North Star Hotels v. Mid-City Hotel Associates, Civ. No. 4-87-793.

• Decision Date: 07 October 1988
• Docket Number: Civ. No. 4-87-793.
• Citation: 696 F. Supp. 1265
• Parties: NORTH STAR HOTELS CORPORATION, Plaintiff, v. MID-CITY HOTEL ASSOCIATES, Defendant.
• Court: U.S. District Court — District of Minnesota

696 F. Supp. 1265

NORTH STAR HOTELS CORPORATION, Plaintiff, v. MID-CITY HOTEL ASSOCIATES, Defendant.

Civ. No. 4-87-793.

United States District Court, D. Minnesota, Fourth Division.

October 7, 1988.

Denis E. Grande, Arthur, Chapman & McDonough, P.A., Minneapolis, Minn., for plaintiff.

Jerome B. Pederson, Daniel J. Maertens, Fredrickson & Byron, Minneapolis, Minn., for defendant.

MEMORANDUM AND ORDER

MacLAUGHLIN, District Judge.

This matter is before the Court on defendant's motion to dismiss for lack of subject matter jurisdiction and plaintiff's motion to amend its complaint to properly allege diversity jurisdiction.

FACTS¹

This lawsuit involves a dispute arising out of a hotel management agreement entered into by plaintiff North Star Hotels Corporation (North Star) and defendant Mid-City Hotel Associates (Mid-City) on September 11, 1978. Pursuant to the terms of the management agreement, North Star was granted "the sole and exclusive right to supervise and direct the management and operation" of the Hilton Hotel located at 1330 Industrial Boulevard, Minneapolis, Minnesota (hereinafter referred to as the Hotel), which is owned by Mid-City. Under the management agreement, North Star was required to render technical assistance to Mid-City regarding pre-opening planning and construction of the Hotel and was to perform management duties including:

(a) hiring, promoting, discharging and supervising all employees of the Hotel;

(b) contracting for all utilities, maintenance and other services which North Star deemed necessary for the proper operation and maintenance of the Hotel;

(c) making all repairs and improvements to the Hotel as were necessary for its proper maintenance;

(d) purchasing such supplies as North Star deemed necessary or advisable for the operation of the Hotel;

(e) applying for, obtaining and maintaining all licenses and permits required of the owner (Mid-City) or manager (North Star) in connection with the operation and management of the Hotel;

(f) establishing and maintaining bank accounts for the Hotel, collecting and depositing in such accounts all monies received from the operation of the Hotel, and making all expenditures from such accounts as were required in connection with the ownership, maintenance and operation of the Hotel; and

(g) doing or causing to be done all acts and things in and about the Hotel as were necessary to comply with all legal and insurance requirements.

See Management Agreement par. 4.01-4.05, 6.01-6.07.

At the time the parties entered into the management agreement, they also executed a management fee rider which set forth the compensation to be received by North Star for its services. The management fee rider provided that North Star would be compensated based on the Hotel's gross revenues or gross operating profits, with North Star receiving the greater of a defined percentage of gross revenues or a floating percentage of gross operating profit. From 1978 through December 2, 1987, North star acted as manager of the Hotel and was compensated according to the parties' agreement.

Plaintiff alleges that as early as November 1984 Dr. Harry A. Johnson, Jr., one of Mid-City's general partners, expressed a desire to buy out North Star's interest in the management agreement. Plaintiff alleges that Johnson wished to sell the Hotel and considered the management agreement to be an impediment to such a sale.² Throughout 1985, 1986 and early 1987 the parties conducted intermittent negotiations regarding a possible buy-out by Mid-City. The parties could not, however, reach an agreement.

By letter dated June 19, 1987, Mid-City notified North Star of what it viewed to be certain acts and omissions on the part of North Star which allegedly constituted a default under paragraph 7.01 of the management agreement.³ Under the management agreement, if a default continued for a period of sixty days after notice, Mid-City had the right to terminate the agreement upon ninety days' written notice. By letter dated September 3, 1987, Mid-City notified North Star that the management agreement would terminate upon expiration of ninety days.

On September 4, 1987, North Star commenced this action, alleging that Mid-City's actions were wrongful and constituted a breach of contract.⁴ In its complaint North Star seeks damages for the alleged breach of contract and for injury North Star allegedly suffered to its business reputation and goodwill. North Star further seeks a judgment declaring that North Star fully performed its duties under the management agreement and is not in default and finding that Mid-City was not entitled to terminate the agreement. On October 14, 1987 Mid-City answered North Star's complaint and filed a counterclaim alleging breach of contract and negligence and seeking ejectment of North Star from the Hotel. On December 3, 1987, upon expiration of the ninety-day period referred to in the letter of September 3, 1987, the management agreement was terminated and Mid-City took over management of the Hotel from North Star.

On February 3, 1988, Mid-City brought before the Court a motion to dismiss or for summary judgment arguing that North Star's action was barred for failure to comply with the Minnesota real estate broker licensing statute. The motion was extensively briefed and argued before the Court. By order dated March 8, 1988, the Court denied Mid-City's motion. On May 25, 1988, Mid-City brought a motion requesting that the Court certify to the Minnesota Supreme Court the question of the applicability of the Minnesota real estate broker licensing statute to North Star's hotel management activities. By order dated May 27, 1988, Mid-City's motion to certify was denied.

North Star, in paragraph 1 of its complaint, alleges that jurisdiction over this action is proper pursuant to 28 U.S.C. § 1332 because the matter in controversy exceeds $10,000 and is between citizens of different states. North Star alleges in paragraph 2 of the complaint that "Plaintiff North Star is a Texas corporation with general offices at Suite 200, 1111 North Loop West, Houston, Texas 77008." Complaint par. 2. North Star does not allege the location of its principal place of business. In paragraph 3 of its complaint, North Star alleges that "Defendant Mid-City is a Minnesota limited partnership whose general partner, Harry A. Johnson, Jr., is a resident of the State of Minnesota." Complaint par. 3.

Defendant Mid-City now moves the Court for an order dismissing the present action for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(h)(3), arguing that no diversity of citizenship exists between North Star and Mid-City. As an initial matter, Mid-City argues that North Star's failure to allege its principal place of business renders North Star's complaint defective under Fed.R.Civ.P. 8(a), which requires that a pleading setting forth a claim for relief contain a short and plain statement of the grounds for jurisdiction. Yet the failure to allege a principal place of business is not at the heart of Mid-City's motion. Rather, the crux of Mid-City's argument is that North Star's principal place of business is in Minnesota thus causing North Star to be a citizen of Minnesota for purposes of diversity jurisdiction. Mid-City argues that because Mid-City is also a citizen of Minnesota, diversity is lacking and North Star's complaint must be dismissed as it is premised solely on grounds of diversity jurisdiction. Based on the foregoing argument, Mid-City contends that any attempt by North Star to cure its defective pleading by amending its complaint would be ineffective as the absence of jurisdiction requires the action be immediately dismissed.

North Star opposes Mid-City's motion to dismiss. North Star contends that its principal place of business is Texas. North Star thus argues that diversity exists and that jurisdiction is proper under 28 U.S.C. § 1332. Based on the foregoing, North Star seeks permission to amend its complaint to reflect the fact that its principal place of business is Texas.

DISCUSSION

Title 28 U.S.C. § 1332 establishes the diversity jurisdiction of the federal courts. Section 1332 provides in part:

(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs, and is between —

(1) citizens of different States....

28 U.S.C. § 1332(a). For purposes of diversity jurisdiction, a corporation is deemed to be "a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c). The citizenship of a limited partnership is determined by the citizenship of the partners and includes, at a minimum, the citizenship of the general partner. See Elston Investment, Ltd. v. David Altman Leasing Corp., 731 F.2d 436 (7th Cir.1984).

In this case, the parties apparently agree that Mid-City is a citizen of Minnesota for diversity purposes, based on the residence of Mid-City's general partner Harry Johnson in Minnesota. The parties further agree that, based on its incorporation in Texas, North Star is a citizen of Texas. Mid-City argues, however, that North Star has its principal place of business in Minnesota and thus is a citizen of Minnesota for diversity purposes pursuant to 28 U.S.C. § 1332(c). Mid-City thus contends that no diversity exists between itself and North Star and that the Court lacks jurisdiction over North Star's claims. Conversely, North Star argues that its principal place of business is in Texas and that it is a citizen only of the State of Texas for purposes of diversity. Accordingly, North Star argues that the requisite diversity exists for an exercise of jurisdiction pursuant to 28 U.S.C. § 1332(a)(1).

The Court should note at the out-set that whether North Star's principal place of business for purposes of diversity jurisdiction is in Texas is a question of fact on...