Opinion ID: 35237
Heading Depth: 2
Heading Rank: 2

Heading: GT's Principal Place of Business

Text: 17 Finding that GT's corporate headquarters were located in Houston, Texas, that all of its assets and officers were located in Texas, and that it derives all of its revenues from Texas operations, the district court concluded that GT's principal place of business was in Texas. Despite adducing no evidence that would indicate that GT conducts business in any state other than Texas, Teal USA nevertheless asserts that GT's principal place of business could not have been Texas because GT did not obtain a certificate of authority from the Texas Secretary of State to transact business in that state until December 2002. This, insists Teal USA, means that GT was not authorized to conduct intrastate business at the time suit was filed. 18 18 Article 8.01 of the Texas Business Corporation Act provides that [n]o foreign corporation shall have the right to transact business in [Texas] until it shall have procured a certificate of authority to do so from the Secretary of State. 19 Under article 8.18, foreign corporations that have not obtained a certificate of authority are barred from maintaining any action, suit or proceeding in any [Texas state court] ... on any cause of action arising out of the transaction of business in [Texas].... 20 They are not, however, precluded from defending any such action or proceeding in Texas state court. 21 Although we have yet to consider whether a corporation can have its principal place of business for diversity purposes in a state in which it is not authorized to do business, our precedent and, more importantly, the basic tenets of federal jurisdiction, dictate that the answer to this question is necessarily in the affirmative. 19 Our diversity cases have consistently held that the determination of a corporation's principal place of business is a fact-intensive inquiry that can only be made after considering the totality of the corporate existence. 22 It stands to reason that no single factor, including a corporation's adherence vel non to a particular state's regulatory requirements for conducting business within that state, is determinative. Our decision in Village Fair Shopping Center v. Sam Broadhead Trust well-illustrates this point. 23 The issue in Village Fair was whether, for diversity purposes, the principal place of business of a corporate partner of the defendant-partnership was in New York, where its executive offices were located, or in Mississippi, where it had its largest real estate investment. 24 In deciding this question, we considered a number of factors including, inter alia, the relative values of the corporation's assets in New York and Mississippi, the nature of the corporate activity in those states, and the degree of control over the corporation's affairs exercised by the New York office. 25 We noted in passing that the corporation's only other Mississippi contact, aside from its sizeable real estate holdings, was the fact that it [wa]s qualified to do business in the state. 26 We further observed that there was nothing in the record indicat[ing] that the corporation [wa]s similarly qualified to do business in New York. 27 This ambiguity with respect to the corporation's authority to conduct business in New York did not, however, factor heavily into our decision: Finding that the corporate activity occurring in New York significantly outweighed the activity occurring in Mississippi, we held that New York was the situs of the corporation's principal place of business. 28 20 Although Teal USA correctly observes that in Village Fair we did not know with certainty whether the corporation was licensed to do business in the state in which it claimed to have its principal place of business (New York), that fact is immaterial. As our analysis in Village Fair makes pellucid, however, whether a corporation is licensed to conduct business in a particular state, far from being dispositive, is but one of several factors that must be considered in determining a corporation's principal place of business. 21 Neither could it be otherwise. What constitutes citizenship for diversity purposes is a matter of federal law, and as such, cannot be made to depend on the particular nuances of the various state business codes. 29 A contrary rule would not only run afoul of § 1332's statutory mandate — which states that a corporation shall be deemed a citizen of the state of its principal place of business without regards to whether it is authorized to do business in that state 30 — but would elevate form over substance, allowing a corporation either to create or thwart diversity jurisdiction by the single expedient of not complying with state business regulations. Such a result cannot be justified. Accordingly, we hold today that a corporation's failure to comply with the state law requirements for conducting business in that particular state will not preclude a finding that the corporation has its principal place of business in that state for purposes of diversity jurisdiction; such failure is but one of many factors for that calculus. 22 Our holding today is not at odds with the Supreme Court's decision in Woods v. Interstate Realty Company or our prior ruling in Waggener Paint Co. v. Paint Distributors 31 The plaintiff in Woods, a Tennessee corporation conducting business in Mississippi, filed suit against a Mississippi resident in federal court in Mississippi on the basis of diversity. 32 The Mississippi resident filed a motion to dismiss on the grounds that the corporation had not complied with a Mississippi statute requiring foreign corporations to designate an agent for service of process. 33 Noting that the statute prohibited foreign corporations from filing suit in state court unless they had complied with its provisions, the Supreme Court held that the corporation was barred from maintaining its suit in federal court on the basis of diversity. 34 In so holding, the Court stated that a right which local law creates but which it does not supply with a remedy is no right at all for purposes of enforcement in a federal court in a diversity case; ... where [a party] is barred from recovery in the state court, he should likewise be barred in the federal court. 35 23 Similarly, the plaintiff in Waggener, a Missouri corporation with its principal place of business in that state, filed suit in federal court in Texas against a Texas resident with jurisdiction based on diversity. 36 The Texas resident filed a motion to dismiss the plaintiff's claim, asserting that the plaintiff had failed to obtain a certificate permitting it to transact business in Texas, as required by state law. 37 We reversed the district court's dismissal order, noting that the Texas statute only applied to intrastate transactions and that the transaction in question was interstate in nature. 38 We observed, however, that the district court would have been correct in granting the motion to dismiss had the transaction been intrastate, citing Woods for the proposition that a state may deny a foreign corporation access to its courts for suits arising out of intrastate business where that business has been done without conforming to, or in violation of, a state statute, and that where a state court is not open to such a suit, a federal court will not be. 39 24 These cases — pre-dating the 1958 amendment to the Judicial Code which added that a corporation is to be deemed a citizen of both its state of incorporation and its principal place of business 40 — stand only for the proposition that when a local law precludes a party's recovery in state court, that party is likewise barred from pursuing its action in diversity in the federal courts situated in that state. Their holdings thus reflect the basic principle of Erie that a federal court sitting in diversity is bound to apply the law of the state in which it sits; 41 they do not imply that the determination of a party's citizenship for diversity purposes is governed by state law. Thus, for example, a foreign corporation conducting business in Texas without a certificate of authority from the Texas Secretary of State will be barred, under Article 8.18, from filing suit in either Texas state court or in a federal court sitting there in diversity, on any matter related to its intrastate business activity, 42 irrespective of whether the totality of its corporate activity indicates that its principal place of business is Texas. In such circumstances, a federal forum is foreclosed, not because of the absence of complete diversity, but because a federal court applying Texas law would necessarily conclude that it lacked authority to entertain the action. 25 In contrast, GT's failure to obtain a certificate of authority prior to the institution of Teal USA's federal lawsuit does not implicate article 8.18's limitation on the remedies available to unlicensed foreign corporations transacting intrastate business in Texas because: As the district court aptly noted, GT is the defending party. As Article 8.18 explicitly provides that the failure to obtain a certificate of authority will not prevent an unlicensed corporation from defending any action, suit or proceeding in any court of this State, the district court was correct in ruling that the statute was not determinative of federal jurisdiction.