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RATNER v. HECHT

October 31, 1985

GARY RATNER, DALIA RATNER AND ALL MY MUFFINS, INC., PLAINTIFFS,
v.
STEVEN HECHT AND ALMA HECHT, DEFENDANTS.



The opinion of the court was delivered by: Bua, District Judge.

ORDER

Before the Court are defendants' motions, pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(2), to dismiss this case for lack of subject matter jurisdiction and for lack of personal jurisdiction, or in the alternative, to transfer this case, pursuant to 28 U.S.C. § 1404(a), to the United States District Court for the Central District of California. For the reasons stated herein, defendants' motions to dismiss are denied, and the motion to transfer is granted.

I. FACTS

This is an action for a declaratory judgment regarding the existence of a contract for services, and the value of services rendered. The action was brought by Gary and Dalia Ratner, Illinois residents, and All My Muffins, Inc. (AMM), a Delaware corporation, whose principal place of business is disputed. The defendants are Steven and Alma Hecht, California residents.

Plaintiffs' claim arises out of the defendants' contested ownership interest in AMM. The plaintiffs incorporated AMM in July 1983 for the purpose of selling muffins and other bakery goods through retail stores. Dalia Ratner is AMM's sole shareholder, President, and a director. Gary Ratner is AMM's Chairman. The Ratners initially contemplated that AMM would establish three retail stores — in California, Illinois, and New York. When the Ratners decided in 1984 to open AMM's first store, in Los Angeles, California, they enlisted the services of defendants Steven and Alma Hecht. The Hechts performed various services for AMM, both before and after the store opening in August 1984. The Hechts have asserted that, pursuant to an oral agreement, they are entitled to an ownership interest in AMM as compensation for their services.

The plaintiffs seek a declaration that no enforceable contract for the transfer of AMM stock exists between themselves and the defendants, and a declaration of the value of the services performed by defendant Steven Hecht. The defendants seek to dismiss this action for lack of subject matter and personal jurisdiction, or alternatively, to transfer the case to the United States District Court for the Central District of California.

II. DISCUSSION

A. Subject Matter Jurisdiction

Plaintiffs assert the jurisdiction of this Court based on diversity of citizenship. 28 U.S.C. § 1332. Defendants contend that AMM is a citizen of California, and therefore jurisdiction fails for lack of complete diversity. This Court finds that AMM is not a citizen of California. Thus, the parties to this controversy are completely diverse and subject matter jurisdiction is proper.

28 U.S.C. § 1332(c) provides that a corporation, for purposes of diversity jurisdiction, is a citizen of "any State by which it has been incorporated and of the State where it has its principal place of business." Since AMM is incorporated under the laws of Delaware, whether diversity of citizenship exists depends upon whether AMM has its principal place of business in California or in Illinois.

Plaintiffs contend that the appropriate test of AMM's principal place of business is the "nerve center" test. The nerve center test considers the following factors: the place where corporate decisions are made, where the corporation is funded, where its general counsel, directors, officers and shareholders are located, where the primary bank account exists, and the place of its principal office and corporate headquarters. In contrast, the defendants urge that a different test be used — the "place of operations" test. Defendants point to the site of AMM's only retail store, and emphasize the following factors: the location of AMM's tangible assets, the distribution of its employees and payroll, the allocation of gross income, and the situs of production and other physical activities.

In assessing the place of a corporation's principal place of business, no single factor or test is determinative. Although some courts have analyzed a corporation's principal place of business by reference to a "nerve center" or "place of operations" test, these tests are not necessarily conclusive. The tests merely characterize a location which, in certain circumstances, the balance of corporate activity has favored. The tests do not limit the inquiry to certain factors or activities to the exclusion of others. The determination of a corporation's principal place of business requires consideration of the corporation's entire scope of activity on a case-by-case basis.

AMM was incorporated in July 1983, opened its California retail store in August 1984, and filed this action in December 1984. For the first 13 months of its existence, AMM's principal and only place of business was in Illinois. In addition, AMM's headquarters, its only office, its sole shareholder, officers, directors, and assets are located in Illinois. All tax returns and corporate filings originate in Illinois, and the plans for AMM's multi-state bakery franchise were drawn up in Illinois. When in August 1984, AMM opened its first retail bakery store in California, AMM acquired a second place of business. In this location, AMM has its store lease, a small inventory, tangible equipment and fixtures, all of its employees, though few, and a small amount of cash in its operating bank accounts. The California store had operated for four months prior to the institution of this action. Considering the insubstantiality of the California ...


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