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