Gold Coast Transportation Service LLC v. NTI-NY, Inc.

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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GOLD COAST TRANSPORTATION SERVICE

LLC, JOSEPHINE HERRSCHAFT and

ANTHONY HERRSCHAFT,

Plaintiffs,

-against- MEMORANDUM & ORDER

21-CV-5396(DRH)(JMW)

NTI-NY, INC., NATIONAL TRANSPORTATION

INC., JAMES GLEICH, JOHN KINDT, AMY

WILLS, RICHARD NOLAN and MARC A.

JACOBI,

Defendants.

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APPEARANCES:

For Plaintiffs:

Windels Marx Lane & Mittendorf, LLP

156 West 56th Street

New York, New York 10019

By: Rodman E. Honecker, Esq.

Benjamin N. Fink, Esq.

For Defendants:

Quirk and Bakalor, P.C.

1205 Franklin Avenue, Suite 110

Garden City, New York 11530

By: Timothy J. Keane Esq.

Debra E. Seidman, Esq.

HURLEY, Senior District Judge:

The purpose of this Memorandum is to address the objections of Defendants

to the March 9, 2022, Report and Recommendation of Magistrate Judge James M.

Wicks recommending that Plaintiff's motion to remand this matter back to state

court be granted.

For the reasons fully set forth below, the motion to remand is denied in that

defendants have established that this Court, contrary to plaintiffs' position, has

subject matter jurisdiction predicated on diversity.

I. BACKGROUND AND PROCEDURAL HISTORY

A. Commencement of the Action and the Original Complaint

On August 27, 2021, Plaintiffs Gold Coast Transportation Service LLC ("Gold

Coast"), Josephine Herrschaft ("Josephine") and Anthony Herrschaft ("Anthony")

(the "Herrschafts") (Gold Coast and Herrschafts collectively "Plaintiffs") commenced

this action in state court against Defendants National Transportation, Inc. ("NTI"),

James Gleich ("Gleich", and John Kindt ("Kindt") and "nominal defendant NTI-NY

Inc." ("NTI-NY") (collectively "Defendants").

As alleged in the original complaint filed in state court, Josephine and

Anthony, residents of New York are shareholders of Gold Coast and Gold Coast is a

majority shareholder in NTI-NY while "Defendants" are shareholders in NTI-NY.

NTI and NTI-NY are Nevada corporations with their principal places of business in

Nevada. Gleich, a resident of Nevada, and Kindt, a dual resident of California and

New York, hold themselves out as officers of NTI-NY. Josephine, Gleich and Kindt

are directors of NTI-NY. (Compl. at ¶¶1-7.)

The Herrschafts have extensive experience operating ground transportation

companies, especially ground transportation to and from airports for flight crews

and other airlines employee, principally in the New York area. In September 2019,

Josephine wired $500,000.00 to NTI as a loan with an option to convert the loan

into a 16% equity interest in NTI. When the transportation company owned by the

Herrschafts' ceased operations, they developed a business plan to bring over their

customers to a new entity, which eventually became NTI-NY, which they shared

with Gleich. Unbeknownst to the Herrschafts, Gleich incorporated NTI-NY, listing

Gleich, Kindt and Josephine as Directors. "Defendants unilaterally attempted to

claim for NTI 51% ownership of the corporation, with Gold Coast or Josephine as

owning 49%. NTI's counsel later took the position that Gold Coast, not Josephine is

the 49% owner of NTI-NY." Plaintiffs contend they own a majority ownership

interest in the NTI-NY. (Id. ¶¶16-34.)

Although drafts were exchanged no Shareholder Agreement was ever

executed. The Herrschafts nonetheless arranged for NTI-NY to enter into

agreements with many of the same customers of their former company, as well as

others and were responsible for the generation of all business. Defendants

contributed nothing in terms of capital or business generation. (Id. ¶¶ 35-36.)

Among other things it is claimed that with respect to NTI-NY, Gleich and

Kindt siphoned off funds, took excessive compensation, usurped and misdirected

business opportunities from NTI-NY to NTI. (Id. ¶¶37-55.)

Plaintiffs seek injunctive and declaratory relief, an accounting and damages.

B. Removal of the Action and Proceedings in this Court

On September 29, 2021, Defendants removed the action to this Court

asserting jurisdiction on the basis of diversity of citizenship. According to the notice

of removal, Plaintiffs are citizens of New York, Kindt is a citizen of California,

Gleich is a citizen of Nevada and both NTI and NTI-NY are incorporated and

maintain their principal places of business in Nevada. (DE 1 at ¶¶ 8-14.) Both

Gleich and Kindt submitted declarations attesting to their own citizenship as well

as Nevada as the state of incorporation of both NTI and NTI-NY. Moreover, they

both asserted that NTI, as well as NTI-NY "maintain[] [their] principal place of

business at 9525 Hillwood Drive, Suite 170, Las Vegas, Nevada 8913 " and "[t]he

administration" of both corporations are "situated in the State of Nevada and the

performance of obligations arising out of its corporate operations are performed and

to be performed in the State of Nevada and in accordance with the laws of the State

of Nevada." (DE 1-4 at ¶¶ 5-6; DE 1-5 at ¶¶6-7.)1

Two days later, on October 1, 2021, Plaintiffs filed an amended complaint

adding three new defendants: Amy Wills ("Wills"), Rich Nolan ("Nolan") and Marc.

A. Jacobi (Jacobi"). The salient changes for present purposes in the amended

complaint are as follows: Wills "resides" in Long Island City, New York; Gold Coast

is the majority shareholder of NTI-NY; and NTI-NY is a Nevada corporation with

1 Plaintiffs' allegation as to the principal place of business of NTI-NY being in

Nevada do not preclude them from arguing otherwise as “principles of estoppel do

not apply” to questions of subject matter jurisdiction. Insurance Corp. of Ireland v.

Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982). See also Wight v. Bank

of America Corp., 219 F.3d 79, 90 (2d Cir. 2000) (“[I]rrespective of how the parties

conduct their case, the courts have an independent obligation to ensure that federal

jurisdiction is not extended beyond its proper limits.”); Creaciones Con Idea. S.A. de

C.V. v. Mashreqbank PSC, 232 F.3d 79, 82 (2d Cir. 2000) (“At the outset, we note

that principles of estoppel do not apply to questions of subject matter

jurisdiction.”); Signature Fin. LLC v. Chicago Elite Cab Corp., No. 16 Civ. 6063

(DRH) (SIL), 2018 WL 1385896, at *4 (E.D.N.Y. Mar. 19, 2018) (“The Second Circuit

has already established that ‘principles of estoppel do not apply’ to questions of

subject matter jurisdiction.’ ”).

an "office" in Nevada. The principal place of business of NTI-NY is not alleged but it

is alleged that its "center of operations is located in New York State." (Amended

Comp. at ¶¶ 1, 4, 8, 15.)

On October 7, 2021, Plaintiffs filed an "Emergency MOTION for [an] Order to

Show Cause to Extend TRO entered in State Court, to Remand or for alternative

relief." In support of remand, Plaintiff's argued a lack of diversity jurisdiction

because Wills "resides in New York" and because the "nerve center" of NTI-NY is

New York. (DE 6-1 at 12-13.) On October 13, 2021, the Court issued an Order

declining to sign the Order to Show Cause as a question had been raised as to

subject matter jurisdiction and directing the parties to brief the issue of subject

matter jurisdiction.

II. THE MOTION TO REMAND

On October 22, 2021, Plaintiffs filed their motion to remand. In support of

remand, Plaintiffs argued that complete diversity did not exist because, inter alia,

NTI-NY is a citizen of New York given that it is the situs of its principal place of

business. In support of that proposition Josephine submitted a declaration stating

the following:

From the inception of operations in 2020 until August 11, 2021 when

my son, plaintiff Anthony Herrschaft ("Anthony"), was wrongfully

terminated, all services and revenue generating business operations

were conducted in the tristate region. Anthony and I reside in Nassau

County. As set forth in more detail in the Verified Amended Complaint,

the very business purpose of [NTI-NY ("]the Corporation[")] was to

service the needs of local customer contacts members of our family have

developed over many years. More specifically, the Corporation was

formed to serve the needs of dozens of airlines and three airports

(LaGuardia, JFK and Newark) in the tristate area. In that regard, all

meaningful decision making with respect to generating business for the

Corporation occurred in New York. All decisions on what contracts to

bid on, what not to bid, and whom to work with were made by myself

and Anthony, and all of those decisions were made in New York. The

vast majority, if not all, of the customer contracts entered by the

Corporation were executed by myself and Anthony and those original

contracts are located in my residence in Nassau County.

All operational decisions were made by myself and Anthony in

New York. All services provided by the Corporation were given in the

tristate area. Anthony and I put all operational policies and procedures

into place.

(Declar. of Josephine Herrschaft (DE 13-6) at ¶¶ 4-5.)

Defendants opposed the motion to remand. Among other things, they argued

New York was not NTI-NY's principal place of business. Included in Defendants'

opposing papers is an affidavit of Josephine submitted to the state court, wherein

she avers that NTI-NY's principal place of business is in Nevada.(See DE 14-2 at ¶

6.) Also submitted is an affidavit of Wills attesting to her California citizenship and

setting forth particulars that support that conclusion. Other evidentiary material

submitted by Defendant include a declaration of Marc Jacobi ("Jacobi"). In that

declaration Jacobi, the Chief Financial Officer of NTI, avers:

 Since NTI-NY was organized I have performed the same CFO

functions for NTI-NY as I perform for NTI. Though NTI and

NTI-NY maintain their headquarters and primary office at 9525

Hillwood Drive, Suite 170, Las Vegas, Nevada 89134, I perform

all CFO functions as an independent contractor, typically

remotely from my office in Texas. Though I have attended

meetings with the other officers of NTI and NTI-NY to address

issues concerning management of NTI and NTI-NY in their

offices in Nevada and California, I have never been to New York

to meet with anyone or for any reason concerning the business of

NTI or NTI-NY."

 "Since its inception during the middle of 2020 NTI-NY has

offered ground transportation services to airlines and cruise

lines in the tri-state area. However, NTI-NY has never directly

provided any ground transportation services or any services

whatsoever anywhere. Rather, since NTI-NY's inception during

the middle of 2020 all ground transportation services NTI-NY

offers have been provided and continue to be provided by Luxury

Vans & Shuttle Bus Corp. ("Luxury"), a transportation

contractor based in the County of Queens, State of New York."

 "Luxury is an independent contractor affiliated with neither

NTI-NY nor NTI."

 "NTI-NY's certificate of incorporation was executed in the State

of Nevada".

 "NTI-NY's address for state and federal taxation is in the State

of Nevada and all of its state and federal taxes and fees,

including any required by the Port Authority of New York and

New Jersey, are paid from his office in the State of Texas."

 "All of NTI-NY's legal functions are controlled and managed

from the State of Nevada."

 "NTI-NY's accounting, auditing, and primary cash management

functions are now and have always since its inception been

conducted in Nevada, California and Texas."

 "All of NTI-NY's documents, including all documents relevant to

the facts and allegations asserted in this action, are located in

California, Nevada and Texas except executed contracts and any

other documents plaintiffs failed to send to California, Nevada

or Texas, notwithstanding NTI-NY's management's requirement

that they do so."

 "NTI-NY's management and business policy is now and has

always since its inception been formulated in Nevada, California

and Texas."

 "Upon information and belief, since NTI-NY's inception each of

NTI-NY's officers have maintained their respective offices only

in Nevada, California and Texas, not New York."

 "Since NTI-NY's inception one of its three directors resided in

and maintained his office in Nevada, one of its three directors

resided in and maintained his office in California, and one of its

three directors resided in New York".

 "Neither NTI nor NTI-NY ever maintained an office in the State

of New York. Luxury (the independent contractor that provides

the ground transportation services NTI-NY offers) has allowed

and continues to allow NTI-NY to use as its business address

Luxury's office address, 35-12 19th Avenue, 2nd Floor, Astoria,

NY 11105, and NTI-NY is also permitted to use Luxury's office

to conduct occasional meetings [although he himself has never

been to New York on NTI-NY business], but NTI-NY has no

physical office at 35-12 19th Avenue, 2nd Floor, Astoria, NY

11105 or anywhere else in the State of New York. Neither NTI-

NY nor NTI pays rent or any use fee or charge for NTI-NY's

occasional use of Luxury's office or any office space in New

York."

 "NTI-NY has no need for office space in New York because all

personnel that administratively support NTI-NY are employed

by or contracted by NTI and are located outside the State of New

York in the States of Nevada, California, Texas and elsewhere.

NTI provides NTI-NY the NTI brand (including its logo and

artwork), website administration, email domain, management,

administration, banking, financing (including factoring and

credit), insurance, accounting, bookkeeping, tax, payroll and

benefit administration (for NTI-NY's one employee) services,

and other services and benefits I am surely overlooking at the

moment."

(DE 16 at ¶¶ 10-22.)

After the motion was fully briefed, it was referred to Magistrate Judge James

M. Wicks for Report and Recommendation.

III. THE REPORT AND RECOMMENDATION

Judge Wicks filed his Report and Recommendation on March 9, 2022. Judge

Wicks first addressed the appropriate test for determining a principal place of

business of a corporation. He rejected Plaintiffs' initial reliance in their moving

papers on the "place of business" or "public impact" test in favor of the "nerve

center" test set forth in Hertz v. Friend, 559 U.S. 77 (2010).

Judge Wick then addressed the issue of "whether Defendants had met their

burden of establishing Defendant NTI-NY's citizenship based on its principal place

of business." (R&R at 6) He noted that the bare assertion that NTI-NY is

headquartered in Nevada was, without more, insufficient to establish that Nevada

is its principal place of business. He then found that Defendants offered "a

hodgepodge of facts that suggest that Defendant NTI-NY's principal place of

business could be in Nevada, Texas, California or even New York." In reaching that

conclusion he pointed out that "[w]hile the officers maintain their offices in Nevada,

Texas and California and all auditing accounting, primary cash management and

document storage occurs in these states, nothing in the record establishes which of

these states, if any, is the single place where the officers direct, control, and

coordinate Defendant NTI-NY's activities . . . . Indeed, while Defendant NTI-NY's

officers have had meetings in Nevada and California, they have also 'conducted

occasional meetings in New York.''' Judge Wicks concluded that the evidence and

arguments made by Defendants "run counter to the Supreme Court's guidance in

Hertz, which makes clear that a corporation may have only one principal place of

business." (R&R at 6-7 (brackets and internal citations to Jacobi Affidavit omitted).

He recommended the motion to remand be granted as "Defendants have failed to

carry their burden in showing, by a preponderance of the evidence, that Defendant

NTI-NY's principal place of business is located in a state other than New York and

thus have failed to establish that this Court had subject matter jurisdiction over

this dispute." (R&R at 7.)2

2 In an abundance of caution, Judge Wicks also addressed Plaintiffs' other

arguments in support of remand and recommended that the motion based on the

appropriate alignment of NTI-NY and Wills' citizenship be denied. However, no

objections have been filed as to these portions of the R&R. Having reviewed those

portions of the R&R regarding realignment and Wills' citizenship for clear error and

finding none, the Court's adopts these portions of the R&R.

IV. DEFENDANTS' OBJECTIONS

Defendants argue that the R&R contains both factual and analytical errors.

Defendants challenge the statement in the R&R that "While Defendant NTI-NY's

officers have had meetings in Nevada and California, they have also conducted

occasional meetings in New York." This, they maintain, is in error because "the

evidence establishes that (a) NTI-Y officers maintain their respective offices in

Nevada, California and Texas, not New York and (b) meet to conduct the business of

officers of NTI-NY in Nevada and California, but not New York." Therefore, the

reference to borrowed space in New York at which occasional meeting are conducted

"necessarily did not concern meetings (occasional or otherwise) of NTI-NY's officers,

who it was already established maintain their respective offices in Nevada,

California and Texas, but not New York and met to conduct the business of officers

of NTI-NY in Nevada and California, but not New York." (Defs' Obj. at 4 (citations

to Jacobi Decl. at ¶¶ 9 and 22 omitted).)

Defendants also assert that they have consistently argued that NTI-NY's

principal place of business was Nevada and, recognizing that due to its officers'

activities in California and Texas, only argued that it was "perhaps" possible to

consider California or Texas as the principal place of business. In any event, they

assert that whether NTI-NY's nerve center is Nevada, California, or Texas,

diversity of jurisdiction was established "in this action by three New York Citizens

against seven citizens of Nevada, California and Texas. . . . ." (Defs' Obj at 6.)

V. DISCUSSION

A. Principles Regarding Removal and Jurisdiction

A notice of removal must allege a proper basis for removal under 28 U.S.C. §§

1441–1445. See Agyin v. Razmzan, 986 F.3d 168, 181 (2d Cir. 2021); New York v.

Dickerson, 2020 WL 3263771, at *1 (E.D.N.Y. June 16, 2020) (“An effective petition

for the removal of a state action to federal court must allege a proper basis for the

removal under sections 1441 through 1445 of Title 28.” (internal quotation marks

omitted). “[I]n light of the congressional intent to restrict federal court jurisdiction,

as well as the importance of preserving the independence of state governments,

federal courts construe the removal statute narrowly, resolving any doubts against

removability.” Platinum-Montaur Life Scis., LLC v. Navidea Biopharmaceuticals,

Inc., 943 F.3d 613, 617 (2d Cir. 2019) (internal quotation marks omitted); Purdue

Pharma L.P. v. Kentucky, 704 F.3d 208, 213 (2d Cir. 2013). The party seeking

removal bears the burden of proving that the jurisdictional and procedural

requirements have been met. Vermont v. MPHJ Tech. Invs., LLC, 803 F.3d 635, 647

(2d Cir. 2015) (“Where, as here, the defendant asserts federal jurisdiction in a

removal petition, the defendant has the burden of establishing that removal is

proper.”); Linardos v. Fortuna, 157 F.3d 945, 947 (2d Cir. 1998) (“It is also hornbook

law that the party invoking federal jurisdiction bears the burden of proving facts to

establish that jurisdiction.”).

Where, as here, subject matter jurisdiction is contested in the context of

removal, a court may consider materials outside the pleadings, including

“documents appended to a notice of removal or a motion to remand that convey

information essential to the court's jurisdictional analysis.” Romano v. Kazacos, 609

F.3d 512, 520 (2d Cir. 2010). On review of a motion to remand, “the court construes

all factual allegations in favor of the party seeking the remand” and "[i]f there is

doubt as to whether federal jurisdiction exists, remand is appropriate. Alvarado v.

New England Motor Freight, Inc., 2018 WL 4043151, at *1 (E.D.N.Y., 2018)

(internal quotation marks omitted).

Federal courts have “original jurisdiction of all civil actions where the matter

in controversy exceeds the sum or value of $75,000 . . . and is between citizens of

different States.” 28 U.S.C. § 1332(a). Subject matter jurisdiction based on 28 U.S.C.

§ 1332 “requires ‘complete diversity,’ i.e. all plaintiffs must be citizens of states

diverse from those of all defendants.” Pa. Pub. Sch. Emps.' Ret. Sys. v. Morgan

Stanley & Co., 772 F.3d 111, 117–18 (2d Cir. 2014).

A corporation will be deemed a citizen of the state in which it is incorporated

and where it maintains its “principal place of business.” Wachovia v. Schmidt, 546

U.S. 303, 318 (2006); 28 U.S.C. § 1332(c)(1). The Supreme Court has determined

that the “nerve center” test must be employed to determine a corporation's principal

place of business. Hertz Corp. v. Friend, 559 U.S. 77, 80-81 (2010). The principal

place of business analysis considers the location where “officers direct, control, and

coordinate the corporation's activities” and generally will “be the place where the

corporation maintains its headquarters, provided that the headquarters is the

actual center of direction, control, and coordination ... and not simply an office

where the corporation holds its board meetings (for example, attended by directors

and officers who have traveled there for the occasion).” Id. at 92–93. The Hertz

Court concluded that the nerve center points in “a single direction;” therefore, a

corporation may only have one principal place of business. Id. at 93.

B. Standard of Review

Pursuant to 28 U.S.C. § 636(b)(1) and Federal Rule of Civil Procedure 72(b),

when a magistrate judge issues a report and recommendation on a matter

“dispositive of a claim or defense of a party,” the district court judge shall make a de

novo determination of any portion of the magistrate judge’s disposition to which

specific written objection has been made. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P.

72(a) & (b); Thomas E. Hoar, Inc. v. Sara Lee Corp., 900 F.2d 522, 525 (2d Cir.

1990).

C. Defendants' Have Sustained Their Burden

Preliminarily, the Court rejects the proposition, advanced by Defendants,

that Judge Wicks errored in concluding that there was evidence that officers

conducted occasional meetings in New York. In support thereof, Defendants cite to

paragraphs 9 and 22 of the Jacobi Declaration. Neither paragraph supports what

Defendants say they do – that the occasional meeting in New York were not of NTI-

NY's officers.

First, the Court notes that while Jacobi states he is chief financial officer of

NTI, paragraph 9 makes clear that he is neither an officer nor even an employee of

NTI-NY. ("Since NTI-NY was organized I have performed the same CFO functions

for NTI-NY as I perform for NTI. . . . I perform all CFO functions as an independent

contractor." (Emphasis added). Thus, that he has "never been to New York to meet

any one or for any reason concerning the business of . . . NTI-NY" does not establish

that other officers of NTI-NY - who, by the way, are not identified by Defendants -

did not met in New York. Paragraph 22 simply refers to the conduct of "occasional

meetings" in New York but does not state the purpose of the meetings or who

attended. Given that the withheld information is within Defendants' knowledge,

Judge Wicks did not error in concluding that officers of NTI-NY conducted

occasional meetings.

Nonetheless, reviewing the totality of the evidence de novo, the Court

concludes that the preponderance of the evidence supports that there is subject

matter jurisdiction. First, that occasional meetings of NTI-NY officers may have

been held in New York does not, in view of the other evidence presented (and

discussed below), support that New York is the nerve center of NTI-NY. Indeed, it is

noteworthy that the allegations in both the original and amended complaint,

support only occasional or sporadic meetings of NTI-NY officers in New York.

Therein, in an effort to establish personal jurisdiction over the Defendants,

Plaintiffs point to only one meeting attended by Gleich and Kindt in New York City

on June 18, 2021, and one other meeting attended by Kindt in "New York State" in

August 2021. (Comp. ¶ 14; Amended Comp. ¶ 15.)

With respect to the New York activities of Josephine and Anthony on behalf

on NTI-NY, those activities all ceased prior to the filing of the complaint and

therefor do not support subject matter jurisdiction at the commencement of the

action. See Benchmark Invs. Inc. v. Pavmed, 2021 WL 597918 (S.D.N.Y. Dec. 16,

2021) ("a corporation's nerve center . . . is where the lion's share of corporate

decision making occurs at the time a lawsuit is initiated, not where corporate

decisions making may have happened in the past . . . .)

The evidence here is that each of NTI-NY's officers have maintained their

respective offices only in Nevada, California and Texas, not New York. Also, its

management and business policy has always been formulated in Nevada, California

and Texas, while its legal functions are controlled and managed from the State of

Nevada. The foregoing together with its headquarters and primary offices being

situated in Nevada, support that NTI-NY's principal place of business is other than

New York, viz., that it is in Nevada. But even if California and Texas are also

possible principal places of business, denial of the motion for remand is warranted.

As one noted treatise states:

[A] case may proceed even if a corporation's principal place of business

has not been pinpointed when the federal court's jurisdiction otherwise

is clear. If it can be shown, for example, that the company's principal

place of business is one of two states, and the opposing party is not a

citizen of either of them, subject matter jurisdiction will be upheld.

Wright and Miller, 13 Fed. Prac. & Proc. Juris § 3625 (3d ed., April 2022 update)

(footnote with citations omitted).

VI. CONCLUSION

For the reasons set forth above, the Court upholds Defendants' objections,

declines to adopt the R&R, and denies Plaintiff's motion to remand.

SO ORDERED.

Dated: Central Islip, New York s/ Denis R. Hurley

May 11, 2022 Denis R. Hurley

United States District Judge