Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_06-cv-00119/USCOURTS-caed-1_06-cv-00119-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Contract Dispute

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IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

RICHARD CAVANAUGH,

Plaintiff(s),

v.

UNISOURCE WORLDWIDE, INC., et al.,

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Defendant(s).

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CIV F 06-0119 AWI DLB 

ORDER DENYING PLAINTIFF’S

MOTION FOR REMAND 

On March 2, 2006, plaintiff filed the present Motion to Remand. The motion was heard

on April 21, 2006 before the undersigned. Steven Paganetti appeared for plaintiff and G. Daniel

Newland appeared for defendant.

BACKGROUND

Plaintiff Richard Cavanaugh (“Plaintiff”) filed an action in Fresno County Superior Court

against his employer, Defendant Unisource Worldwide, Inc. (“Unisource”), on or about

December 27, 2005. The complaint alleges causes of action for (1) age discrimination; (2)

tortious violation of public policy; (3) intentional interference with prospective business

advantage; and (4) breach of the implied covenant of good faith and fair dealing. Plaintiff is a

Sales Account Executive in the Fresno office, and his claims arise out of Unisource’s alleged

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removal and reassignment of several large accounts from Plaintiff to a younger sales person with

less experience. The complaint seeks compensatory damages, punitive damages and attorneys’

fees. 

Unisource filed their notice of removal in this Court on February 2, 2006, alleging that

this Court has original jurisdiction based on diversity of citizenship. Unisource is organized

under the laws of the State of Delaware and contends that its principal place of business is in

Georgia, where its headquarters is located. 

Plaintiff filed his motion to remand the action on March 2, 2006. He argues that the

action should be remanded because (1) the notice of removal was procedurally defective; and (2)

no diversity of citizenship exists because Unisource is a citizen of California. There is no dispute

as to the amount in controversy.

Unisource filed its opposition on April 7, 2006.

Plaintiff filed his reply on April 14, 2006.

DISCUSSION

A. Procedural Defect

Plaintiff first argues that Unisource served only the complaint with their notice of

removal, in violation of 28 U.S.C. § 1446(a), and request remand on this basis. Unisource

concedes that it did not serve a copy of the summons, and states that although Plaintiff has a copy

of the summons, it will provide Plaintiff with an additional copy. In any event, defects in the

removal procedure are not jurisdictional. Fristoe v. Reynolds Metals Co., 615 F.2d 1209, 1212-

1213 (9th Cir. 1980); Nat’l Audobon Soc’y v. Dept. of Water & Power of Los Angeles, 496

F.Supp.499, 503 (E.D.Cal. 1980). 

B. Diversity Jurisdiction

Plaintiff also argues that remand is appropriate because Unisource has failed to establish

that the citizenship of the parties is completely diverse. Plaintiff argues Unisource’s business

activity substantially predominates in California and therefore California is its principal place of

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business. Plaintiff argues that while Unisource is incorporated in Delaware and has its

headquarters in Georgia, most of its business activity occurs in California and therefore complete

diversity does not exist and removal was improper for lack of jurisdiction.

In opposing remand, Unisource claims its corporate activities do not substantially

predominate in any one state, such that the “nerve center” test is appropriate and under this test,

its principal place of business is Georgia, where most of its executive and administrative

functions occur.

28 U.S.C. Section 1332(a) provides for federal jurisdiction based on diversity of

citizenship: 

(a) The district courts shall have original jurisdiction of all civil

actions where the matter in controversy exceeds the sum or value

of $75,000, exclusive of interest and costs, and is between--

 (1) citizens of different States;

 (2) citizens of a State and citizens or subjects of a foreign state;

 (3) citizens of different States and in which citizens or subjects

of a foreign state are additional parties; and

 (4) a foreign state, defined in section 1603(a) of this title, as

plaintiff and citizens of a State or of different States.

For the purposes of this section, section 1335, and section 1441, an

alien admitted to the United States for permanent residence shall

be deemed a citizen of the State in which such alien is domiciled.

A civil action originally filed in a State court which could have been commenced in

federal court based on diversity jurisdiction may be removed from state court to U.S. District

Court on this ground. 28 U.S.C. § 1441(b). Here, Unisource, the party seeking to invoke federal

jurisdiction, bears the burden of establishing jurisdiction. See Indus. Tectonics, Inc. V. Aero

Alloy, 912 F. 2d 1090, 1092 (9 Cir. 1990). th

Federal courts generally use one of two tests to determine a corporation's principal place

of business. Tosco Corp. v. Communities for a Better Env’t, 236 F.3d 495, 500 (9 Cir. 2001). th

First, the “place of operations test” locates a corporation's principal place of business in the state

which “contains a substantial predominance of corporate operations.” Industrial Tectonics, Inc.

v. Aero Alloy, 912 F.2d 1090, 1092 (9th Cir.1990) (quoting Co-Efficient Energy Systems v. CSL

Industries, 812 F.2d 556, 558 (9th Cir.1987)). Second, the “nerve center test” locates a

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corporation's principal place of business in the state where the majority of its executive and

administrative functions are performed. See id. at 1092-93 (citing Inland Rubber Corp. v. Triple

A Tire Service, Inc., 220 F.Supp. 490, 496 (S.D.N.Y.1963)). The Ninth Circuit Court of Appeals

has given lower courts direction to determine which of these tests to apply: where a majority of a

corporation's business activity takes place in one state, that state is the corporation's principal

place of business, even if the corporate headquarters are located in a different state. The “nerve

center” test should be used only when no state contains a substantial predominance of the

corporation's business activities. Industrial Tectonics, Inc. v. Aero Alloy, 912 F.2d at 1094. 

Thus, the Ninth Circuit applies the place of operations test unless the plaintiff shows that its

activities do not substantially predominate in any one state. Tosco Corp. v. Communities for a

Better Env’t, 236 F.3d at 500.

In determining the appropriate test to use, the key issue is whether Unisource’s business

activities substantially predominate in any one state. In Tosco Corp. v. Communities for a Better

Env. 236 F.3d 495, the Court identified a number of factors to determine if a given state contains

a substantial predominance of corporate activity, including the location of employees, tangible

property, production activities, sources of income, and where sales take place. In Tosco, the

court held that California contained a substantial predominance of the plaintiff's business

activities, where the corporation had 21% of its total workforce in California, received 40% of its

total refining capacity from California, and had 37% of its retail locations in California. Tosco,

236 F.3d at 500-01. The Court noted that in arguing California was not its principal place of

business, Tosco erroneously compared its activities in California to its activities in the entire

United States. 

 Unisource only addresses two of the Tosco factors. The “evidence” submitted by

Unisource is the declaration of counsel, who attaches copies of Unisource’s website. While

plaintiff does not object to this evidence and plaintiff also references the website in his moving

papers, the Court questions the admissibility of the declaration and its attachments. Only

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 Unisource locations in other states are less than 5. 1

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because the information contained on the website is undisputed by plaintiff, will the Court

consider it for purposes of this motion. 

As the party bearing the burden of establishing federal jurisdiction, Unisource’s limited

submission of evidence is surprising. Presumably Unisource had information relating to the

portion of its income generated in and percentage of employees and property located in

California at its corporate fingertips but chose not to provide the Court with this information. 

One can only speculate why it chose not to provide this information or why it chose to provide

copies of its wegpage rather than a declaration from a corporate official or custodian of records. 

Unisource’s website indicates that it has more than 100 locations in 44 states and 21

locations in Canada. It has 26 locations in California, 19 in Florida, 13 in Texas, 9 in Georgia, 6

in Illinois and 5 in Oregon. Unisource has 8,000 employees but Unisource provides no evidence

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as to the number of employees in each state. Although more Unisource locations are located in

California than in any other state, Florida has 19 locations, only 7% less than California. Taking

into account the larger population in California, this difference is small. Additionally, the

percentage of locations in Texas, Georgia Illinois, and Oregon falls closely behind Florida. It

seems Unisource’s “contact is spread relatively evenly among many states.” See Ho v. Ikon

Office Solutions, 143 F.Supp.2d at 1166. Although California has more locations, the margin of

difference is not significant - especially for a corporation that conducts business in forty-four of

the fifty states. Because California is the state with the largest population, business activity on a

national scale can be expected to be greater in California. See Ho, 143 F.Supp.2d at 1167-68.

“[I]t is highly unlikely that Congress intended every national corporation that does more business

in California than in any other single state, by virtue of that fact alone, to be deemed a citizen of

California for purposes of diversity jurisdiction.” Id. As observed in Ho, where “the percentage

of the corporation's activities in each of many states is so modest,” the “distorting effect qqq of the

forum state's size” must be taken into consideration. Id. at 1168. Applying this logic to the

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present case, a comparison of Unisource’s locations in each state does not establish a substantial

predominance in California.

Another factor courts consider in determining “substantial predominance” is the location

of the defendant's tangible property. Unisource has submitted no evidence regarding its tangible

property. 

A third factor considered by the Tosco court in determining “substantial predominance”

was the location of the defendant's executive and administrative functions. See Tosco, 236 F.3d

at 502. According to Unisource’s evidence, its National Headquarters as well as its executive and

corporate offices are located in Georgia. Corporate functions such as legal, finance, accounting,

marketing and corporate human resources are based in Georgia. Unisource’s annual leadership

meetings take place in Georgia. Opp'n, Decl. of Jennifer Williams, ¶ 6. This factor therefore

weighs against finding that California contains a substantial predominance of Unisource’s

business activities.

Despite Unisource’s marginal submission of evidence, the information provided

regarding Unisource’s 100 locations in 44 states and the location of its corporate and executive

functions is undisputed. Based on this information, no state has a substantial predominance of

Unisource’s business activities. Accordingly, the “nerve center” test is appropriate for

determining Unisource’s principal place of business. Unisource’s executive and administrative

functions occur in Georgia. Thus, Unisource’s principal place of business is Georgia, and

complete diversity of citizenship exists between it and Plaintiff, a California citizen. Plaintiff’s

motion to remand removed action is therefore HEREBY DENIED. 

IT IS SO ORDERED. 

Dated: April 28, 2006 /s/ Dennis L. Beck 

3b142a UNITED STATES MAGISTRATE JUDGE

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