JOHN T. ELFVIN, S.U.S.D.J.
In this diversity action removed to this Court December 14, 1998, Plaintiffs filed an Amended Complaint May 20, 1999 adding Outokumpu American Brass, Inc. as a defendant and advanced claims sounding negligence against said party. Plaintiffs then filed a motion to remand July 6, 1999 noting that, inasmuch as Outokumpu American Brass admits that its principal place of business is in Buffalo, N.Y., diversity among the parties no longer exists and that this Court can no longer retain subject matter jurisdiction. For the reasons hereinbelow stated, plaintiffs' motion will be granted.
Article III of the Constitution authorizes federal court subject matter jurisdiction for suits "between Citizens of different States" and section 1332 of Title 28 of the United State Code implements this authority by providing that "[t]he district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between citizens of different States." Diversity jurisdiction, moreover, must be complete and will not be found to "exist unless each defendant is a citizen of a different State from each plaintiff." Owen Equip. Erection Co. v. Kroger, 437 U.S. 365, 373 (1978). It must also be noted that, for the purposes of establishing diversity jurisdiction, "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). Consequently, where a plaintiff later joins a non-diverse defendant in an action that was originally removed from state court based on diversity, subject matter jurisdiction will be destroyed and the federal district court must remand. 28 U.S.C. § 1447 (e).
According to the Amended Complaint, plaintiffs are residents of New York, defendant Rich is a resident of Pennsylvania, defendant M.S. Carriers, Inc. ("Carriers") is a Tennessee corporation with its principal place of business located in that state and defendant Outokumpu American Brass is a Delaware corporation with its principal place of business located in New York. Am. Compl. ¶¶ 1-4. Outokumpu American Brass is purported to be a wholly owned subsidiary of Outokumpu Copper, Inc. ("OCI"), a Delaware corporation with its principal place of business in Illinois, which is in turn a wholly subsidiary of Outokumpu Copper Products Oy, a Finnish corporation, which is in turn a wholly owned subsidiary of Outokumpu Oyl ("Oyj"), a Finnish corporation with its principal place of business in Finland. See Outokumpu American Brass's Answers to Carriers' and Rich's Request for Interrogs. ¶ 18; Defendant Carriers and Rich Ex. H at 19, 35, 46. In view of the fact that the Amended Complaint states that plaintiffs and defendant Outokumpu American Brass share citizenship in New York, such pleading — admittedly, only facially — forecloses the possibility of this action being litigated in federal district court. Indeed, Outokumpu American Brass has conceded that its principal place of business is in New York. Outokumpu American Brass Answer ¶ 1. Nevertheless, defendants Carriers and Rich have opposed any remand of the instant action and dispute the remaining parties' characterization of Outokumpu American Brass's principal place of business. For the purposes of this motion, therefore, the determinative issue before this Court is whether Outokumpu American Brass's principal place of business is in fact in New York.
This action originally commenced against only defendants M.S. Carriers, Inc. and Edward Rich. By Order dated March 4, 1999, however, this Court granted plaintiff leave to file an Amended Complaint wherein Outokumpu American Brass was subsequently added as a named defendant.
The parties are in agreement that, as a general rule, a separately incorporated subsidiary corporation has a legal existence apart from its parent and is generally considered to have its own principal place of business — Powers Fox Television Stations, Inc., 907 F. Supp. 719, 723 (S.D.N.Y. 1995) — and that the inquiry as to its principal place of business is normally limited to its own activities, officers and facilities. Topp v. Compair Inc., 814 F.2d 830, 835 (1st Cir. 1987). Defendants Carriers and Rich nevertheless argue that this general rule is inapplicable to the current case inasmuch as Outokumpu American Brass "is a `mere instrumentality' or the local `alter ego' of its parent corporations." Defendants Carriers' and Rich's Mem. of Law at 3. Such being the case, they continue, this Court must look to the principal place of business of Outokumpu American Brass's parent corporations in order to determine its principal place of business for diversity purposes. Id. Defendants Carriers and Rich conclude that this analysis will indicate that "none of the parent corporations [of Outokumpu American Brass] are citizens [ sic] of New York" and that this Court should retain jurisdiction over the instant matter. Id. at 7.
Preliminarily, it should be noted that Carriers and Rich bear the burden of showing that diversity jurisdiction is proper and such must be demonstrated by competent proof. R. G. Barry Corp. v. Mushroom Makers, Inc., 612 F.2d 651, 655 (2d Cir. 1979). Because Carriers and Rich seek to invoke diversity jurisdiction by imputing the principal place of business of Outokumpu American Brass's parent corporations to Outokumpu American Brass, they also bear the burden of sustaining, by a preponderance of the evidence, the allegation that Outokumpu American Brass "is a mere `alter ego' of its parents." Powers, at 722. The undersigned considers the latter of these burdens first.
In order to establish that Outokumpu American Brass was merely the alter ego of its parent corporations, a number of factors should be evaluated, including whether corporate formalities were observed, Outokumpu American Brass's level of capitalization, the purpose for which corporate funds are used, the degree of overlap in ownership and personnel between subsidiary and parents, the existence of a shared corporate physical infrastructure, the level of discretion afforded to the subsidiary, whether the corporations conduct their business at arm's length and whether the subsidiary is treated as an independent profit center. See Powers, at 723-724; see also Wm. Passalacqua Builders v. Resnick Developers, 933 F.2d 131, 139 (2d Cir. 1991). It is not necessary, moreover, that all of these factors weigh in favor of defendants Carriers' and Rich's position. Powers, at 724.
Outokumpu American Brass maintains that the cases from which this non-exhaustive exhaustive list of factors is drawn may not appropriately be relied upon for purposes of the instant motion. It notes that this list is germane only to the "substantive test for alter ego liability and is analytically and practically distinct from the [four-factor] jurisdictional alter ego test" applicable in the Second Circuit. Outokumpu American Brass Mem. of Law at 17. The proper test, it argues, consists of an examination of common ownership, the level of financial dependency, the degree of interference in the exercise of corporate formalities and the selection of executive officers, and the degree of control over the marketing and operational policies of the subsidiary exercised by the parent. Id. at 19-23; see also Volkswagenwerk Aktiengesellschaft v. Beech Aircft., 751 F.2d 117, 120-121 (2d Cir. 1984); Jazini v. Nissan Motor Co., Ltd, 148 F.3d 181, 184 (2d Cir. 1998). Nevertheless, it appears that — insofar as Powers, Passalacqua, Beech and Jazini are all essentially concerned with the level and degree of domination exercised by a parent corporation over a subsidiary — Outokumpu American Brass has set forth a distinction without a difference for the purpose of resolving the instant motion.
In opposing the motion to remand and in support of their argument that Outokumpu American Brass is merely the alter ego of its parent corporations, Carriers and Rich assert that the Board of Directors for Oyj is ultimately responsible for Outokumpu American Brass's "management, corporate planning, accounting, finance and operations." Defendants Carriers' and Rich's Mem. of Law at 5. They note that Outokumpu American Brass must obtain approval for major investments, acquisitions and disposal of assets where the amount is in excess of $1 million, that Oyj guarantees the debts of Outokumpu American Brass and that OCI is responsible for Outokumpu American Brass's financial activities. Id. at 6. Carriers and Rich also state that an overlap in management and employees exists between Outokumpu American Brass and its parent companies. Id. In short, they maintain that these facts evince that Outokumpu American Brass has no separate will of its own and that therefore its principal place of business must lie elsewhere than in New York.
Plaintiffs and Outokumpu American Brass counter, inter alia, that Outokumpu American Brass is "treated as an independent profit center, separate and apart from any of its . . . parent corporation[s]" and may borrow money from parent corporations only at market terms — Outokumpu American Brass Mem. of Law at 20 —, that Outokumpu American Brass does not share, or make otherwise available, property, facilities and material to its parent corporations — id. at 20-21; Outokumpu American Brass's Answers to Carriers' and Rich's Request for Interrogs. ¶ 24, 26 — and that defendants Carriers and Rich have offered no evidence that Outokumpu American Brass deals with its related corporations on anything but an arm's length basis. Outokumpu American Brass Mem. of Law at 21. Morever, plaintiffs and Outokumpu American Brass note that the latter's board of directors is determined by election — id. at 22 that this board sets Outokumpu American Brass's long — and short-term business strategies and makes all major business decisions — ibid. — and that the circumstance that transactions over $1 million must be approved is inconsequential in that "this process is merely akin to obtaining the approval from the sole shareholder." Ibid. It is also indicated that Outokumpu American Brass maintains its own corporate records, adheres to its own corporate structure and formalities and maintains its own operational personnel. Plaintiff's Reply Mem. of Law at 4-5.
Upon examination of the parties' positions and the materials submitted, the undersigned is convinced that defendants Carriers and Rich have not met their burden of demonstrating that Outokumpu American Brass is merely the alter ego of its parent corporations. While it is true that there is some overlap in upper management, that Outokumpu American Brass's debts are guaranteed by its parents, that there is parental oversight over large corporate transactions and that Outokumpu American Brass's strategic planning must comport with the broad business objectives set forth by its parent corporations, these factors alone do not show that Outokumpu American Brass is the alter ego of its parents. Defendants have not demonstrated, for example, that Outokumpu American Brass lacks or does not practice necessary corporate formalities, that it is undercapitalized, that Outokumpu American Brass is used to fund parental corporation projects, that it shares the physical infrastructure of its parents or that — beyond the approval of transactions in excess of $1 million — Outokumpu American Brass is not afforded the discretion to structure, conduct and maintain its own affairs on both a daily and long-term basis. Moreover, what is most persuasive in determining that defendants Carriers and Rich have failed to carry their burden is the complete absence of proof that Outokumpu American Brass has not conducted business with its parent corporations at arm's length or that it has not been treated as an independent profit center. Consequently, Outokumpu American Brass will not be construed as the alter ego of its parent corporations or of any of them.
Turning directly to the question of whether diversity jurisdiction is proper, it is apparent that the failure to establish Outokumpu American Brass as the alter ego of any or all of its parental corporations deals a fatal blow to defendants Carriers' and Rich's argument that this Court retains subject matter jurisdiction. A corporation's principal place of business is determined by one of two well-known tests — the "nerve center" test or the "place of activities/public impact" test — and, inasmuch as the evidence shows that Outokumpu American Brass's operations are not spread out across numerous states, it is proper that the "place of activities/public impact" test controls in this case. See R. G. Barry, at 654-655. The undisputed facts show that, while Outokumpu American Brass files corporate income tax returns in four different states, its operations are centralized in Buffalo, N.Y. Specifically, these facts indicate that all of its officers work and reside in the Buffalo area, that two of its four board members live and work in the Buffalo area, that ninety-nine percent of its employees are located in New York, that ninety-five percent of its real estate, inventories and personal property are located in New York, that most of its corporate records are located in New York, that all of its accounting and payroll functions are performed in the Buffalo area and that all of its day-to-day activities are conducted there. See Plaintiff's Reply Mem. of Law at 10; Outokumpu American Brass Mem. of Law at 6-7; Outokumpu American Brass's Answers to Plaintiff's Interrogs. ¶¶ 7-10, 17; Outokumpu American Brass's Answers to Defendants Carriers' and Rich's Request for Interrogs. ¶¶ 3, 5, 10, 12. These factors all clearly point toward a determination that New York is Outokumpu American Brass's principal place of business. As such, it is deemed to be a citizen of New York for the purposes of 28 U.S.C. § 1332 thus destroying complete diversity and divesting this Court of subject matter jurisdiction.
Accordingly, it is hereby ORDERED that plaintiffs' motion is granted, that this action is remanded to the New York Supreme Court for the County of Erie and that this matter shall be closed in this Court.