Al Solutions, Inc. v. Jamegy, Inc.
| Decision Date | 15 September 2008 |
| Docket Number | No. 08 Civ. 5515(CM).,08 Civ. 5515(CM). |
| Parties | AL SOLUTIONS, INC., Plaintiff, v. JAMEGY, INC. a/k/a Titan Holdings, Inc. and Jamegy WV, Inc. a/k/a Titan Holdings WV, Inc., Defendants. |
| Court | U.S. District Court — Southern District of New York |
John P. Boyle, Skadden, Arps, Slate, Meagher & Flom LLP (NYC), New York, NY, for Al Solutions, Inc.
Hans Harris Chen, Robert R. Vieth, Joseph J. Samarias, Cooley Godward Kronish, LLP, Reston, VA, Maxine Gail Sleeper, Cooley Godward Kronish LLP, New York, NY, for defendants.
DECISION AND ORDER GRANTING PLAINTIFF'S MOTION TO RMAND TO THE NEW YORK SPREME COURT
Plaintiff commenced this breach of contract action in New York State Supreme Court on May 20, 2008 and defendants removed it to this Court pursuant to 28 U.S.C. § 1332 on grounds of federal diversity jurisdiction. Plaintiff now moves this Court to remand the action to State Court alleging that complete diversity of citizenship is lacking. For the reasons set forth below, the motion is granted.
In December 2006, pursuant to an Asset Purchase Agreement ("APA"), plaintiff AL Solutions, Inc. purchased "substantially all of the assets" of defendants Jamegy, Inc. and Jamegy WV, Inc., producers of titanium alloying products used in the aluminum industry.1 (Megy Decl. ¶ 4-5.) The acquisition included defendants' two former manufacturing facilities located in West Virginia. (Id.) Plaintiff paid over $65 million for these assets. (Def. Mem. at 2.) In its complaint, plaintiff alleges that after the closing of the sale, it learned that defendants breached various material representations and warranties they made in the APA. (See id.)
On May 20, 2008, plaintiff commenced this action in New York Supreme Court seeking to recover damages of over $10 million for defendants' alleged breaches of the APA. (Id.) On June 18, 2008, defendants removed the action to this Court by invoking diversity jurisdiction under 28 U.S.C. § 1332. (Notice of Removal ¶ 5.) On July 8, 2008, plaintiff filed this motion to remand to State Court asserting that complete diversity is lacking.
It is undisputed that plaintiff is a Delaware corporation with its principal place of business in West Virginia and that the defendants are incorporated in Oregon. (Id. ¶¶ 3-4.) It is also undisputed that before the execution of the APA in 2006, defendants' principal place of business was West Virginia. Defendants, however, contend that their principal place of business is now Oregon, as it was when this action commenced. (Notice of Removal ¶ 4.) Plaintiff, on the other hand, contends that defendants are inactive corporations and that under applicable law, their principal place of business is the state where they last transacted business—West Virginia. (Def. Mem. at 4.) I agree. Since plaintiff is also a citizen of West Virginia, complete diversity is lacking and I am remanding the case.
The following facts are assumed to be true for purposes of this motion;
In February 2007, following the December 2006 sale of their assets to plaintiff, defendants relocated their offices from West Virginia to Oregon. (Megy Decl. ¶ 8.) The defendants moved again in October 2007 to a new office in Oregon, located in the home of Devin Megy, the defendant companies' sole employee and executive officer. (Id. ¶¶ 8, 12.) Devin Megy also serves on the defendants' board of directors along with its only other member, Joseph Megy. (Id. ¶ 12.) Decisions requiring consultation with Joseph Megy either take place in Devin Megy's Oregon home office or by telephone between the Oregon office and Joseph Megy's home in Richland, Washington. (Id.) Since the 2006 asset sale, defendants paid Devin Megy more than $100,000 for his services. (Id.)
Defendants have various post-closing obligations under the APA, all of which are managed by Devin Megy from their Oregon office. (Id. ¶ 21.) First, defendants agreed "to not dissolve, liquidate or otherwise wind up [their] affairs" (Id. ¶ 16 (quoting APA § 5.4).) Hence, although defendant Jamegy, Inc. considered the possibility of liquidation in late 2006 following the execution of the APA, it did not liquidate because doing so would violate the APA. (Id. ¶ 13.) Defendants are also required to discharge all of their liabilities, including liabilities related to fires at their former manufacturing facility, environmental liabilities, and liabilities related to benefit and bonus payments to former employees. (Id. ¶ 16 (citing APA §§ 1.3, 5.6).) In addition, defendants are obligated to maintain an insurance policy. (Id. ¶ 17 (citing APA § 5.4).)
In connection with a July 2006 fire at their former facility, defendants are currently in the process of defending themselves in a lawsuit filed November 8, 2006 by a deceased employee's family. (Id. ¶ 16.) Defendants are also obligated under the APA to pay for building and equipment repairs and any other mutually agreed upon changes resulting from a December 2006 fire at the facility. (Id. ¶ 20 (citing APA §§ 4.1(c), 5.8).) One of those mutually agreed upon changes was an Agreement Regarding Changes in Equipment, entered into September 12, 2007, pursuant to which defendants paid plaintiffs $184,000. (Id. ¶ 20.)
Another APA provision requires defendants to contract with an Environmental Service Provider, at their own cost, to monitor groundwater and surface water at their former West Virginia facility and to perform other necessary monitoring activities. (Id. ¶ 19 (citing APA § 5.7).) Defendants hired an Environmental Service Provider who performs this work and is scheduled to do so until "at least January 2009." (Id. ¶ 19.)
In order to satisfy their APA obligations, such as paying their liabilities and resolving indemnification claims, defendants are required to maintain "one or more accounts at one or more qualified financial institutions ... with [$5,000,000] ... in available cash." (Id. ¶ 18 (quoting APA § 5.4).) In accordance with this provision, defendants maintain more than $5,600,000 in interest-bearing accounts in a Pennsylvania bank. (Id. ¶ 14.) Defendants use these funds to satisfy their administrative and legal expenses and to finance their obligations under the APA. (Id. ¶ 14.)
Aside from performing their APA obligations, the only other business defendants have engaged in since their relocation to Oregon is that they "have considered new opportunities for growth consistent with their non-competition obligations under the APA." (Id. ¶ 21 (emphasis added).) In that regard, they "have contemplated providing consulting services to metal companies ... using a process technology developed by Joseph Megy." (Id. (emphasis added).) However, "[a]s of this date, [defendants] have not pursued a consulting business based on this technology" though they "will continue to consider this and other opportunities." (Id.)
Although defendants relocated their office to Oregon in February 2007, the January 7, 2008 "Business Entity Data" on the Oregon Secretary of State's website lists the "Principal Place of Business" for both defendants as "100 South Chester St, New Cumberland, WV 26047." Defendants allege that this data is based on information submitted January 18, 2007. (Megy Decl. ¶ 24.) The July 2, 2008 "Business Entity Data" lists the same West Virginia address for defendants' "Principal Place of Business," while the "Mailing Address" was changed from a West Virginia address to an Oregon address. (See Boyle Decl., Exs. C, D.) Defendants allege that this data is based on information submitted January 17, 2008 that was prepared by Devin Megy without consulting a lawyer. (Megy Decl. ¶ 24.) According to defendants, Devin Megy updated their mailing address to reflect the new Oregon address but "neglected" to update the principal place of business. (Id.) Defendants assert that the West Virginia address listed as the principal place of business in these four filings is the address of their former manufacturing facility, which was acquired by plaintiff in the asset sale. (Id. ¶¶ 5, 23.) Devin Megy apparently corrected the defendants' principal place of business to reflect an Oregon address on June 30, 2008, after this action commenced. (Id. ¶ 25.)
The "Business Entity Data" on the West Virginia Secretary of State's website, as of' July 2, 2008 and July 7, 2008, lists defendants' "Principal Office Address" as an Oregon address. (See Boyle Decl., Exs. E, F.) Defendants maintain this information on the West Virginia Secretary of State's website based on the advice of their accountant related to certain tax obligations they incur in West Virginia as a result of the December 2006 asset sale. (Megy Decl. 126.)
An action that was originally filed in state court may be removed by a defendant to federal court only if the "district courts of the United States have original jurisdiction" over the action. Shapiro v. Logistec USA Inc., 412 F.3d 307, 309-10 (2d Cir.2005) (quoting 28 U.S.C. § 1441(a)). However, once a case has been removed, it must be remanded "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction." Id. at 310 (quoting 28 U.S.C. § 1447(c)). Where, as here, jurisdiction is asserted by a defendant in a removal petition, the defendant bears the burden of establishing that removal is proper. See Cal. Pub. Employees' Ret. Sys. v. WorldCom, Inc., 368 F.3d 86, 100 (2d Cir.2004) (citations omitted). If there are any doubts as to removability, they are resolved against removability "out of respect for the limited jurisdiction of the federal courts and the rights of the states." In re Methyl Tertiary Butyl Ether ("MTBE") Prods. Liab. Litig., 488 F.3d 112, 124 (2d Cir.2007) (citation omitted).
The Jamegy defendants based removal on diversity jurisdiction under 28 U.S.C. § 1332. It is...
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