Source: http://az.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20180117_0000105.C09.htm/qx
Timestamp: 2019-04-22 08:59:05+00:00

Document:
David C. Knieriem (argued), Law Offices of David C. Knieriem, Clayton, Missouri, for Plaintiff-Appellant.
John Terence Lupton (argued) and George M. Lindahl, Lindahl Beck LLP, Los Angeles, California, for Defendant-Appellee.
Before: Jacqueline H. Nguyen and Andrew D. Hurwitz, Circuit Judges, and Steven Paul Logan, [*] District Judge.
The panel reversed the district court's dismissal for lack of subject matter jurisdiction, and remanded for the district court to consider whether there was jurisdictional manipulation or an alter ego relationship between Lincoln One Corporation and 3123 SMB LLC for purposes of establishing diversity citizenship and jurisdiction.
Under 28 U.S.C. § 1332(c)(1), for purposes of determining diversity jurisdiction, a corporation is deemed to be a citizen of the State where it was incorporated and the State where it has its principal place of business. The Supreme Court, using a nerve center test, defined "principal place of business" as "the place where the corporation's high level officers direct, control, and coordinate the corporation's activities." Hertz Corp. v. Friend, 559 U.S. 77, 80 (2010).
Lincoln One, a holding company, was formed less than one month before this lawsuit was filed, and its only act during those few weeks was to incorporate in Missouri.
The panel held that what little business Lincoln One conducted was done in Missouri; and Lincoln One and its wholly-owned subsidiary, 3123 SMB, were putative citizens of that state alone. The panel concluded that because defendant Steven Horn was a California citizen, there appeared to be complete diversity between the parties. The panel further concluded, however, that there was evidence that 3123 SMB and Lincoln One were treated as alter egos, and that Lincoln One's owners manipulated the ownership structure of the real property at the center of this lawsuit in order to manufacture diversity, and these were issues that the district court did not consider. The panel, therefore, conditionally reversed the district court's jurisdictional dismissal and remanded so that the district court could consider in the first instance whether the entities were alter egos or whether there was jurisdictional manipulation that would warrant treating 3123 SMB as a California citizen.
Concerning the question of how to classify the citizenship of a holding company such as Lincoln One, the panel concluded that a recently-formed holding company's principal place of business is the place where it has its board meetings, regardless of whether such meetings have already occurred, unless evidence shows that the corporation is directed from elsewhere.
Judge Hurwitz dissented, and would affirm the district court's dismissal based on its finding that Lincoln One's nerve center at the time the suit was filed was in California, where its shareholders and directors resided, and where the only corporate asset - as apartment complex - was located.
For purposes of determining diversity jurisdiction, "a corporation shall be deemed to be a citizen of every State . . . by which it has been incorporated and of the State . . . where it has its principal place of business." 28 U.S.C. § 1332(c)(1). While a corporation's state of incorporation can be determined with ease, its principal place of business often proves elusive. To simplify the jurisdictional inquiry, the Supreme Court has defined "principal place of business" to mean "the place where the corporation's high level officers direct, control, and coordinate the corporation's activities." Hertz Corp. v. Friend, 559 U.S. 77, 80 (2010). This "nerve center" is "typically . . . found at a corporation's headquarters." Id. at 81.
But what of a corporation that has few, if any, activities? That's the case for a holding company, which does little other than passively own other companies and supervise their management. The corporation at issue here-Lincoln One Corporation-was formed less than a month before this lawsuit was filed, and its only act during those few weeks was to incorporate. Determining Lincoln One's principal place of business is an existentialist exercise, yet one on which its entitlement to litigate in federal court depends.
We conclude, based on the slim record before us, that what little business Lincoln One conducted was done in Missouri-its state of incorporation-making both Lincoln One and its wholly-owned subsidiary, plaintiff 3123 SMB LLC, putative citizens of that state alone. Because defendant Steven Horn is a California citizen, there appears to be complete diversity between the parties.
There is evidence, however, that 3123 SMB and Lincoln One were treated as alter egos, and that Lincoln One's owners manipulated the ownership structure of the real property at the center of this lawsuit in order to manufacture diversity-issues that the district court didn't consider. We therefore conditionally reverse the district court's jurisdictional dismissal and remand so that it may consider in the first instance whether these entities were alter egos or there was jurisdictional manipulation that would warrant treating 3123 SMB as a California citizen.
This lawsuit, which involves a claim of legal malpractice, is part of a larger dispute regarding real property indirectly controlled by Anthony Kling and his mother, Mary Kling. The property is a building located at 3115-3125 Santa Monica Boulevard in Santa Monica, California.
In 2008, the Klings and various entities associated with their family sued several defendants in Los Angeles County Superior Court, claiming that a construction project next to the Santa Monica property caused subsidence damage due to inadequate methods of construction. See Kling v. Gabai Constr., No. B235367, 2012 WL 5458924, at *1 (Cal.Ct.App. Nov. 9, 2012) (unpublished). The Kling parties, which eventually included 3123 SMB, subsequently hired Horn to represent them. Horn is a resident of California.
The attorney-client relationship soured when the state court lawsuit was dismissed. According to 3123 SMB's amended complaint in the instant case, Horn proffered 27 exhibits for a "long cause binder" that allegedly "were incomplete, inadequate, and did not allow the case to be properly prepared for trial." 3123 SMB terminated Horn in October 2013. Its new counsel "attempted to augment and repair" the exhibit list that Horn had prepared. The state court refused to allow it and, finding the exhibit list inadequate, dismissed the case for failure to be brought to trial within five years. See Cal. Civ. Proc. Code § 583.310.
In July 2011, before Horn's representation in the state court litigation ended, 3123 SMB was organized and registered as a limited liability company with the Missouri Secretary of State. At the time, its sole member was another limited liability company, Washington LLC, which in turn was controlled entirely by Anthony Kling. 3123 SMB gained ownership of the Santa Monica property and the litigation rights in a 2012 transfer. It became a party to the state court litigation in May 2013. See Kling v. Hassid, No. B261391, 2016 WL 538238, at *1 n.1 (Cal.Ct.App. Feb. 10, 2016) (unpublished).
3123 SMB's sole activity is to manage the Santa Monica property. Because the building is uninhabitable, 3123 SMB has little business to transact other than litigation related to the property damage. Its listed place of business is the Clayton, Missouri office of its litigation attorney, David Knieriem. Anthony and Mary Kling are the only persons authorized to act on behalf of 3123 SMB. It has no officers, directors, or employees.
The Klings reside in California but claim to have longstanding connections to Missouri. Mary Kling is from St. Louis, and the Klings still have family there. Anthony Kling goes to St. Louis "all the time"-usually a couple of times each year, but it "[d]epends on how the Cardinals are doing." He has operated "multiple" unnamed businesses in Clayton, Missouri, where he has unspecified real and intellectual property interests. He "regularly interact[s] with businesses [and] government entities, in . . . Missouri." However, Anthony Kling has lived in Los Angeles his entire life other than to attend school in New York, and Mary Kling has resided in Los Angeles since at least the late 1990s.
In September 2014, nearly a year after Horn's representation ended,  Mary Kling incorporated Lincoln One. The corporation's Missouri-based agent and corporate attorney, Alex Kanter, filed the articles of incorporation with the Missouri Secretary of State, listing his office in Clayton as Mary Kling's address. Lincoln One acquired the single membership in 3123 SMB from Washington LLC. The following month, 3123 SMB filed this suit against Horn for legal malpractice.
Mary Kling is Lincoln One's president and secretary. Initially, she was the sole board member. Subsequently, Anthony Kling joined the board. He owns 75% of the corporation's shares, and Mary Kling owns the rest.

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