Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_09-md-02087/USCOURTS-casd-3_09-md-02087-18/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1331 Fed. Question

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1 09MD2087

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

IN RE HYDROXYCUT MARKETING

AND SALES PRACTICES LITIGATION

________________________________

KERRY M. DONALD and 

NADIA DONALD, 

 Plaintiffs,

 vs.

IOVATE HEALTH SCIENCES GROUP,

INC., IOVATE HEALTH SCIENCES

U.S.A. INC., IOVATE HEALTH

SCIENCES INC., MUSCLETECH

RESEARCH AND DEVELOPMENT,

INC., GNC CORPORATION, GN OLDCO

CORPORATION (f/k/a GENERAL

NUTRITION CORPORATION),

GENERAL NUTRITION COMPANIES

INC., GENERAL NUTRITION CENTERS,

INC., GENERAL NUTRITION CENTER

INTERNATIONAL, INC., and GENERAL

NUTRITION WORLDWIDE, INC.,

 Defendants.

CASE NO. 09MD2087-BTM (AJB)

 

 (S.D. Cal. No. 10CV00910)

ORDER DENYING MOTION TO

REMAND

Case 3:09-md-02087-BTM-KSC Document 315 Filed 07/29/10 Page 1 of 9
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Plaintiffs Kerry M. Donald and Nadia Donald (“Plaintiffs”) have filed a motion to remand

(“Motion”) this action to state court. For the reasons discussed below, Plaintiffs’ motion to

remand is DENIED WITHOUT PREJUDICE. 

I. BACKGROUND

On January 22, 2010, Plaintiffs filed a complaint in the Supreme Court of New York,

Kings County (Index No. 1948/2010). On February 18, 2010, Plaintiffs filed an Amended

Complaint (“FAC”). On March 25, 2010, Defendants filed a Notice of Removal and the case

was transferred to the Eastern District of New York. On April 23, 2010, Plaintiffs filed a Motion

to Remand (“Motion”). On April 26, 2010, the case was transferred to join the Multidistrict

Litigation (“MDL”) in the Southern District of California. Upon transfer, the case became part

of the pending MDL entitled In re Hydroxycut Marketing and Sales Practices Litigation

(09md2087), and was assigned a separate civil case number in the Southern District of

California (10cv910). On May 4, 2010, Plaintiffs re-filed their Motion to Remand in the MDL

action in the Southern District of California. The Court held a hearing on the motion on June

30, 2010.

II. LEGAL STANDARD

Section 1441 permits removal of any action over which the federal court would have

original jurisdiction. 28 U.S.C. § 1441. If an action is not founded on a claim or right arising

under the Constitution, treaties or laws of the United States, it is only removable if none of the

defendants is a citizen of the state in which the action is brought. 28 U.S.C. § 1441(b). Title

28 U.S.C. § 1447(c) provides for remand based on lack of subject matter jurisdiction "[i]f at any

time before final judgment it appears that the district court lacks subject matter jurisdiction . .

. ." 28 U.S.C. § 1447(c). 

Section 1332 gives federal district courts jurisdiction over civil actions in which the

amount in controversy exceeds $75,000 and is between citizens of different states. 28 U.S.C.

§ 1332(a). For the purposes of § 1332 and § 1441, a corporation is deemed a citizen of any

state of which it has been incorporated and of the state where it has its principal place of

business. 28 U.S.C. § 1332(c)(1). A corporation’s principal place of business is its “nerve

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center” - “the place where the corporation’s high level officers direct, control, and coordinate the

corporation’s activities.” Hertz Corp. v. Friend, 130 S. Ct. 1181, 1186 (2010). For diversity

jurisdiction to exist, none of the defendants can be a citizen of the same state as one of the

plaintiffs. Since Plaintiffs are citizens of New York, none of Defendants can be citizens of New

York.

III. DISCUSSION

Plaintiff, Kerry M. Donald, alleges that, after ingesting Hydroxycut products

manufactured, marketed and sold by defendants, he experienced severe muscle pain and

discolored urine and was hospitalized for ten days. (FAC ¶ 52.) In the FAC, Plaintiffs bring ten

claims against Defendants. (FAC ¶¶ 61-133.) 

Based on the representations at the motion hearing and the record before the Court, the

Court makes the following findings of fact. Hydroxycut is manufactured by Iovate Health

Sciences, Inc. (“Health Sciences”), which is located in Oakville, Ontario, Canada. It has 300

employees in the Toronto area and it engages in research, development and advertising.

Health Sciences contracts with other corporations who actually manufacture Hydroxycut. Health

Sciences purchases the ingredients from suppliers in the United States which are shipped to

the manufacturers. Iovate Health Sciences U.S.A., Inc. (“Iovate U.S.A.”) purchases the

Hyrdoxycut from Health Sciences and has it warehoused at the facility operated by Kuehne and

Nagel in Blasdell, New York. Terry Begley (“Begley”) is the sole director and employee of Iovate

U.S.A. and operates out of his office in Oakville, Ontario (a suburb of Toronto). Begley

negotiates and enters into contracts with retailers. He then directs Kuehne and Nagel to deliver

a specific quantity of product out of its Blasdell warehouse to the retailers. Kuehne and Nagel

has discretion to determine what portion of product of the ultimate contract amount to ship on

a specific date. However, Kuehne and Nagel acts as an independent contractor executing

contracts negotiated and entered into by Begley from his office in Ontario. The retailers send

returns to the Kuehne and Nagel run warehouse. The retailers pay Iovate U.S.A. by sending

payments to a lock box at the Royal Bank of Canada. Iovate U.S.A. is incorporated in Delaware

and has an agent for service of process there. Counsel for the defendants in this case

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communicate with its clients through in house counsel at Iovate Health Sciences Research, Inc.

in Oakville, Ontario. Counsel’s invoice for work done on this case are sent to the offices in

Oakville, Ontario. Counsel is paid through checks drawn on the Royal Bank of Canada.

Plaintiffs seek a remand of this case on three grounds: (1) that the Court lacks diversity

jurisdiction because Defendant Iovate Health Sciences U.S.A. Inc. is a citizen of New York; (2)

that Defendants should be judicially estopped from declaring that Iovate U.S.A.’s principal place

of business is not in New York; and (3) that Defendants’ notice of removal was defective.

Plaintiffs also seek attorney fees and costs pursuant to 28 U.S.C. § 1447(c).

A. Principal Place of Business 

The parties do not dispute that all the defendants other than Iovate U.S.A. are citizens

of states other than New York. Thus, the question for complete diversity is whether Iovate

U.S.A. is a citizen of New York.

Iovate U.S.A. is incorporated in Delaware. Plaintiffs contend that Iovate U.S.A.’s

principal place of business is in Blasdell, New York, thereby making Iovate U.S.A. also a citizen

of New York. Plaintiffs are citizens of New York (FAC ¶¶ 2-3), so if Defendants are also

citizens of New York, diversity is destroyed. Defendants contend that Iovate U.S.A.’s principal

place of business is either in Wilmington, Delaware or Oakville, Ontario, Canada, either of which

would preserve diversity. 

Plaintiffs allege that Iovate U.S.A.’s principal place of business is in New York for a

number of reasons. Plaintiffs first point to numerous past cases involving the Iovate Group

Defendants in which Defendants have represented to other courts that Iovate U.S.A.’s principal

place of business was in New York. (See Mot. 10-11.) Plaintiffs also point to an FDA recall

notice dated May 1, 2009 that lists Iovate U.S.A. as a Blasdell N.Y. corporation. As Defendants

correctly state, the jurisdiction of the court is determined by the state of the facts at the time the

action is brought. Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 570-71 (2004).

Defendants’ earlier representations about their principal place of business is not controlling.

The test is where Iovate U.S.A.’s principal place of business was at the time the case was filed

on January 22, 2010. Defendants’ motivation for moving their principal place of business is

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immaterial. The Court’s concern is whether Defendants’ alleged new principal place of business

is in fact its principal place of business, as defined by the Supreme Court in Hertz. Heinz v.

Havelock, 757 F. Supp. 1076, 1081 (C.D. Cal. 1991) (citing Williamson v. Osenton, 232 U.S.

619, 625 (1914)) (“The motive for a change of domicile is immaterial to the determination of the

existence of diversity of citizenship, provided that the move is bona fide.” By analogy, the

motive for a corporation’s change of principal place of business is immaterial, so long as the

new location satisfies the requirements for principal place of business).

Defendants contend that Iovate U.S.A.’s principal place of business is either in

Wilmington, Delaware or Oakville, Ontario. Defendants allege that effective January 1, 2010,

Iovate U.S.A. moved its address and office to Wilmington and began receiving all written

communication in Wilmington. Plaintiffs allege that the Wilmington office is nothing but a

mailing address and thus is not the principal place of business. The Court agrees with Plaintiffs.

Based on the record before the Court and representations from counsel, it appears that there

is no semblance of a “nerve center” in Wilmington.

Defendants alternatively contend that Iovate U.S.A.’s principal place of business is in

Oakville, Ontario. Based on the record before the Court, including Defendants’ representations,

it is the Court’s understanding that Iovate U.S.A.’s C.E.O. and sole director Terry Begley,

resides and maintains his office in Oakville. Begley makes all the high level decisions for Iovate

U.S.A., including entering into contracts with retailers, purchasing product from Iovate Health

Sciences Inc., and giving instructions to Kuene and Nagel, the independent company that Iovate

U.S.A. contracts with for warehousing and distribution of Iovate’s products. Iovate U.S.A.’s

finance and accounting functions are also performed in Oakville. Based on these

representations, it is clear that Iovate U.S.A.’s nerve center is in Oakville, where Begley directs,

controls and coordinates Iovate U.S.A.’s activities.

Plaintiffs contend that Iovate U.S.A.’s principal place of business is in Blasdell, New York

because the warehousing and distribution facility is there. The Court disagrees, as the facility

is run by an independent company and it does not appear that any important decisions are

made at the facility by Iovate U.S.A.. Based on the representations made to the Court by

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Defendants, Begley makes the high-level decisions in Oakville and Kuehne and Nagel simply

carries out his instructions. Even if it is the case, as Plaintiffs contend, that Iovate employees

visit and spend time at the warehousing facility, Iovate U.S.A.’s principal place of business

would still be Oakville because that is the nerve center. Indeed, it appears that employees of

related Iovate entities “visit” Kuehne and Nagel’s facility in Blasdell because they are not based

there.

In its explanation of how a nerve center should be determined, the Court in Hertz wrote,

We also recognize that the use of a “nerve center” test may in some cases

produce results that seem to cut against the basic rationale for 28 U.S.C. § 1332,

see supra, at 1188. For example, if the bulk of a company’s business activities

visible to the public take place in New Jersey, while its top officers direct those

activities just across the river in New York, the “principal place of business” is New

York. 

Hertz, 130 S. Ct. at 1194. The situation is similar here. Even though the bulk of the business

activities visible to the public - the warehousing and distribution - take place in New York, those

activities are directed by Begley in Oakville. Thus, Iovate U.S.A.’s principal place of business

is Oakville, Ontario. 

For the purposes of diversity jurisdiction, when a corporation is incorporated in the United

States and has its principal place of business outside the United States, the corporation is only

considered a citizen of the state in which it is incorporated. See Mas Capital Inc. v. Biodelivery

Servs. Int’l, 524 F.3d 831, 832-33 (7th Cir. 2008); Torres v. Southern Peru Copper Corp., 113

F.3d 540, 544 (5th Cir. 1997); Cabalceta v. Standard Fruit Co., 883 F.2d 1553, 1561 (11th Cir.

1989); Great Lakes Gas Transmission Ltd.v. Essar Steel Minnesota, LLC, 2010 WL 234764,

at *2 (D. Minn. Jan. 14, 2010). Therefore, for the purposes of diversity jurisdiction, Iovate U.S.A.

is only a citizen of Delaware, the state of its incorporation. Since Plaintiffs are citizens of New

York, the parties are diverse and there is diversity jurisdiction under § 1332.

B. Judicial Estoppel

Plaintiffs contend that Defendants should be judicially estopped from asserting that their

principal place of business is in Delaware or Oakville because of Defendants’ assertion to this

Court in November 2009 in Tornambe v. Iovate Sciences U.S.A., 2009 WL 5144670 (S.D. Cal.

2009) that their principal place of business was in Blasdell, N.Y.. (See Mot. 4-6.) A party will

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be judicially estopped from taking a position when: “(1) the party’s current position is ‘clearly

inconsistent’ with its earlier position; (2) the party was successful in persuading a court to accept

its earlier position; and (3) the party would ‘derive an unfair advantage or impose an unfair

detriment on the opposing party if not estopped.” Williams v. Boeing Co., 517 F.2d 1120, 1134

(9th Cir. 2008). Iovate U.S.A.’s position that its principal place of business is now in Oakville

is not “clearly inconsistent” with its position previously that its principal place of business was

then in New York. Iovate U.S.A.’s principal place of business has simply changed. 

C. Defective Removal

Finally, Plaintiffs contend that Defendants’ removal is defective because Defendant Kerr

Investment Holding Corp. (f/k/a Iovate Health Sciences Group Inc.) was not properly joined in

the removal papers. Plaintiffs argue that footnote two in the removal notice, which states “Kerr

Investment Holding Corp (f/k/a Iovate Health Sciences Group Inc.) specially appears to join in

this Notice of Removal” does not satisfy the requirement that all defendants must join in

removal. 

The “rule of unanimity” requires that in a case involving multiple defendants, all

defendants must join in a removal petition. Chicago, Rock Island, & Pacific Railway Co. v.

Martin, 178 U.S. 245, 248 (1900). However, neither Chicago, nor any federal rules or statutes

prescribes any specific manner or form required for co-defendants’ joinder in the removal.

Proctor v. Vishay Intertechnology Inc., 584 F.3d 1208, 1225-26 (9th Cir. 2009). While some of

the circuits differ on the issue, in Proctor, the Ninth Circuit adopted the position that one

defendant’s timely removal notice containing an averment of the other defendants’ consent and

signed by an attorney of record is sufficient to satisfy the rule of unanimity. Proctor, 584 F.3d

at 1225. Individual consent documents from each defendant are unnecessary. Id. The Court

has not found a case for the Second Circuit that disapproves of the procedure permitted in

Proctor.

Plaintiffs cite to Codapro Corp. v. Wilson, 997 F. Supp. 322 (E.D.N.Y. 1998), to support

their argument that the removal notice is defective. In Codapro, a case involving multiple

defendants, one defendant acting pro se filed a notice of removal on behalf of all the

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See Bill Wolf Petroleum Corp. v. Village of Port Washington North, 489 F. Supp. 2d 203 1

(E.D.N.Y. 2007), for further discussion about the distinction between the facts in Codapro and

a notice of removal signed by an attorney representing all defendants.

8 09MD2087

defendants. Codapro, 887 F. Supp. at 324. The notice of removal was only signed by the

defendant who had filed it and none of the other defendants filed anything with the court

indicating that they joined in the removal. Id. Furthermore, the Court was given an affidavit

from one of the defendants stating he objected to the removal. Id. The facts are vastly different

in this case. The notice of removal was filed by Defendants’ counsel and it clearly states that

the notice was filed on behalf of all the Defendants. (Doc. 192, Ex. 4.) Below the signature line,

counsel is listed as specially appearing for Defendant Kerr Investment Holding Corp. and as

attorneys for the rest of Defendants. (Id.) 1

Defendants’ removal notice satisfies the rule of unanimity because it was filed within the

proper time, contains an averment of the other defendants’ consent and is signed by an

attorney of record. Thus, all Defendants consented to the removal and the removal was not

defective.

D. Request for Attorney Fees and Costs

Plaintiffs request attorney fees and costs associated with bringing the motion to remand

pursuant to 28 U.S.C. § 1447(c). The court has discretion to grant fees when the removing

party lacked an objectively reasonable basis for seeking removal. Martin v. Franklin Capital

Corp., 546 U.S. 132, 141 (2005). Since the Court has decided that removal was proper, it

follows that Defendants had an objectively reasonable basis for seeking removal. Therefore,

Plaintiffs’ request for attorney fees and costs is denied.

///

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///

///

///

///

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III. CONCLUSION

For the reasons discussed above, Plaintiffs’ motion to remand is DENIED without

prejudice. Plaintiffs shall have time to conduct discovery and may seek reconsideration of this

order in the event they develop facts demonstrating that Iovate U.S.A.’s principal place of

business is in New York.

IT IS SO ORDERED.

DATED: July 29, 2010

Honorable Barry Ted Moskowitz

United States District Judge

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