Television Reception Corporation v. Dunbar

• Decision Date: 28 April 1970
• Docket Number: No. 18072-18843.,18072-18843.
• Citation: 426 F.2d 174
• Parties: TELEVISION RECEPTION CORPORATION, Plaintiff-Appellee, v. Charles A. DUNBAR, Dunbar-Murphy & Company, Inc., and Commonwealth Cable Company, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

426 F.2d 174 (1970)

TELEVISION RECEPTION CORPORATION, Plaintiff-Appellee, v. Charles A. DUNBAR, Dunbar-Murphy & Company, Inc., and Commonwealth Cable Company, Inc., Defendants-Appellants.

Nos. 18072-18843.

United States Court of Appeals, Sixth Circuit.

April 28, 1970.

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Ben B. Fowler, Frankfort, Ky. (Don E. Cooper, Somerset, Ky., Dailey & Fowler, Frankfort, Ky., on the brief), for Charles A. Dunbar and another.

Thomas J. Roberts, Middlesboro, Ky., and J. Milton Luker, London, Ky. (Luker, Luker & Roberts, London, Ky., on the brief), for Television Reception Corporation.

Before EDWARDS and McCREE, Circuit Judges, and O'SULLIVAN^*, Senior Circuit Judge.

McCREE, Circuit Judge.

This is an appeal from a judgment entered in a diversity action in which the plaintiff initially commenced an action against Charles Dunbar, a Florida resident, and Dunbar-Murphy & Co., a Florida Corporation. In its complaint, plaintiff alleged that during the period of time relevant to the controversy it owned and operated a cable television system in Somerset, Kentucky. Plaintiff further alleged that Dunbar, individually and in his capacity as president of Dunbar-Murphy & Co., orally agreed: (1) to aid plaintiff in its efforts to obtain a twenty year franchise from the city of Somerset for the operation of plaintiff's cable television system, and (2) to purchase the cable television system on behalf of an undisclosed principal. Finally, plaintiff alleged that despite these undertakings, Dunbar fraudulently entered a bid for the franchise on behalf of Dunbar-Murphy & Co. and the company was awarded the franchise by the City Council. Plaintiff sought an adjudication that Dunbar-Murphy & Co. held the franchise in trust for plaintiff and should be required to transfer it to plaintiff, or, in the alternative, should pay plaintiff $350,000 in damages.

After the complaint was filed, Dunbar-Murphy assigned its franchise to Commonwealth Cable Company, a newly organized Kentucky corporation. This assignment was approved by the Somerset City Council, as required by the franchise agreement. Commonwealth Cable Company then commenced an action in the Pulaski County, Kentucky Circuit Court against Television Reception Corporation seeking a declaration that Television Reception was usurping Commonwealth Cable's franchise by continuing to operate the cable television system.

Television Reception responded by filing motions in the federal district court requesting that Commonwealth Cable be made a party defendant in the federal action and that it be enjoined from prosecuting the action pending in the Pulaski County Circuit Court. The District Judge granted both motions.¹

After being made a party defendant in the federal action, Commonwealth Cable filed a counterclaim seeking the same relief it had requested in the state court action. In particular, Commonwealth Cable sought an order requiring Television Reception to cease operating its cable television system and to remove its equipment from the City of Somerset.

The action then proceeded to trial before the District Judge sitting without a jury. The District Judge dismissed plaintiff's complaint, ordered plaintiff to cease operating its cable television system in Somerset, Kentucky and to remove its equipment from the city, and also ordered plaintiff to pay defendants the profits received from the operation of the cable television system after June 28, 1966, the date the franchise agreement between the city and Dunbar-Murphy was signed.

After judgment was entered, plaintiff filed a motion for a new trial and two supporting affidavits. One of the affidavits was executed by Kenneth Lutz, a former business associate of Dunbar, who had been present during the initial discussions between Dunbar and Clyde House, the president of Television Reception. This affidavit supported the testimony given by House during the trial. The other affidavit, which was filed by House, indicated that efforts to obtain Lutz's presence at the trial had been made, but that he could not be located until two weeks after the trial. The District Judge denied the motion for a new trial without comment.

On appeal, plaintiff has, for the first time, raised a number of objections to the jurisdiction of the District Court. Challenges to the jurisdiction of a federal court can be raised at any stage of the proceedings, and even the party who originally invoked the federal court's jurisdiction is not precluded from making such a challenge. American Fire & Casualty Co. v. Finn, 341 U.S. 6, 17-18, 71 S.Ct. 534, 95 L.Ed. 702 (1951); Central States Co-ops. v. Watson Bros. Transp. Co., 165 F.2d 392, 394 (7th Cir. 1948). We hold, however, that the challenges presented are without merit.

Plaintiff's first contention is that although Dunbar-Murphy & Co. was incorporated in Florida, its principal place of business was in Kentucky and therefore the requisite diversity of citizenship between plaintiff and each defendant was not present. 28 U.S.C. § 1332(a); Strawbridge v. Curtis, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806). Plaintiff relies on the fact that at the time the action was instituted, Dunbar-Murphy's primary asset was the franchise for the operation of the cable television system. The only assets of the company located in Florida were an office, some office furniture and a small bank account.

Despite these facts, we find plaintiff's contention unpersuasive. In determining where a corporation has its principal place of business, a court must evaluate the facts of the particular case and decide "which facts are important and which facts are relatively unimportant." Kelly v. United States Steel Corp., 284 F.2d 850, 852 (3rd Cir. 1960). In the present case, the nature of Dunbar-Murphy's business renders the location of its primary asset at the time the action was commenced largely irrelevant to the determination of the state of its principal place of business. The company served as a corporate shell for the activities of Charles Dunbar. These activities included Dunbar's attempts to arrange purchases and sales of cable television systems throughout the country. Dunbar did not intend to operate these systems through Dunbar-Murphy & Co. Indeed, in the present case Dunbar-Murphy assigned the franchise on the Somerset system to Commonwealth Cable shortly after obtaining it. Thus, the company's ownership of the franchise was merely a temporary circumstance related to Dunbar's efforts to arrange a sale of the Somerset system. This type of ownership alone is not sufficient to make Somerset, Kentucky the principal place of business of Dunbar-Murphy & Co. for purposes of diversity jurisdiction.

Plaintiff's second objection to the District Court's jurisdiction is that even if diversity existed at the time the action was commenced, the assignment of the franchise to Commonwealth Cable, a Kentucky corporation, and the joinder of Commonwealth Cable as a party defendant defeated it.

The general rule is that federal jurisdiction is tested according to the facts as they exist at the time an action is initiated and that diversity jurisdiction, once acquired, is not defeated by events occurring subsequent to the commencement of the action. Smith v. Sperling, 354 U.S. 91, 93, 77 S.Ct. 1112, 1 L.Ed.2d 1205 n. 1 (1957); Wichita R. R. & Light Co. v. Pub. Util. Comm'n, 260 U.S. 48, 54, 43 S.Ct. 51, 67 L.Ed. 124 (1922). We perceive no reason to deviate from this general rule in the present case where, pursuant to Rule 25(c), Fed. R.Civ.P.,² the District Judge ordered the joinder of a transferee pendente lite. See 3B J. Moore, Federal Practice ¶ 25.08, at 25-326 (2d ed. 1969). Cf. Jones v. Village of Proctorville, 303 F.2d 311 (6th Cir. 1962); People of Porto Rico v. Fortuna Estates, 279 F. 500 (1st Cir. 1922). The joinder did not alter the respective substantive rights of the tranferor or of the transferee pendente lite, and, regardless of whether the transferee was made a party to the action, its rights in relation to the franchise depended on the outcome of the litigation between Television Reception and the transferor, Dunbar-Murphy & Co. 3B J. MOORE, FEDERAL PRACTICE ¶ 25.08 (2d ed. 1969); O'Donohue v. First National Bank, 166 F.Supp. 233 (E.D. Pa. 1958). Joinder merely represented a discretionary determination by the District Judge that Commonwealth Cable's presence would facilitate his conduct of the litigation.

Plaintiff's final jurisdictional objection is that the city of Somerset, Kentucky was a non-diverse, indispensable party to the action because complete relief could not be accorded in its absence and because the parties to the action could incur inconsistent obligations to the city if it were not made a party. Plaintiff relies on Rule 19, Fed.R.Civ.P., which provides, in pertinent part:

a. Persons to be Joined if Feasible. A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party. If he should join as a plaintiff but refuses to do so, he may be made a defendant, or, in a proper case, an involuntary plaintiff. If the joined party objects to venue and his joinder would render the venue of the action improper, he shall be dismissed from the action.

b. Determination by Court Whenever Joinder not Feasible. If a person as described in subdi

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