James Harris v. Lee Rand

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JAMES B. HARRIS; JAMES B. HARRIS 

PRODUCTIONS, INC.; IAN REYNOLDS;

CAMJET INC.; MARK LIPSKY; WHO’S

ON FIRST? PRODUCTIONS, INC.;

THOMAS H. SOMERS; GARY M.

ERICKSON; RICHARD E. ROSS; GARY

KILLIEBREW; JUANITA KILLIEBREW;

KILLIEBREW FARMS, INC.; ROBERT

O’BYRNES; WILLAMETTE FINANCIAL

GROUP, INC.; GRAHAM CATT;

GLYNIS CATT; ROBERT STASKIEWICZ; No. 10-57012

SANDY STASKIEWICZ; ROBERT D.C. No.

RUSSELL,

Plaintiffs-Appellants,

 2:10-cv-03804-

PSG-SS

v. OPINION

LEE W. RAND,

Defendant-Appellee,

and

JAMES EDGAR BURKE, II; IMUSOL

TRADING, S.A.; CENTRAL EUROPEAN

INTERNATIONAL BANK, LTD.; JOHN

W. DORAMUS; LUCY F. BURKE;

JAMES EDGAR BURKE, III,

Defendants.



Appeal from the United States District Court

for the Central District of California

Philip S. Gutierrez, District Judge, Presiding

Argued and Submitted

May 8, 2012—Pasadena, California

6723

6724 HARRIS v. RAND

Filed June 13, 2012

Before: Dorothy W. Nelson, Raymond C. Fisher, and

Morgan B. Christen, Circuit Judges.

Opinion by Judge Christen

6726 HARRIS v. RAND

COUNSEL

Abraham R. Wagner, Los Angeles, California, for the appel-

lants.

Andrew J. Waxler & Danielle R. Sokol (argued), Waxler Car-

ner Brodsky LLP, El Segundo, California, for the appellee.

OPINION

CHRISTEN, Circuit Judge:

James B. Harris et al. (collectively, “plaintiffs”) appeal

from the district court’s dismissal without prejudice of their

first amended complaint for lack of subject matter jurisdic-

tion. The district court, citing Hertz Corp. v. Friend, ___ U.S.

___, 130 S. Ct. 1181 (2010), dismissed the first amended

complaint because plaintiffs failed to provide factual support

for their allegations of diversity. But Hertz did not impose a

heightened pleading standard and, in two orders issued before

its order of dismissal, the district court requested that plain-

tiffs provide further allegations of the corporate parties’ prin-

cipal places of business, not further proof. The district court

did not abuse its discretion by requesting proof of the parties’

principal places of business, but we find its orders inconsis-

tent. We therefore vacate the order dismissing the first

amended complaint, and remand.

BACKGROUND

On May 20, 2010, plaintiffs filed suit in the United States

District Court pursuant to 28 U.S.C. § 1332(a)(2), which pro-

vides for subject matter jurisdiction over actions between citi-

zens of a state and citizens or subjects of a foreign state.1

1

Plaintiffs later amended the complaint to properly assert jurisdiction

under § 1332(a)(3) because at least one of the defendants, Lee W. Rand,

was a United States citizen. See 28 U.S.C. § 1332(a)(3) (providing for

original jurisdiction over actions between “citizens of different States and

in which citizens or subjects of a foreign state are additional parties”).

HARRIS v. RAND 6727

On June 28, 2010, the district court issued an Order to

Show Cause (“OSC”) why the complaint should not be dis-

missed for lack of subject matter jurisdiction. The district

court’s order stated that the complaint’s jurisdictional aver-

ment was “patently insufficient.” It also stated that plaintiffs

failed to offer adequate facts to support their assertion of the

corporate parties’ principal places of business. The district

court cited Hertz, where the Supreme Court held that a corpo-

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

corporation’s high level officers direct, control, and coordi-

nate the corporation’s activities,” i.e., its “nerve center.” 130

S. Ct. at 1186.

On July 9, 2010, plaintiffs responded to the OSC. Their

response stated that the defendant corporations’ principal

places of business, or “nerve centers,” were in Louisiana and

Hungary. Their response also provided information regarding

the directors, headquarters, and offices of those corporations.

Plaintiffs’ response alleged complete diversity existed

because “[w]hile Plaintiffs come from several states and Aus-

tralia, none are residents or citizens of Louisiana.” Plaintiffs’

response alternatively requested leave to amend the complaint

should the district court not find complete diversity.

Because plaintiffs’ response did not provide any additional

facts regarding the principal places of business of the plaintiff

corporations, despite providing “substantial information about

the defendant corporations,” the district court deemed the

response inadequate. But the court also granted leave to

amend and plaintiffs subsequently filed their first amended

complaint (“FAC”) which included allegations of the princi-

pal places of business for each of the corporate parties.

On September 9, 2010, the district court dismissed the FAC

without prejudice for lack of subject matter jurisdiction. Cit-

ing Hertz, the district court’s order explained that plaintiffs

“provide[d] no allegation of fact upon which [the district

court could] determine where the ‘corporation’s high level

6728 HARRIS v. RAND

officers direct, control, and coordinate the corporation’s activ-

ities.’ ” The district court concluded that plaintiffs failed to

satisfy their burden to show citizenship by a preponderance of

evidence. Without allegations as to the plaintiff corporations’

“nerve centers,” the court ruled that it had no basis for con-

cluding that complete diversity existed.

Plaintiffs filed a motion for rehearing pursuant to Federal

Rules of Civil Procedure 59(e) and 60 arguing that the district

court committed clear error and that its dismissal order was

“manifestly unjust.” Alternatively, plaintiffs requested leave

to amend their complaint again or certification for an interloc-

utory appeal of the dismissal. The district court denied the

motion for rehearing, explaining that the complaint had been

dismissed “based on Plaintiffs[’] failure to provide factual

support for its allegations in response to the Court’s specific

request, not on the presence or absence of certain pleading

language.” This appeal followed.

DISCUSSION

We address two issues in this case. We first decide

whether, in light of Hertz, a complaint must now plead that

a corporate party’s “nerve center” is located in a particular

place. Second, we decide on the facts of this case whether the

district court properly dismissed the FAC. We answer both in

the negative. Because we conclude that the district court erred

by dismissing plaintiffs’ FAC, we do not address plaintiffs’

claims that the district court abused its discretion by denying

the motion for rehearing and the request for leave to amend

the FAC.

I. Hertz did not impose a heightened pleading standard.

a. General pleading requirements

[1] Under Federal Rule of Civil Procedure 8(a)(1), a plead-

ing must contain “a short and plain statement of the grounds

HARRIS v. RAND 6729

for the court’s jurisdiction, unless the court already has juris-

diction and the claim needs no new jurisdictional support.”

The federal diversity jurisdiction statute provides that “a cor-

poration shall be deemed to be a citizen of every State and

foreign state by which it has been incorporated and of the

State or foreign state where it has its principal place of busi-

ness.” 28 U.S.C. § 1332(c)(1). Given their limited jurisdic-

tion, federal courts have repeatedly held that a complaint must

include allegations of both the state of incorporation and the

principal place of business of corporate parties. E.g., Fifty

Assocs. v. Prudential Ins. Co. of Am., 446 F.2d 1187, 1190

(9th Cir. 1970) (faulting plaintiffs’ failure to affirmatively

allege state of incorporation); Am. Motorists Ins. Co. v. Am.

Emp’rs’ Ins. Co., 600 F.2d 15, 16 & n.1 (5th Cir. 1979) (per

curiam) (failure to specifically allege state of incorporation

and principal place of business); see also 5 Charles Alan

Wright et al., Federal Practice and Procedure § 1208 n.12

(3d ed. 2004) (listing cases requiring pleading of both state or

states of incorporation and location of principal place of busi-

ness).

[2] Consistent with Rule 8 and § 1332(c)(1), Form 7(a) in

the Appendix of Forms to the Federal Rules of Civil Proce-

dure sets out a proposed format for alleging diversity:

The plaintiff is [a citizen of Michigan] [a corporation

incorporated under the laws of Michigan with its

principal place of business in Michigan]. The defen-

dant is [a citizen of New York] [a corporation incor-

porated under the laws of New York with its

principal place of business in New York]. The

amount in controversy, without interest and costs,

exceeds the sum or value specified by 28 U.S.C.

§ 1332.

Fed. R. Civ. P. Form 7(a) (2007) (brackets in original). The

allegations set forth in Form 7(a) are consistent with Rule 8’s

requirement of a “short and plain statement.” See Fed. R. Civ.

6730 HARRIS v. RAND

P. 84 (“The forms in the Appendix suffice under these rules

and illustrate the simplicity and brevity that these rules con-

template.”).

In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-57

(2007), the Supreme Court reiterated that a complaint must

include more than just conclusory allegations to survive a

Rule 12(b)(6) motion to dismiss. See also Ashcroft v. Iqbal,

556 U.S. 662, 679 (2009) (“While legal conclusions can pro-

vide the framework of a complaint, they must be supported by

factual allegations.”). Trial courts must accept a complaint’s

factual allegations as true, but those allegations must plausi-

bly suggest “the pleader is entitled to relief.” Twombly, 550

U.S. at 557. And “the tenet that a court must accept as true

all of the allegations contained in a complaint is inapplicable

to legal conclusions.” Iqbal, 556 U.S. at 678. Form 7(a)

requires more than just a recitation of the legal conclusion that

the parties are diverse. It requires the assertion of facts regard-

ing the location of a party’s principal place of business. Those

factual allegations are entitled to a presumption of truth under

Twombly and Iqbal. See id. at 680-81; Twombly, 550 U.S. at

554-55.

b. Impact of Hertz

Prior to Hertz, federal courts of appeal applied different

tests to interpret “principal place of business”: (1) the locus of

operations (focusing on the location of the bulk of the corpo-

ration’s actual physical operations); (2) the nerve center (the

location where the activities of the corporation are controlled

and directed); and (3) the center of corporate activities (the

center of a corporation’s production or service activities). See

15 James Wm. Moore et al., Moore’s Federal Practice

§ 102.54[3][a] (3d ed. 2009); see also Hertz, 130 S. Ct. at

1191-92.

[3] In Hertz, the Supreme Court resolved these differing

circuit court interpretations and settled on the “nerve center”

HARRIS v. RAND 6731

test. Hertz, 130 S. Ct. at 1192. The Court held that for diver-

sity jurisdiction purposes a corporation’s principal place of

business “refer[s] to the place where a corporation’s officers

direct, control, and coordinate the corporation’s activities.” Id.

The Court explained that a 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, i.e., the ‘nerve

center.’ ” Id.

[4] Hertz provided a uniform test for courts to apply when

determining the principal place of business for federal diver-

sity jurisdiction purposes. It did not impose a heightened

pleading requirement or dictate a precise manner for pleading

subject matter jurisdiction. We conclude that a complaint, like

the one in this case, that follows the general framework set

forth in Form 7(a) is sufficient to satisfy Rule 8(a)(1); Hertz

does not mandate more.

c. A district court may require additional proof.

[5] There was no motion to dismiss filed in this case, but

where the circumstances show that the allegations of a party’s

principal place of business are implausible, the district court

may require more specific pleading. See Iqbal, 556 U.S. at

679 (“Determining whether a complaint states a plausible

claim for relief will . . . be a context-specific task that requires

the reviewing court to draw on its judicial experience and

common sense.”). Additionally, where the district court has

doubts about whether diversity exists, the district court may

“insist that the jurisdictional facts be established or the case

be dismissed, and for that purpose the court may demand that

the party alleging jurisdiction justify [its] allegations by a pre-

ponderance of evidence.” Gaus v. Miles, Inc., 980 F.2d 564,

567 (9th Cir. 1992) (emphasis omitted) (quoting McNutt v.

Gen. Motors Acceptance Corp., 298 U.S. 178, 189 (1936)).

Here, the district court initially requested that plaintiffs pro-

vide further allegations of the corporate parties’ principal

6732 HARRIS v. RAND

places of business. The district court was not satisfied with

plaintiffs’ responses and it dismissed plaintiffs’ first amended

complaint without prejudice, which precluded the plaintiffs

from filing a further amended complaint. Plaintiffs argue that

the court erred by dismissing the FAC. We agree.

II. The district court erred by dismissing the FAC.

We review de novo whether the district court properly dis-

missed plaintiffs’ first amended complaint for lack of subject

matter jurisdiction. See Schnabel v. Lui, 302 F.3d 1023, 1029

(9th Cir. 2002). Although the district court may properly

require a party asserting federal subject matter jurisdiction to

establish its jurisdictional allegations by competent proof, see

Hertz, 130 S. Ct. at 1194-95, the orders in this case were con-

fusing and inconsistent. For this reason, we vacate the dis-

missal and remand.

[6] The OSC faulted plaintiffs for failing to provide suffi-

cient allegations of the corporate parties’ principal places of

business, noting that “[t]he complaint is deficient because . . .

the jurisdiction averment by plaintiff(s) is patently insuffi-

cient.” Plaintiffs’ FAC included allegations of the principal

places of business for each of the corporate parties consistent

with Form 7(a). The district court dismissed the FAC, not

because its jurisdictional averment remained deficient, but

because plaintiffs did not “support their allegations by compe-

tent proof” and “did not satisfy their burden to show citizen-

ship by a preponderance of the evidence.” The order denying

plaintiffs’ motion for rehearing explained that the complaint

was dismissed “based on Plaintiffs[‘] failure to provide fac-

tual support for its allegations in response to the Court’s spe-

cific request, not on the presence or absence of certain

pleading language.” We do not decide that the district court

abused its discretion by requesting proof of the corporate par-

ties’ nerve centers; the district court erred because its prior

order suggested it was plaintiffs’ “jurisdiction averment” that

HARRIS v. RAND 6733

was lacking but it dismissed the complaint for lack of “proof

of citizenship.”

[7] The orders dismissing the FAC and denying the motion

for rehearing fault plaintiffs for failing to provide additional

proof that was never clearly requested. In light of these con-

flicting orders, we vacate the order dismissing plaintiffs’ FAC

and remand this case to the district court.

VACATED and REMANDED.