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CENTER FOR RADIO INFORMATION, INC. v. HERBST

February 6, 1995

CENTER FOR RADIO INFORMATION, INC., Plaintiff, against MARTIN HERBST d/b/a BETHLEHEM PUBLISHING CO., and BETHLEHEM PUBLISHING INC., Defendants.

JOHN G. KOELTL, United States District Judge


The opinion of the court was delivered by: JOHN G. KOELTL

JOHN G. KOELTL, District Judge:

 The plaintiff, Center for Radio Information ("CRI"), has moved to remand this case to state court, pursuant to 28 U.S.C. § 1447, on the basis that the Court does not have diversity jurisdiction over the action under 28 U.S.C. § 1332. The defendants, Bethlehem Publishing and Martin Herbst, oppose the plaintiff's motion and have cross-moved for the dismissal of certain claims against them. After hearing oral argument on the motions, and conducting an evidentiary hearing on the issue of the citizenship of the defendants, the Court grants the plaintiff's motion to remand, and denies the defendants' cross-motion without prejudice to renewal in the appropriate forum.

 I.

 CRI brought this action in state court based upon Bethlehem Publishing's alleged breach of a partnership agreement between CRI and Bethlehem Publishing that was entered into on April 8, 1992. In the partnership agreement, the parties agreed that Bethlehem Publishing, of which Martin Herbst is president, would publish a periodical called Radio Datatrak, containing statistical information about radio stations across the country. The publication represents a "book format" of the plaintiff's computer database in which such information is collected and catalogued. The parties agreed to share the revenues; they also agreed that the plaintiff's work product would remain the exclusive property of the plaintiff at all times. Bethlehem Publishing terminated the agreement on June 20, 1994. The plaintiff alleges that it is entitled to: an accounting and its fair share of gross and advertising revenues; an injunction preventing the continued use and dissemination of its work product in any form; and damages for breach of contract and conversion.

 The defendants filed a notice of removal pursuant to 28 U.S.C. § 1441(a) on September 21, 1994, alleging that this Court has diversity jurisdiction under 28 U.S.C. § 1332. The plaintiff then moved to remand the case on October 7, 1994, pursuant to 28 U.S.C. § 1447, arguing that this Court does not have jurisdiction because there is not complete diversity between the opposing parties. CRI is a New York corporation with its principal place of business in New York. The plaintiff claims that Bethlehem Publishing is a New York corporation with its principal place of business in New York and that Martin Herbst is a citizen of New York. The defendants argue that there is complete diversity between the parties because both defendants are New Hampshire citizens; they argue that Martin Herbst's citizenship is irrelevant in any case because he was improperly joined as a party and that the claims against him, therefore, should be dismissed. On November 10, 1994, the defendants filed a notice of cross-motion to dismiss all claims against Martin Herbst and to dismiss the fraud claim against Bethlehem Publishing pursuant to Federal Rule of Civil Procedure 12(b)(6).

 Because the factual issues pertaining the defendants' citizenship were very much in dispute, particularly with respect to Bethlehem Publishing's principal place of business, the Court held a hearing on the issue of citizenship on January 24, 1995, after permitting the parties to engage in discovery on that issue. See Navedo v. Pathmark, No. 86 Civ. 4218, 1986 WL 536, *1c-2 (S.D.N.Y. Dec. 22, 1986) (Haight, J.) (granting the plaintiff's motion for an evidentiary hearing on the question of the defendant's principal place of business and permitting discovery on the issue).

 II.

 A district court has jurisdiction based on diversity "where the matter in controversy exceeds the sum or value of $ 50,000, exclusive of interest and costs, and is between . . . citizens of different States . . . ." 28 U.S.C. § 1332(a)(1) (1988). The requirement of complete diversity between opposing parties is "explicit and unequivocal." International Shipping Co., S.A. v. Hydra Offshore, Inc., 875 F.2d 388, 391 (2d Cir.), cert. denied, 493 U.S. 1003, 107 L. Ed. 2d 558, 110 S. Ct. 563 (1989). 28 U.S.C. § 1332(c), which governs the citizenship of corporations for purposes of diversity jurisdiction, provides, in relevant part: "[A] corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business . . . ." 28 U.S.C. 1332(c)(1) (1988). The defendants bear the burden of proof with respect to whether diversity jurisdiction exists. R.G. Barry Corp. v. Mushroom Makers, Inc., 612 F.2d 651, 655 (2d Cir. 1979) ("When a party removes a state court action to the federal court on the basis of diversity of citizenship, and the party seeking remand challenges the jurisdictional predicate for removal, the burden falls squarely upon the removing party to establish its right to a federal forum by 'competent proof.'") (citations omitted); see also Forrester v. Supermarket Gen. Corp., 1992 U.S. Dist. LEXIS 15953, No. 92 Civ. 1265, 1992 WL 316146, *1 (S.D.N.Y. Oct. 19, 1992) (Wood, J.) (same).

 While the plaintiff contends that New York is both Bethlehem Publishing's state of incorporation as well as its principal place of business, the hearing focused upon the facts relevant to determining Bethlehem Publishing's principal place of business. Because the Court finds that the defendants failed to prove that New Hampshire, and not New York, is Bethlehem Publishing's principal place of business, it is unnecessary to address the plaintiff's claim pertaining to Bethlehem Publishing's state of incorporation. *fn1"

 Courts within the Second Circuit use two basic tests for determining a corporation's principal place of business for diversity purposes: the "nerve center" test and the "public impact" or "place of operations" test. The appropriate test to be applied is determined by the nature of the corporation in each case. In In re Joint E. & So. Dists. Asbestos Litig., No. 87 Civ. 0537, 1990 WL 129194 (E.D.N.Y. Aug. 30, 1990), Judge Sifton explained:

 
The determination of a corporation's principal place of business is made from a fact-based analysis of the business, operations, and structure of each corporation. Courts consider the corporation's purpose, the nature of its activities, and the extent and location of these activities. No one test or single element is controlling. The different tests reflect the different types of corporations being analyzed. . . . Which facts are important and which are not in this analysis is a question for the court to decide.

 Id. at *3 (citations omitted).

 When a corporation's operations are decentralized and are spread across numerous states, courts generally use the "nerve center" test first articulated by Judge Weinfeld in Scot Typewriter Co. v. Underwood Corp., 170 F. Supp. 862 (S.D.N.Y. 1959). In Scot, the court explained that where a corporation is involved in multistate activities, with offices, facilities or plants in various states, the location of its principal place of business is "governed by the totality of corporate activity at a given place, which, to borrow a phrase from another area of ...


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