PRATT et al v. GREEN BAY DISTRIBUTORS, INC. et al
ORDER ON SUBJECT MATTER JURISDICTION: Sua sponte, the Court raised the issue of whether or not this Court has subject matter jurisdiction over this action based on complete diversity between the parties. For the reasons stated herein, the Court REMANDS this action to the Hamilton County, Indiana, Superior Court. See Order for details. Signed by Judge Jane Magnus-Stinson on 9/26/2017.(SWM)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
MARK DAVID PRATT,
JACOB HARGRAVE, and
SCOTT DANIEL GOULD,
GREEN BAY DISTRIBUTORS, INC.,
GBD NORTH AMERICA, INC.,
RAFAEL G. VIDAL (POTELA), and
ORDER ON SUBJECT MATTER JURISDICTION
Sua sponte, the Court raised the issue of whether or not this Court has subject matter
jurisdiction over this action based on complete diversity between the parties. For the reasons stated
herein, the Court REMANDS this action to the Hamilton County, Indiana, Superior Court.
On July 20, 2017, Plaintiffs, Mark D. Pratt (“Pratt”), Scott D. Gould (“Gould”), and Jacob
N. Hargrove (“Hargrove,” and collectively with Pratt and Gould, “Plaintiffs”), filed their
Complaint against Defendants, Green Bay Distributors, Inc. (“Green Bay”), GBD North America,
Inc. (“GBD”), Rafael G. Vidal (Potela) (“Vidal”), and Truebion Corporation (“Truebion,” and
collectively with Green Bay, GBD, and Vidal, the “Defendants”), in Hamilton County, Indiana,
Superior Court, Case No. 29D02-1707-PL-6788. Dkt. No. 1, Ex. A. In their Complaint, Plaintiffs
seek damages related to their claims against Defendants for breach of contract, fraudulent
conveyance, negligence, unjust enrichment, violations of the Indiana Crime Victims’ Act, and
breach of fiduciary duty. See generally, Id. On August 16, 2017, Defendants removed the case to
this Court on the basis of complete diversity jurisdiction pursuant to 28 U.S.C. §§ 1332 and 1446.
Dkt. No. 1. In their Notice of Removal, Defendants indicated that Pratt and Gould are citizens of
Indiana and that Hargrove is a citizen of Texas. Id. at 2. Defendants also stated that Green Bay
was a Puerto Rican corporation with its principal place of business in Puerto Rico, that Truebion
was a Delaware corporation with its principal place of business in Tampa Bay, Florida, and that
Vidal was a citizen of Puerto Rico. Id. Furthermore, Defendants specified that GBD “was an
Illinois corporation that is no longer doing business but had a prior principal place of business in
Kingwood, County of Harris, Texas.” Id.
On August 18, 2017, the Court ordered Defendants to show cause as to why complete
diversity exists in this case where Hargrove and GBD both appear to be citizens of Texas. Dkt.
No. 6. Defendants assert that a dissolved corporation like GBD should not be considered to have
a principal place of business for diversity jurisdiction purposes. Dkt. No. 7 at 3-5. In the
alternative, Defendants request that the Court dismiss Hargrove from this case because he is a nonessential party. Id. at 5-6. In response, Plaintiffs argue that GBD should still be considered a
citizen of Texas because that is the state in which it last transacted business prior to being dissolved
in 2016. Dkt. No. 11 at 2-5. Furthermore, Plaintiffs assert that Hargrove is an essential party to
this action and that this Court lacks the ability to dismiss Hargrove because it does not have
jurisdiction. Id. at 5-7.
The party invoking the Court’s jurisdiction bears the burden of establishing that the Court
has proper jurisdiction of the case. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992). The
Court may view any evidence submitted beyond the jurisdictional allegations within a complaint
to determine whether the Court has subject matter jurisdiction over a claim. See Apex Digital, Inc.
v. Sears, Roebuck & Co., 572 F.3d 440, 444 (7th Cir. 2009).
Under 28 U.S.C. § 1332(c)(1), “a corporation shall be deemed to be a citizen of every State
or foreign state by which it has been incorporated and of the State or foreign state where it has its
principal place of business.” The Supreme Court held that the state in which the “nerve center” of
the corporation, or the place “where a corporation’s officers direct, control, and coordinate the
corporation’s activities,” is located is generally considered to be the corporation’s principal place
of business. Hertz Corp. v. Friend, 559 U.S. 77, 92-93 (2010). In Hertz, the Supreme Court further
noted that simplistic tests for evaluating jurisdiction, such as the nerve center test, are preferred
over more complex jurisdictional tests. Id. at 94-95. However, despite this preference for simple
jurisdictional tests, courts should still prevent opportunities for jurisdictional manipulation that
would seek to “subvert[ ] a major reason for the insertion of the ‘principal place of business’
language in [28 U.S.C. § 1332].” Id. at 97.
While the Seventh Circuit has not addressed whether inactive or dissolved corporations are
considered to have principal places of business for jurisdictional purposes, the Circuit Courts of
Appeals that have addressed this issue are split. The Second Circuit has held that an inactive or
dissolved corporation’s citizenship should be based on its state of incorporation and the state in
which “it last transacted business.” William Passalacqua Builders, Inc. v. Resnick Developers S.,
Inc., 933 F.2d 131, 141 (2d Cir. 1991) (hereafter known as “Passalacqua”). See also, Mamco
Corp. v. Carlisle Companies Inc., No. 10-C-0124, 2011 WL 13646, at *2 (E.D. Wis. Jan. 4, 2011)
(citing Passalacqua, 933 F.2d at 141) (“An inactive corporation’s principal place of business is
the state in which it last transacted business”). Similarly, the Fifth Circuit applies the “last
transacted business on a case-by-case” test, in which a court must look to both the state where an
inactive corporation last transacted business and the extent of the corporation’s remaining local
character. See Harris v. Black Clawson Co., 961 F.2d 547, 550-51 (5th Cir. 1992). If “a
corporation has been inactive in a state for a substantial period of time, … that state is not the
corporation’s principal place of business” under Fifth Circuit precedent. Id. at 551 (footnotes
omitted). Furthermore, the Third and Eleventh Circuits have adopted the “bright-line” rule, which
states that inactive or dissolved corporations have no principal place of business and are citizens
only of the states in which they were incorporated. See Holston Inv., Inc. v. Lanlogistics Corp.,
677 F.3d 1068, 1070-71 (11th Cir. 2012) (citing Midlantic Nat’l Bank v. Hansen, 48 F.3d 693, 696
(3d Cir. 1995)). The court in Holston opined that the “bright-line” rule best aligned with the
Supreme Court’s guidance in Hertz for courts to apply simplistic tests when evaluating subject
matter jurisdiction. See Holsten, 677 F.3d at 1071.
Here, the Court agrees with the Second Circuit that a dissolved corporation should be
treated as a citizen of both the state in which it was incorporated and the state in which it last
transacted business. Although the Supreme Court in Hertz intended for courts to apply simplistic
tests for determining whether a court has subject matter jurisdiction over a particular action, this
advice should not allow a corporation to subvert the dual-citizenship requirements for diversity
jurisdiction set forth by Congress in 28 U.S.C. § 1332. See Hertz, 559 U.S. at 94-96.
To allow inactive corporations to avoid inquiry into where they were last active
would give them a benefit Congress never planned for them, since under such a rule
a defunct corporation, no matter how local in character, could remove a case to
federal court based on its state of incorporation.
Passalacqua, 933 F.2d at 141. Therefore, because GBD last transacted business in Harris County,
Texas, the Court considers GBD to be a citizen of both Illinois and Texas for diversity jurisdiction
purposes. As such, there is not complete diversity between the parties here, and the Court lacks
subject matter over this action.
In light of the Court’s lack of subject matter jurisdiction, it would be improper for this
Court to dismiss Hargrove as a plaintiff in this instance. Rather, the question of whether Hargrove
is an essential party is better left to the Hamilton County, Indiana, Superior Court on remand. If
the Indiana court later dismissed Hargrove on remand, Defendants could then attempt to remove
this action based on diversity jurisdiction once complete diversity is readily ascertainable. See 28
U.S.C. § 1441(b)(3) (“if the case stated by the initial pleading is not removable, a notice of removal
may be filed within 30 days after receipt by the defendant … of a copy of an amended pleading,
motion, order or other paper from which it may first be ascertained that the case in one which is
or has become removable”).
For the foregoing reasons, the Court REMANDS this action to the Hamilton County,
Indiana, Superior Court.
IT IS SO ORDERED.
Paul D. Vink
BOSE MCKINNEY & EVANS, LLP (Indianapolis)
Matthew S. Tarkington
LEWIS & KAPPES PC
Joseph J. Montel
THE MONTEL LAW FIRM, P.C.
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