Professional Documents
Culture Documents
Taber Partners v. Merit Builders, 1st Cir. (1993)
Taber Partners v. Merit Builders, 1st Cir. (1993)
March 3, 1993
United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit
____________________
No. 92-1921
TABER PARTNERS, I, A NEW YORK GENERAL PARTNERSHIP,
Plaintiff, Appellant,
v.
MERIT BUILDERS, INC., A PUERTO RICO CORP., ET AL.,
Defendants, Appellees.
_____________________
No. 92-1922
TABER PARTNERS, I, A NEW YORK GENERAL PARTNERSHIP,
Plaintiff, Appellee,
v.
MERIT BUILDERS, INC., A PUERTO RICO CORP.,
Defendant, Appellant.
____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jaime Pieras, Jr., U.S. District Judge]
___________________
____________________
Before
Selya, Circuit Judge,
_____________
Coffin, Senior Circuit Judge, and
____________________
Stahl, Circuit Judge.
_____________
____________________
for
purposes of
business activities
activities
their
requires us to
diversity jurisdiction,
should
be considered
in
of each of
its
place of business
the partnership
maintain
This appeal
and its
separate
ordinarily
corporate partners
identities,
should
not
the
failed to
partnership's
be considered
for
this
purpose.
I.
I.
__
PROCEDURAL POSTURE
PROCEDURAL POSTURE
__________________
Plaintiff Taber
general
Partners I
partnership whose
corporations, Lerfer
Corp.
("Calumet"),
Hotel
&
Casino
Defendants
owns and
operates the
("Hotel")
two New
in
San
Inc.,
York
and Calumet
Ambassador Plaza
Juan,
and Merit
York
Puerto
Rico.
Builders, S.E.
Rico-based construction
Taber and
partners are
Merit Builders,
(hereinafter
sole
("Taber"), a New
Merit
companies.
entered into
consulting
and
the Hotel.
project, and
Disputes arose
in February
during
the course
of
the
a diversity
Court for
-22
contract,
fraud,
and
several counterclaims
complaints
against
("VTA"),
the
negligence.
against
Metropolitanos,
Inc.
subcontractors.
Taber and
appellees
inspecting
Merit
Victor
filed
Torres
architect,
("Desarrollos"),
Like
Merit, both
responded
third-party
&
and
one
VTA and
with
Associates
Desarrollos
of
the project
Desarrollos are
to
citizen
As
citizenship.
See Carden v.
___ ______
a suit by
677,
682
(1889)).
As
Lerfer
was
corporations.
of
the
principal
See 28 U.S.C.
___
place
Calumet
are
both
business
of
both
[diversity,] . . . a corporation
citizen
and
shall be deemed to be a
-33
agreed
with
principal
Puerto
VTA's
and
Desarrollos'
place of business
Rico.
Thus, on
granted
their
subject
matter
of both Lerfer
July, 8,
motion and
argument
jurisdiction.
See
___
the
1992, the
dismissed
that
district court
the case
for
lack of
Taber Partners I
__________________
v.
904, 912
(D.P.R. 1992).
In this appeal, Taber and Merit, adversaries below,
mount a
their case.
In so doing,
undisputed evidence
activities
that
occurred almost
district court's
selection of
place of business of
light of the
Calumet's
in
Puerto Rico as
New
corporate
York,
the
the principal
Before
addressing
appellants'
argument,
we
sketch
the
Romano and
Ms.
relevant facts.
II.
II.
___
FACTUAL BACKGROUND
FACTUAL BACKGROUND
__________________
In
Linda E.
and
December 1986,
Romano, citizens
Calumet in
New York.
Mr.
F. Eugene
of New York,
At
incorporated Lerfer
all relevant
times,1 Eugene
____________________
1. For purposes of diversity jurisdiction, citizenship is
determined as of the date of the initiation of the lawsuit.
See, e.g., Freeport-McMoRan, Inc. v. K N Energy, Inc., 111 S.
___ ____ ______________________
________________
Ct. 858, 859 (1991); Media Duplication Servs., Ltd. v. HDG
_______________________________
___
Software, Inc., 928 F.2d 1228, 1236 (1st Cir. 1991).
Thus,
______________
we recite relevant facts as they existed on February 15,
1991, the date Taber filed its complaint.
-44
Romano
and Mrs.
outstanding shares of
Jeanne
Romano served
as
Calumet.
Linda
the officers
of
Lerfer, while
officers of Calumet.
The
served as the
law, see
___
state law.
1987).
generally 26
_________
1361 et
__
(explaining the
legal and
Corporation").
The
companies contain
"to
U.S.C.
engage
in
any
lawful
660(a) (McKinney
798 F. Supp.
at 907-09
practical underpinnings of
Certificates of
a broad
seq., and
____
Incorporation of
declaration of
acts
an "S
or
corporate purpose
activities for
both
which
Business Corporation
headquarters
(and
sole
office)
of
both
All
are
corporate
books
and
records
maintained
at
the
-55
Each files federal income tax returns from New York and state
income tax returns
in New
York.
Neither
files income
tax
December
incorporation, Lerfer
29,
1986,
shortly
after
New
York,
or "such
Under
the
ownership
interest
ownership
interest.
their
in
other
place
as Taber's
or
Lerfer
places as
the
principal place
Agreement, Lerfer
Taber,
The Agreement
obtained
and Calumet
obtained
of
99%
1%
to share in
and
and
management of
director,
and
Linda Romano,
responsibilities
delegated
to
Taber to
the
not
Eugene Romano,
as
assistant
enumerated
partnership
"The primary
in
as executive
director.
section
generally.
The
7.01
All
were
Agreement
____________________
2. While the Agreement was negotiated, drafted, and recorded
in New York, it was "protocolized" in Puerto Rico for the
purpose of recording the deed to the Hotel at the Registry of
Property in San Juan. The protocol procedure was necessary
to establish Taber's authority to own property under Puerto
Rico law. See P.R. Laws Ann. tit. 31,
4313 (1991).
___
-66
specifically
granted
Taber the
authority,
inter
_____
borrow money,
enter into
actions,
"[d]o
any
and
proper
in
and
necessary or
all
other
defend legal
acts
furtherance
of
the
incorporation
in
1986,
alia, to
____
and
things
[p]artnership
business."
Since
Calumet have
their
Lerfer
and
function
is
interest in Taber.
"control-group"
of
to
hold
To this
twelve
or
administer
its
respective
to
maintain
their
corporate
records
maintenance occurs
the type
Calumet
and
financial
exclusively in New
of New York-centered
engage
accounts.
is
their
such
An
example of
activity in which
Lerfer and
management
York.
All
of loan
transactions
interests in Taber.
For
in
all policy
New York.
Taber was
made in
decisions for
York.
The
-77
election
of
corporate
accountants occur
held
in New
evidence of
York.
officers
and
the
appointment
of
of Directors meetings
record contains
almost no
of either Lerfer
these
uncontroverted facts,
rejected appellants'
as "passive"
the district
characterization of Lerfer
holding companies
and Calumet
their raison
______
of the [Hotel],
Puerto Rico.
which
is
located
in
We do not concur in
III.
III.
____
DISCUSSION
DISCUSSION
__________
A district court's determination of citizenship for
purposes of diversity jurisdiction is a mixed question of law
and
fact.
As such,
we
will not
set
aside the
district
Lundquist
_________
1991);
In addition, we
review the facts of this case mindful that the party invoking
the jurisdiction
of a
the burden
of
circuit, we
utilize "three
distinct, but
not
necessarily
inconsistent
corporation's principal
center" test, which
tests"
place of
for
determining
business:
(1)
the "nerve
searches
for
the
location
of
the
corporation's
actual
-99
physical operations.
have
applied
parent-subsidiary
Properties Corp. v.
________________
(1st
Cir.
1988),
corporations
relationships.
See,
___
involved in
e.g.,
____
denied,
______
490
U.S.
U.S.I.
______
F.2d 1,
1065
(1989);
In
is no evidence
the integrity
of the corporate
separate
corporate
identities of
should be
honored
when determining
place
of business.
(recognizing
despite
See
___
separate
evidence
"grandparent"
parent
corporation,
was
all
principal
860 F.2d
identity
shared
violated, the
either one's
subsidiary
that
and subsidiary
U.S.I. Properties,
_________________
corporate
that
this context, we
of
at 7
subsidiary
wholly-owned
its
officers
by
and
and
procedures);
Rodriguez,
_________
that
it
F.2d
at
operated
-1010
833
independently
from
its
parent);
Topp,
____
corporate
814
F.2d
identity
of
at
833
subsidiary
(recognizing
holding
separate
company despite
conduit for
(recognizing
evidence
separate
showed
subsidiary);
separate
parent);
Lugo-Vina, 574
_________
corporate
identity of
it operated
de Walker,
__________
independently
569
F.2d
corporate identity of
reports
subsidiary
in
to shareholders,
"division" of
of parent's
774-75
identity
of
43
(recognizing
that subsidiary
was
1992)
considered a
combined operations).
parent
(recognizing
despite
of its
financial
Cir.
where
of wholly-owned
presenting
and subsidiary's
(9th
F.2d at
parent
1173
Danjaq, S.A. v.
_____________
as
at
to serve
Accord
______
F.2d 772,
separate
corporate
that
subsidiary
evidence
(citing
Lugo-Vina,
_________
Securities Ltd. v.
_______________
(D.C.
Cir.)
parent despite
574
F.2d
at
43-44);
(recognizing
separate
evidence that
corporate
Pyramid
_______
1114, 1120
identity
of
of its
subsidiary and
(citing
was being
sued for
denied, 112
______
S. Ct.
85 (1991);
acts of
its subsidiary)
860 F.2d
at
7),
cert.
_____
-1111
corporate
showed "formal
identity
of
(recognizing
subsidiary
where evidence
(citing U.S.I.
______
F.2d at
7; Topp,
____
814 F.2d
at 835).
subsidiary to
its parent
Toms v. Country
____
_______
1980));
(imputing citizenship
of
parent to
subsidiary where
was "merely a
corporate fiction").
For instance,
court erred in applying
which
"ignore[d]
the
in Topp,
____
we held that
the district
corporate
identity of
In
location
subsidiary
in
Topp
____
of the
was
manufacturing, purchasing,
n.3.
conduit
Its
principal
for
district court
place of business
its
financial services to
holding
determined
at 832.
company
or sales facilities.
function was
parent,
Id.
___
to
providing
act as
-1212
with
was
The
no
Id. at 834
___
a
financial
administrative
the
Topp, 814
____
of the subsidiary
parent.
a
a manner
and
across the
United
States.
although
Id. at 834.
___
its business
by the parent
including
who made
the hiring
subsidiary.
an office
all of the
and
it was controlled
major policy
firing of
As a result,
the
reversed the
erroneously merged
parent in
at 834.
We
Id. at 832.
___
and held
whose citizenship is
Moreover,
we
held
that
center."
as
the company
as
Id.
___
a corporation's
the activities of
at issue are
that it
the
reasoned that
principal place
Id.
___
district court
decisions,
employees of
and conducted
relevant.
the
corporate
"the shots"
may
-1313
place of business
"operational
of the subsidiary
the
Id. at
___
835 n.4.
Likewise,
in de Walker, we
__________
held that
a parent's
place
business.
evidence
where
its
de Walker,
_________
that the
wholly-owned
parent and
subsidiary
Despite compelling
The critical
conducted
not persuaded
Id. at 1172.
___
Topp, was not the degree of control the parent exercised over
____
the
subsidiary,
but whether
the
two
businesses preserved
We reasoned that:
-1414
We further
incidental to
subsidiary's
stock
the
and
parent's ownership
did
"not
justify
of
100% of
the
ignoring
the
Id.
___
at 1173.
Thus, pertinent circuit authority, particularly our
opinions in Topp and
____
unremarkable
propositions:
(1)
that
in
following two
determining
of business is
of the
at issue;
why these
been ignored.
propositions should
We can
discern no
not apply
with equal
"activities"
of
Lerfer
and
Calumet consist
is no evidence that
operation
and/or management
of
of
the Hotel.
Moreover,
engage in the
Indeed,
it is
as
stated
in
the Agreement,
"to
acquire,
own,
the fact
is
also apparent
from
and Calumet
delegated the
day-to-day management
to
It
Taber's
officers,
Eugene
the Agreement
and
Linda
that
of
Romano.
____________________
494 U.S. at 195-96.
unpersuasive.
We
argument
as
holding companies
which
manage
their assets
all their
exclusively in
either the
activity"
Lerfer
"activities" as holding
New York.
We
need go
principal
no
entity,
companies occur
further.
or the "center
place of
in
Under
of corporate
business of
both
American Inv. Properties, Inc., 724 F.2d 907, 910 (11th Cir.)
______________________________
(holding that
investment vehicle"
for
Florida
real
served as
estate
principal place
of business
in Ecuador where
its
books
records,
corporate
and
made
venture
had
it maintained
all
corporate
"passive
the venture),
____________________
7. Because Lerfer and Calumet have no physical operations
(i.e., factories, warehouses, sales offices, etc.) the "locus
____
of the operations of the corporation" test would not be
helpful. See Topp, 814 F.2d at 834 n.3 (rejecting utility of
___ ____
a "locus of physical operations of the corporation" test for
a holding company).
8. Because we find that New York is the principal place of
business of both Lerfer and Calumet under either the "nerve
center" or "center of corporate activity" test, we need not
determine which of the two tests is most appropriate under
these facts.
9. In so holding, we are not unaware of a line of cases in
which district courts, in determining the principal place of
business of a holding company, have looked to the business of
the entity whose assets are being held rather than to the
-1717
____________________
business of the holding company.
are
therefore
partnership is
partners
citizens
a
citizen
of
New
of
York.
those
And
states
because
in
which
a
its
district court's
Taber is a citizen
of New York,
the amount in
the other
side
of
matter
the
lawsuit
jurisdiction is
shares
Taber's citizenship,
present.
We therefore
subject
reverse and
opinion.
Reversed and remanded.
______________________
____________________
are made in New York.
As such, Lerfer and Calumet, unlike
the holding companies at issue in Bonar and Hereth, are
_____
______
holding companies with corporate operations distinct from
those of the company whose assets they hold. As a result, we
find the reasoning in the above line of cases inapposite.
-1919