Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-01715/USCOURTS-caed-2_05-cv-01715-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: Civil Miscellaneous Case

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

K. GREG PETERSON, doing

business as LAW OFFICES OF K.

GREG PETERSON, a sole

proprietorship,

CASE NO. CIV. S-05-1715 WBS KJM

Plaintiff,

v. MEMORANDUM AND ORDER RE: 

DEFENDANTS’ MOTION TO DISMISS 

STATE FARM GENERAL INSURANCE

COMPANY, an Illinois

corporation; STATE FARM FIRE &

CASUALTY COMPANY, an Illinois

corporation,

Defendant.

----oo0oo----

Plaintiff K. Greg Peterson filed suit to obtain an

order to compel defendants State Farm General Insurance

Corporation (“SFGIC”)) and State Farm Fire & Casualty Company

(“SFFCC”) to arbitrate his claims arising from an agreement for

legal representation. Defendants now move to dismiss this action

based on lack of diversity jurisdiction.

///

Case 2:05-cv-01715-WBS -KJM Document 16 Filed 01/19/06 Page 1 of 6
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I. Factual and Procedural Background

Plaintiff, a licensed California attorney, represented

defendants’ policy holders in an investigation of a dry cleaning

business undertaken by the California State Department of Toxic

Substances Control (“DTSC”). (Compl. ¶ 1.) Pursuant to the

representation agreement, entered into on July 6, 2001, the

parties agreed that “any disagreement over fees (would be

submitted) to arbitration as outlined in Civil Code section

2860.” (Id. ¶¶ 1-2.) 

Defendants’ insureds, among others, were subsequently

sued by DTSC for contributing to groundwater contamination. (Id.

¶¶ 4-4); Dep’t of Toxic Substances Control v. City of Chico, No.

CIV S-02-0442 (E.D. Cal. filed Feb. 28, 2002). Defendants again

retained plaintiff to defend their policy holders in the

aforementioned action. (Compl. ¶ 6.) Petitioner provided the

necessary legal services “[u]p to and until substituting out of

the Action on July 12, 2005.” (Id. ¶ 7.) 

Plaintiff sought to collect the attorneys’ fees and

costs incurred during his representation of defendants’ clients. 

However, the parties disagreed over the legal expenses and,

according to the complaint, defendants refused to arbitrate the

controversy. (Compl. ¶¶ 10-11.) Consequently, plaintiff filed

the instant action, pursuant to the Federal Arbitration Act, 9

U.S.C. §§ 1-16 (“FAA”), in hopes of forcing defendants to

arbitrate the matter. His motion to compel arbitration is still

pending before this court. 

The court’s jurisdiction over this matter is, however,

based on diversity jurisdiction, which defendants claim does not

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Plaintiff’s reference in his complaint to a federal 1

statute, the FAA, does not present a federal question. Cf. Gen.

Atomic Co. v. United Nuclear Corp., 655 F.2d 968, 969 (9th Cir.

1981) (“[A]pplicants who, in federal district court, seek

confirmation of an arbitration award under 9 U.S.C. § 9, must

demonstrate independent grounds of federal subject matter

jurisdiction. The provisions of 9 U.S.C. § 9 do not in

themselves confer subject matter jurisdiction on a federal

district court.”). Because plaintiff does not raise any other

claims based on federal law, he must demonstrate that diversity

exists in this case.

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exist. Significantly, defendants argue that SFGIC is, like

plaintiff, a citizen of California.

II. Discussion

A. Legal Standard

When federal questions are not present, federal 1

district courts have jurisdiction in civil actions only if

complete diversity of citizenship exists and the matter in

controversy exceeds $75,000. 28 U.S.C. § 1332; see also Fed. R.

Civ. P. 12(b)(1) (permitting litigants to move to dismiss an

action for “lack of jurisdiction over the subject matter”). In

other words, “the presence in the action of a single plaintiff

from the same State as a single defendant deprives the district

court of original diversity jurisdiction over the entire action.” 

Exxon Mobil Corp. v. Allapattah Servs., Inc., 125 S. Ct. 2611,

2617 (2005) (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267

(1806)). The defendant can challenge jurisdiction based on the

face of the complaint or through extrinsic evidence. White v.

Lee, 227 F.3d 1214, 1242 (9th Cir. 2000) (“ Rule 12(b)(1)

jurisdictional attacks can be either facial or factual.”). In

response to such a challenge, the plaintiff must demonstrate that

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subject matter jurisdiction exists. See, e.g., Tosco Corp. v.

Cmtys. for a Better Env’t, 236 F.3d 495, 499 (9th Cir. 2001).

An individual’s state citizenship for the purpose of

diversity jurisdiction is determined by the state of his

domicile. Lew v. Moss, 797 F.2d 747, 749-50 (9th Cir. 1986). 

Meanwhile, a corporation is a citizen of both its state of

incorporation as well as the state of its principal place of

business. 28 U.S.C. § 1332(c)(1). 

B. Discussion

The parties do not dispute that plaintiff and his

business are citizens of California. They also agree that both

SFGIC and SFFCC are incorporated in, and thus citizens of,

Illinois. At issue here is the second component of SFGIC’s

corporate citizenship: its principal place of business.

Courts employ one of two tests to determine a

corporation’s principal place of business: (1) the place of

operations test and (2) the nerve center test. Indus. Tectonics,

Inc. v. Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990). In the

Ninth Circuit, the place of operations test is preferred,

provided that a court can first identify a state where a

“substantial predominance” of the corporation’s business

activities take place. Tosco Corp., 236 F.3d at 500; Indus.

Tectonics, 912 F.2d at 1093. “Substantial predominance” is

established when “the amount of [the] corporation’s business

activity in one state [is] significantly larger than any other

state in which the corporation conducts business.” Tosco Corp.,

236 F.3d at 500. Relevant to the substantial predominance

inquiry are “the location of employees, tangible property, and

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production activities” as well as “the locations where income is

earned, purchases are made, and sales take place.” Indus.

Tectonics, 912 F.2d at 1094. “[I]f the corporation’s activities

are not predominant in a single state, then the principal place

of business is where the majority of its executive and

administrative functions are performed.” United Computer Sys.,

Inc. v. AT & T Corp., 298 F.3d 756, 763 (9th Cir. 2002); Indus.

Tectonics, 912 F.2d at 1092 (defining the nerve center test).

Defendants have presented evidence that a majority of

SFGIC’s operations take place in California. Summarizing this

evidence in their brief, they point out that “[SFGIC] receives

99% of its premiums from California and pays 97% of its

claims/losses in California . . . .” (Defs.’ Mot. to Dismiss 1

(citing Hill Decl.).) Defendants add that “premiums written in

no other state exceed 1% of the company’s revenues” and that

“[n]o other state has more than 2% of direct losses paid.” (Id.

at 2.)

Additionally, Judge Jenkins of the Northern District of

California has previously held, in an unrelated action, that

SFGIC’s principal place of business is in California. State Farm

Mutual Automobile Ins. Co. v. Pyorre, No. Civ 99-4668, 1999 WL

1244141 (N.D. Cal. Dec. 17, 1999). In light of defendants’

evidence and the Pyorre decision, both of which support

defendants’ position, this court allowed for further discovery

related to disputed jurisdictional matters in order dated October

27, 2005. In that order, this court also requested that the

parties address Pyorre in their upcoming opposition and reply

briefs responding to the instant motion to dismiss.

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Plaintiff instead elected to file a statement of nonopposition and requests that dismissal be without prejudice. The

court notes that, after defendants presented evidence that

SFGIC’s principal place of business is in California, the burden

here was on plaintiff to present evidence that defendant SFGIC’s

principal place of business is somewhere other than California. 

Thus, because plaintiff has not met defendants’ jurisdictional

challenge, dismissal of this action without prejudice is proper. 

Hernandez v. Conriv Realty Assocs., 182 F.3d 121, 123 (2d Cir.

1999) (“[W]here a court lacks subject matter jurisdiction, it

also lacks the power to dismiss with prejudice.”).

IT IS THEREFORE ORDERED that defendants’ motion to

dismiss for lack of subject matter jurisdiction be, and the same

hereby is, GRANTED, and this action is hereby DISMISSED WITHOUT

PREJUDICE. 

DATED: January 19, 2006

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