CostCommand, LLC v. PRS Software Solutions, Inc., et al

Filing

OPINION [1609340] filed (Pages: 11) for the Court by Judge Tatel. [15-7030]

USCA Case #15-7030

Document #1609340

Filed: 04/19/2016

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 18, 2016

Decided April 19, 2016

No. 15-7030
COSTCOMMAND, LLC,
APPELLANT
v.
WH ADMINISTRATORS, INC. AND BRENDAN M. TURNER,
APPELLEES

Appeal from the United States District Court
for the District of Columbia
(No. 1:14-cv-00457)

Patrick A. Klingman argued the cause for appellant. With
him on the briefs was Christopher Kip Schwartz.
David A. Hill, pro hac vice, argued the cause for
appellees. On the brief was Thomas A. Duckenfield III.
Before: TATEL, GRIFFITH, and KAVANAUGH, Circuit
Judges.
Opinion for the Court filed by Circuit Judge TATEL.
TATEL, Circuit Judge: This case calls on us to perform a
single task: apply the “nerve center” test that the Supreme
Court laid out in Hertz Corp. v. Friend, 559 U.S. 77 (2010), to

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determine the location of a corporation’s “principal place of
business,” and thus its citizenship for diversity jurisdiction
purposes. For the following reasons, we agree with the district
court’s application of this test and affirm its dismissal for lack
of subject matter jurisdiction.
I.
Understanding this case’s decisive jurisdictional issue
requires only a bird’s-eye view of the complicated underlying
factual allegations. Ronald Vance and Brendan Turner
founded CostCommand, LLC in 2012 with the goal of
providing regulatory compliance services to government
contractors. CostCommand hired PRS Software Solutions, a
subsidiary of Video Equipment Rentals, two California
companies we refer to collectively as the “California
defendants,” to produce software to enable it to provide such
services. After struggling to secure customers and revenue,
CostCommand sought and obtained additional funding from
the California defendants. Around this time, Turner resigned
from CostCommand. Unbeknownst to Vance, however,
Turner was also developing his own company, WH
Administrators, Inc. (WHA).
CostCommand sued Turner, WHA, and the California
defendants in the U.S. District Court for the District of
Columbia alleging that they engaged in a series of wrongful
acts that essentially destroyed CostCommand’s business. As
described in greater detail below, the district court concluded
that it lacked diversity jurisdiction and dismissed the case.
For diversity jurisdiction to exist, no plaintiff may share
state citizenship with any defendant. Caterpillar Inc. v. Lewis,
519 U.S. 61, 68 (1996). For example, a New York plaintiff
would be unable to bring a diversity suit against three
defendants if any one of them had New York citizenship.

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Citizenship is measured as of the time the plaintiff files the
complaint. Grupo Dataflux v. Atlas Global Group, L.P., 541
U.S. 567, 570–71 (2004). An individual has citizenship in a
state for diversity purposes if he is an American citizen and is
domiciled in the state. Newman-Green, Inc. v. AlfonzoLarrain, 490 U.S. 826, 828 (1989). Unincorporated
associations, including LLCs, have the citizenship of each of
their members. See Americold Realty Trust v. Conagra Foods,
Inc., 136 S. Ct. 1012, 1015 (2016). A corporation is a citizen
of its place or places of incorporation, as well as its principal
place of business. 28 U.S.C. § 1332(c)(1). Under Hertz, a
corporation’s principal place of business is its “nerve center,”
i.e., “the place where the corporation’s high level officers
direct, control, and coordinate the corporation’s activities.”
559 U.S. at 80–81.
In this case, no dispute exists as to the citizenship of any
party except WHA. When CostCommand filed its complaint,
it was a citizen of Maryland because it was an LLC whose
sole member, Vance, was a citizen of Maryland. The
California defendants were citizens of California because they
were California corporations with California principal places
of business. Defendant Turner was a citizen of the District of
Columbia. Finally, although all parties agree that WHA was a
Texas corporation, and was therefore a Texas citizen, they
disagree—and this is the central issue in this case—as to
whether WHA’s principal place of business lay within Texas
or Maryland. If the latter, then WHA shared Maryland
citizenship with CostCommand, and no diversity jurisdiction
exists.
This case’s procedural history is also relevant, though
somewhat more complicated. The saga begins with
CostCommand’s district court complaint, which alleged that
“Defendant[] WH Administrators, Inc. . . . is a Texas

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corporation . . . and maintains its principal place of business
in Houston, Texas.” Compl. ¶ 7. Turner’s and WHA’s
answers both admitted this allegation. In addition to the
answers from Turner and WHA, the complaint generated a
number of motions to dismiss, including one from the
California defendants for lack of subject matter jurisdiction.
These defendants argued that WHA maintained its principal
place of business in Maryland because, among other things,
WHA’s website listed its Bethesda office as its “corporate
headquarters.” CostCommand’s only response was that WHA
and Turner had admitted in their answers that WHA
maintained its principal place of business in Texas.
Noting this dispute, the district court ordered WHA to
make a supplemental filing clarifying the location of its
principal place of business and providing supporting
evidence. In response, Turner and WHA apologized to the
court for what they termed inadvertent mistakes in preparing
their answers. They explained that WHA in fact maintained
its principal place of business in Maryland, and they filed
supporting affidavits from Turner and Bob Ring, a founder
and officer of WHA who provided the company’s initial
capital. Several days later, the district court issued an order
concluding that the Bethesda office was WHA’s principal
place of business and granting the motion to dismiss.
The next day, CostCommand filed a motion for
reconsideration and requested jurisdictional discovery. After
the parties fully briefed this motion, the district court allowed
jurisdictional discovery limited to a deposition of Turner and
requests for production of documents. Thereafter, the district
court received three supplemental filings—one jointly from
WHA and Turner, one jointly from the California defendants,
and one from CostCommand.

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In its filing, CostCommand argued that various factors
demonstrated that WHA maintained its principal place of
business in Texas. These included WHA’s use of its Houston
address on various corporate documents, regulatory filings,
and contracts with customers and vendors; Bob Ring’s
location in Houston; the fact that Andy Ring, Bob Ring’s son,
managed accounts payable and receivable in Texas in
conjunction with a Texas accountant; and the fact that WHA
paid its taxes from its Houston office and maintained its
primary bank account in Houston.
By contrast, the defendants pointed to several factors that
they believed demonstrated a Maryland principal place of
business. Among these were that Turner, who worked out of
the Bethesda office, had full operational control of WHA,
including spending company money without the other
directors’ approval; that the other two directors needed
Turner’s approval before spending company money; that
Turner “manage[d] 100 percent of the operations, the product
development, the client issues,” Turner Dep. 53:21–54:1; and
that when Turner disagreed with other directors, he did what
he thought best.
After considering these submissions, the district court
denied CostCommand’s motion for reconsideration. Although
the district court first concluded that CostCommand had failed
to demonstrate any exceptional circumstance justifying
reconsideration, it also addressed the merits of the
jurisdictional inquiry. In doing so, it reaffirmed its conclusion
that WHA maintained its principal place of business in
Maryland. CostCommand timely appealed both the dismissal
and the denial of its motion for reconsideration. Although
CostCommand has settled its claims with the California
defendants, its appeal remains live as to Turner and WHA. In
its briefing in this court, CostCommand argued that instead of

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dismissing the case, the district court should have dropped
WHA as a non-diverse party, see Appellant’s Br. 40–44, but it
expressly abandoned that idea at oral argument, see Oral Arg.
Rec. 4:49–56.
II.
We typically review a district court’s dismissal of a case
for lack of jurisdiction de novo, Trumpeter Swan Society v.
EPA, 774 F.3d 1037, 1040 (D.C. Cir. 2014), and its denial of
a motion for reconsideration for abuse of discretion, Ark
Initiative v. Tidwell, 749 F.3d 1071, 1075 (D.C. Cir. 2014).
CostCommand argues that the district court should have given
it more of an opportunity to litigate the jurisdictional issue
before dismissing the case, and that the district court’s failure
to do so harmed CostCommand given the disfavored status of
motions for reconsideration. We need not consider this
argument, however, because the district court’s
determination—after allowing jurisdictional discovery—that
WHA maintained its principal place of business in Maryland
was correct under any standard. We thus assume for the sake
of argument that de novo review applies to the district court’s
determination in its reconsideration denial that WHA
maintained its principal place of business in Maryland and
treat as moot any argument that the district court entered its
initial dismissal order without giving CostCommand an
adequate opportunity to respond.
In Hertz, the Supreme Court gave clear guidance for
determining the location of a corporation’s principal place of
business. The Court described its approach as follows:
We conclude that “principal place of business” is
best read as referring to the place where a
corporation’s officers direct, control, and coordinate
the corporation’s activities. It is the place that Courts

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of Appeals have called the corporation’s “nerve
center.” And in practice it should normally be the
place where the corporation maintains its
headquarters—provided that the headquarters is the
actual center of direction, control, and coordination,
i.e., the “nerve center,” and not simply an office
where the corporation holds its board meetings (for
example, attended by directors and officers who have
traveled there for the occasion).
Hertz, 559 U.S. at 92–93. Acknowledging that difficult cases
would still arise in situations where control was dispersed, the
Court observed that the nerve-center test had the benefit of
“point[ing] courts in a single direction, toward the center of
overall direction, control, and coordination.” Id. at 96. This
ensures that “[c]ourts do not have to try to weigh corporate
functions, assets, or revenues different in kind, one from the
other.” Id.
Applying this standard, we think it clear that WHA
maintained its principal place of business in Maryland.
Overwhelming evidence establishes that when the complaint
was filed (and indeed, throughout WHA’s existence)
Turner—from his office in Bethesda—exercised virtually
complete control over the company. Turner testified to that
effect in both his deposition, e.g., Turner Dep. 53:19–61:15,
and affidavit, Turner Aff. ¶¶ 9–10, and Bob Ring testified that
he left the operation of WHA “to the sound discretion of Mr.
Turner,” Ring Aff. ¶ 8. From “[d]ay one,” only Turner had
authority to spend company funds without approval, Turner
Dep. 24:16–25:8, and when Turner disagreed with the other
directors, he nonetheless “operated the business as [he] saw
fit,” Turner Aff. ¶ 10. Under Hertz, this is more than enough
to establish a principal place of business, and thus citizenship
for diversity purposes, in Maryland.

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Resisting this simple conclusion, CostCommand raises
two primary arguments. First, that it was entitled to rely on
the admissions in Turner’s and WHA’s answers that WHA
maintained its principal place of business in Texas. And
second, that the factors relied on by circuit and district courts
that used the nerve-center test prior to Hertz establish a Texas
principal place of business in this case.
The first argument requires little discussion. Although
CostCommand admits that parties cannot create jurisdiction
by stipulation, it insists that they can stipulate to facts that
provide a basis for jurisdiction. Even assuming for the sake of
argument that this is true, and even assuming that the location
of a party’s principal place of business is such a factual
question, but see 13F Charles Alan Wright, Arthur R. Miller
& Edward H. Cooper, Federal Practice & Procedure § 3625
(3d ed. 2009) (“Although the determination of a corporation’s
principal place of business involves a fact specific inquiry, the
weight to be given these factual elements is a question of
law . . . .”), CostCommand’s argument suffers from a fatal
flaw: the California defendants neither stipulated nor admitted
that WHA maintained its principal place of business in Texas.
Instead, they challenged this claim in their first responsive
filing.
CostCommand’s second argument fares no better.
According to CostCommand, by adopting the nerve-center
test and citing previous circuit and district court cases
applying it, the Supreme Court implicitly adopted the factors
these earlier cases had used to locate a corporation’s principal
place of business, such as where the corporation keeps its
bank account and pays taxes from. As CostCommand points
out, since Hertz, the Fourth Circuit has twice looked to such
objective factors in determining a corporation’s principal
place of business. Hoschar v. Appalachian Power Co., 739

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F.3d 163, 172 (4th Cir. 2014); Central West Virginia Energy
Co. v. Mountain State Carbon, LLC, 636 F.3d 101, 105 (4th
Cir. 2011).
At a sufficiently high level of generality, the idea that the
pre-Hertz factors still apply makes sense. Especially in close
cases, which Hertz itself acknowledged would continue to
arise, many such factors will remain relevant to Hertz’s
central question: where is the corporation’s nerve center? The
Fourth Circuit’s reference to, for example, the location of a
corporation’s officers and directors, see Hoschar, 739 F.3d at
172, is thus unsurprising. But as the Fourth Circuit has also
noted, Hertz made clear that “the touchstone now for
determining a corporation’s principal place of business for
diversity purposes is ‘the place where the corporation’s high
level officers direct, control, and coordinate the corporation’s
activities.’” Central West Virginia Energy, 636 F.3d at 107
(quoting Hertz, 559 U.S. at 80). The factors courts had
previously relied on retain relevance only to the degree they
speak to this “touchstone” inquiry.
Unfortunately for CostCommand, here they do so
minimally if at all. CostCommand summarizes the factors that
it claims support a Houston, Texas, principal place of
business as follows: “Houston is where WHA told State
authorities, customers, vendors and its landlord it could be
found, it was where in-person, strategic meetings were
conducted, it was where tax filings were made, where its
corporate records are kept, where its primary counsel,
accountants and bank account are located, and the place
specified as its headquarters in its corporate charter.”
Appellant’s Br. 39–40. Except for the alleged “in-person,
strategic meetings,” the factors composing this list have little
to do with “where the corporation’s high level officers direct,
control, and coordinate the corporation’s activities.” Hertz,

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559 U.S. at 80. Although some corporate activities occurred
in Texas, Turner oversaw and controlled them from
Maryland.
CostCommand’s strongest argument takes the form of
attacking the conclusion that Turner had absolute control over
WHA. CostCommand offers two main pieces of evidence in
support of this position. First, it contends that Bob Ring, from
his office in Texas, funded the company and maintained
control through his son Andy, who handled the company’s
finances, also from Texas. CostCommand calls particular
attention to Turner’s deposition testimony describing this
arrangement as a “safety net.” See Turner Dep. 25:9–26:9.
The problem with this argument is that, as noted above,
record evidence makes clear that Turner made decisions
regarding the company, even when he and Bob Ring
disagreed. As Ring put it: “Unlike other entities I own, I do
not operate WHA. I leave that to the sound discretion of Mr.
Turner.” Ring Aff. ¶ 8. Turner confirmed that “[e]ven where
there may have been a disagreement on business issues . . . I
operated the business as I saw fit.” Turner Aff. ¶ 10.
CostCommand’s suggestion that Andy Ring served as a check
for his father on Turner’s control of the company thus falls
flat.
Second, CostCommand points to the fact that Bob Ring
never traveled to Maryland to meet with Turner, but that
Turner met with Ring in Houston on multiple occasions. In
context, however, the record makes clear that most of the time
Turner talked to Ring, he did so by phone. To be sure, they
did occasionally meet in Houston. But those meetings seem to
have been incidental to trips Turner was making to Houston to
meet with clients. Turner Dep. 27:8–10. Moreover, as noted
above, Turner retained practically complete authority, and his
conversations with Ring were more in the nature of Turner

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seeking advice than of collective decision making about the
company’s direction. Turner Aff. ¶ 10.
III.
For the foregoing reasons, we affirm the district court’s
dismissal for lack of subject matter jurisdiction.
So ordered.

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