3123 Smb LLC v. Steven Horn

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

3123 SMB LLC, individually, and as No. 16-55304

assignee,

Plaintiff-Appellant, D.C. No.

2:14-cv-08115-

v. DSF-FFM

STEVEN HORN,

Defendant-Appellee. OPINION

Appeal from the United States District Court

for the Central District of California

Dale S. Fischer, District Judge, Presiding

Argued and Submitted November 15, 2017

Pasadena, California

Filed January 17, 2018

Before: Jacqueline H. Nguyen and Andrew D. Hurwitz,

Circuit Judges, and Steven Paul Logan, * District Judge.

Opinion by Judge Nguyen;

Dissent by Judge Hurwitz

*

The Honorable Steven Paul Logan, United States District Judge

for the District of Arizona, sitting by designation.

2 3123 SMB V. HORN

SUMMARY **

Diversity Jurisdiction

The panel reversed the district court’s dismissal for lack

of subject matter jurisdiction, and remanded for the district

court to consider whether there was jurisdictional

manipulation or an alter ego relationship between Lincoln

One Corporation and 3123 SMB LLC for purposes of

establishing diversity citizenship and jurisdiction.

Under 28 U.S.C. § 1332(c)(1), for purposes of

determining diversity jurisdiction, a corporation is deemed

to be a citizen of the State where it was incorporated and the

State where it has its principal place of business. The

Supreme Court, using a nerve center test, defined “principal

place of business” as “the place where the corporation’s high

level officers direct, control, and coordinate the

corporation’s activities.” Hertz Corp. v. Friend, 559 U.S.

77, 80 (2010).

Lincoln One, a holding company, was formed less than

one month before this lawsuit was filed, and its only act

during those few weeks was to incorporate in Missouri.

The panel held that what little business Lincoln One

conducted was done in Missouri; and Lincoln One and its

wholly-owned subsidiary, 3123 SMB, were putative citizens

of that state alone. The panel concluded that because

defendant Steven Horn was a California citizen, there

**

This summary constitutes no part of the opinion of the court. It

has been prepared by court staff for the convenience of the reader.

3123 SMB V. HORN 3

appeared to be complete diversity between the parties. The

panel further concluded, however, that there was evidence

that 3123 SMB and Lincoln One were treated as alter egos,

and that Lincoln One’s owners manipulated the ownership

structure of the real property at the center of this lawsuit in

order to manufacture diversity, and these were issues that the

district court did not consider. The panel, therefore,

conditionally reversed the district court’s jurisdictional

dismissal and remanded so that the district court could

consider in the first instance whether the entities were alter

egos or whether there was jurisdictional manipulation that

would warrant treating 3123 SMB as a California citizen.

Concerning the question of how to classify the

citizenship of a holding company such as Lincoln One, the

panel concluded that a recently-formed holding company’s

principal place of business is the place where it has its board

meetings, regardless of whether such meetings have already

occurred, unless evidence shows that the corporation is

directed from elsewhere.

Judge Hurwitz dissented, and would affirm the district

court’s dismissal based on its finding that Lincoln One’s

nerve center at the time the suit was filed was in California,

where its shareholders and directors resided, and where the

only corporate asset – as apartment complex – was located.

4 3123 SMB V. HORN

COUNSEL

David C. Knieriem (argued), Law Offices of David C.

Knieriem, Clayton, Missouri, for Plaintiff-Appellant.

John Terence Lupton (argued) and George M. Lindahl,

Lindahl Beck LLP, Los Angeles, California, for Defendant-

Appellee.

OPINION

NGUYEN, Circuit Judge:

For purposes of determining diversity jurisdiction, “a

corporation shall be deemed to be a citizen of every State . . .

by which it has been incorporated and of the State . . . where

it has its principal place of business.” 28 U.S.C.

§ 1332(c)(1). While a corporation’s state of incorporation

can be determined with ease, its principal place of business

often proves elusive. To simplify the jurisdictional inquiry,

the Supreme Court has defined “principal place of business”

to mean “the place where the corporation’s high level

officers direct, control, and coordinate the corporation’s

activities.” Hertz Corp. v. Friend, 559 U.S. 77, 80 (2010).

This “nerve center” is “typically . . . found at a corporation’s

headquarters.” Id. at 81.

But what of a corporation that has few, if any, activities?

That’s the case for a holding company, which does little

other than passively own other companies and supervise

their management. The corporation at issue here—Lincoln

One Corporation—was formed less than a month before this

lawsuit was filed, and its only act during those few weeks

was to incorporate. Determining Lincoln One’s principal

3123 SMB V. HORN 5

place of business is an existentialist exercise, yet one on

which its entitlement to litigate in federal court depends.

We conclude, based on the slim record before us, that

what little business Lincoln One conducted was done in

Missouri—its state of incorporation—making both Lincoln

One and its wholly-owned subsidiary, plaintiff 3123 SMB

LLC, putative citizens of that state alone. Because defendant

Steven Horn is a California citizen, there appears to be

complete diversity between the parties.

There is evidence, however, that 3123 SMB and Lincoln

One were treated as alter egos, and that Lincoln One’s

owners manipulated the ownership structure of the real

property at the center of this lawsuit in order to manufacture

diversity—issues that the district court didn’t consider. We

therefore conditionally reverse the district court’s

jurisdictional dismissal and remand so that it may consider

in the first instance whether these entities were alter egos or

there was jurisdictional manipulation that would warrant

treating 3123 SMB as a California citizen.

I.

This lawsuit, which involves a claim of legal

malpractice, is part of a larger dispute regarding real

property indirectly controlled by Anthony Kling and his

mother, Mary Kling. The property is a building located at

3115–3125 Santa Monica Boulevard in Santa Monica,

California. 1

1

Anthony Kling denied that 3123 SMB was named after the Santa

Monica property, testifying at his deposition that it was “just a made up

name.”

6 3123 SMB V. HORN

In 2008, the Klings and various entities associated with

their family sued several defendants in Los Angeles County

Superior Court, claiming that a construction project next to

the Santa Monica property caused subsidence damage due to

inadequate methods of construction. See Kling v. Gabai

Constr., No. B235367, 2012 WL 5458924, at *1 (Cal. Ct.

App. Nov. 9, 2012) (unpublished). The Kling parties, which

eventually included 3123 SMB, subsequently hired Horn to

represent them. 2 Horn is a resident of California.

The attorney-client relationship soured when the state

court lawsuit was dismissed. According to 3123 SMB’s

amended complaint in the instant case, Horn proffered

27 exhibits for a “long cause binder” that allegedly “were

incomplete, inadequate, and did not allow the case to be

properly prepared for trial.” 3123 SMB terminated Horn in

October 2013. Its new counsel “attempted to augment and

repair” the exhibit list that Horn had prepared. The state

court refused to allow it and, finding the exhibit list

inadequate, dismissed the case for failure to be brought to

trial within five years. See Cal. Civ. Proc. Code § 583.310.

In July 2011, before Horn’s representation in the state

court litigation ended, 3123 SMB was organized and

registered as a limited liability company with the Missouri

Secretary of State. At the time, its sole member was another

limited liability company, Washington LLC, which in turn

was controlled entirely by Anthony Kling. 3123 SMB

gained ownership of the Santa Monica property and the

litigation rights in a 2012 transfer. It became a party to the

2

Although the record does not disclose when this occurred,

3123 SMB alleges in parallel state court litigation that it was on or about

March 14, 2011. Complaint at 4, 3123 SMB LLC v. Horn, No.

BC682318 (L.A. Cty. Super. Ct. filed Nov. 3, 2017).

3123 SMB V. HORN 7

state court litigation in May 2013. See Kling v. Hassid, No.

B261391, 2016 WL 538238, at *1 n.1 (Cal. Ct. App. Feb.

10, 2016) (unpublished).

3123 SMB’s sole activity is to manage the Santa Monica

property. Because the building is uninhabitable, 3123 SMB

has little business to transact other than litigation related to

the property damage. Its listed place of business is the

Clayton, Missouri office of its litigation attorney, David

Knieriem. Anthony and Mary Kling are the only persons

authorized to act on behalf of 3123 SMB. It has no officers,

directors, or employees.

The Klings reside in California but claim to have

longstanding connections to Missouri. Mary Kling is from

St. Louis, and the Klings still have family there. Anthony

Kling goes to St. Louis “all the time”—usually a couple of

times each year, but it “[d]epends on how the Cardinals are

doing.” He has operated “multiple” unnamed businesses in

Clayton, Missouri, where he has unspecified real and

intellectual property interests. He “regularly interact[s] with

businesses [and] government entities, in . . . Missouri.”

However, Anthony Kling has lived in Los Angeles his entire

life other than to attend school in New York, and Mary Kling

has resided in Los Angeles since at least the late 1990s.

In September 2014, nearly a year after Horn’s

representation ended, 3 Mary Kling incorporated Lincoln

One. The corporation’s Missouri-based agent and corporate

attorney, Alex Kanter, filed the articles of incorporation with

3

California has a one-year statute of limitations for legal

malpractice claims. See Cal. Civ. Proc. Code § 340.6(a); Lee v. Hanley,

354 P.3d 334, 337 (Cal. 2015).

8 3123 SMB V. HORN

the Missouri Secretary of State, listing his office in Clayton

as Mary Kling’s address. 4 Lincoln One acquired the single

membership in 3123 SMB from Washington LLC. The

following month, 3123 SMB filed this suit against Horn for

legal malpractice.

Mary Kling is Lincoln One’s president and secretary.

Initially, she was the sole board member. Subsequently,

Anthony Kling joined the board. He owns 75% of the

corporation’s shares, and Mary Kling owns the rest.

According to Anthony Kling, Lincoln One’s board

meetings take place annually in Clayton, although none had

been held at the time of the lawsuit. Subsequently, Lincoln

One held a board meeting in October 2015. Anthony Kling

attended in person, and Mary Kling attended telephonically

due to health issues. Lincoln One’s corporate records are

kept in Missouri at its attorneys’ office.

Lincoln One’s sole business, which it conducts at board

meetings, “is to provide direction to 3123 SMB, LLC.”

Currently, this direction is to prosecute the lawsuits

concerning the damage to the Santa Monica property.

Lincoln One does not conduct business anywhere else.

At the time of this lawsuit, Lincoln One had no

“fundamental daily real estate business operations.” It did

not directly own or manage any real estate. Its fundamental

business operation was to hold a meeting each year in

Clayton to approve the following year’s directors and

4

In Missouri, as in many other jurisdictions, a corporation’s

existence begins when its articles of incorporation are filed with the

secretary of state. See Mo. Rev. Stat. § 351.075; Model Bus. Corp. Act

§ 2.03 (Am. Bar. Ass’n 2016).

3123 SMB V. HORN 9

officers and any modification to the bylaws or issuance of

common stock.

The district court dismissed this action for lack of subject

matter jurisdiction, concluding that California was Lincoln

One’s principal place of business under Hertz.

II.

Our jurisdiction arises under 28 U.S.C. § 1291. We

review the district court’s factual findings for clear error.

Co-Efficient Energy Sys. v. CSL Indus., Inc., 812 F.2d 556,

557 (9th Cir. 1987) (citing Bruce v. United States, 759 F.2d

755, 758 (9th Cir. 1985)). “The ultimate legal conclusion

that the underlying facts are insufficient to establish diversity

jurisdiction is subject to de novo review.” Id.

III.

A.

For purposes of diversity jurisdiction, a limited liability

company “is a citizen of every state of which its

owners/members are citizens.” Johnson v. Columbia Props.

Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006).

Therefore, Lincoln One’s citizenship determines whether

Horn and 3123 SMB are diverse. If Lincoln One’s principal

place of business is in California, then both sides of this

dispute are citizens of the same state and the district court

correctly dismissed the matter.

Under the “nerve center” test, a corporation’s principal

place of business “should normally 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

10 3123 SMB V. HORN

corporation holds its board meetings (for example, attended

by directors and officers who have traveled there for the

occasion).” Hertz, 559 U.S. at 93. A holding company,

however, is not “normal.” It engages in little activity, so

there is little to direct, control, or coordinate. Its purpose—

holding interest in other companies, see 6A William Meade

Fletcher, Cyclopedia of the Law of Corporations § 2821

(2017)—is passive.

Only one circuit has grappled with Hertz’s application to

a holding company. In Johnson v. SmithKline Beecham

Corp., the Third Circuit considered a corporation with “quite

limited” activities, “consist[ing] primarily of owning its

interest in [a limited liability company], holding intra-

company accounts, issuing and receiving dividends, and

paying taxes.” 724 F.3d 337, 342, 353 (3d Cir. 2013). The

three-member board of directors held quarterly and special

board meetings in Wilmington, Delaware, the holding

company’s state of incorporation, with some members

appearing telephonically. Id. at 342. The board alone was

authorized to manage the company’s activities, id. at 343,

although there was a dispute “about the extent of the actual

decision-making that occur[ed] at the meetings,” id. at 342.

Other than the board meetings, the company’s presence in

Wilmington was “minimal.” Id. It sublet a 10’ x 10’ office

there to house its books and records, and the office was

“rarely visited.” Id. at 343.

Johnson concluded that the holding company was a

citizen solely of Delaware because its nerve center was in

Wilmington, where the board meetings took place. Id. at

356. Acknowledging the Supreme Court’s dictum that a

corporation’s nerve center is “normally . . . not simply an

office where the corporation holds its board meetings,”

3123 SMB V. HORN 11

Hertz, 559 U.S. at 93, the Third Circuit explained why it’s

inapplicable to holding companies:

[T]he kind of board meetings denigrated in

Hertz were being considered in the context of

a case involving a sprawling operating

company, with extensive activities carried

out by 11,230 employees at facilities in

44 states. For a holding company . . . ,

relatively short, quarterly board meetings

may well be all that is required to direct and

control the company’s limited work. . . .

[T]he board generally conducts three tasks at

each meeting: (1) it approves or corrects the

minutes from the previous meeting, (2) it

reviews the company’s financial statements

with [an] accountant . . . , and (3) it addresses

any other business required to come before

the meeting, such as authorizing agents to

sign documents, making changes to the

officers, paying a dividend, or, occasionally,

restructuring the company’s holdings.

Generally, such business is straightforward

and takes little time, yet it constitutes [the

holding company’s] primary activity:

managing its assets. The location of board

meetings is therefore a more significant

jurisdictional fact here than it was in Hertz,

and the meetings’ brevity does not

necessarily reflect an absence of substantive

decision-making.

Johnson, 724 F.3d at 354 (citation and internal quotation

marks omitted). The court cited “numerous post-Hertz

[district court] cases that have determined the principal place

12 3123 SMB V. HORN

of business of a holding company by looking to the location

in which its officers or directors meet to make high-level

management decisions.” Id. n.19.

The First Circuit applied a similar analysis in the pre-

Hertz case of Taber Partners, I v. Merit Builders, Inc.,

987 F.2d 57 (1st Cir. 1993). Two holding companies, both

incorporated in New York, formed a partnership to acquire

and operate a hotel in Puerto Rico. Id. at 59. Each

corporation’s “sole function” was “to hold or administer its

respective interest in [the partnership].” Id. at 60. They

maintained corporate records and financial accounts in New

York. Id. at 59. They made all policy decisions there as

well, including the decision to invest in the partnership, the

election of corporate officers, and the selection of

accountants. Id. at 60. The day-to-day management of the

partnership was delegated to an executive and assistant

director. Id. at 59–60.

The district court concluded that both corporations had a

principal place of business in Puerto Rico because they

“were formed to act as owners of the [hotel]” and devoted

“almost all of their corporate activity to administer their

assets in the partnership.” Id. at 60. The First Circuit

reversed. It explained that “in determining a corporation’s

principal place of business, a district court’s inquiry must

focus solely on the business activities of the corporation

whose principal place of business is at issue.” Id. at 62–63.

The partnership—not the corporations—managed the

hotel’s operations. Because the corporations’ “sole

corporate ‘activities’ . . . consist[ed] of holding or

administering their assets in [the partnership],” their

principal place of business was in New York. Id. at 63.

B.

3123 SMB V. HORN 13

The holding company in this case, Lincoln One, is even

less active than those in Johnson and Taber Partners.

Because diversity jurisdiction “depends upon the state of

things at the time of the action brought,” Grupo Dataflux v.

Atlas Glob. Grp., L.P., 541 U.S. 567, 570 (2004) (quoting

Mollan v. Torrance, 22 U.S. (9 Wheat.) 537, 539 (1824)),

we must determine Lincoln One’s principal place of business

as of its 25th day of existence. In that brief time, the only

business that Lincoln One conducted was to incorporate.

In the somewhat analogous context of a company that is

winding down, two circuits have held that a dissolved

corporation has no principal place of business for diversity

purposes, and is therefore a citizen only of its state of

incorporation. See Holston Invs., Inc. B.V.I. v. LanLogistics

Corp., 677 F.3d 1068, 1071 (11th Cir. 2012) (concluding

that such a rule “aligns most closely with the Supreme

Court’s analysis in Hertz”); Midlantic Nat’l Bank v. Hansen,

48 F.3d 693, 698 (3d Cir. 1995) (rejecting, pre-Hertz, “the

notion that implicit in the statute’s terms is the requirement

that all corporations be deemed to have a principal place of

business”). But see Wm. Passalacqua Builders, Inc. v.

Resnick Developers S., Inc., 933 F.2d 131, 141 (2d Cir.

1991) (requiring inquiry into inactive corporation’s last

principal place of business).

We have not decided whether an inactive corporation

must have a principal place of business. In Co-Efficient

Energy, we found “a certain perverse logic” in the

proposition that “an inactive corporation . . . is only a citizen

of the state of its incorporation.” 812 F.2d at 558. But we

didn’t need to resolve the issue because we concluded that

the corporation in question was indeed active. Id. The

corporation’s director and sole shareholder “made business

decisions, including the decision to contract with [the

14 3123 SMB V. HORN

defendant] and file this action.” Id. The location where

these decisions were made was deemed to be the

corporation’s principal place of business. Id.; see also

MacGinnitie v. Hobbs Grp., LLC, 420 F.3d 1234, 1240 (11th

Cir. 2005) (concluding that the holding company was “not

an ‘inactive’ corporation in the sense in which other circuits

have used that term”).

Here, in contrast, Lincoln One did not engage in any

activity during its first 25 days. This lawsuit was filed by

3123 SMB, not Lincoln One. In concluding that California

was Lincoln One’s principal place of business, the district

court appears to have conflated 3123 SMB’s management of

its lawsuit, which the court reasonably assumed would be

directed from California, where the Klings reside, with

Lincoln One’s management of 3123 SMB at its annual

meetings, which had not yet occurred and would take place

in Missouri. Lincoln One’s first board meeting was not held

until a year after 3123 SMB filed this lawsuit.

Johnson rejected the idea that a holding company’s nerve

center is where the subsidiary limited liability company’s

management is based, because that “ignores the well-

established rule that a parent corporation maintains separate

citizenship from a subsidiary unless it has exerted such an

overwhelming level of control over the subsidiary that the

two companies do not retain separate corporate identities.”

Id. at 351; accord Taber Partners, 987 F.2d at 62–63; cf.

Pyramid Sec. Ltd. v. IB Resolution, Inc., 924 F.2d 1114,

1120 (D.C. Cir. 1991) (refusing to impute subsidiary’s

citizenship to its parent even where the parent is the “alter

ego” of the subsidiary and “the parent corporation is being

sued solely for the acts of its completely controlled

subsidiary”). We adhere to this rule as well. See Danjaq,

S.A. v. Pathe Commc’ns Corp., 979 F.2d 772, 775 (9th Cir.

3123 SMB V. HORN 15

1992) (“[T]he citizenship of a parent is distinct from its

subsidiary where . . . there is no evidence of an alter ego

relationship.”).

The district court may have believed that an alter ego

relationship exists between Lincoln One and 3123 SMB.

The two entities are managed by the same two individuals

utilizing the same attorneys, with no one else involved. But

Anthony Kling provided unimpeached deposition testimony

and sworn declaration statements that Lincoln One’s only

business is to provide general direction to 3123 SMB—at the

moment, to continue prosecuting the property-related

lawsuits—and that this direction is given exclusively at

board meetings in Clayton, Missouri. To reach the

conclusion that Lincoln One and 3123 SMB are alter egos,

the court would need to reject this evidence, which it can’t

do without explicitly finding Anthony Kling incredible. See

Data Disc, Inc. v. Sys. Tech. Assocs., Inc., 557 F.2d 1280,

1285 (9th Cir. 1977) (“[I]f a plaintiff’s proof is limited to

written materials, it is necessary only for these materials to

demonstrate facts which support a finding of jurisdiction in

order to avoid a motion to dismiss. . . . If the pleadings and

other submitted materials raise issues of credibility or

disputed questions of fact with regard to jurisdiction, the

district court has the discretion to take evidence at a

preliminary hearing in order to resolve the contested issues.”

(citations omitted)).

The district court found it “completely implausible” that

Lincoln One had “not taken any actions other than the single

board meeting.” We disagree. It’s entirely plausible that

Lincoln One, which doesn’t do much at all, did nothing for

25 days. Its sole directive is to provide general direction to

3123 SMB, and at that time 3123 SMB had little business to

transact other than litigation related to the Santa Monica

16 3123 SMB V. HORN

property. Moreover, the district court’s reference to the

single board meeting in the context of Lincoln One’s

“implausible” inactivity suggests that it was examining a

time frame well beyond the 25 days. If so, it erred by

“consider[ing] facts that arose after the complaint was filed

in federal court.” In re Digimarc Corp. Derivative Litig.,

549 F.3d 1223, 1236 (9th Cir. 2008). There may be valid

reasons to doubt Anthony Kling’s testimony, 5 but its

substance—that Lincoln One’s activity was limited to board

meetings in Missouri—isn’t one of them.

C.

The question remains how to classify the citizenship of a

holding company such as Lincoln One that has engaged in

no activity other than incorporation. We conclude that a

recently-formed holding company’s principal place of

business is the place where it has its board meetings,

regardless of whether such meetings have already occurred,

unless evidence shows that the corporation is directed from

elsewhere.

The district court noted that Lincoln One’s sole officer,

Mary Kling, resided in California, and it found “no evidence

that any of the operations of Lincoln One are directed,

controlled, or coordinated from Missouri or anywhere else

other than California.” This was so, the court explained,

because Lincoln One’s single board meeting in Missouri

“occurred well after this case was filed.” The court’s

reasoning assumes both that a holding company’s principal

place of business is by default in the state where its officers

5

It’s not within our province to make credibility findings, see, e.g.,

Cruz v. City of Anaheim, 765 F.3d 1076, 1080 (9th Cir. 2014), so we

express no opinion on Anthony Kling’s credibility.

3123 SMB V. HORN 17

live and that its principal place of business can change over

time as the company holds a sufficient number of board

meetings at its true nerve center. Neither of these

assumptions withstands scrutiny.

The assumption that a holding company’s principal place

of business is in the state where its officers reside is

problematic for several reasons. To begin with, this

approach looks to the state as a whole rather than the specific

place within the state from which the officer presumably

directs the company’s activity. The Supreme Court has

cautioned that a corporation’s principal place of business “is

a place within a State. It is not the State itself.” 6 Hertz,

559 U.S. at 93. Corporations aren’t usually directed from

their managers’ homes. Here, there’s no evidence that Mary

Kling directed activity from her home as opposed to some

other location in her home state.

In addition, “[a] corporation’s ‘nerve center’ . . . is a

single place.” Id. (emphasis added). While that presents less

of a problem in the instant case—Mary Kling was Lincoln

One’s only officer and director at the time—holding

companies often have more than one decision-maker living

in more than one state. How is a district court to choose

among them? The dissent doesn’t say, and its rule would be

unworkable.

More generally, the connection between the state where

a holding company conducts its business, on the one hand,

and the states where its officers and directors reside, on the

other, is tenuous. Corporations based in metropolitan areas

6

The dissent overlooks this distinction in proposing a rule that a

holding company’s principal place of business is the state in which one

of the directors or managers resides.

18 3123 SMB V. HORN

spanning multiple states, such as New York, Chicago, or

Kansas City, frequently have officers residing in a

neighboring state. Many holding companies incorporate and

hold board meetings in sparsely populated states like

Delaware and Nevada, while their board members reside

elsewhere. In Johnson, for example, the holding company

had its board meetings in Delaware, while four of its six

officers and directors were based in other jurisdictions—two

in Pennsylvania and two in the United Kingdom. See 724

F.3d at 342–43 & n.9.

Equally problematic is the assumption that a

corporation’s principal place of business can shift over time

without any change to the corporation’s structure or

operation. Such an approach “invites greater litigation and

can lead to strange results.” Hertz, 559 U.S. at 94. Although

here the corporate subsidiary is the plaintiff, in many cases

it will be the defendant and, as such, unable to choose the

lawsuit’s timing. In those cases, the district court’s subject

matter jurisdiction would turn on happenstance. If the

holding company or its subsidiary were sued before there

were sufficient board meetings to establish a principal place

of business, the residence of one or more officers or directors

would determine its citizenship.

Prior to Hertz, when determining a corporation’s

principal place of business, the circuits applied multiple

overlapping tests that often lacked precision. See id. at 91–

92 (describing the “growing complexity” in this area of the

law). The Supreme Court chose the nerve center test over

the various competing tests in large part due to its

“administrative simplicity.” Id. at 94. Complex

jurisdictional tests waste resources by encouraging

gamesmanship and costly appeals while discouraging

litigation of a dispute’s merits. Id. Simple jurisdictional

3123 SMB V. HORN 19

rules, in contrast, benefit both courts and litigants. Courts,

which have an independent obligation to ensure that subject-

matter jurisdiction exists, “can readily assure themselves of

their power to hear a case.” Id. (citing Arbaugh v. Y&H

Corp., 546 U.S. 500, 514 (2006)). Straightforward

jurisdictional rules also offer greater predictability for

corporations making business and investment decisions and

for plaintiffs deciding whether to sue in state or federal court.

Id. at 94–95.

A rule that forces courts to pick a nerve center from the

potentially several states where corporate decision-makers

reside and to determine whether there have been enough

board meetings to establish a different nerve center would be

difficult to administer and generate unnecessary litigation on

collateral issues. In contrast, a rule presuming that from

inception a holding company directs its business from the

place where it holds board meetings is easy to apply. See

Johnson, 724 F.3d at 355 (“Even while cautioning courts to

identify a corporation’s actual center of direction and

control, Hertz ‘place[d] primary weight upon the need for

judicial administration of a jurisdictional statute to remain as

simple as possible.’” (quoting Hertz, 559 U.S. at 80)). And

the latter rule rests on sound assumptions.

Missouri, like many states, allows a corporation to

specify in its bylaws the location of annual meetings and, if

none is designated, provides that the meetings by default will

be held at the corporation’s registered office. See Mo. Rev.

Stat. § 351.225(1); Mod. Bus. Corp. Act § 7.01(b) (Am. Bar.

Ass’n 2016) (providing that corporation’s “principal office”

as designated in its annual report is location of annual

meetings if not otherwise specified); see also, e.g., Cal.

Corp. Code § 600(a); N.Y. Bus. Corp. Law § 602(a). Here,

Lincoln One’s registered office is in Clayton, Missouri.

20 3123 SMB V. HORN

There’s no evidence that its bylaws prescribe that the annual

meetings be held elsewhere, and Anthony Kling proffered

uncontradicted testimony that they are in fact held in

Clayton. Given the expectation that, absent evidence to the

contrary, a corporation holds its annual meetings at its

registered office, such meetings need not actually take place

in order to establish the corporation’s principal place of

business there. 7

D.

At the same time, courts must be alert to the possibility

of jurisdictional manipulation. 8 See Hertz, 559 U.S. at 97.

There is evidence in the record here from which such an

inference could be made. Lincoln One was incorporated

7

The dissent would hold otherwise because “[t]he inquiry focuses

on the location of the corporate nerve center when the suit is filed, not

on future, hypothetical actions.” Dissent at 25. If a holding company’s

board meets once per year in December, what difference does it make if

the board has already met when the company is sued in January? Either

way, no business will be conducted over the next 11 months and, as the

dissent points out, the shareholders can easily change the meeting place

during that time. Nor are we relying on “formalism.” Dissent at 25

Anthony Kling testified that Lincoln One’s board meets in Clayton, and

the corporate documents merely provide additional evidence of that.

8

The dissent’s criticism in this regard is essentially a critique of

Hertz, which directs courts to take remedial action “if the record reveals

attempts at manipulation.” 559 U.S. at 97. Moreover, this criticism is

unfounded unless one assumes—as we do not—that the use of holding

companies to manufacture diversity jurisdiction is widespread. Finally,

the dissent’s proposed rule would not reduce jurisdictional litigation.

Rather, it would encourage such litigation whenever recently-formed

holding companies are involved—even corporations formed for

legitimate purposes whose directors genuinely intend to hold meetings

outside their home states.

3123 SMB V. HORN 21

roughly one month before this suit was filed, near the end of

the statute of limitations. Prior to that time, 3123 SMB was

a California citizen, 9 precluding diversity jurisdiction.

Lincoln One’s incorporation and acquisition of 3123 SMB

rendered the parties nominally diverse just in time to file this

lawsuit in federal court. Subsequently, 3123 SMB brought

separate claims arising from the same conduct—Horn’s

alleged professional mistakes—in parallel state court

litigation.

However, the record also contains evidence suggesting

that Lincoln One incorporated in Missouri for legitimate

reasons. The Klings have deep ties to the state, and their

attorneys reside there. And there’s nothing inherently

problematic about a holding company and its subsidiary

having the same officers. See 6A Fletcher, supra, § 2821

(citing Haskell v. McClintic-Marshall Co., 289 F. 405, 413

(9th Cir. 1923)). On remand, the district court may consider

whether there has been jurisdictional manipulation. If so, it

should “take as the ‘nerve center’ the place of actual

direction, control, and coordination, in the absence of such

manipulation.” Hertz, 559 U.S. at 97.

IV.

Anthony Kling testified that Lincoln One holds its board

meetings in Clayton, Missouri. Whether that’s true is a

matter of credibility to be determined by the district court.

The fact that Lincoln One had not yet held a board meeting

9

Before Lincoln One assumed control, 3123 SMB’s sole member

was Washington LLC, which was controlled entirely by Anthony Kling,

a California citizen. See Johnson, 437 F.3d at 899.

22 3123 SMB V. HORN

does not in and of itself have jurisdictional significance if the

meeting’s location had already been determined.

Because 3123 SMB presented evidence that Lincoln

One’s minimal activity was directed from board meetings in

Missouri, that state appears to be the corporation’s principal

place of business. Therefore, we reverse the district court’s

jurisdictional dismissal. Our reversal is conditional. On

remand, the district court is free to consider whether there is

jurisdictional manipulation or an alter ego relationship

between Lincoln One and 3123 SMB.

REVERSED and REMANDED.

HURWITZ, Circuit Judge, dissenting:

The Court today holds that a corporation’s principal

place of business was located in a state in which the company

had done absolutely no business at the time this lawsuit was

filed. Although identifying the principal place of business

of a holding company is not always an easy task, the “nerve

center” cannot be in a state where the corporate EEG is flat.

The district court correctly found that Lincoln One’s nerve

center at the time this suit was filed was in California, where

its shareholders and directors resided, and where the only

corporate asset—an apartment complex—was located. I

therefore respectfully dissent.

I.

I start, as does the majority, with the basics. For

purposes of diversity jurisdiction, a corporation is a citizen

both of its state of incorporation and the state “where it has

its principal place of business.” 28 U.S.C. § 1332(c)(1). A

3123 SMB V. HORN 23

party invoking federal jurisdiction bears the burden of

establishing it. See Kokkonen v. Guardian Life Ins. Co. of

Am., 511 U.S. 375, 377 (1994) (“It is to be presumed that a

cause lies outside [our] limited jurisdiction, and the burden

of establishing the contrary rests upon the party asserting

jurisdiction.”) (citations omitted).

It is undisputed that Lincoln One was incorporated in

Missouri. But, that is only half the battle. It is also plaintiff’s

burden to establish the location of the corporation’s principal

place of business, or its “nerve center.” See Hertz Corp. v.

Friend, 559 U.S. 77, 92–93 (2010).

Plaintiff failed to meet that burden. Rather, the district

court found that Lincoln One’s principal place of business

was in California, a factual determination we review for

clear error. See Co-Efficient Energy Sys. v. CSL Indus., Inc.,

812 F.2d 556, 557 (9th Cir. 1987). That finding was not

clearly erroneous. Plaintiff conceded that there had been no

corporate activity in Missouri between the day Lincoln One

was incorporated and the filing of this suit. The district court

found that Mary Kling, Lincoln One’s sole officer, is a

California resident who had not travelled to Missouri during

that period, and found implausible plaintiff’s assertion that

the corporation had undertaken no actions anywhere in the

critical time frame. And, because “the jurisdiction of the

court depends upon the state of things at the time of the

action brought,” Grupo Dataflux v. Atlas Glob. Grp.,

541 U.S. 567, 570 (2004) (quoting Mollan v. Torrance,

22 U.S. (9 Wheat.) 537, 539 (1824)), we cannot consider

later activity, such as the board meeting held by Lincoln One

in Missouri.

Indeed, even adopting the majority’s premise that

Lincoln One was completely inactive during the relevant

period, the district court’s dismissal must be affirmed. A

24 3123 SMB V. HORN

corporation’s principal place of business is “the place where

a corporation’s officers direct, control, and coordinate the

corporation’s activities.” Hertz, 559 U.S. at 92–93. Plaintiff

presented absolutely no evidence that any such direction,

control or coordination occurred in Missouri. Indeed, the

only evidence on this issue was that Lincoln One’s sole

officer was a California citizen who did nothing in Missouri

between the date of incorporation and the filing of this suit.

II.

The majority relies heavily on Johnson v. SmithKline

Beecham Corp. for the proposition that the nerve center of a

holding company is where its board meetings are supposed

to take place. 724 F.3d 337 (3d Cir. 2013). But in Johnson,

the holding company actually held quarterly board meetings

in Delaware before the suit was filed. Id. at 353–54. Thus,

Johnson does not stand for the proposition that the state of

incorporation is presumptively the principal place of

business of a holding company even if no activity has

occurred there. Rather, it faithfully applies Hertz by

identifying the location in which the corporate “officers or

directors meet to make high-level management decisions.”

Id. at 354 n.19.

The majority’s reliance on Taber Partners, I v. Merit

Builders, Inc., 987 F.2d 57 (1st Cir. 1993), is similarly

misplaced. In Taber, during five years before the filing of

the lawsuit, a “‘control-group’ of twelve individuals”

maintained the holding company’s “corporate records and

financial accounts” in New York. Id. at 60. There is no

evidence here that Lincoln One’s sole officer did anything at

all in Missouri before the suit was filed.

The majority also relies on Missouri law, which allows a

corporation to specify where its annual meetings will be

3123 SMB V. HORN 25

held, and Lincoln One’s articles of incorporation, which

specify that those meetings will occur in Clayton, Missouri.

Mo. Rev. Stat. § 351.225(1). But the Supreme Court

rejected this the type of formalism in Hertz. See 559 U.S. at

97 (“[W]e reject . . . that the mere filing of a form like the

Securities and Exchange Commission’s Form 10–K listing a

corporation’s ‘principal executive offices’ would, without

more, be sufficient proof to establish a corporation’s ‘nerve

center.’”). The inquiry focuses on the location of the

corporate nerve center when the suit is filed, not on future,

hypothetical actions. Indeed, under Missouri law,

shareholders can by simple agreement change the specified

location of the annual meetings, see Mo. Rev. Stat.

§ 351.225, 290, so the provision in the articles of

incorporation did not assure that the meetings would take

place in Clayton.

III.

Today’s decision gives rise to the very dangers of

jurisdictional manipulation that Hertz eschews. Under the

majority’s approach, a newly formed corporation is entitled,

in the absence of other activity, to a presumption that its state

of incorporation is also its principal place of business. But,

the “nerve center” of a corporation may shift over time.

Thus, Lincoln One, having established diversity simply by

virtue of its state of incorporation, can hereafter safely

conduct its business entirely in California but still invoke the

limited jurisdiction of an Article III court.

I respectfully dissent.