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BONAR, INC. v. SCHOTTLAND

March 14, 1986

BONAR, INC.
v.
STANLEY A. SCHOTTLAND; ABPI-DELAWARE, INC., a Delaware Corporation v. STANLEY A. SCHOTTLAND, STEVEN B. SCHOTTLAND, and PETER SCHOTTLAND; STANLEY A. SCHOTTLAND, STEVEN B. SCHOTTLAND, PETER B. SCHOTTLAND, and CHARLES B. SCHOTTLAND, on their own behalves and derivatively on behalf of AMERICAN PACKAGING CORPORATION v. LOW & BONAR, PLC., BONAR, INC., and ABPI-DELAWARE, INC.



The opinion of the court was delivered by: BECHTLE

 BECHTLE, J.

 On February 5, 1986, this court, following full briefing and hearing, dismissed the above three consolidated actions for lack of subject matter jurisdiction. Jurisdiction in all three cases was premised upon diversity of citizenship pursuant to 28 U.S.C. § 1332. The following represents the court's reasoning for so ordering.

 In the lead case (C.A. No. 85-4843), plaintiffs, Stanley A. Schottland, Steven B. Schottland, Peter B. Schottland and Charles B. Schottland ("the Schottlands"), ask the court to declare that plaintiffs have an enforceable agreement to purchase the stock of American Packaging Corporation ("APC") owned by defendant ABPI-Delaware, Inc. ("ABPI-Del."), by way of a leveraged buy-out ("Schottland/ABPI-Del. Agreement"). Plaintiffs further seek to enjoin defendants Low & Bonar ("L&B"), a Scottish corporation, and Bonar, Inc. ("Bonar"), a Canadian corporation, from exercising their alleged option to purchase the same shares of APC stock owned by ABPI-Del. ("Bonar Option"). Stanley, Peter and Steven Schottland are citizens of Pennsylvania. Charles Schottland is a citizen of the State of New York. ABPI-Del. is a Delaware corporation whose alleged principal place of business is Wilmington, Delaware.

 Much of the jurisdictional entanglement in this case stems from the corporate structure set-up to hold and control the various ownership interests in APC. APC is a closely-held Pennsylvania corporation involved primarily in the manufacturing of packaging materials, having its principal place of business in Philadelphia, Pennsylvania. The company has 5,000 shares of common stock issued and outstanding, 79.5 percent of which is owned by defendant ABPI-Del. and 20.5 percent of which is owned by the Schottlands. APC's shares are not publicly traded. The sole purpose of ABPI-Del.'s existence is to hold the 79.5 percent ownership interest in APC. ABPI-Del., in turn, is wholly-owned by American Bag & Paper Industries, Inc. ("ABPI-Pa."), a closely-held Pennsylvania corporation whose principal place of business is in Pennsylvania. The sole purpose of ABPI-Pa.'s existence is to hold and control a 100 percent ownership interest in ABPI-Del. The majority and controlling shareholder of ABPI-Pa. is Emanuel S. Kardon ("Kardon"). As shown below, David Kittner ("Kittner") and Paul K. Zimmerman ("Zimmerman") are also substantial shareholders. Kardon and Kittner are citizens of Pennsylvania, while Zimmerman is a citizen of California. *fn1" The following diagram illustrates the ownership hierarchy:

 At the conclusion of trial solely on the issue of the existence and enforceability of the Schottland/ABPI-Del. Agreement, it became apparent to the court, despite pleading by the parties to the contrary, that complete diversity might be lacking. Accordingly, the court sua sponte raised the issue of subject matter jurisdiction. After reviewing the applicable case law and the parties' briefs on the issue, *fn2" the court finds that in all three actions complete diversity is lacking.

 I.

 It has long been settled that diversity of citizenship between plaintiffs and defendants must be complete to confer jurisdiction under 28 U.S.C. § 1332. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 2 L. Ed. 435 (1806); Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 57 L. Ed. 2d 274, 98 S. Ct. 2396 (1978). A corporation is deemed a citizen not only of its state of incorporation, but also of the state where it has its principal place of business. 28 U.S.C. § 1332(c). This dual citizenship requirement was intended to restrict the availability of diversity jurisdiction in cases involving corporations, Panalpina Welttransport GMBH v. Geosource, Inc., 764 F.2d 352, 354 (5th Cir. 1985); Freeman v. Northwest Acceptance Corp., 754 F.2d 553, 558 (5th Cir. 1985), by denying federal court access to "essentially local corporations which were incorporated in outside states." Hanna Mining Co. v. Minnesota Power & Light Co., 573 F. Supp. 1395, 1400 (D.Minn. 1983), aff'd, 739 F.2d 1368 (8th Cir. 1984).

 In the present case, ABPI-Del. is unquestionably a citizen of Delaware, the state in which it was incorporated. ABPI-Del.'s second possible state of citizenship, being where its principal place of business is located, requires a more in-depth analysis.

 A. Principal Place of Business.

 ABPI-Del., in support of jurisdiction being in this court, contends that its principal place of business is Delaware. In support of this contention ABPI-Del. offers the following factors: 1) All the parties in their respective complaints allege that ABPI-Del. has its principal place of business in Delaware; 2) ABPI-Del. corporate documents list 1600 Pennsylvania Ave., Wilmington, Delaware as the corporation's principal place of business; 3) Some meetings of the board of directors and shareholders of ABPI-Del. took place at the corporation's 1600 Pennsylvania Ave. address; 4) ABPI-Del. maintains a "Cash Management Account" with Merrill, Lynch, Pierce, Fenner & Smith, Inc. at Merrill Lynch's office in Wilmington, Delaware; 5) ABPI-Del. maintains a checking account with Mellon Bank (Delaware); and 6) ABPI-Del. pays corporate taxes only in Delaware.

 That the parties allege in their complaints that ABPI-Del.'s principal place of business is Delaware is of no consequence to the court's jurisdictional determination. Subject matter jurisdiction is a question of judicial power; it is not a question of preference or selection, or a question of whether the parties agree as to the court's jurisdiction. Subject matter jurisdiction cannot be agreed to or waived by the parties. Bialac v. Harsh Building Co., 463 F.2d 1185, 1186 (9th Cir. 1972). Once the court determines that it does not have power to decide a case, irrespective of the parties' allegations in the pleadings, anything that has been previously decided in the case is a nullity and absolutely meaningless and the case must immediately be dismissed. Neither the parties nor the court may confer subject matter jurisdiction on the court by agreement, consent, waiver, estoppel or desire. Lack of subject matter jurisdiction in the court is lack of power in the court, and nothing short of facts that supply what the law prescribes as supporting jurisdiction can restore that power. The facts here fall below that level.

 As to the 1600 Pennsylvania Ave., Wilmington, Delaware address referenced in certain corporate documents, the evidence clearly suggests that this is not the office of ABPI-Del., but, in fact, is the office of Landsburg, Platt, Greenwald, Flax & Nieto, an independent accounting firm. While it is true some ABPI-Del. corporate activity takes place at this address, such as some meetings of the board of directors, the office is not the exclusive office of ABPI-Del. ABPI-Del. owns no property nor has any permanent or part-time employees in this office. In reality, 1600 Pennsylvania Ave. is an accounting firm's office manned by accountants and their employees which ABPI-Del. apparently has permission to use simply as a business mailing address. While the use of this address undoubtedly serves the legitimate ABPI-Del. business purposes of being the place where mail is received, it is not ABPI-Del.'s principal place of business.

 Evidence has been offered that ABPI-Del. has a "Cash Management Account" and a checking account in Delaware. There is no evidence, however, as to any activity in either account which suggests that the corporation's principal place of business is Delaware. It is true that ABPI-Del. pays corporate taxes in Delaware, but such payment comes about, presumably, through the tax laws having to do with it being created and existing under Delaware law and not because Delaware is ABPI-Del's principal place of business. Finally, while the evidence suggests that some sporadic meetings of the board of directors and shareholders were held in Delaware, there is simply no evidence before the court to allow it to conclude that the corporation's "center of gravity" is in Delaware. The corporation has no offices, executive or professional ...


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