Aerospace Engineering Support Corporation v. Eaton Aerospace LLC

Case 2:22-cv-09317-JFW-E Document 59 Filed 03/10/23 Page 1 of 5 Page ID #:2340

UNITED STATES DISTRICT COURT JS-6

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES -- GENERAL

Case No. CV 22-9317-JFW(PLAx) Date: March 10, 2023

Title: Aerospace Engineering Support Corporation -v- Eaton Aerospace LLC, et al.

PRESENT:

HONORABLE JOHN F. WALTER, UNITED STATES DISTRICT JUDGE

Shannon Reilly None Present

Courtroom Deputy Court Reporter

ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS:

None None

PROCEEDINGS (IN CHAMBERS): ORDER GRANTING PLAINTIFF’S MOTION TO

REMAND FOR LACK OF SUBJECT MATTER

JURISDICTION [filed 2/6/23; Docket No. 37]

On February 6, 2023, Plaintiff Aerospace Engineering Support Corporation, d/b/a J&L

Industries (“Plaintiff”) filed a Motion to Remand for Lack of Subject Matter Jurisdiction (“Motion”).

On February 20, 2023, Defendants Eaton Corporation, Eaton Aerospace LLC (“Eaton Aerospace”),

and Mission Systems Davenport AAR Inc., f/k/a Sargent Fletcher Inc. and Cobham Mission

Systems Davenport AAR Inc. (“SFI”) (collectively, “Defendants”) filed their Opposition. On

February 27, 2023, Plaintiff filed a Reply. Pursuant to Rule 78 of the Federal Rules of Civil

Procedure and Local Rule 7-15, the Court finds that this matter is appropriate for decision without

oral argument. The hearing calendared for March 13, 2023 is hereby vacated and the matter

taken off calendar. After considering the moving, opposing, and reply papers, and the arguments

therein, the Court rules as follows:

I. Factual and Procedural Background

On November 23, 2022, Plaintiff filed a Complaint against Eaton Aerospace and SFI in Los

Angeles Superior Court, alleging causes of action for: (1) breach of contract as to SFI; (2) inducing

breach of contract as to Eaton Aerospace; and (3) tortious interference with contract as to Eaton

Aerospace. In the Complaint, Plaintiff alleges that the relationship between Plaintiff and SFI

changed dramatically after SFI was acquired by Eaton Aerospace in June 2021, and that change in

relationship has led to various breaches and anticipatory breaches of the Distributor Agreement

between Plaintiff and SFI. Plaintiff alleges that it has been damaged in an amount in excess of

$2,850,912.00.

On December 23, 2022, Eaton Aerospace and SFI removed this action, alleging that this

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Court had subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a). On February 22, 2023,

Plaintiff filed a First Amended Complaint (“FAC”), which added Eaton Corporation as a defendant.

II. Legal Standard

A motion to remand is the proper procedure for challenging removal. See N. Cal. Dist.

Council of Laborers v. Pittsburg-Des Moines Steel Co., 69 F.3d 1034, 1038 (9th Cir.1995). The

removal statute is strictly construed, and any doubt about the right of removal is resolved in favor of

remand. See Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.1992); see also Prize Frize, Inc. v.

Matrix, Inc., 167 F.3d 1261, 1265 (9th Cir.1999). Consequently, if a plaintiff challenges the

defendant’s removal of a case, the defendant bears the burden of establishing the propriety of the

removal. See Gaus, 980 F.2d at 566; see also Duncan v. Stuetzle, 76 F.3d 1480, 1485 (9th

Cir.1996) (citations and quotations omitted) (“Because of the Congressional purpose to restrict the

jurisdiction of the federal courts on removal, the statute is strictly construed, and federal jurisdiction

must be rejected if there is any doubt as to the right of removal in the first instance.”).

III. Discussion

In the Motion, Plaintiff argues that Defendants have failed to demonstrate that there is

complete diversity among Plaintiff and Defendants because both Plaintiff and SFI are citizens of

California. In its Opposition, Defendants argue that SFI is not a California citizen because despite

Plaintiff’s argument to the contrary, SFI’s principal place of business was and continues to be in

Iowa.

Diversity jurisdiction founded under 28 U.S.C. § 1332(a) requires that (1) all plaintiffs be of

different citizenship than all defendants, and (2) the amount in controversy exceeds $75,000. See

28 U.S.C. § 1332. For purposes of diversity, a corporation is deemed to be a citizen of every state

where it has been incorporated and the state where it has its principal place of business. 28 U.S.C.

§ 1332(c)(1). In this case, it is undisputed that the amount in controversy exceeds $75,000. It is

also undisputed that Plaintiff is a California corporation with its principal place of business in

California, Eaton Corporation is an Ohio corporation with its principal place of business in Ohio, and

Eaton Aerospace is a citizen of Ohio. The parties also agree that SFI is a Delaware corporation. As

a result, the only issue is whether SFI’s principal place of business is in Davenport, Iowa or Irvine,

California. Plaintiffs argue that although SFI’s principal place of business was located in Davenport,

Iowa, SFI’s principal place of business shifted to Irvine, California in June 2021 after SFI was

acquired by Eaton Corporation. According to Plaintiff, after SFI was acquired by Eaton Corporation,

although SFI remained a separate corporation, it became part of the Eaton Aerospace Group that

has its world headquarters in Irvine, California. Plaintiff argues that the President of Eaton

Aerospace Group, Nanda Kumar (“Kumar”), and other Eaton Aerospace Group executives control

and direct SFI’s business activities from the world headquarters in Irvine, California. Defendants

argue that, despite SFI’s acquisition by Eaton Corporation, SFI’s principal place of business remains

in Davenport, Iowa because SFI’s Iowa-based leaders continue to direct and control SFI’s

operations.

In Hertz Corp. v. Friend, 559 U.S. 77, 80-81 (2010), the United States Supreme Court held

that a corporation's principal place of business for purposes of diversity jurisdiction "refers to the

place where the corporation's high level officers direct, control, and coordinate the corporation's

activities," in other words, the corporation's "nerve center." The Court also held that a

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corporation's "nerve center" is "a single place" and "[i]n practice it 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,' 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 93; ProShipLine Inc. v. Aspen Infrastructures Ltd., 609 F.3d

960, 974 (9th Cir. 2010) ("The Supreme Court has recently clarified that the term 'principal place of

business' means, for purposes of federal diversity jurisdiction, the locale where a "corporation's

high level officers direct, control, and coordinate the corporation's activities," often called the 'nerve

center'").

In this case, the Court concludes that Defendants have failed to demonstrate that SFI’s

principal place of business, or “nerve center,” is located in Davenport, Iowa, and not Irvine,

California. The only evidence Defendants submitted in support of their Notice of Removal was the

Declaration of Bradley Diedrich (“Diedrich”), who is in-house counsel for Eaton Corporation and who

works out of Eaton Corporation’s office in Cleveland, Ohio. In his declaration, Diedrich states that

SFI’s principal place of business is located in Davenport, Iowa, which Diedrich describes as “SFI’s

primary office.” Diedrich also states that:

Several members of SFI’s senior leadership, including its lead executive, operations

lead, and business development lead, have been based out of the office in Davenport.

These leaders perform and have performed their day-to-day responsibilities primarily

in Davenport, which includes controlling, directing, and coordinating the activities of

the company. Other members of SFI’s leadership, including the company’s

commercial, engineering, and finance leads, are based out of offices in New York,

Ohio, Maryland, Florida, and the United Kingdom. These leaders report directly to

SFI’s lead executive, who is and has been based out of Iowa, and work directly with

SFI teams in Davenport to control, direct, and coordinate their areas of responsibility.

Declaration of Bradley Diedrich (Docket No. 1-3), ¶ 12. However, as Plaintiff points out, Defendants

fail to explain either in the Notice of Removal or Diedrich’s declaration what is meant by “primary

office,” what functions are performed and not performed from that primary office, and whether any

high-level executives who work out of that primary office actually direct, control, and/or coordinate

SFI’s activities. In addition, Defendants fail to explain what is meant by “senior leadership” or the

titles, responsibilities, or roles held by senior leadership. See, e.g., Pool v. F. Hoffman-La Roche,

Ltd., 386 F.Supp. 3d 1202, 1220 (N.D. Cal. 2019) (“Without an understanding of what each director

or officer actually does for HLR as a practical matter, where the nerve center of the company is

cannot be determined”). Finally, although Diedrich states in his declaration that SFI’s team leaders

in Iowa “control, direct, and coordinate their areas of responsibility,” Diedrich fails to address the

relevant inquiry with respect to the nerve center test – who controls, directs, and coordinates the

“corporate brain” of SFI. See Hertz Corp., 559 U.S. at 95. Such conclusory statements are not

sufficient to demonstrate that SFI’s nerve center is located in Iowa. See Pool, 386 F.Supp. 3d at

1221 (“That Mr. Bohm states in his declaration that HLR’s ‘decisions are made out of Little Falls,’ . .

. Is not sufficient to show that Little Falls is in fact the nerve center of the company”).

In addition, the three declarations submitted by Defendants with their Opposition also fail to

demonstrate that SFI’s nerve center is located in Iowa. Notably, Defendants failed to submit a

declaration from any SFI officer or employee. Defendants also failed to submit a declaration from

Kumar, President of Eaton Aerospace Group, or any other Eaton Aerospace Group executive from

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its world headquarters in Irvine, California. Instead, Defendants submitted a supplemental

declaration from Diedrich and declarations from two Eaton Corporation executives: (1) Dale

Schwach (“Schwach”), Senior Vice President and General Manager – Davenport Site Lead, Mission

Systems Division, Eaton Corp.; and (2) Randy Fitzgerald (“Fitzgerald”), Commercial Director of the

Mission Systems Division, Eaton Corp.

In his supplemental declaration, Diedrich explains that when he stated in his prior declaration

that “SFI’s senior leadership” was controlling SFI from its “primary office” in Davenport, Iowa, he

was referring to “several members of SFI’s and the Mission Systems Division (MSD) senior

leadership team.” However, the Mission Systems Division includes three entities separate and

apart from SFI (Cobham Mission Systems Davenport LSS Inc. (“Davenport LSS”), Cobham Mission

Systems Orchard Park Inc. (“MS Orchard Park”), and Cobham Mission Systems Wimborne Ltd.

(“MS Wimborne”)). In addition, although Diedrich identifies nine senior leaders who he claims are

involved in the control, directing, and coordination of SFI from its “primary office” in Davenport, Iowa,

the majority of those senior leaders are not based in Iowa (Jim Talty, Marcus Lee, Alex Brinker,

Antione Henry, Rob Nyzen, and Lei Shen). Moreover, the majority of those senior leaders do not

appear to be involved with any aspect of SFI’s operations (Jim Talty, Marcus Lee, Alex Brinker,

Antione Henry, and Lei Shen). Furthermore, Diedrich’s supplemental declaration reveals that none

of SFI’s officers are located in Iowa. Instead, each of SFI’s three officers, who are also officers of

Davenport LSS – Thomas Okray (CEO, President, and sole Director of SFI and Davenport LSS),

Lizabeth Wright (Secretary of SFI and Davenport LSS), and Kristin Park (CFO of SFI and

Davenport) – are based out of Eaton Corporation’s office in Cleveland, Ohio.

Similarly, the declarations from Schwach and Fitzgerald also undermine Defendants’

argument that SFI’s nerve center is located in Iowa. Schwach, who is not an employee or officer of

SFI, explains that “[a]ll the individuals who work at the Davenport site on SFI products, including

myself, are employed and paid by Davenport LSS.” Thus, it appears that SFI has no employees of

its own and, instead, borrows employees and corporate officers from Davenport LSS. In addition,

Schwach admits that, although he has some authority in making business decisions impacting SFI,

he “must seek approval from either the Division, Group or Sector leadership” for larger decisions.

Declaration of Dale Schwach, ¶ 9 (“Where the value or risk profile of the contractual relationship

exceeds the management and contracts teams’ authority, we must seek approval from either the

Division, Group or Sector leadership”), ¶ 10 (“In cases where the cost of a project exceeds my

development budget, which is set based on an annual financial plan that my team puts together, I

must seek approval from either Division, Group, or Sector leadership, depending on the amount of

the cost involved”), and ¶ 11 (“In cases where a party supplies parts to both SFI and other Eaton

businesses, or where the cost of the components exceeds my level of financial authority, I must

seek approval from either Division, Group, or Sector leadership, depending on the circumstances”).

In his declaration, Fitzgerald confirms the nature and extent of Schwach’s authority in making

business decisions affecting SFI. Fitzgerald, ¶¶ 12-14. Although Schwach and Fitzgerald do not

explain what they mean by “Group,” the only reasonable inference is that they mean Eaton

Aerospace Group, which has its world headquarters in Irvine, California. Finally, Fitzgerald seeks to

“clarify” in his declaration that when he told Plaintiff’s counsel before this action was filed that all

decisions concerning the Exclusive Distributor Agreement were made by Eaton executives and that

Eaton was the contracting party under the Exclusive Distributor Agreement, he was referring to SFI,

not Eaton Aerospace Group. Specifically, Fitzgerald states that “[m]y references to ‘Eaton’ during

that conversation was to the leadership of SFI, not the Aerospace Group.” Declaration of Randy

Fitzgerald, ¶¶ 16-17. However, even assuming Fitzgerald’s clarification is true, it does not establish

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that SFI’s nerve center is in Iowa rather than California.

Accordingly, the Court concludes that this action must be remanded because Defendants

have failed to meet their burden of proving that SFI’s nerve center is, in fact, in Davenport, Iowa,

and not Irvine, California.1

IV. Conclusion

For all the foregoing reasons, Plaintiff’s Motion is GRANTED, and this action is REMANDED

to Los Angeles County Superior Court for lack of subject matter jurisdiction. See 28 U.S.C. §

1447(c).

IT IS SO ORDERED.

1 Plaintiff’s request for jurisdictional discovery is denied as moot because Defendants have

failed to meet their burden of proving diversity of citizenship. See Sheets v. F. Hoffmann-La Roche

Ltd., 2018 WL 6428460, *3 (N.D. Cal. Dec. 7, 2018) (finding “Plaintiffs' request for jurisdictional

discovery . . . moot” in light of the ruling that the removing defendants failed to meet their burden of

proving that removal was proper).

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