United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
May 11, 2004
FOR THE FIFTH CIRCUIT
_____________________ Charles R. Fulbruge III
Clerk
No. 03-20849
_____________________
TEAL ENERGY USA, INC,
Plaintiff - Appellant,
versus
GT, INC.,
Defendant - Appellee.
_________________________________________________________________
GT, INC.
Plaintiff - Appellee
versus
TEAL ENERGY USA, INC.; ET AL
Defendants
TEAL ENERGY USA, INC.
Defendant - Appellant.
---------------------
Appeal from the United States District Court
for the Southern District of Texas
---------------------
Before GARWOOD, WIENER, and DeMOSS, Circuit Judges.
WIENER, Circuit Judge:
Plaintiff–Appellant Teal Energy USA, Inc. (“Teal USA”) appeals
from an order dismissing for lack of subject matter jurisdiction
its suit against Defendant-Appellee GT, Inc. (“GT”). We affirm.
I. BACKGROUND
Teal USA, a Delaware corporation, is a wholly-owned subsidiary
of Teal Energy, Inc., a Canadian corporation based in Calgary.
Teal USA conducts oil and gas investment activities in the United
States. Its only domestic office is located in Houston, Texas. GT
is a Nevada corporation that supplies seismic information and
funding for land acquisition. It conducts its business from an
office located in Houston, Texas.
In January 1999, Teal USA entered into a joint venture with GT
to develop an oil and gas area in southern Texas known as the East
Mission Prospect. The joint venture agreement required GT to
supply seismic information and funding for land acquisition. It
required Teal USA to acquire leases for the property and to arrange
farm-out agreements with third parties to drill wells on the
property.
In November 2001, GT filed suit in the state district court of
Hidalgo County, Texas seeking a temporary restraining order and
temporary injunction related to a farm-out agreement executed
between Teal USA and a third party. The following day, Teal USA
filed suit in the United States District Court for the Southern
District of Texas against GT for breach of the joint venture
agreement, asserting diversity of citizenship under 28 U.S.C. §
1332 as the basis for federal jurisdiction. Teal USA timely
removed the Hidalgo County action to federal court pursuant to 28
2
U.S.C. § 1441(a), also on the basis of diversity. The two cases
were then consolidated into a single action. The case was assigned
to a magistrate judge after both parties consented to trial before
her.
Early the next year, GT filed a motion to dismiss Teal USA’s
action and to remand the removed action on the grounds that
complete diversity of citizenship did not exist between the
parties so that the district court lacked subject matter
jurisdiction over the action.1 Specifically, GT alleged that, as
both GT and Teal USA had their principal places of business in
Texas, both were citizens of Texas for diversity purposes. The
district court agreed, and, in a written Memorandum and Order,
severed the two actions, dismissed Teal’s claims against GT
without prejudice, and remanded the removed action to state
court. Teal USA timely filed a notice of appeal. As the portion
of the court’s order remanding the Hildago County action is non-
reviewable,2 we review the order only insofar as it dismisses
Teal USA’s federal action for lack of subject matter
jurisdiction.
II. STANDARD OF REVIEW
1
FED. R. CIV. PRO. 12(b)(1).
2
28 U.S.C. § 1447(d).
3
The district court found that both Teal USA’s and GT’s
principal places of business were in Texas. We review these
factual determinations for clear error.3
III. LAW AND ANALYSIS
Section 1332(a) provides that a corporation is a citizen of
both its state of incorporation and the state of its principal
place of business for purposes of diversity jurisdiction.4 Teal
USA argues that the court erred in finding that the situs of its
principal place of business was Texas rather than Canada.
Additionally, it argues that the court erred in determining that
GT’s principal place of business was Texas, as GT was not
authorized to transact business in Texas at the time that Teal
filed its federal lawsuit.5
We apply the “total activity” test to determine a
corporation’s principal place of business.6 This test requires us
to consider two “focal points:” the location of the corporation’s
3
See J.A. Olson Co. v. City of Winona, Miss., 818 F.2d 401,
412 (5th Cir. 1987).
4
28 U.S.C. § 1332(a).
5
The existence of diversity jurisdiction is determined at the
time suit is filed. See Harris v. Black Clawson Co., 961 F.2d 547,
549 (5th Cir. 1992).
6
See Grinter v. Petroleum Operation Support Serv., 846 F.2d
1006, 1008 (5th Cir. 1988)(citing J.A. Olson, 818 F.2d at 404; Toms
v. Country Quality Meats, Inc., 610 F.2d 313, 315 (5th Cir. 1980);
Village Fair Shopping Ctr. Co. v. Sam Broadhead Trust, 588 F.2d
431, 434 (5th Cir. 1979)).
4
“nerve center” and its “place of activities.”7 We must examine the
totality of the facts, including the corporation’s organization and
the nature of its activities, to determine which of these focal
points predominates.8 Generally, “when considering a corporation
whose operations are far flung, the sole nerve center of that
corporation is more significant in determining principal place of
business . . ., when a corporation has its sole operation in one
state and executive offices in another, the place of activity is
regarded as more significant . . . , but when the activity of a
corporation is passive and the “brain” of the corporation is in
another state, the situs of the corporation’s “brain” is given
greater significance . . . .”9
A. Teal USA’s Principal Place of Business10
Teal USA asserts that the situs of its principal place of
business is not Texas, as determined by the district court, but
Canada, where its executive offices are located. To this end, Teal
USA notes that its shareholders and directors meetings are held in
Calgary, its president and corporate accountants reside in Calgary,
and all major decisions related to the corporation are made in
Calgary. Teal USA also notes that its corporate minutes reflect
7
See J.A. Olson, 818 F.2d at 406 (cites omitted).
8
See id.
9
Id. at 411.
10
The parties do not dispute that Teal USA, as a Delaware
corporation, is a citizen of Delaware for diversity purposes.
5
that Calgary was established as the headquarters and official
office of Teal USA, and that, according to the deposition testimony
of Allen Knight, Teal USA’s president, Calgary was chosen as the
corporation’s principal office out of a desire to avoid what its
officers’ perceived to be an unjust Texas state court system.
The court accepted these facts as uncontroverted and found
that Calgary was indeed the “nerve center” of Teal USA. This
evidence was not enough, however, to satisfy the court that Calgary
was also Teal USA’s principal place of business. Citing the
affidavit of Teal USA’s former vice-president and current director,
John Glenn, the court noted that all of the revenue Teal USA earned
in 2001, the year in which suit was filed, was derived from Teal
USA’s Texas oil and gas operations. The court further observed
that, despite Glenn’s statement that Teal USA “reviewed,
investigated, and seriously considered” proposals involving land
development in several other states, the corporation put forth no
evidence that it actually engaged in operations in any state other
than Texas. As Teal USA did not establish that it engaged in “far-
flung” and varied activities in different states, the court
reasoned that the “nerve center” did not predominate in determining
its principal place of business.11
11
J.A. Olson, 818 F.2d at 407(“‘Where a corporation is engaged
in far-flung and varied activities which are carried on in
different states, its principal place of business is the nerve
center . . .’”)(citing Scot Typewriter, 170 F. Supp. at 865
(footnote omitted)).
6
Turning to Teal USA’s “place of activity,” the court
considered first the deposition testimony of Gordon Andrus, a
shareholder of Teal Canada.12 Andrus testified that Teal USA was
established to pursue Texas oil and gas prospects and that its only
oil and gas operations were located in Texas. Additionally, Andrus
testified that all of Teal USA’s business assets and accounting
records were in Texas, its day-to-day operations were conducted in
Texas, and the only two wells that Teal USA had arranged to have
drilled were located in Texas.
The district court also noted that Glenn was one of Teal USA’s
two principal officers, and he resided in Houston, Texas, as did
two of the corporation’s three directors and all of its employees.
Finally, the court observed that Teal USA’s filings with the
Secretary of State of Delaware and with the Internal Revenue
Service specified the Houston office address as the corporation’s
principal place of business. Considering the weight of this
evidence, as well as Teal USA’s failure to produce any substantial
controverting evidence, the court concluded that the place of
corporate activity was Texas. It then held that the situs of Teal
USA’s principal place of business was Texas, noting that, “[u]nder
the total activity test, a corporation . . . with significant
12
Teal USA attempts to discredit Andrus’s testimony by showing
that Andrus himself is not a shareholder of Teal Canada. His
deposition testimony, however, establishes that he and his family
formed a Texas limited liability corporation and that this
corporation is a shareholder of Teal Canada. We find this
distinction immaterial.
7
administrative authority and activity in one state and lesser
executive offices but principal operations in another state has its
principal place of business in the latter.”13
We hold that the district court’s determination was not
clearly erroneous. Although Teal USA argues that the court erred
in finding that its activities were not “far-flung” and widely
dispersed across several states, it cites to only one consummated
business transaction that occurred outside of Texas —— its
acquisition of a two-percent overriding royalty interest from a
natural gas company in Louisiana. This is not enough, in our view,
to warrant a finding that Teal USA’s operations were “far-flung”
13
We observe that the district court correctly quoted Petrobas
American v. TDC Energy Corp. for this proposition, but that the
Petrobas court, in citing J.A. Olson, inadvertently transposed the
phrases “the latter” and “the former.” See 205 F. Supp. 2d 703, 705
(S.D. Tex. 2002)(“Under the total activity test, a corporation with
significant administrative authority and activity in one state and
lesser executive offices but principal operations in another state
has its principal place of business in the latter.”)(citing J.A.
Olson, 818 F.2d at 408)(emphasis added); compare J.A. Olson, 818
F. 2d at 409(“the principal place of business of a corporation with
significant administrative authority and activity in one state and
lesser executive offices but principal operations in another state
is generally the district of the former.”)(cites omitted)(emphasis
added). Nevertheless, this clerical error in transposition does
not affect our conclusion today that the district court’s
determination of Teal USA’s principal place of business was not
“clearly erroneous,” as our review of the record and the court’s
well-reasoned opinion shows that it correctly applied the total-
activity test to the facts before it. See J.A. Olson, 818 F.2d at
411(“when a corporation has its sole operation in one state and
executive offices in another, the place of activity is regarded as
more significant”)(cites omitted).
8
for purposes of application of the total activity test.14
Accordingly, we conclude that the court did not “misapply” that
test as Teal USA contends.
We are equally unpersuaded by Teal USA’s evidentiary
challenges to the court’s discrete factual findings. Specifically,
Teal USA argues that Andrus’s deposition testimony was not
credible, citing two passages of his deposition in which he admits
that he might be wrong about the location of some of the
corporation’s activities. It suffices to say that these
concessions, viewed in context, do not render the district court’s
reliance on Andrus’s testimony clearly erroneous. Besides,
credibility calls are the unique province of the trial judge.
Teal USA also argues that the court erred in relying on the
corporation’s filings with the Secretary of State of Delaware and
the IRS, as these documents were unauthenticated. Although our
review of the record confirms Teal USA’s assertion that these
14
Teal USA also describes its corporate activities as
“passive” in an attempt to analogize its case to our decision in
Village Fair Shopping Ctr. Co. v. Sam Broadhead Trust. See 588
F.2d 431 (5th Cir. 1979)(corporation’s principal place of business
was its nerve center because its investments in other states,
although of significant value, were “passive” in nature); see also
Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138
F.3d 160, 164 (5th Cir. 1998)(same). In Village Fair, however, all
executive and policy decisions were made in the corporation’s nerve
center, and its only corporate activity outside the nerve center
was in the form of real estate investments. See 588 F.2d at 434.
By contrast, Teal USA’s corporate activity, i.e., conducting
geological evaluations, acquiring real estate, and securing farm-
out agreements, is, in Teal USA’s own words, “labor-intensive.”
(Appellant brief at 17) Accordingly, Teal USA’s reliance on Village
Fair as a factually analogous case is misplaced.
9
documents were not authenticated, we are convinced that enough
evidence exists to support the court’s determination of Teal USA’s
principal place of business, so that any reliance on these filings
does not render that ultimate determination clearly erroneous.15
In sum, Teal USA’s evidentiary challenges are unavailing.16
As the weight of the evidence shows that Teal USA is not a far-
flung corporation, and that its corporate activities take place
almost entirely in Texas where one of its principal officers, two
of its three directors, and all of its employees are located, we
affirm the district court’s ruling that Teal USA’s principal place
of business for diversity purposes is in Texas.17
B. GT’s Principal Place of Business
Finding that GT’s corporate headquarters were located in
Houston, Texas, that all of its assets and officers were located in
Texas, and that it derives all of its revenues from Texas
operations, the district court concluded that GT’s principal place
of business was in Texas. Despite adducing no evidence that would
indicate that GT conducts business in any state other than Texas,
15
Teal USA also lodges an evidentiary challenge to the
declaration of GT’s president, Felix Moreno. As the magistrate
judge did not rely on Moreno’s declaration in making its
determination of Teal USA’s principal place of business, we do not
address this argument.
16
“[T]he party invoking federal jurisdiction bears the burden
of proof if diversity is challenged.” Village Fair, 588 F.2d at 433
(citing Ray v. Bird & Son & Asset Realization Co., 519 F.2d 1081
(5th Cir. 1975)).
17
J.A. Olson, 818 F.2d at 409 (cites omitted).
10
Teal USA nevertheless asserts that GT’s principal place of business
could not have been Texas because GT did not obtain a certificate
of authority from the Texas Secretary of State to transact business
in that state until December 2002. This, insists Teal USA, means
that GT was not authorized to conduct intrastate business at the
time suit was filed.18
Article 8.01 of the Texas Business Corporation Act provides
that “[n]o foreign corporation shall have the right to transact
business in [Texas] until it shall have procured a certificate of
authority to do so from the Secretary of State.”19 Under article
8.18, foreign corporations that have not obtained a certificate of
authority are barred from maintaining any action, suit or
proceeding in any [Texas state court] . . . on any cause of action
arising out of the transaction of business in [Texas] . . . .”20
They are not, however, precluded from defending any such action or
proceeding in Texas state court.21 Although we have yet to consider
whether a corporation can have its principal place of business for
18
Additionally, Teal USA argues, for the first time in its
reply brief, that insufficient evidence exists to support the
magistrate judge’s finding that GT’s principal place of business
was in Texas. We do not consider this argument, as arguments
raised for the first time in a reply brief are waived. See City of
Abilene v. United States Envtl. Prot. Agency, 325 F.3d 657, 661 n.1
(5th Cir. 2003).
19
TEX. CORPS. & ASS’NS CODE ANN. § 8.01 (Vernon 2003).
20
Id. § 8.18.
21
See id. § 8.18(B).
11
diversity purposes in a state in which it is not authorized to do
business, our precedent and, more importantly, the basic tenets of
federal jurisdiction, dictate that the answer to this question is
necessarily in the affirmative.
Our diversity cases have consistently held that the
determination of a corporation’s principal place of business is a
fact-intensive inquiry that can only be made after considering the
totality of the corporate existence.22 It stands to reason that no
single factor, including a corporation’s adherence vel non to a
particular state’s regulatory requirements for conducting business
within that state, is determinative. Our decision in Village Fair
Shopping Center v. Sam Broadhead Trust well-illustrates this
point.23 The issue in Village Fair was whether, for diversity
purposes, the principal place of business of a corporate partner of
the defendant-partnership was in New York, where its executive
offices were located, or in Mississippi, where it had its largest
real estate investment.24 In deciding this question, we considered
a number of factors including, inter alia, the relative values of
the corporation’s assets in New York and Mississippi, the nature of
the corporate activity in those states, and the degree of control
22
See, e.g., Grinter, 846 F.2d at 1008 (5th Cir. 1988); J.A.
Olson, 818 F.2d at 405-06; Village Fair, 588 F.2d at 434.
23
See 588 F.2d 431 (5th Cir. 1979).
24
See id. at 432-33.
12
over the corporation’s affairs exercised by the New York office.25
We noted in passing that the corporation’s “only other Mississippi
contact,” aside from its sizeable real estate holdings, was “the
fact that it [wa]s qualified to do business in the state.”26 We
further observed that there was nothing in the record “indicat[ing]
that the corporation [wa]s similarly qualified to do business in
New York.”27 This ambiguity with respect to the corporation’s
authority to conduct business in New York did not, however, factor
heavily into our decision: Finding that the corporate activity
occurring in New York significantly outweighed the activity
occurring in Mississippi, we held that New York was the situs of
the corporation’s principal place of business.28
Although Teal USA correctly observes that in Village Fair we
did not know with certainty whether the corporation was licensed to
do business in the state in which it claimed to have its principal
place of business (New York), that fact is immaterial. As our
analysis in Village Fair makes pellucid, however, whether a
corporation is licensed to conduct business in a particular state,
far from being dispositive, is but one of several factors that must
25
See id. at 434.
26
Id. at 433.
27
Id.
28
See id. at 434-35.
13
be considered in determining a corporation’s principal place of
business.
Neither could it be otherwise. What constitutes citizenship
for diversity purposes is a matter of federal law, and as such,
cannot be made to depend on the particular nuances of the various
state business codes.29 A contrary rule would not only run afoul
of § 1332’s statutory mandate —— which states that a corporation
shall be deemed a citizen of the state of its principal place of
business without regards to whether it is authorized to do business
in that state30 —— but would elevate form over substance, allowing
a corporation either to create or thwart diversity jurisdiction by
the single expedient of not complying with state business
29
See, e.g., Grand Union Supermarkets of the V.I., Inc. v.
H.E. Lockhart Mgmt., 316 F.3d 408, 411 (3d Cir.
2003)(The“[m]aintaining [of] corporate trappings or the
qualifications required to potentially conduct business” in a
state, without actual evidence of business activity occurring in
the state, is not enough to warrant a finding that the state is
corporation’s principal place of business for diversity purposes);
Union Pac. R.R. Co. v. 174 Acres of Land Located in Crittenden
County, 193 F.3d 944, 945-46 (8th Cir. 1999)(foreign railroad’s
compliance with state domestication statute making it a railroad of
that state “the same as if it was formally incorporated in th[at]
state” did not also make the railroad a “citizen” of that state for
diversity jurisdiction purposes; “[d]iversity jurisdiction is a
question of federal law”).
30
28 U.S.C. § 1332(a); see also Amer. Motorists Ins. Co. v.
Amer. Employers’ Ins. Co., 600 F.2d 15, 16 (5th Cir. 1979)(per
curiam)(not sufficient for diversity purposes that plaintiff’s
complaint asserts that defendant corporation is “licensed to do
business and doing business in Louisiana;” citizenship of corporate
parties under § 1332 is determined by the state of incorporation
and the state where corporation has its principal place of
business).
14
regulations. Such a result cannot be justified. Accordingly, we
hold today that a corporation’s failure to comply with the state
law requirements for conducting business in that particular state
will not preclude a finding that the corporation has its principal
place of business in that state for purposes of diversity
jurisdiction; such failure is but one of many factors for that
calculus.
Our holding today is not at odds with the Supreme Court’s
decision in Woods v. Interstate Realty Company or our prior ruling
in Waggener Paint Co. v. Paint Distributors, Inc..31 The plaintiff
in Woods, a Tennessee corporation conducting business in
Mississippi, filed suit against a Mississippi resident in federal
court in Mississippi on the basis of diversity.32 The Mississippi
resident filed a motion to dismiss on the grounds that the
corporation had not complied with a Mississippi statute requiring
foreign corporations to designate an agent for service of process.33
Noting that the statute prohibited foreign corporations from filing
suit in state court unless they had complied with its provisions,
the Supreme Court held that the corporation was barred from
maintaining its suit in federal court on the basis of diversity.34
31
See 337 U.S. 535 (1949); 228 F.2d 111 (5th Cir. 1956).
32
See Woods, 337 U.S. at 535-36.
33
See id.
34
See id. at 538.
15
In so holding, the Court stated that “a right which local law
creates but which it does not supply with a remedy is no right at
all for purposes of enforcement in a federal court in a diversity
case; . . . where [a party] is barred from recovery in the state
court, he should likewise be barred in the federal court.”35
Similarly, the plaintiff in Waggener, a Missouri corporation
with its principal place of business in that state, filed suit in
federal court in Texas against a Texas resident with jurisdiction
based on diversity.36 The Texas resident filed a motion to dismiss
the plaintiff’s claim, asserting that the plaintiff had failed to
obtain a certificate permitting it to transact business in Texas,
as required by state law.37 We reversed the district court’s
dismissal order, noting that the Texas statute only applied to
intrastate transactions and that the transaction in question was
interstate in nature.38 We observed, however, that the district
court would have been correct in granting the motion to dismiss had
the transaction been intrastate, citing Woods for the proposition
that “a state may deny a foreign corporation access to its courts
for suits arising out of intrastate business where that business
has been done without conforming to, or in violation of, a state
35
Id.
36
See Waggener Paint Co., 228 F.2d at 112.
37
See id.
38
See id. at 113.
16
statute, and that where a state court is not open to such a suit,
a federal court will not be.”39
These cases —— pre-dating the 1958 amendment to the Judicial
Code which added that a corporation is to be deemed a citizen of
both its state of incorporation and its “principal place of
business”40 —— stand only for the proposition that when a local law
precludes a party’s recovery in state court, that party is likewise
barred from pursuing its action in diversity in the federal courts
situated in that state. Their holdings thus reflect the basic
principle of Erie that a federal court sitting in diversity is
bound to apply the law of the state in which it sits;41 they do not
imply that the determination of a party’s citizenship for diversity
purposes is governed by state law. Thus, for example, a foreign
corporation conducting business in Texas without a certificate of
authority from the Texas Secretary of State will be barred, under
Article 8.18, from filing suit in either Texas state court or in a
federal court sitting there in diversity, on any matter related to
its intrastate business activity,42 irrespective of whether the
39
Id. (citing Woods, 337 U.S. at 536).
40
1958 Amendment, Act of July 25, 1958, § 2, 72 Stat. 415.
41
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)(“Except
in matters governed by the Federal Constitution or acts of
Congress, the law to be applied in any case is the law of the
state.”).
42
Article 8.18 has been interpreted as prohibiting an
unauthorized foreign corporation from filing suit in Texas court on
any matter arising out of the transaction of intrastate business
17
totality of its corporate activity indicates that its principal
place of business is Texas. In such circumstances, a federal forum
is foreclosed, not because of the absence of complete diversity,
but because a federal court applying Texas law would necessarily
conclude that it lacked authority to entertain the action.
In contrast, GT’s failure to obtain a certificate of authority
prior to the institution of Teal USA’s federal lawsuit does not
implicate article 8.18’s limitation on the remedies available to
unlicensed foreign corporations transacting intrastate business in
Texas because: As the district court aptly noted, GT is the
defending party. As Article 8.18 explicitly provides that the
failure to obtain a certificate of authority will not prevent an
unlicensed corporation from “defending any action, suit or
proceeding in any court of this State,” the district court was
correct in ruling that the statute was not determinative of federal
jurisdiction.
III. CONCLUSION
We hold that the magistrate judge did not clearly err in
determining that both Teal USA and GT were citizens of Texas for
purposes of complete diversity, prohibiting federal jurisdiction.
only. See Kutka v. Temps., Inc., 568 F. Supp. 1527, 1532 (S.D.
Tex. 1983); Collins v. Hardeman-King Co., 74 S.W.2d 181, 182 (Tex.
Civ. App. 1934).
18
Accordingly, we affirm the magistrate judge’s dismissal of Teal
USA’s action against GT for lack of subject matter jurisdiction.
AFFIRMED.
19