLC, No. 04-15675.

• Decision Date: 12 August 2005
• Docket Number: No. 04-15675.
• Parties: Douglas J. MacGINNITIE, Plaintiff-Appellant, v. HOBBS GROUP, LLC, Hilb, Rogal and Hobbs Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1234

420 F.3d 1234

Douglas J. MacGINNITIE, Plaintiff-Appellant, v. HOBBS GROUP, LLC, Hilb, Rogal and Hobbs Company, Defendants-Appellees.

No. 04-15675.

United States Court of Appeals, Eleventh Circuit.

August 12, 2005.

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Benjamin A. Stone, Munger & Stone, Atlanta, GA, for MacGinnitie.

Steven D. Brown, Williams, Mullen, Clark & Dobbins, Richmond, VA, for Defendants-Appellees.

Appeal from the United States District Court for the Northern District of Georgia.

Before TJOFLAT and KRAVITCH, Circuit Judges, and MILLS^*, District Judge.

KRAVITCH, Circuit Judge:

In this case involving restrictive covenants in an employment contract, we decide two questions. In a matter of first impression for our court, we hold that our "total activities" test for a corporation's principal place of business for diversity jurisdiction purposes applies to determine the citizenship of a defendant corporation which once operated in the same state as the plaintiff but has since been purchased by and integrated into an out-of-state corporation as a holding company. We further conclude that because the defendant corporation's principal place of business is in the same state as the purchasing corporation, the federal courts have jurisdiction over a suit by a citizen of the defendant corporation's former home state. Second, we vacate and remand the district court's denial of preliminary injunctive relief.

I.

Defendant-Appellee Hobbs Group, LLC ("Hobbs"), an insurance brokerage firm, employed Plaintiff-Appellant Douglas J. MacGinnitie as its Senior Vice President and General Counsel in 1998. Hobbs is incorporated in the State of Delaware, and until 2002 it undisputably had its principal place of business in the State of Georgia. Defendant-Appellant Hilb, Rogal & Hobbs Company ("HRH"), also an insurance brokerage firm, agreed to purchase Hobbs in 2002. HRH is incorporated and has its principal place of business in the Commonwealth of Virginia.

When Hobbs first employed MacGinnitie, MacGinnitie signed a form employment agreement which Hobbs had drafted. The agreement included restrictive covenants which are at the heart of the present action. The employment agreement's non-solicitation provision prohibits MacGinnitie from engaging in certain activities for a period of two years after termination of his employment. Among other things, MacGinnitie agreed not to:

[d]irectly or indirectly solicit for employment any person who is an employee of [Hobbs], unless [Hobbs] first terminates the employment of such employee or [Hobbs] gives its written consent to such employment or offer of employment;

[c]all on or, directly or indirectly, solicit, divert, or take away any insurance-related business from [Hobbs], or, directly or indirectly, accept insurance-related business from, provide insurance related consulting services of any kind to, or perform any of the services offered by [Hobbs] for, any person, firm, corporation or other entity who is a customer of [Hobbs] or who is, or during the two-year period prior to [MacGinnitie's] termination of employment was, a prospective customer of [Hobbs] with whom [MacGinnitie] had direct contact, or, directly or indirectly, encourage any such customer to cease doing business with [Hobbs].

The employment agreement also contained a confidentiality provision which obliged MacGinnitie not to "make use of, divulge, or otherwise disclose, directly or indirectly, whether during the period of [MacGinnitie's] employment with [Hobbs] or at any time thereafter, any Confidential Information . . . except to the extent such use, divulgence or disclosure is made in connection with [MacGinnitie's] employment and for the benefit of [Hobbs]."

At the time of the acquisition of Hobbs, HRH presented MacGinnitie with an acknowledgement agreement, under which MacGinnitie acknowledged the non-solicitation and confidentiality provisions of the employment agreement. The new contract also added a new paragraph to the employment agreement which provided that

[MacGinnitie] grants to [HRH] during the term of this Agreement the continuous and unilateral right, upon written notice to [MacGinnitie] of 45 days, to lessen the restrictions of any of the covenants set forth herein by so much as [HRH] deems necessary either to make this Agreement in accordance with the policy of the State of Georgia or to fit the circumstances peculiar to [MacGinnitie].

MacGinnitie alleges that he was subsequently forced to leave HRH shortly after the acquisition because his position was eliminated and his job duties reassigned to attorneys working at HRH headquarters in Richmond, Virginia. Defendants, on the other hand, claim that they did nothing to force MacGinnitie's departure from the company. After MacGinnitie resigned from HRH in September 2003, he and a partner opened a new insurance brokerage business, Beecher Carlson Risk Management, Inc.

MacGinnitie filed the present action for declaratory and injunctive relief in Georgia state court in 2004, alleging that the language of the non-solicitation and confidentiality provisions effectively prevents him from competing with HRH. The defendants filed a timely notice of removal, claiming federal jurisdiction under the diversity statute, 28 U.S.C. § 1332. MacGinnitie filed a motion for remand, but the district court found that diversity jurisdiction existed and denied the motion.

After the denial of the motion for a remand, MacGinnitie renewed his motion for a preliminary injunction barring enforcement of the allegedly unenforceable covenants. The district court refused to grant the injunction on three grounds: first, that MacGinnitie was not likely to succeed on the merits because the covenants were not overbroad; second, that MacGinnitie would not suffer irreparable harm because he was not licensed personally to sell insurance in Georgia; and third that the balance of harms weighed in HRH's favor because it might lose a significant number of clients and employees if the injunction were granted. Following the ruling, MacGinnitie filed a timely appeal.

II.

MacGinnitie contends that the district court lacked subject-matter jurisdiction over the present case and should have remanded it to the Georgia state court from which it was removed. We review rulings on the subject-matter jurisdiction of a federal court de novo. Williams v. Best Buy Co., Inc., 269 F.3d 1316, 1319 (11th Cir. 2001). Factual findings regarding the citizenship of a party are subject to a clearly erroneous standard of review. McCormick v. Aderholt, 293 F.3d 1254, 1257 (11th Cir. 2002).

MacGinnitie claims that the district court lacked subject-matter jurisdiction over the present action because there was not complete diversity between the parties at the time the complaint was filed.¹ Complete diversity requires that no defendant in a diversity action be a citizen of the same state as any plaintiff. 28 U.S.C. § 1332; Carden v. Arkoma Assocs., 494 U.S. 185, 187, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990). For diversity purposes, a corporation is a citizen of both the state where it is incorporated and the state where it has its principal place of business. 28 U.S.C. § 1332(c). Citizenship for diversity purposes is determined at the time the suit is filed. Harris v. Garner, 216 F.3d 970, 983 (11th Cir. 2000).

We have adopted the "total activities" test to determine a corporation's principal place of business. See Vareka Investments, N.V. v. American Investment Properties, Inc., 724 F.2d 907, 910 (11th Cir. 1984). This test combines the "place of activities" test and the "nerve center" test used by other circuits. Sweet Pea Marine, Ltd. v. APJ Marine, Inc., 411 F.3d 1242, 1247 (11th Cir. 2005). Under the "place of activities" test, the location of the majority of the corporation's sales or production activities is its principal place of business. Id. Under the "nerve center" test, the location of the corporate offices is generally the principal place of business. Id.

The total activities test requires a somewhat subjective analysis to choose between the results of the nerve center and place of activities tests, if they differ. Toms v. Country Quality Meats, Inc., 610 F.2d 313, 315 (5th Cir. 1980).² We provided guidance as to how the district courts should balance the two tests in Sweet Pea Marine. Where a company's activities are not concentrated in one place, a district court is entitled "to give these `nerve-center'-related facts greater significance" in determining principal place of business. Sweet Pea Marine, 411 F.3d at 1247.

According to MacGinnitie, Hobbs' principal place of business was in Georgia at the time the suit was filed, because the principal place of business of an "inactive" corporation remains the same as its last principal place of business while the corporation was still active.

The question of the principal place of business of an "inactive" corporation is one of first impression in this circuit. We need not, however, reach that issue, because our existing total activities test is sufficient to resolve the question before us. The district court found that at the time the suit was filed

Hobbs continued to exist only as an active corporate holding company ... that was directed and controlled from HRH's corporate headquarters in Virginia. Every decision necessary to realize the strategic advantage offered by Hobbs' continued, passive existence was and continues to be made in HRH's Virginia corporate headquarters by HRH officers. Thus, at the time [MacGinnitie] filed [his] complaint, the "nerve center" of Hobbs, for purposes of determining diversity, could only be in Virginia.

The plaintiff has offered no evidence which suggests that the district court clearly erred in making these factual findings regarding the nerve center of Hobbs. Furthermore, Hobbs is not an "inactive" corporation in the sense in which other circuits have used that term. MacGinnitie...