Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-03-02246/USCOURTS-ca8-03-02246-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 03-2246

___________

Capitol Indemnity Corporation, *

*

Plaintiff - Appellant, *

* Appeal from the United States 

v. * District Court for the Eastern 

* District of Arkansas.

Russellville Steel Company, Inc., *

Freeman Industries, Inc., H. William *

Mitchener, Janet L. Mitchener, Boyd *

G. Freeman, Wanda Freeman, *

*

Defendants - Appellees. *

___________

Submitted: November 21, 2003

 Filed: April 21, 2004 

___________

Before MELLOY, RICHARD S. ARNOLD, and COLLOTON, Circuit Judges.

___________

MELLOY, Circuit Judge.

Plaintiff-Appellant Capitol Indemnity Corp (“Capitol”) appeals the district

court’s dismissal of this contract action for Capitol’s failure to demonstrate diversity

of citizenship. We reverse.

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I.

Capitol sued Defendants-Appellees Russellville Steel Company, et al.

(collectively “Russellville”), to collect over $75,000 pursuant to a general indemnity

agreement. Defendants were citizens of Arkansas. In the complaint, Capitol alleged

that it was a Wisconsin corporation, but did not allege that it maintained its primary

place of business somewhere outside of Arkansas. Russellville moved to dismiss

under F.R.C.P. 12(b)(1) for lack of subject matter jurisdiction, claiming that Capitol

failed to plead diversity jurisdiction. Capitol responded to the motions and moved

for leave to amend its complaint to specifically allege that “[Capitol] is an insurance

corporation organized pursuant to the laws of the State of Wisconsin, with its

principal place of business in Madison, Wisconsin . . . .”

The district court granted Capitol leave to amend. In addition, the district court

set forth a procedure to address the outstanding Rule 12(b)(1) motions. The district

court instructed Capitol to provide proof of Wisconsin citizenship with the amended

complaint. The district court further stated that Russellville would have ten days after

the filing of the amended complaint to submit evidence to the contrary and that, “at

that time the Court will resolve the diversity issue and, if necessary, the other issues

raised in [the defendants’] motions to dismiss.”

With its amended complaint, Capitol submitted a certified copy of its

Wisconsin articles of incorporation as well as the affidavit of Andy L. Anderson,

Senior Claims Examiner for Capitol. Mr. Anderson averred as fact that Capitol was

incorporated in Wisconsin, maintained its principal place of business in Madison,

Wisconsin, did not maintain a place of business in Arkansas, and conducted its

business of writing insurance policies and surety bonds in Arkansas exclusively

through the use of independent agents who were not employees of Capitol.

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Within ten days of Capitol’s filing of the amended complaint, Russellville

submitted affidavits. These affidavits averred that Russellville had conducted

business with Capitol for over twenty years exclusively through one particular

attorney-in-fact for Capitol, Charles Allen, who maintained an office in Arkansas.

Capitol did not request an evidentiary hearing nor object to the procedure set

out by the district court in the order granting leave to amend. Three weeks after

Russellville submitted its affidavits, the district court ruled that Capitol failed to

prove that it maintained its principal place of business in Wisconsin. The district

court held that, because Capitol failed to prove that its principal place of business was

somewhere other than Arkansas, Arkansas had to be considered the principal place

of business. Accordingly, the district court found diversity of citizenship lacking and

granted the defendants’ Rule 12(b)(1) motions. The district court stated:

The only assertion in Anderson’s affidavit that somewhere other than

Arkansas is Capitol’s principal place of business is the bald assertion

that Wisconsin is. In fact, Capitol has not submitted any proof that it

writes insurance policies and surety bonds in any state other than

Arkansas.

It is not enough that Capitol might be able to easily prove that

Wisconsin is its principal place of business; it has not done so. Neither

is it enough that the Court could discover the information on its own

through Capitol’s website or by other means; the Court, limited to

reviewing the evidence submitted by the parties, may not do so. In

short, Capitol has failed to prove by a preponderance of the evidence

that its principal place of business is in Wisconsin. Although diversity

jurisdiction is often easily proven and frequently is a “bump in the road”

on the way to more substantive and, some may believe, more interesting

issues, this Court refuses to shirk its duty of protecting the jurisdiction

of the federal courts.

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In a motion to reconsider filed under Rule 59(e), Capitol challenged the district

court’s findings and, for the first time, challenged the district court’s procedure for

submitting evidence on the diversity issue. Because Capitol had not previously

challenged the procedure, and because Capitol and the defendants all complied with

the procedure without objection, the district court rejected this challenge as an

impermissible attempt to raise new issues after judgment and denied Capitol’s

motion.

On appeal, Capitol raises two issues. First, Capitol argues that the procedure

used by the district court was not a “rational mode of inquiry” and therefore failed to

afford Capitol adequate due process protection. See Osborn v. United States, 918

F.2d 724, 730 (8th Cir. 1990) (“As no statute or rule prescribes a format for

evidentiary hearings on jurisdiction, ‘any rational mode of inquiry will do.’”) (quoting

Crawford v. United States, 796 F.2d 924, 929 (7th Cir. 1986)). Second, Capitol

argues that the district court clearly erred when it determined that Capitol’s principal

place of business was in Arkansas.

As to the first issue, Russellville argues that the district court did not abuse its

discretion when it denied Capitol’s Rule 59(e) motion to reconsider. Further,

Russellville argues that Capitol is entirely foreclosed from presenting its procedural

challenge argument to the appellate court due the fact that Capitol did not raise this

issue until the motion for reconsideration. As to the second issue, Russellville argues

that Capitol’s failure to provide evidence of business activities outside Arkansas

mandates a finding that Arkansas is the principal place of business.

II.

The district court did not abuse its broad discretion when it denied Capitol’s

Rule 59(e) Motion to Reconsider. District courts enjoy broad discretion in ruling on

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such motions. See Concordia College Corp. v. W.R. Grace & Co., 999 F.2d 326, 330

(8th Cir. 1993) (“The District Court did not abuse its broad discretion in concluding

that Concordia was improperly attempting to raise, via a motion to alter or amend,

arguments that it could have raised in response to W.R. Grace’s motion for summary

judgment.”). We have repeatedly held that Rule 59(e) motions are not proper

vehicles for raising new arguments. See id. (“. . . nor should a motion for

reconsideration serve as the occasion to tender new legal theories for the first time.”)

(quoting Hagerman v. Yukon Energy Corp., 839 F.2d 407, 414 (8th Cir. 1988));

Innovative Home Health Care, Inc. v. P.T.-O.T. Assocs. of the Black Hills, 141 F.3d

1284, 1286 (8th Cir. 1998) (“Rule 59(e) motions serve a limited function of

correcting “‘manifest errors of law or fact or to present newly discovered evidence.’”)

(citations omitted). Capitol impermissibly attempted to raise its procedural challenge

for the first time in its Rule 59 motion. We therefore affirm the district court’s

judgment regarding dismissal of the Rule 59(e) motion.

We find, however, that the underlying decision regarding diversity of

citizenship was clear error. See Blakemore v. Missouri Pac. R.R. Co., 789 F.2d 616,

618 (8th Cir. 1986) (applying clear error standard to a diversity of citizenship

determination and stating “[a] determination of citizenship for the purpose of

diversity is a mixed question of law and fact, but mainly fact.”). Capitol was not

required to prove specifically that its principal place of business was in Wisconsin.

Rather, to establish complete diversity of citizenship with the defendants, all that

Capitol was required to prove was that it was not a citizen of Arkansas. Because the

evidence before the district court, and all the reasonable inferences that could be

drawn from that evidence, precluded a finding that Capitol was a citizen of Arkansas,

Capitol met its burden.

Diversity jurisdiction exists where the amount in controversy is greater than

$75,000 and where there is complete diversity of citizenship. 28 U.S.C. § 1332(a).

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Complete diversity of citizenship exists where no defendants hold citizenship in a

state where any plaintiff holds citizenship. Owen Equipment & Erection v. Kroger,

437 U.S. 365, 373 (1978). For diversity purposes, a corporation may be the citizen

of two states. First, a corporation is a citizen of the state in which it is incorporated.

28 U.S.C. § 1332(c)(1). Second a corporation is a citizen of the state in which it

maintains its principal place of business. Id. A corporation can have only one

principal place of business for the purposes of diversity citizenship. See 28 U.S.C.

§ 1332(c)(1) (“a corporation shall be deemed a citizen of the State where it has its

principal place of business”) (emphasis added); Gafford v. Gen. Elec. Co., 997 F.2d

150, 161 (6th Cir. 1993) (“By common sense and by law, a corporation can have only

one principal place of business for purposes of establishing its state of citizenship.”).

Congress made this clear in 1958 when it expanded the definition of corporate

citizenship for diversity purposes to include not only the state of incorporation, but

also the state of a corporation’s principal place of business:

The Judicial Conference of the United States has recommended that the

law be amended so that a corporation shall be regarded not only as a

citizen of the state of its incorporation, but also as a citizen of the state

in which it maintains its principal place of business. This will eliminate

those corporations doing a local business with a foreign charter but will

not eliminate those corporations which do business over a large number

of states, such as the railroads, insurance companies, and other

corporations whose businesses are not localized in one particular state.

Even such a corporation, however, would be regarded as a citizen of that

one of the states in which was located its principal place of business. 

S. Rep. 85-1830, at 3102 (1958).

Here the undisputed evidence showed that Capitol was incorporated in

Wisconsin and that all defendants were citizens of Arkansas. Accordingly, the only

issue before the district court was whether Capitol maintained its principal place of

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business in Arkansas. Because a corporation can have only one principal place of

business, and because Capitol believed its principal place of business to be in

Wisconsin, submission of a simple description of Capitol’s activities in Wisconsin

would have been the most straightforward and preferred method of responding to

Russellville’s jurisdictional attack. We conclude, however, that in this case, a

showing that Arkansas is not Capitol’s principal place of business is sufficient to

establish diversity of citizenship.

The Eighth Circuit has not adopted a test for determining a corporation’s

“principal place of business.” However, other circuits have applied three different

tests. The first test, the “nerve center” or “locus of operations” test, considers the

principal place of business to be the location of corporate decision-makers and the

location of overall control. See Buethe v. Britt Airlines, Inc., 787 F.2d 1194, 1196

(7th Cir. 1986); Lugo-Vina v. Pueblo Intern., Inc., 574 F.2d 41, 43 (1st Cir. 1978).

The second test, the “corporate activities” test, considers the principal place of

business to be the location of the corporation’s production and service activities.

Kelly v. United States Steel Corp., 284 F.2d 850, 854 (3d Cir. 1960). The final test,

the “total activity” test, is actually a hybrid of the other two. The total activity test

recognizes that the nature of a corporation’s activities will impact the relative

importance of production activities, service activities, and corporate decision making.

Accordingly , the total activity test looks at all corporate activities. See, J.A. Olson

Co. v. City of Winona, Miss., 818 F.2d 401, 411 (5th Cir. 1987); Vareka Invs., N.V.

v. American Inv. Props., Inc., 724 F.2d 907, 910 (11th Cir. 1984). 

District courts within the Eighth Circuit have applied the most open-ended of

these tests–the “total activity” test. White v. Halstead Indus., Inc., 750 F. Supp. 395,

398 (E.D. Ark. 1990); North Star Hotels Corp. v. Mid-City Hotel Assocs., 696 F.

Supp. 1265, 1270 (D. Minn. 1988); Associated Petro. Producers, Inc. v. Treco 3

Rivers Energy Corp., 692 F. Supp. 1070, 1074 (E.D. Mo. 1988). The district court

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in the present case purported to apply the “total activity” test. Neither party disputes

the use of this test, and we find this test to be the most appropriate and least limiting

of the tests other circuits have applied. 

Applying the total activity test to the present case, we look first at the claims

made in Capitol’s affidavits. We give no weight to the direct claim that Capitol

maintained its principal place of business in Wisconsin. The ultimate determination

of where a corporation maintains its principal place of business is a mixed question

of law and fact and not appropriate subject matter for an affidavit. We give great

weight, however, to Capitol’s undisputed allegations of fact where the balance of the

evidence offers no grounds for rejection. In this regard, we find that Capitol, an

insurance company that writes indemnity policies and surety bonds, maintained no

offices in Arkansas. Further, Capitol conducted business in Arkansas only through

independent sales agents. Finally, because the affiant, Senior Claims Examiner Andy

L. Anderson, presumably was an employee and not an independent agent, it is clear

that Capitol maintained employees and offices outside of Arkansas. Russellville

disputed none of these facts, and the evidence before the district court provided no

basis for rejection of these assertions. In fact, Russellville’s own affidavits supported

Capitol’s claim that it conducted business in Arkansas solely through sales agents.

We also look to the reasonable inferences that necessarily flow from the

undisputed facts. In making these inferences, we may look beyond the evidence and

draw on our general knowledge of commonly known information even without a

request that we take judicial notice of particular facts. See, e.g.,United States v.

Fousek, 912 F.2d 979, 981 (8th Cir. 1990) (“We conclude that no such evidence was

necessary, for when a person in a position of public trust . . . embezzles money from

those he is bound to aid, it stands to reason that there will be some resulting loss of

public confidence in that institution.”); United States v. Slone, 405 F.2d 1033, 1036

(8th Cir. 1969) (“It is common knowledge that the movements of a child hardly 11

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months old are unpredictable.”); St. Paul Hotel Co. v. Lohm, 196 F.2d 233, 235 (8th

Cir. 1952) (“But it is equally common knowledge that such seats hinged on the brittle

porcelain parts are not meant to resist the pressure of weights thrust against them

from the side as plaintiff admits he did in this instance.”); Waldheim Realty & Inv.

Co. v. Comm’r of Internal Rev., 245 F.2d 823, 825 (8th Cir. 1957) (“It is common

knowledge that the surrender value of a policy cancelled by the insured is upon a

short term rate basis, and considerably less than the prorata return of the premium for

the unexpired term.”); Noland v. Pastor, 191 F.2d 1009, 1013 (8th Cir. 1951) (“That

a driver going thirty miles an hour can make a swerve of more than ten inches and can

sound a horn, or even apply brakes and stop within a much shorter distance than 100

feet, is a matter of such common knowledge as to be obvious. The court must take

judicial notice of it.”); Gardner v. Mid-Continent Grain Co., 168 F.2d 819, 821 (8th

Cir.1948) (“It is a matter of common knowledge, of course, of which we may take

judicial notice, that ordinary soybeans are not perishable goods and that they will not

rot and spoil from being in a grain car for such a period as was here consumed in their

transportation from Decatur to Kansas City.”). 

Even without an offer of proof, then, we may take notice of the fact that

insurance companies cannot exist through sales agents alone. Insurance companies

are regulated entities that require a home office to produce the policies that agents (or

employees) sell and manage the assets that stand behind the policies. Insurance

companies require accountants, actuaries, claim examiners (like the affiant, Senior

Claims Examiner Andy L. Anderson), and other support personnel as well as

managers and directors. It cannot reasonably be disputed that such employees exist,

and it follows from the claims in Mr. Anderson’s affidavits that the offices and

activities of such employees, managers, and directors were located outside of

Arkansas.

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With no office in Arkansas, no employees in Arkansas, and only sales agents

in Arkansas, the evidence does not support an inference that Capitol’s principal place

of business was in Arkansas. Rather, it supports the inference that all underwriting,

claims examination, asset management, and corporate governance occurred

elsewhere. Although Capitol failed to demonstrate that it sold policies anywhere but

Arkansas, we do not find that policy sales alone are sufficient to satisfy the total

activity test and define an insurance company’s principal place of business. Capitol

sufficiently, albeit inefficiently, demonstrated that it was not a citizen of Arkansas.

The judgment of the district court is reversed. 

COLLOTON, Circuit Judge, dissenting.

I conclude that the district court did not commit clear error in dismissing the

complaint, and I respectfully dissent.

To my mind, this is a straightforward case. When plaintiff Capitol Indemnity

Corporation failed even to allege a basis for federal jurisdiction in its first complaint,

the district court allowed Capitol to amend its complaint, but directed it to submit

sufficient evidence to demonstrate diversity of citizenship within ten days, at which

point the court would resolve the matter. This is a perfectly "rational mode of

inquiry" in accord with our precedents, see Osborn v. United States, 918 F.2d 724,

730 (8th Cir. 1990), and the court does not contend otherwise.

In response to the district court's directive, Capitol submitted a two-page

affidavit, which contained only a conclusory allegation concerning Capitol's principal

place of business (on which the court properly declines to rely, ante at 7-8), and three

relevant statements of fact: (1) "Capitol is incorporated in the State of Wisconsin,"

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(2) "Capitol does not maintain a place of business in Arkansas," and (3) "Capitol's

business of writing insurance policies and surety bonds in the State of Arkansas is

conducted entirely through the use of independent agents who are not employees of

Capitol." The district court concluded that the evidence presented by Capitol was

insufficient to establish diversity of citizenship. I agree with that conclusion, and the

court does not contend otherwise. That should end the analysis.

The court, however, proceeds to find that the district court committed clear

error because it failed to "look beyond the evidence" and draw on its "general

knowledge of commonly known information," ante at 8, even though Capitol never

cited or argued any such "commonly known information" to the district court or to

this court. The court concludes that this general knowledge is sufficient, under the

newly adopted "total activities" test for determining a principal place of business, to

prove that Capitol's principal place of business cannot be in Arkansas. I disagree

with this analysis.

I accept, of course, the general proposition that a court may take judicial notice

of certain adjudicative facts, including those "generally known within the territorial

jurisdiction of the trial court." Fed.R.Evid. 201(b). But a district court is required to

take judicial notice of an adjudicative fact only when "requested by a party and

supplied with the necessary information." Fed.R.Evid. 201(d). Given that Capitol

never asked the district court to consider "general knowledge of commonly known

information," and never supplied any necessary information in that regard, it was

within the district court's discretion whether to consider such information on its own

initiative, and it was not required to do so. Fed.R.Evid. 201(c); FDIC v. Houde, 90

F.3d 600, 607-08 (1st Cir. 1996). The court should not reach out for facts necessary

to establish diversity jurisdiction, because "[j]udicial notice is an inappropriate device

for remedying a failure of proof." Glover v. Cole, 762 F.2d 1197, 1200 n.6 (4th Cir.

1985); see also United States v. Hawkins, 76 F.3d 545, 551 (4th Cir. 1996).

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1

See also, e.g., Chris Pryer, Outsourcing to Play Larger Role Among Insurance

Companies, OUTSOURCING JOURNAL, January 2003 (describing outsourcing of

insurance processes, including field-based services such as auditing; policy

administration and billing; financial recoveries, which comprises subrogation and

premium collection; and data management and regulatory reporting), at http://www.

outsourcing-journal.com/issues/jan2003/insurance.html; William R. Pape, The Fewer

the Merrier, INC.MAGAZINE, Dec. 1998 (reporting that in 1998, outsourcing allowed

GeneraLife Insurance Company of America to employ a staff of only 13, some of

them college students, to manage more than 3,000 independent insurance agents),

http://www.inc.com/magazine/19981201/5420.html; Florida Dep't Ins., 2001 Property

and Casualty Target Market Conduct Examination of DeSoto Insurance Company,

at 4 (March 8, 2002) (insurance company relied on third-party managing general

agent to provide underwriting, production, marketing, policy issuance, premium

billing and collection, premium accounting, claims adjusting, auditing, payroll

issuance and various other services, while managing general agent subcontracts the

policy administration and claims administration functions to third-party servicing

-12-

Assuming for the sake of argument that the district court was required sua

sponte to consider "general knowledge" about insurance companies, the scope of

what may be judicially noticed about an insurance company is limited. The court is

forced by the paltry record to "presum[e]" that Capitol's senior claims examiner (who

served as an affiant in the district court) is an employee and not an independent agent,

ante at 8, but it is entirely possible that an insurance company would use independent

contractors as claims examiners. I daresay it is "commonly known" that the insurance

industry in the 21st century increasingly is outsourcing such functions as claims

processing and administration, underwriting, accounting, and information technology

services. See, e.g., Doug McPhie, Thumbs up on Outsourcing, CROSS CURRENTS,

Summer 2002, at 12-14, 21 (recognizing growing trend in life insurance industry

toward outsourcing of information technology and business processes, and citing

examples of outsourced policy administration functions, such as underwriting and

claims adjudication), http://www.ey.com/global/download.nsf/Belgium_E/Cross

Currents_Summer_2002/$file/CrossCurrents_Summer_2002.pdf.1

 These industry

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providers), http://www.fldfs.com/companies/pc/Exams/Desoto_030802_Rpt. Pdf.

-13-

developments show that one cannot reliably make broad assumptions about the

number and function of employees at an insurance company. Moreover, the

presumed existence of certain core employees, managers, and directors does not tell

us anything about where they are located, including whether they are in a single state

or dispersed among different venues. While it may be possible to infer from the

barebones affidavit and common knowledge that Capitol has some sort of "home

office" outside Arkansas, much beyond that is left to speculation.

More problematic is the legal conclusion that "general knowledge" about

insurance companies necessarily demonstrates diversity of citizenship in this case.

The mere existence of a judicially noticed home office outside Arkansas, especially

when the nature of such an office is speculative, does not establish that Capitol's

principal place of business is outside Arkansas. The very cases cited by the court to

illustrate the "total activities" test, ante at 7, demonstrate the point.

As the court observes, Capitol failed to prove that it sold insurance policies

anywhere other than Arkansas. The court's authorities agree that "[w]hen virtually

all of the corporate business is conducted in one state, but the headquarters and

policy-making functions are conducted in another, the situs of the corporate business

assumes greater importance." Associated Petroleum Producers, Inc. v. Treco 3 Rivers

Energy Corp., 692 F. Supp. 1070, 1074 (E.D. Mo. 1988). If, for example, Capitol

were incorporated in Wisconsin for the purpose of selling insurance exclusively in

Arkansas (a scenario that the record and the court's judicially noticed facts do not

exclude), decisions applying the total activity test indicate that the company's

principal place of business would be Arkansas. See id. at 1075 (where sole officers

and employees, company headquarters, policy-making functions, and place of

incorporation were in Missouri, but 92% of sales were in Kentucky, principal place

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of business was Kentucky); North Star Hotels Corp. v. Mid-City Hotel Assocs., 696

F. Supp. 1265, 1270 (D. Minn. 1988) (where Texas was plaintiff's state of

incorporation, residence of officers and directors, situs of bookkeeping and

accounting tasks, and location of corporate offices where policy decisions were made

and records were maintained, but sole source of income was hotel in Minnesota

managed and operated through management agreement, principal place of business

was Minnesota); White v. Halstead Indus., Inc., 750 F. Supp. 395, 399 (E.D. Ark.

1990) (where company's executive offices were in North Carolina, but majority of

goods, sales, and employees were associated with two plants in Arkansas, principal

place of business was Arkansas); Hanna Mining Co. v. Minnesota Power & Light,

573 F. Supp. 1395, 1400 (D. Minn. 1983) (where company was created to hold and

operate parent's interest in Minnesota mining project, principal place of business was

Minnesota rather than state where executive and administrative offices were located),

aff'd, 739 F.2d 1368 (8th Cir. 1984). Given the paucity of evidence in the record

about Capitol, even when it is augmented by the judicially noticed existence of a

home office outside Arkansas, I do not find clear error in the conclusion that Capitol

failed to prove diversity of citizenship.

As the district court observed, it may well be that Capitol could demonstrate

easily that its principal place of business is outside Arkansas. It should remain free

to do so in other litigation. But Capitol failed to make the requisite showing in this

case, and I see no good reason to strain both the doctrine of judicial notice and the

"total activities" test to create diversity jurisdiction over this lawsuit. I would affirm

the judgment of the district court, and I respectfully dissent.

______________________________

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