Teal Energy USA, Inc. v. GT, Inc.

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