United States Court of Appeals
For the First Circuit
No. 04-1688
TOMAS DÍAZ-RODRÍGUEZ; ENERGY TECH CORP.,
Plaintiffs, Appellants,
v.
PEP BOYS CORP.; MANNY MOE & JACK CORP., PUERTO RICO, INC. d/b/a/
PEP BOYS,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jay A. García-Gregory, U.S. District Judge]
Before
Selya and Lipez, Circuit Judges,
and DiClerico, Jr., District Judge.*
Nelson Robles Díaz for appellants.
Francisco A. Besosa, with whom Lourdes I. Morera-Ladón, Adsuar
Muñiz Goyco & Besosa, P.S.C., Michael E. Baughman, and Dechert,
LLP, were on brief, for appellees.
June 3, 2005
*
Of the District of New Hampshire, sitting by designation.
LIPEZ, Circuit Judge. This appeal began as a challenge
to the merits of a grant of summary judgment in the underlying
breach of contract case. At oral argument, we shifted the focus of
the appeal by inquiring sua sponte into the possibility that the
parties were not completely diverse and that the district court
therefore lacked subject matter jurisdiction in this case. We
ordered supplemental briefing regarding the citizenship of appellee
Manny, Moe & Jack Corp., Puerto Rico, Inc. ("Pep Boys PR"), and
then, while retaining appellate jurisdiction, remanded for an
evidentiary hearing on the same subject. With the benefit of
extensive fact-finding by the district court, we now conclude that
Pep Boys PR has its principal place of business in, and is thus a
citizen of, Puerto Rico. Because the appellants are also citizens
of Puerto Rico, the parties are not diverse. We therefore vacate
the judgment and, given the absence of federal subject matter
jurisdiction, remand to the district court with instructions to
remand the case to the court from which it was improvidently
removed. We also clarify our law regarding the principal place of
business determination.
I.
On March 15, 2002, appellants Energy Tech Corp. ("ETC")
and Tomas Díaz Rodríguez sued automotive supply retailer Pep Boys
PR and its parent company, Pep Boys Corp. ("Pep Boys"), in the
Court of First Instance of Puerto Rico, Bayamón Superior Division.
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The complaint alleged (1) that Pep Boys PR was liable for breaching
a contract under which it was to serve as the exclusive Puerto Rico
seller of an ETC product called Super FuelMax and (2) that Pep Boys
had tortiously interfered in the relationship between ETC and Pep
Boys PR by inducing Pep Boys PR to break the contract.
The appellees removed the case to federal court on April
9, 2002. The notice of removal asserted that
[d]efendants . . . were incorporated in states other than
Puerto Rico (Pennsylvania and Delaware), and have their
principal places of business in Philadelphia,
Pennsylvania. This action, therefore, may be removed
from the courts of the Commonwealth of Puerto Rico to
this District Court pursuant to 28 U.S.C. § 1441(b).
The appellants did not challenge the existence of diversity
jurisdiction at this juncture, and the appellees answered the
complaint on May 8, 2002.
On February 28, 2003, the appellees filed a motion for
summary judgment; on March 11, 2003, the appellants filed a motion
for partial summary judgment. Based on the recommendation of a
magistrate judge, the district court granted the appellees' motion
for summary judgment, denied the appellants' motion for partial
summary judgment, and filed an order dismissing the suit with
prejudice. See Díaz-Rodríguez v. Pep Boys Corp., No. 02-10536
(D.P.R. Mar. 29, 2004). The appellants filed a notice of appeal on
April 28, 2004.
The briefs filed by the parties before oral argument were
directed entirely to the merits of the district court's grant of
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summary judgment. Those arguments are predicated, however, on the
existence of subject matter jurisdiction. We cannot consider the
merits of the district court's ruling on appeal if it did not have
jurisdiction to adjudicate the issues before it in the first
instance. See, e.g., Espinal-Dominguez v. Puerto Rico, 352 F.3d
490, 495 (1st Cir. 2003) ("Because federal courts are powerless to
act in the absence of subject matter jurisdiction, we have an
unflagging obligation to notice jurisdictional defects and to
pursue them on our own initiative.").
The only conceivable basis for federal jurisdiction in
this case is diversity of citizenship. 28 U.S.C. § 1332(a).
"Diversity jurisdiction exists only when there is complete
diversity, that is, when no plaintiff is a citizen of the same
state as any defendant." Gabriel v. Preble, 396 F.3d 10, 13 (1st
Cir. 2005). For diversity purposes, a corporation is a citizen of
both the state where it is incorporated and "the State where it has
its principal place of business." Id. § 1332(c)(1). As used in
the diversity statute, the term "state" includes Puerto Rico. Id.
§ 1332(e).
Neither party questioned the existence of complete
diversity during the district court proceedings. Nevertheless,
concerned about the possibility that ETC and Pep Boys PR were non-
diverse, we raised the jurisdictional issue sua sponte at oral
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arguments and ordered supplemental briefing.1 Cf. In re Perry, 391
F.3d 282, 284-85 (1st Cir. 2004) (requesting, sua sponte,
supplemental briefing on a jurisdictional issue). For the first
time in their supplemental brief, the appellants took the position
that Pep Boys PR has its principal place of business in Puerto
Rico, where all of its retail stores are located, and therefore
that it is not diverse from the appellants, who are citizens of
Puerto Rico. The appellees disagreed, maintaining that Pep Boys
PR's principal place of business is in Philadelphia, where almost
all of its officers are located and its corporate support functions
are based.2
Viewing the supplemental briefs as inconclusive, we
retained appellate jurisdiction while remanding to the district
court to hold an evidentiary hearing as to the locus of Pep Boys
PR's principal place of business. The district court complied,
holding a hearing and making extensive findings of fact. We now
1
Pep Boys PR is the only party whose citizenship is in
question; it is undisputed that the parties are otherwise diverse.
2
The district court supportably found that all but one of Pep
Boys PR's directors and officers are located in Philadelphia and
that many of the decisions regarding Pep Boys PR's operations are
made in Philadelphia. Pep Boys PR also had one officer located in
Puerto Rico. When this suit was removed to federal court in 2002,
the officer in Puerto Rico was the Divisional Vice President, who
supervised the day-to-day operations of Pep Boys PR's stores.
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determine Pep Boys PR's principal place of business de novo based
on the district court's factual findings.3
II.
We have identified three tests for determining a
corporation's principal place of business:
One is the "nerve center" test which searches for the
location from where the activities of the corporation are
controlled and directed. The two other tests are the
"center of corporate activity" test, i.e., where the
corporation's day-to-day management takes place; and the
"locus of the operations of the corporation" test, i.e.,
where the bulk of the corporation's actual physical
operations are located.
Topp v. CompAir Inc., 814 F.2d 830, 834 (1st Cir. 1987) (internal
citations omitted); see also de Walker v. Pueblo Int'l, Inc., 569
F.2d 1169, 1171-72 (1st Cir. 1978).
While the tests that we have identified are "not
necessarily inconsistent," Topp, 814 F.2d at 834, their differing
emphases mean that, in some cases, they will point to different
locations as the principal place of business. For example, Pep
Boys PR is essentially controlled from Philadelphia but all of its
retail stores are located in Puerto Rico. The nerve center test
might point to Philadelphia as Pep Boys PR's principal place of
3
On reflection, the better practice might have been to ask the
district court to make the legal determination in the first
instance. See Taber Partners, I v. Merit Builders, Inc., 987 F.2d
57, 60 (1st Cir. 1993) ("A district court's determination of
citizenship for purposes of diversity jurisdiction is a mixed
question of law and fact.").
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business, see id. at 837-38 (listing eight factors to consider in
applying the nerve center test) while the locus of operations test
might point to Puerto Rico, where all of the corporation's physical
assets are located. This result would be inconsistent with the
rule that a corporation can have only one principal place of
business. See Capitol Indem. Corp. v. Russellville Steel Co., 367
F.3d 831, 835 (8th Cir. 2004). We must thus determine which test
controls in this case.
First Circuit precedent offers only limited guidance on
how to determine a corporation's principal place of business when
the three tests point to different locations. Our cases indicate
that the nerve center test governs in the context of a corporation
with "complex and farflung activities" or a corporation without
physical operations (e.g., a holding company). Topp, 814 F.2d at
834. This rule implies that if a corporation has physical
operations and is not "farflung," one of the other tests -- the
center of corporate activity or the locus of operations -- must
govern. See PayPhone LLC v. Brooks Fiber Communications of R.I.,
126 F. Supp. 2d 175, 182-83 (D.R.I. 2001).
Pep Boys PR has physical operations and is not a complex
or far flung corporation. Therefore, the nerve center test does
not control and we must look instead to the center of corporate
activity test or the locus of operations test. We have never
explained, however, a basis for choosing between these two tests.
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See Savis, Inc. v. Warner Lambert, Inc., 967 F. Supp. 632, 637
(D.P.R. 1997) (noting a lack of case law on point).
Given our recognition of the nerve center and locus of
operations tests, the center of corporate activity test is largely
redundant. In some cases, it involves "an analysis and result
similar to the one employed . . . under the rubric of the nerve
center test." Topp, 814 F.2d at 834 n.3; see also Taber Partners,
987 F.2d at 63 & n.8. In other cases, it is largely
indistinguishable from the locus of operations test. See Savis,
967 F. Supp. at 637 (noting that no other circuit has recognized
the center of corporate activity and locus of operations tests as
distinct). There does not appear to be any context in which the
center of corporate activity test supplies an analysis different
from that available under one of the other two tests.
Our case law confirms this redundancy. We have
explicitly alluded to the center of corporate activity test in only
four cases. In two of those cases, we concluded that all three
tests would point to the same location as the principal place of
business. See Rodriguez v. S K & F Co., 833 F.2d 8, 9 (1st Cir.
1987) (per curiam); de Walker, 569 F.2d at 1172. In the other two
cases, which involved corporations without physical operations and
which, therefore, did not lend themselves to application of the
locus of operations test, we concluded that the nerve center and
center of corporate activity test would point to the same principal
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place of business. See Taber Partners, 987 F.2d at 63 & n.8; Topp,
814 F.2d at 834 n.3.
In summary, the case law reveals that our references to
the center of corporate activity test have always been dicta --
that is, comments "made while delivering a judicial opinion, but
. . . unnecessary to the decision in the case." Black's Law
Dictionary (8th ed. 2004) (defining obiter dictum). Indeed, even
the case which initially referred to the center of corporate
activity test did not treat that test as determinative. See de
Walker, 569 F.2d at 1173 (holding that the district court's
diversity determination was erroneous because "plaintiff did not
establish that [the defendant corporation's] 'nerve center' or any
substantial part of its operations was outside Puerto Rico"
(emphasis added)). Moreover, it appears that our dicta in this
area has been more confusing than helpful. See Caribbean Mushroom
Co. v. Gov't Dev. Bank, 980 F. Supp. 620, 626 (D.P.R. 1997)
("Despite setting up a variety of distinct tests . . . the
jurisprudence from this circuit provides little guidance as to when
each test should apply, leading many courts facing the issue to
apply each and every available test in order to avoid having to
choose which test to apply.").
Unlike a holding, which binds newly constituted panels in
a multi-panel circuit, see Eulitt v. Me. Dep't of Educ., 386 F.3d
344, 349 (1st Cir. 2004), dicta "is not binding on future panels."
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Kosereis v. Rhode Island, 331 F.3d 207, 213 (1st Cir. 2003); see
also Dedham Water Co. v. Cumberland Farms Dairy, Inc., 972 F.2d
453, 459 (1st Cir. 1992) ("Dictum constitutes neither the law of
the case nor the stuff of binding precedent."). In other words,
although a newly constituted panel ordinarily may not disregard the
decision of a previous panel, principles of stare decisis do not
preclude us from disclaiming dicta in a prior decision. See, e.g.,
United States v. Perez-Ruiz, 353 F.3d 1, 10 (1st Cir. 2003). We do
so here with regard to the center of corporate activity test. In
the future, district courts required to determine a corporation's
principal place of business should not apply the center of
corporate activity test. Instead, they should use either the nerve
center test or the locus of operations test, depending on the
characteristics of the corporation.
It is well settled in this circuit that the nerve center
test applies only to farflung corporations or corporations without
physical operations. See Topp, 814 F.2d at 834. We now add that
the principal place of business of a corporation that has the bulk
of its physical operations in one state is to be determined under
the locus of operations test, even if the corporation's executive
offices are in another state. This holding is consistent with the
approach adopted by district courts in the First Circuit in recent
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years.4 See, e.g., Payphone LLC, 126 F. Supp. 2d at 183
(determining a telephone company's principal place of business
according to the location of its facilities and equipment, even
though corporate activity was centered elsewhere); Savis, 967 F.
Supp. at 638 (concluding that "[w]here a corporation is engaged in
a single enterprise, substantially all of whose operations occur in
one state, even though policy and administrative decisions are made
elsewhere, the state of operations is the corporation's principal
place of business" (quoting Santana Salgado v. DuPont
Pharmaceutical, Inc., 664 F.Supp. 644, 645 (D.P.R. 1987)). More
importantly, it is consistent with the policies underlying 28
U.S.C. § 1332, the statute creating diversity jurisdiction. A
primary purpose of diversity jurisdiction is to shield foreign
parties from the prejudice they might face as outsiders in state
court. "Thus, the principal place of business should be the place
4
The framework we set forth here also has much in common with
the sensible "total activity" test adopted by a number of our
sister circuits. See Savis, 967 F. Supp. at 637 n.8 (collecting
cases). Under the total activity test,
(1) 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; (2) 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 (3) 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.
J.A. Olson Co. v. City of Winona, 818 F.2d 401, 411 (5th Cir. 1987)
(internal citations omitted).
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where the corporation conducts the most activity that is visible
and impacts the public, so that it is least likely to suffer from
prejudice against outsiders." Indus. Tectonics, Inc. v. Aero
Alloy, 912 F.2d 1090, 1094 (9th Cir. 1990).
We have described the locus of operations test as
"search[ing] for the location of the corporation's actual physical
operations." Taber Partners, 987 F.2d at 61. The district court's
supportable findings of fact in this case clearly indicate that Pep
Boys PR's actual physical operations are located in Puerto Rico.
Pep Boys PR is a retailer dealing in automotive supplies. All of
its physical assets, including its 27 stores and its inventory, are
located in Puerto Rico, as are its 1,214 employees. Pep Boys PR
does not operate, own, or lease stores in any other jurisdiction.
The corporation owns the equipment used in its Puerto Rico stores
and owns or leases approximately fifty trucks to provide service to
its commercial clients there. In 2002, the year this suit was
removed to federal court, Pep Boys PR had a total gross income of
$56 million, all generated by sales in Puerto Rico. In short,
Puerto Rico is clearly the locus of Pep Boys PR's operations.
It is true that many of Pep Boys PR's administrative and
executive functions are based outside of Puerto Rico. The district
court found that all but one of the members of Pep Boys PR's Board
of Directors work in Philadelphia. Major policy decisions are made
in Philadelphia, and the merchandise, advertising, distribution,
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finance, and human resources departments are located there. These
are the types of factors that would be relevant under the nerve
center test. See Topp, 814 F.2d at 837-38. As we have discussed,
however, the nerve center test does not dictate the principal place
of business of a corporation that, like Pep Boys PR, has all of its
extensive physical operations in one state and its administrative
and executive functions in another state. Rather, consistent with
the policies underlying 28 U.S.C. § 1332, the locus of operations
test is determinative in this context.
The conclusion that Pep Boys PR's principal place of
business is in Puerto Rico has substantial implications in this
case. Pep Boys PR is a citizen of Puerto Rico. See 28 U.S.C.
§ 1332(c)(1) ("[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."). It is undisputed that
the appellants were and are also citizens of Puerto Rico. Thus,
the parties are not diverse. There being no other basis for
federal jurisdiction, we are compelled to vacate the district
court's grant of summary judgment on the ground that it lacked
subject matter jurisdiction, see Am. Fiber & Finishing, Inc. v.
Tyco Healthcare Group, LP, 362 F.3d 136, 142 (1st Cir. 2004)
(noting that "diversity jurisdiction is . . . not a matter subject
to the exercise of judicial discretion"), and to remand to the
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district court with instructions to remand the case to the court
from which it was improvidently removed.5
So ordered.
5
There is something faintly inequitable about a party letting
a case go to judgment without questioning the court's jurisdiction,
losing, and then profiting from a jurisdictional defect noted sua
sponte by the appellate court. Still, it was the appellees who
removed the case. And, moreover, federal courts are courts of
limited jurisdiction. Consequently, such courts must "monitor
their jurisdictional boundaries vigilantly." Id. at 139. It
follows that parties cannot confer subject matter jurisdiction on
a federal court by acquiescence or oversight. See United States v.
Horn, 29 F.3d 754, 768 (1st Cir. 1994).
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Diaz-Rodriguez v. Pep Boys Corp.
Court: Court of Appeals for the First Circuit
Date filed: 2005-06-03
Citations: 410 F.3d 56
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