Bearbones, Inc. v. Peerless Indemnity Insurance ( 2019 )

United States Court of Appeals
For the First Circuit
No. 18-1139
BEARBONES, INC., d/b/a Morningside Bakery and
AMARAL ENTERPRISES LLC,
Plaintiffs, Appellants,
v.
PEERLESS INDEMNITY INSURANCE COMPANY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Katherine A. Robertson, U.S. Magistrate Judge]
Before
Thompson, Selya, and Barron,
Circuit Judges.
Richard W. Gannett, with whom Gannett & Associates was on
brief, for appellants.
William O. Monahan, with whom Edward A. Bopp and Monahan &
Associates, P.C., were on brief, for appellee.
August 21, 2019
SELYA, Circuit Judge. This case, which floats to the
surface in the water-logged aftermath of a ruptured pipe in a
commercial bakery, pits two affiliated insureds against their
insurer. Although the insureds (qua appellants) proffer several
assignments of error, we are held at the starting line by an
apparent jurisdictional barrier. Concluding, as we do, that
additional factfinding may be enlightening, we remand to the
district court (albeit retaining appellate jurisdiction).
Certain facts are undisputed. Bearbones, Inc. and
Amaral Enterprises LLC (collectively, the insureds or the
appellants) operated and owned a commercial bakery in Pittsfield,
Massachusetts. At the times material hereto, defendant-appellee
Peerless Indemnity Insurance Company had in effect a commercial
business insurance policy covering the bakery. A pipe ruptured on
February 19, 2013, causing a number of covered losses.
The parties were unable to settle the ensuing insurance
claims. Consequently, the appellants commenced a civil action
against Peerless in the United States District Court for the
District of Massachusetts. The complaint identified Bearbones as
a Massachusetts corporation with its principal place of business
there; identified Amaral Enterprises as a Massachusetts limited
liability company with its sole member residing in New York; and
identified Peerless as an Illinois corporation with its principal
place of business in that state. Based on these allegations and
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the claimed amount in controversy, the appellants invoked federal
diversity jurisdiction. See 28 U.S.C. § 1332.
Peerless did not challenge the propriety of diversity
jurisdiction; instead, it simply answered the complaint. In its
answer, Peerless admitted that it was an Illinois corporation, but
averred that its principal place of business was located in
Massachusetts. Peerless filed a corporate disclosure statement
that same day, see Fed. R. Civ. P. 7.1, which appeared to confirm
that its principal place of business was in Massachusetts.
Curiously, the discrepancy relating to Peerless's
principal place of business seems to have gone unnoticed by either
the parties or the district court. Thus, the case proceeded in
the ordinary course. Along the way, the parties consented to allow
a magistrate judge to preside. See 28 U.S.C. § 636(c); Fed. R.
Civ. P. 73. Following considerable skirmishing, not relevant here,
the magistrate judge granted Peerless's motion for summary
judgment, see Fed. R. Civ. P. 56(a), and the appellants filed a
notice of appeal.
After the appeal was fully briefed and an argument date
was set, we noticed an apparent jurisdictional glitch (described
below). Recognizing that "[i]n the absence of jurisdiction, a
court is powerless to act," Am. Fiber & Finishing, Inc. v. Tyco
Healthcare Grp., LP, 362 F.3d 136, 138 (1st Cir. 2004), we directed
the parties to show cause why the case should not be sent back to
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the district court with instructions to vacate the judgment and
dismiss the action without prejudice for want of subject-matter
jurisdiction.1
As said, the appellants filed this action based on the
putative existence of diversity jurisdiction. Diversity
jurisdiction requires both an amount in controversy in excess of
$75,000 and complete diversity of citizenship between all
plaintiffs, on the one hand, and all defendants, on the other hand.
See 28 U.S.C. § 1332(a); Barrett v. Lombardi, 239 F.3d 23, 30-31
(1st Cir. 2001); see also Strawbridge v. Curtiss, 7 U.S. (3 Cranch)
267, 267 (1806). The allegations of the complaint satisfy the
amount in controversy requirement, and we will make no further
reference to that component of the jurisdictional calculus. The
problem lies with diversity of citizenship.
Diversity of citizenship is measured by the "facts that
existed at the time of filing—whether the challenge be brought
shortly after filing . . . or even for the first time on appeal."2
1 There is no doubt that jurisdictional deficiencies may be
raised for the first time on appeal. See Am. Fiber & Finishing,
362 F.2d at 138-39. Moreover, "[f]ederal courts are expected to
monitor their jurisdictional boundaries vigilantly and to guard
carefully against expansion." Id. at 139.
2 We note that, notwithstanding the length of litigation or
the resources that have been devoted to the matter, "parties cannot
confer subject matter jurisdiction on a federal court 'by
indolence, oversight, acquiescence, or consent.'" Am. Fiber &
Finishing, 362 F.2d at 139 (quoting United States v. Horn, 29 F.3d
754, 768 (1st Cir. 1994)).
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Grupo Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567, 570-71
(2004); see ConnectU LLC v. Zuckerberg, 522 F.3d 82, 91 (1st Cir.
2008) (citing Mollan v. Torrance, 22 U.S. (9 Wheat.) 537, 539
(1824)). Special rules guide the citizenship inquiry for
corporations. Congress has declared (by a statute enacted in 1958
and amended in 2011) that "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) (2011). Although Congress did not give any
interpretive guidance as to how to identify a corporation's
principal place of business, the Supreme Court has filled this
gap, instructing lower courts to use the "nerve center" test.
Hertz Corp. v. Friend, 559 U.S. 77, 93 (2010). For purposes of
this test, "[a] corporation's 'nerve center' . . . is the
particular location from which its 'officers direct, control, and
coordinate the corporation's activities.'" Harrison v. Granite
Bay Care, Inc., 811 F.3d 36, 40 (1st Cir. 2016) (quoting Hertz,
559 U.S. at 92-93). A corporation's "nerve center" is often the
location of its headquarters. Id.
Consistent with the neurological metaphor, "a corporate
'brain' . . . suggests a single location." Hertz, 559 U.S. at 95.
Seen in this light, the test demands facts sufficient to "find the
one location from which a corporation is ultimately controlled."
Harrison, 811 F.3d at 41.
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Here, the allegations of the complaint, viewed in
isolation, suggest that complete diversity exists between the
parties. It alleges, in effect, that the appellants are citizens
of Massachusetts and New York,3 and that Peerless is a citizen of
Illinois. But the complaint cannot be viewed in isolation:
Peerless denominated Massachusetts as its principal place of
business in its answer and in other filings. If those statements
are correct, Peerless is a citizen of both Illinois (its state of
incorporation) and Massachusetts, see 28 U.S.C. § 1332(c)(1), and
there is not (nor has there ever been) complete diversity of
citizenship.
It is apodictic that "the burden of proving a
corporation's principal place of business . . . rests upon the
party asserting existence of diversity jurisdiction." Media
Duplication Servs., Ltd. v. HDG Software, Inc., 928 F.2d 1228,
1236 (1st Cir. 1991). At the show-cause hearing, the appellants
3
For purposes of diversity jurisdiction, the citizenship of
a limited liability company is determined by the citizenship of
its members. See Sterngold Dental, LLC v. HDI Glob. Ins. Co., 929
F.3d 1, 6 n.2 (1st Cir. 2019); Pramco, LLC ex rel. CFSC Consort.,
LLC v. San Juan Bay Marina, Inc., 435 F.3d 51, 54-55 (1st Cir.
2006). Here, the appellants identified the residency, not the
citizenship, of Amaral Enterprises's sole member. We recognize
that, "[j]urisdictionally speaking, residency and citizenship are
not interchangeable." Valentín v. Hosp. Bella Vista, 254 F.3d
358, 361 n.1 (1st Cir. 2001). But even if the member's state of
citizenship differs from his state of residency, the
jurisdictional glitch — which turns on the location of Peerless's
principal place of business — would remain.
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attempted to close the circle through the submission of documents
indicating that Peerless has "a business location" in Illinois.
These submissions prove too little: they fail to shed any light
on where Peerless's principal place of business is located. When
pressed, appellants' counsel complained that he did not have enough
time to collect the facts necessary to prove the location of
Peerless's principal place of business and asked that we remand to
permit discovery and further factfinding.
We take this plaint with several grains of salt. After
all, jurisdictional facts ought to be gathered and assessed before
an action is commenced. Cf. Murphy v. United States, 45 F.3d 520,
522 (1st Cir. 1995) (observing that conclusory jurisdictional
facts in a complaint will not defeat a motion to dismiss for lack
of subject-matter jurisdiction because "the party invoking the
jurisdiction of a federal court carries the burden of proving its
existence" (quoting Taber Partners, I v. Merit Builders, Inc., 987
F.2d 57, 60 (1st Cir. 1993))). Here, moreover, the appellants
should have been alerted to this potential jurisdictional problem
by Peerless's assertion in its answer and other filings, more than
four years ago, that its principal place of business was in
Massachusetts. Even so, we have decided, in our discretion, to
grant the appellants' request.
In its present posture, this case turns on whether there
was complete diversity of citizenship when the action was
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commenced.4 The record before us is conflicted, and the parties
can point to nothing that definitively locates Peerless's
principal place of business at the relevant time. Mindful that
"[a]ppellate and trial courts have different institutional
competencies," Ungar v. Palestine Liberation Org., 599 F.3d 79, 87
(1st Cir. 2010), we remand to the district court to find the facts
and determine whether there was complete diversity between the
parties at the time the action was commenced.
The district court shall report its findings and
conclusions to us, in written form, within ninety days of the date
of this opinion. We retain appellate jurisdiction pending our
4At the show-cause hearing, counsel for Peerless suggested
that federal subject-matter jurisdiction may have attached through
the appellants' aborted attempt to supplement their complaint by
adding federal constitutional claims. But the appellants have
never asserted federal question jurisdiction, see 28 U.S.C. § 1331,
and in any event, the magistrate judge denied the appellants'
motion to supplement the complaint. See Bearbones, Inc. v.
Peerless Indem. Ins. Co., No. 15-30017, 2016 WL 5928799, at *10
(D. Mass. Oct. 11, 2016). Federal subject-matter jurisdiction
cannot be premised on claims that were never made part of the case.
See Bell v. Hood, 327 U.S. 678, 681 (1946) (explaining that "the
District Court must look to the way the complaint is drawn to see
if it . . . claim[s] a right to recover under the Constitution and
laws of the United States"); BIW Deceived v. Local S6, Indus. Union
of Marine & Shipbldg. Workers of Am., 132 F.3d 824, 831 (1st Cir.
1997) ("The gates of federal question jurisdiction are customarily
patrolled by a steely-eyed sentry . . . which, in general,
prohibits the exercise of federal question jurisdiction if no
federal claim appears within the four corners of the complaint.").
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receipt of a report from the court below and our further actions
in consequence of that report.
So ordered.
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