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The York Group, Inc., Milso Industries Corporation, and Matthews v. Scott Pontone

July 31, 2012

THE YORK GROUP, INC., MILSO INDUSTRIES CORPORATION, AND MATTHEWS INTERNATIONAL CORPORATION, PLAINTIFFS,
v.
SCOTT PONTONE, HARRY PONTONE, PONTONE CASKET COMPANY, LLC AND BATESVILLE CASKET COMPANY, INC. DEFENDANTS.



The opinion of the court was delivered by: Hon. Joy Flowers Conti

MEMORANDUM OPINION AND ORDER

CONTI, District Judge

I.Introduction

Pending before the court is the motion to dismiss plaintiffs' amended complaint for lack of subject-matter jurisdiction filed by defendants Scott Pontone, Harry Pontone, and Pontone Casket Company, LLC ("Pontone Casket" and together with Scott Pontone and Harry Pontone, the "Pontone defendants") and joined by defendant Batesville Casket Company, Inc. ("Batesville"). (ECF Nos. 182, 187.) On August 16, 2010, plaintiffs Matthews International Corporation ("Matthews"), The York Group ("York Group"), and Milso Industries Corporation ("Milso") filed a complaint against defendants Scott Pontone and Batesville for alleged violations of state laws related to wrongful solicitation of plaintiffs' employees and customers. (ECF No. 1.) On September 10, 2010, those defendants filed an answer to the complaint. (ECF No. 25.) On February 28, 2011, plaintiffs filed an amended complaint, which included Harry Pontone and Pontone Casket as defendants. (ECF No. 70.)

Plaintiffs alleged that the court has jurisdiction over the case under 28 U.S.C. §1332 because there is complete diversity of citizenship between the parties and the amount in controversy exceeds $75,000. (ECF No. 70, ¶13.) The amended complaint set forth the diversity of citizenship between the parties as follows: plaintiffs are each incorporated under the laws of either Delaware or Pennsylvania with their principal places of business in Pittsburgh, Pennsylvania; defendants Scott Pontone and Harry Pontone are citizens of New York; Batesville is an Indiana corporation with its principal place of business in Batesville, Indiana; and Pontone Casket is a New York corporation with its principal place of business in New York. (Id. at ¶¶ 6-12.)

On December 14, 2011, Milso served Pontone Casket with answers to its First Discovery Requests. (ECF No. 183-1.) In answers to interrogatories #3 and #4 of that request, Milso stated its principal place of business was Brooklyn, New York, and that its principal place of business had not changed since 2005. (ECF No. 183-1 at 5.) On December 15, 2011, the Pontone defendants filed a motion to dismiss for lack of subject-matter jurisdiction, arguing that based on Milso's answer to interrogatories #3 and #4, Milso's principal place of business was Brooklyn, New York, and therefore, there was not complete diversity between the parties. (ECF No. 183.) Batesville joined the Pontone defendants' motion to dismiss on December 22, 2011. (ECF No. 187.)

On December 19, 2011, Milso amended its response to Pontone Casket's discovery requests. (ECF No. 191-5.) In amended answer to interrogatory #3, Milso stated "[a]t all relevant times, [Milso's] legal principal place of business . . . has been at Two NorthShore Center, Pittsburgh, Pennsylvania 15212." (ECF No. 191-5 at 5.) In amended answer to interrogatory #4, Milso claimed that its principal place of business "under applicable law is and has been Two NorthShore Center, Pittsburgh, Pennsylvania 15212, the place from which [Milso's] officers direct, control and coordinate [Milso's] activities." (Id.) On January 5, 2012, plaintiffs filed a memorandum of law in opposition to the Pontone defendants' motion to dismiss. The memorandum alleged that from August 2008 through August 2010 (the "relevant time period") when the initial complaint was filed, Milso's major decision-making took place in Pittsburgh, Pennsylvania, and all its officers and directors, with the exception of Harry Pontone, worked in offices located in Pittsburgh, Pennsylvania. (ECF 191 at 9-10.) On February 1, 2012, the Pontone defendants filed a reply memorandum in further support of their motion to dismiss for lack of subject-matter jurisdiction. (ECF No. 200.) The memorandum alleged that the place of business of a wholly-owned subsidiary must be determined independently of its corporate parents, and that facts demonstrate that during the relevant time period, Milso's principal place of business was Brooklyn, New York. (Id. at 9.)

During a February 3, 2012 hearing with respect to the Pontone defendants' motion to dismiss, the court held that plaintiffs' first responses to interrogatories #3 and #4 were evidentiary admissions and not judicial admissions. (ECF. 202 at 9-13 (citing 30B CHARLES A.

WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 726, 328-31 (2011

Interim ed.); Airco Indus. Gases, Inc. Div. of the BOC Group, Inc. v. Teamsters Health and Welfare Pension Plan, 850 F.2d 1028 (3d Cir. 1988.)) The court found that in light of plaintiffs' amended answer, an evidentiary hearing was proper to determine whether the court had subject-matter jurisdiction over the case. (ECF No. 202 at 12-13.) The court permitted the parties to conduct discovery relating specifically to the issue of subject-matter jurisdiction. (ECF No. 202.) Among other things, the court commented that discovery should focus on where the high officers of Milso are located and where they perform their functions as officers. (ECF No. 202 at 42.) From March 12-14, 2012, three Milso officers, Joseph C. Bartolacci ("Bartolacci"), Steven F. Nicola ("Nicola"), and James P. Doyle ("Doyle"), were deposed in order to discern their roles and duties within Milso, and the location from which they performed those duties during the relevant time period. (ECF Nos. 225, 226, 228, 229, 230.) Andrew Pontone, Milso's northeast regional sales manager, and Brian Walters ("Walters"), vice president and general counsel of Matthews who answered defendants' interrogatories on behalf of the plaintiffs, were also deposed during this time. (ECF Nos. 227, 231.)

On March 16, 2012, the court held an evidentiary hearing with respect to subject-matter jurisdiction over the case. Bartolacci, Nicola, and Walters testified. The court left the record open for the parties to introduce the relevant portions of the depositions of Bartolacci, Nicola, Doyle, Andrew Pontone, and Walters into evidence. On April 12, 2012, both parties filed proposed findings of fact and conclusions of law. (ECF No. 221, 222.) On April 13, 2012, the Pontone defendants filed the depositions of Bartolacci, Nicola, Doyle, Andrew Pontone, and Walters in their entirety with the court. The issue whether the court has subject-matter jurisdiction over this case is now ripe to be decided by the court.

I.Findings of Fact

The Acquisition

1. On May 28, 2005, Midnight Acquisition Corporation ("Midnight"), a wholly owned subsidiary of York Group, acquired the assets of a Brooklyn, New York-based casket manufacturing and distribution business, Old Milso, for $110 million pursuant to an Asset Purchase Agreement (the "Agreement"). (3/16/2012 Tr at 13, 14, 22; Defs.' Ex. F (¶ 8); (ECF No. 4-1.))

2. Under the Agreement, Midnight acquired Old Milso's assets, including the Milso name, inventory, receivables, manufacturing equipment, delivery trucks, customer relationships, and goodwill. (3/16/2012 Tr. at14.)

3. On July 11, 2005, Midnight's name was changed to Milso Industries Corporation. (Id.)

4. York Group's headquarters is located at Two NorthShore Center, Pittsburgh, Pennsylvania. (ECF No. 211-1 (YORK-442560, YORK-442562,YORK-442564.))

5. York Group is a wholly-owned subsidiary of Matthews. (3/16/2012 Tr. at 14.)

6. Matthews' headquarters is located at Two NorthShore Center, Pittsburgh, Pennsylvania. (Defs.' Exs. D, E, G (¶ 2.))

7. Matthews is a corporation organized into two business segments: the "Memorialization" business segment and the "Brand Solutions" business segment. (3/16/2012 Tr. at12.) The "Memorialization" business segment is divided into three divisions: the Casket Division, the Bronze Division, and the Cremation Division. Id. Milso is a part of the Casket Division of Matthews. Id.

8. Milso's officers following the acquisition were: David Kelly, chairman; Harry Pontone, president; Scott Pontone, vice president; Bartolacci, vice-president; Nicola, vice-president, secretary, and treasurer; and David DeCarlo, vice-president. (3/16/2012 Tr. at 80; Defs.' Ex. C (YORK-04272576-78.))

9. Until 2007, Harry Pontone, Scott Pontone, and other members of the Pontone family managed the day-to-day operations of Milso from an office located in Brooklyn, New York, referred to as "Milso Headquarters," which employed among others, payroll personnel, receivable clerks, and customer service representatives. (3/16/2012 Tr. at 22-23.)

10. By 2007, Milso's performance began to deteriorate. As a result, York Group began to exercise more control over Milso under its strategic decision-making authority. (Id.)

11. On March 30, 2007, Scott Pontone and Harry Pontone filed a lawsuit against York Group, claiming that York Group's management and increasing control of Milso was in violation of their employment agreements. (3/16/2012 Tr. at 22; (ECF No. 191-2.))

12. In May 2007, the lawsuit was settled. Under the terms of the settlement, Scott Pontone resigned his positions as vice president and director of Milso, and Harry Pontone resigned as president of Milso, but remained a member of Milso's board of directors. (3/16/2012 Tr. at 23; Defs.' Ex. F (¶ 14.))

Milso's Operations After the 2007 Lawsuit

13. Following the settlement, operations of Milso were moved to Two NorthShore Center, Pittsburgh, Pennsylvania. All the remaining officers were also officers of related companies, such as Matthews and York Group. Their offices were maintained in Pittsburgh, Pennsylvania. At that time, the only named officers of Milso were Bartolacci, vice president, Nicola, vice president, secretary, and treasurer, and DeCarlo, vice president. All Milso's administrative offices, including information technology, financial reporting, customer services, human resources, account receivables, and legal functions were relocated to that location. (3/16/2012 Tr. at 23, 24; Defs.' Ex. F (¶¶ 14-16.))

14. After 2008, Milso's office in Brooklyn, New York became a regional office used for marketing and meetings with customers from the New York area. (3/16/2012 Tr. at 23.)

15. During the relevant time period, Milso was engaged in the business of manufacturing, selling, and distributing caskets and had customers and inventory throughout the northeast United States, Ohio, Indiana, and Texas, with a large concentration of business in New York. (Id. at 15, 53; Pls.' Ex. 8; Defs.' Ex. H (YORK-472881.))

16. Milso has administrative offices located in Pittsburgh, Pennsylvania, a manufacturing facility located in Richmond, Indiana, and distribution centers and salespeople located throughout the United States, including Brooklyn, New York. (3/16/2012 Tr. at 15, 16, 53-54, 65-72,119-20, 122-23, 129-30, 189.)

17. Milso's revenue was in excess of $100 million during the relevant time period. (Id. at 15, 142.)

18. Matthews provided administrative services to Milso from its location at Two NorthShore Center, Pittsburgh, Pennsylvania, during the relevant time period. These services included: information technology, tax return preparation, credit and collections, accounts payable, and human resources. Milso paid for these services through inter-corporate charges. (Id. at 142-43.)

Milso's Officers, Directors, and Executive Committee

19. On April 18, 2007, Milso's board of directors formed an executive committee invested with the responsibility of developing Milso's strategic business plan, with the exception of any strategic plan agreed to by the board of directors as a whole. The executive committee's meetings were to take place in Pittsburgh, Pennsylvania. There were three members of Milso's executive committee: Bartolacci, Harry Pontone, and David DeCarlo. Bartolacci and David DeCarlo worked from Two NorthShore Center, Pittsburgh Pennsylvania, and Harry Pontone worked in Brooklyn, New York. (3/16/2012 Tr. at 88-89; Defendants' Ex. "C" (YORK 472586-88.))

20. David DeCarlo retired from his positions as vice president of Milso and a member of Milso's executive committee some time in 2008. (3/16/2012 Tr. at 89; Defs.' Demons. iii; 159; S. Nicola Tr. at 28; B. Walters Tr. at 142.)

21. The executive committee was never formally abolished, but its members did not meet as an executive committee following the settlement of the 2007 lawsuit. (3/16/2012 Tr. at 89-90.)

22. During the relevant time period, Milso had four officers and five members of the board of directors. The four officers, who also served as directors, were Bartolacci, Nicola, Doyle, and Beck (the "officers".) Harry Pontone was a member of the board of directors, but did not serve as an officer of Milso. (Id. at 17-18, 103-04.)

a.Joseph Bartolacci

23. Bartolacci served as the president and chief executive officer of Matthews, and acting president and chief executive officer of Milso during the relevant time period. (3/16/2012 Tr. at 9.)

24. There is no formal documentation of Bartolacci being elected president in Milso's corporate minute ...


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