Court Opinion

ID: 4908248
Source: CourtListenerOpinion
Date Created: 2021-09-03 17:02:47.113571+00
Date Added: 2024-06-11T08:13:14.192506
License: Public Domain

In the

      United States Court of Appeals
                For the Seventh Circuit
                    ____________________
Nos. 19-3234, 19-3428, 19-3516, 20-1053 & 20-1503
BIG SHOULDERS CAPITAL LLC,
                                                   Plaintiff-Appellee,
                                 v.

SAN LUIS & RIO GRANDE RAILROAD, INC. and MT. HOOD RAIL-
ROAD CO.,
                                     Defendants-Appellees.

APPEALS OF: SANDTON RAIL COMPANY LLC, SAN LUIS
CENTRAL RAILROAD CO., RALCO LLC, SOUTH MIDDLE CREEK
ROAD ASSOCIATION, THE BOARD OF COMMISSIONERS, RIO
GRANDE COUNTY, RAILWORKS TRACK SERVICES, INC., and
RAILWORKS SIGNALS, COMMUNICATIONS, INC., and THE AD
HOC COMMITTEE OF THE UNSECURED CREDITORS

and

CROSS-APPEAL OF: NOVO ADVISORS and FOX ROTHSCHILD,
LLP.
                    ____________________

        Appeals from the United States District Court for the
          Northern District of Illinois, Eastern Division.
          No. 19 CV 06029 — Thomas M. Durkin, Judge.
                    ____________________
2                                            Nos. 19-3234 et al.

    ARGUED FEBRUARY 18, 2021 — DECIDED SEPTEMBER 3, 2021

     Before BRENNAN, SCUDDER, and KIRSCH, Circuit Judges.
    BRENNAN, Circuit Judge. This labyrinth of appeals stems
from a breach of contract claim brought by Big Shoulders
Capital LLC against San Luis & Rio Grande Railroad Inc.
(SLRG) and Mt. Hood Railroad Co., with federal jurisdiction
ostensibly based on diversity of citizenship. In its complaint,
Big Shoulders requested that the district court appoint a re-
ceiver to handle SLRG’s assets. That court did so, which
brought the case to the attention of the several creditors who
have interests in entities in the same corporate group as SLRG
and Mt. Hood. One of these parties, Sandton Rail Company
LLC, intervened and challenged the appointment of the re-
ceiver as well as the district court’s jurisdiction. Sandton al-
leged that Big Shoulders failed to join necessary parties who,
if added, would destroy diversity of citizenship.
    Meanwhile, other creditors—referred to here as Petition-
ing Creditors—ﬁled an involuntary bankruptcy petition on
behalf of SLRG in federal bankruptcy court in Colorado. The
receiver objected. Because the judicially approved receiver-
ship agreement contained an anti-litigation injunction, the
district court initially concluded that the bankruptcy petition
was void. On reconsideration, however, the district court de-
termined that it did not have authority to enjoin the bank-
ruptcy. So the bankruptcy continued, and after Big Shoulders
refused to continue to fund the receivership, the district court
approved its termination.
   Out of these circumstances come several appeals. Sandton
brings the main appeal which claims the district court lacked
subject matter jurisdiction over the entire contract dispute
Nos. 19-3234 et al.                                               3

because—contrary to the original pleadings—Big Shoulders,
SLRG, and Mt. Hood all have Illinois citizenship. The other
appeals relate to the bankruptcy petition and the district
court’s decision to ﬁrst enforce the anti-litigation injunction
but then to allow the bankruptcy to proceed. In another layer
of complexity, each appeal also involves questions of stand-
ing or mootness.
    In the end, those justiciability questions require us to dis-
miss all but Sandton’s appeal. As for Sandton’s argument that
diversity jurisdiction is lacking, we remand to the district
court for an application in the ﬁrst instance of the “nerve cen-
ter test” to determine if SLRG and Mt. Hood are citizens of
Illinois.
                          I. Background
    This procedural maze started with a breach of contract ac-
tion, made its first turn with the appointment of receiver,
banked left when the petitioning creditors filed an involun-
tary bankruptcy for SLRG, and ended with the termination of
the receivership.
   A. Breach of Contract
    This case began when Big Shoulders sued SLRG and Mt.
Hood, alleging a breach of contract and more than $4.6 mil-
lion in damages. That contract was a loan agreement between
Big Shoulders, the defendants, and Iowa Pacific Holdings
LLC, as well as several of its subsidiaries. Iowa Pacific is the
ultimate parent company of SLRG and Mt. Hood, along with
several other entities. 1 As relevant here, SLRG and Mt. Hood,

1 Mt. Hood Railroad is wholly owned by SLRG, SLRG is wholly owned by

Permian, and Permian is wholly owned by Iowa Pacific.
4                                             Nos. 19-3234 et al.

operators of various railroads in the United States, are finan-
cially distressed.
    In its complaint, Big Shoulders contended that federal ju-
risdiction existed because there was complete diversity of cit-
izenship between the parties. See 28 U.S.C. § 1332. As a limited
liability company, Iowa Pacific is the citizen of the states
where its owning members are citizens. See West v. Louisville
Gas & Elec. Co., 951 F.3d 827, 829 (7th Cir. 2020). One of its
members is a citizen of Illinois, and Big Shoulders is also a
citizen of Illinois. So if Big Shoulders sued Iowa Pacific, there
would not be complete diversity. But according to Big Shoul-
ders, the entities that it sued—SLRG and Mt. Hood—are citi-
zens of Colorado and Delaware, and Oregon, respectively,
making jurisdiction facially proper.
   For relief, Big Shoulders also asked the district court to ap-
point Novo Advisors as a receiver. Big Shoulders agreed to
fund the receivership to keep the railroads operational during
the lawsuit. It argued that without a receiver, the railroad
might not have enough assets to cover a judgment in Big
Shoulders’ breach of contract case. The district court granted
the motion. But since filing its complaint, Big Shoulders has
taken no steps to prosecute the breach of contract action.
SLRG and Mt. Hood have not responded to the complaint, ei-
ther.
    B. Receiver’s Activities
    Five days after appointment by the district court, the re-
ceiver asked to expand the receivership. The district court
Nos. 19-3234 et al.                                                       5

agreed. The Petitioning Creditors, 2 the Ad Hoc Committee,3
and Sandton had interests in several entities within the ex-
panded receivership. These new receivership entities, like
SLRG and Mt. Hood, are subsidiaries of Iowa Pacific. Some of
these entities—such as Heritage Rail Leasing, LLC (Herit-
age)—are citizens of Illinois. But expanding a receivership to
include non-parties that are not diverse from the plaintiff
does not necessarily destroy diversity jurisdiction. Cf. Alonso
v. Weiss, 932 F.3d 995, 1002 (7th Cir. 2019) (noting that the dis-
trict court has ancillary jurisdiction over claims in a receiver-
ship, including those that neither contain a federal question
nor involve completely diverse parties). All in all, the receiv-
ership eventually included more than 20 companies. 4 The re-
ceivership agreements, approved by the district court, also

2Included are San Luis Central Railroad Co.; Ralco LLC; South Middle
Creek Road Assoc.; and the Board of Commissioners, Rio Grande County.
3 Included are Kenneth Bitten; Mid America Railcar Leasing, LLC; Johns
Trains, Inc.; Protection Development Inc.; and Steam Services of America
& Star Trak Inc. These are all creditors of Iowa Pacific Holdings, with
claims totaling around $1.7 million. Bitten was not a party to this suit in
the district court, although he filed an appearance when the district court
considered the bankruptcy petition discussed further below.
4 Included are SLRG; Mt. Hood Railroad; Iowa Pacific Holdings, LLC; Per-

mian Basin Railways, Inc.; Chicago Terminal Railroad Co.; Heritage Rail
Leasing, LLC; Saratoga and North Creek Railway, LLC; High Iron Travel
Corp.; Isla Largo, LLC; Pacific Travel Partners, Inc.; Rusk, Palestine & Pa-
cific Railroad, LLC; The Pullman Sleeping Car Company, LLC; Piedmont
Railway, LLC; Railflow, LLC; Eastern Flyer, LLC; Hoosier State Train,
LLC; Santa Cruz and Monterey Bay Railway Co.; Austin & Northwestern
Railroad Co. Inc.; West Texas and Lubbock Railway Co. Inc.; West Texas
and Lubbock Railroad Co., Inc.; Rails End Cafe, LLC; Central Car Repair,
LLC; Massachusetts Coastal Railroad, LLC; Cape Rail, Inc.; and Cape Cod
Central Railroad, Inc.
6                                            Nos. 19-3234 et al.

contained language barring any party from “commencing,
prosecuting, continuing or enforcing any suit or proceeding
against or affecting Defendants or any part of the Receiver-
ship Assets.”
    When the district court appointed the receiver, Sandton
moved to intervene and to dismiss for lack of subject matter
jurisdiction. Sandton’s request to intervene was based on its
wish to preserve its right to a $3.2 million consent judgment
against various receivership entities. In its motion to dismiss,
Sandton argued that Big Shoulders failed to join necessary
parties, particularly several Iowa Pacific subsidiaries that
would destroy diversity jurisdiction. The district court
granted the motion to intervene but denied the motion to dis-
miss. Under Illinois contract law, the district court explained,
a party suing for breach of contract may sue any one of the
obligated parties and need not sue all of them. According to
the district court, this meant that Big Shoulders could choose
to sue SLRG and Mt. Hood but not Iowa Pacific. Sandton does
not contest that holding on appeal.
   After the district court dealt with Sandton’s motions, the
receiver entered into an agreement with the Internal Revenue
Service. That agreement allowed the IRS to treat Iowa Pacific
Holdings and its subsidiaries as one enterprise for tax pur-
poses. To enter into the IRS agreement, the receiver submitted
an affidavit from Iowa Pacific’s general counsel, David
Michaud—referred to as the Michaud Declaration—concern-
ing the corporate practices of its subsidiaries.
    The Michaud Declaration described the receivership enti-
ties as a “single enterprise” and averred that Iowa Pacific
made all decisions for its subsidiaries. According to this dec-
laration, these subsidiaries did not maintain separate books
Nos. 19-3234 et al.                                                        7

and records and did not transact with each other at arm’s
length. Concerning corporate governance, the declaration
stated that only the interests of Iowa Pacific were considered
and not the individual interests of the subsidiaries. The dec-
laration further noted that most of the receivership entities
were headquartered in Chicago, shared management, and
failed to hold separate board meetings for several years. This
document is central to Sandton’s appeal.
    In another action related to Sandton’s appeal, the receiver
rejected a lease that Sandton had with Heritage to provide
railcars and other track equipment. The receivership agree-
ment gave the receiver the power to formally reject the lease.
    C. The Bankruptcy Petition
    At the same time, despite the anti-litigation provision in
the receivership agreements, the Petitioning Creditors 5 filed
an involuntary bankruptcy petition against SLRG in the Dis-
trict of Colorado. They asserted their rights as entities inter-
ested in the continued operation of SLRG. Due to SLRG’s fi-
nancial distress, the bankruptcy court granted the request for
relief. After learning of the petition, the receiver made an
emergency motion in the Northern District of Illinois district
court to consider the effect of the receivership agreement in-
junction on the SLRG bankruptcy. Initially, the district court
determined that the petition was void because it violated the
injunction. The Petitioning Creditors moved for

5Despite joining the brief of the Petitioning Creditors, the Board of Com-
missioners, Rio Grande County did not join the bankruptcy petition. Nev-
ertheless, because this distinction is ultimately inconsequential to our dis-
position of that appeal, we will treat the Board of Commissioners, Rio
Grande County as one of the Petitioning Creditors.
8                                            Nos. 19-3234 et al.

reconsideration, arguing the district court lacked the author-
ity to enjoin a bankruptcy proceeding. In the alternative, they
requested permission from the district court to proceed with
the bankruptcy.
    On reconsideration, the district court determined that it
did not have the power to void the bankruptcy but that the
injunction remained legitimate. It also declined to officially
authorize the Petitioning Creditors to continue with the bank-
ruptcy. Because the injunction remained, the district court
concluded that it retained jurisdiction over the receivership
and the receivership property. Yet, even though it recognized
that the Petitioning Creditors violated its injunction, the dis-
trict court declined to hold them in contempt.
    D. Termination of the Receivership
    Because of the continuing bankruptcy, Big Shoulders re-
fused to fund the receivership. So the district court terminated
the receivership and ordered fees to be paid to the receiver
and to those the receiver had paid for their services, such as
Fox Rothschild LLP, a cross-appellant here. The final order
also “terminated” the injunction against the involuntary
bankruptcy. The result is that there is no longer a receivership
in the district court and consequently no longer any injunc-
tion against a bankruptcy filing.
                        II. Discussion
    Each of the appeals before us involves merits and justicia-
bility issues:
       •   Sandton brings the main appeal against Big Shoul-
           ders and claims the district court lacked subject
           matter jurisdiction based on lack of diversity.
Nos. 19-3234 et al.                                              9

       •   Big Shoulders argues in its cross-appeal that
           Sandton has not demonstrated that it has stand-
           ing.

       •   The appeals of the Petitioning Creditors, the Ad
           Hoc Committee, Novo Advisors, and Fox Roth-
           schild concern the district court’s handling of the
           Colorado bankruptcy petition.

       •   The Petitioning Creditors object to the district
           court’s initial order holding the bankruptcy void,
           arguing that the court lacked authority to enjoin a
           bankruptcy proceeding. A justiciability question
           for their appeal is whether it is moot.

       •   The Ad Hoc Committee argues that after the dis-
           trict court reversed course and determined that
           the bankruptcy was not void, the district court
           lacked jurisdiction over the receivership.

       •   Novo Advisors and Fox Rothschild contend in
           their cross-appeal that the Ad Hoc Committee
           lacks standing to bring this claim. Novo advisors
           and Fox Rothschild also argue that the district
           court never lost jurisdiction because the Petition-
           ing Creditor’s bankruptcy petition was invalid un-
           der the collateral bar doctrine. For their appeal, a
           threshold question is whether it is moot.

   A procedural and appellate labyrinth, indeed. First, we
address the justiciability questions in each appeal. Because we
10                                              Nos. 19-3234 et al.

reach only jurisdictional issues, our review is de novo. United
States v. Muresanu, 951 F.3d 833, 837 (7th Cir. 2020).
     A. Standing
    The appeals of Sandton and the Ad Hoc Committee pre-
sent standing issues. The standing doctrine is rooted in the
constitutional requirement that the judicial power extends
only to “cases” and “controversies.” U.S. CONST. Art. III. A
party must have standing in every stage of the litigation, in-
cluding on appeal. Hollingsworth v. Perry, 570 U.S. 693, 705–06
(2013). To satisfy standing, a party must demonstrate an in-
jury in fact that is traceable to the defendant and is redressable
by a court ruling. TransUnion LLC v. Ramirez, 141 S. Ct. 2190,
2203 (2021). Intervening parties like Sandton must meet these
constitutional requirements. See Town of Chester, N.Y. v. Laroe
Ests., Inc., 137 S. Ct. 1645, 1651, (2017). For non-parties like the
Ad Hoc Committee, this court has found standing to appeal
only when “the district court has ordered them to do some-
thing (as with a contempt citation issued to nonparty wit-
nesses) or when they are agents of parties to the suit (as with
attorneys seeking fees).” Douglas v. The W. Union Co., 955 F.3d
662, 665 (7th Cir. 2020). Big Shoulders argues that Sandton
and the Ad Hoc Committee fail the ﬁrst standing requirement
because they cannot show they suﬀered an injury in fact.
    An injury in fact must be concrete and particularized as
well as actual or imminent. Casillas v. Madison Ave. Assocs.,
Inc., 926 F.3d 329, 333 (7th Cir. 2019). “[T]raditional tangible
harms, such as physical harms and monetary harms” will
“readily qualify as concrete injuries” Ramirez, 141 S. Ct. at
2204. But if a concrete injury has not already occurred, a plain-
tiﬀ cannot establish standing by alleging merely a possible fu-
ture injury—rather, the injury must be “certainly impending.”
Nos. 19-3234 et al.                                            11

Clapper v. Amnesty Int'l USA, 568 U.S. 398, 409 (2013). The
plaintiﬀ bears the burden of demonstrating a concrete (or im-
minent) injury. Prairie Rivers Network v. Dynegy Midwest Gen-
eration, LLC, 2 F.4th 1002, 1007–08 (7th Cir. 2021).
    In cases involving the disposition of assets, as here, parties
whose assets are aﬀected by the actions of another party or a
court ruling generally have standing to appeal. See In re Wilton
Armetale, Inc., 968 F.3d 273, 281 (3d Cir. 2020) (holding that
party had standing to appeal when it complained that actions
aﬀected its ability to be paid on its claims). This includes a
receiver’s actions ratiﬁed by the court that make it more diﬃ-
cult for a third party to enforce its judgments or debts against
a ﬁnancially distressed defendant. See, e.g., S.E.C. v. Enter. Tr.
Co., 559 F.3d 649, 651–52 (7th Cir. 2009); In re Sherman, 491 F.3d
948, 965 (9th Cir. 2007). These are the types of pocketbook in-
juries alleging monetary harms that are paradigmatically con-
crete. See Ramirez, 141 S. Ct. at 2204. Both Sandton and the Ad
Hoc Committee argue that actions of the receiver—ratiﬁed by
the district court—aﬀected their claims over certain assets.
       1. Sandton’s Standing
    Sandton alleges two injuries. The ﬁrst is that the receiver
entered into an agreement with the IRS that harmed
Sandton’s ability to recover on its consent judgment. The sec-
ond is that the receiver rejected Sandton’s lease with Heritage.
We conclude that the ﬁrst injury is suﬃciently actual and con-
crete to give Sandton standing, so we need not address its sec-
ond proﬀered injury.
   Before the IRS agreement, Sandton contends, the IRS had
the ability to reach only Mt. Hood’s assets, but the agreement
expanded the number of entities the IRS could access. Recall
12                                            Nos. 19-3234 et al.

that Sandton has a consent judgment worth approximately
$3.2 million that is recoverable against several receivership
parties, including Heritage and SLRG. These entities did not
previously owe money to the IRS, but they would now based
on the agreement. Sandton argues the IRS agreement will
therefore make it more difficult for Sandton to collect on its
consent judgment. Sandton further contends this injury is
traceable to the court’s actions in approving a receivership
and that the injury would be redressed if we dismiss the case
for lack of subject matter jurisdiction. In response, Big Shoul-
ders asserts that Sandton’s injury is speculative and not con-
crete. To Big Shoulders, Sandton has not provided any evi-
dence that the IRS agreement has hampered Sandton’s ability
to be paid on its consent judgment.
    Sandton has standing. The agreement expanded the num-
ber of entities available to the IRS, which logically decreases
the chance that Sandton can collect from one of those already
financially distressed entities. Sandton is an unsecured credi-
tor of these companies, so any additional creditors harm its
ability to collect on its judgment. This concrete injury results
in a judicially cognizable case or controversy. See, e.g., Enter.
Tr. Co., 559 F.3d at 651–52 (holding that creditors had standing
to appeal receiver’s plan of destruction because it affected as-
sets in which they had interests).
       2. The Ad Hoc Committee’s Standing
    In its appeal, the Ad Hoc Committee supports its standing
with a similar argument to Sandton’s. The Committee asserts
that the receivership affected assets in which its creditors have
a stake. Big Shoulders responds that the Committee fails to
point to any specific assets affected by the termination orders
from which the Committee appealed.
Nos. 19-3234 et al.                                           13

    Because a claimant has the burden to prove standing, that
party must be prepared to present specific facts evidencing a
concrete injury. Prairie Rivers Network, 2 F.4th at 100. The Ad
Hoc Committee makes only general assertions that it has been
injured by the receivership. It has failed to point to any spe-
cific agreements by the receiver that affected its assets or
which of its members have financial interests in this case. Nor
has it shown how the fee and termination orders it is appeal-
ing affected any assets in which it had an interest. Further,
unlike Sandton, the Committee is not a party to this case, and
it did not move to intervene, so its standing burden is even
greater. See Douglas, 955 F.3d at 665.
    To the extent the Ad Hoc Committee contends it was in-
jured by the anti-litigation injunction in the receivership
agreement, these claims are also unavailing. Aside from
mootness issues, the Committee appealed from only the fee
and termination orders. It did not appeal from any order es-
tablishing an injunction. See Teledyne Techs. Inc. v. Shekar, 831
F.3d 936, 939 (7th Cir. 2016) (“[I]t is well established that a
party seeking review of an interlocutory order cannot enlarge
the time for noticing an appeal by filing a successive motion
and appealing the denial of the latter motion.” (internal quo-
tation marks omitted)). In fact, the Committee appealed from
the order that dissolved the injunction. As described above,
the Committee has not demonstrated that it was injured by
any of the consequences of the order from which it appealed.
Because the Ad Hoc Committee has not met its standing bur-
den, we dismiss its appeal.
   B. Mootness

   The appeals of the Petitioning Creditors, Novo Advisors,
and Fox Rothschild are each challenged as moot. An appeal is
14                                            Nos. 19-3234 et al.

moot when “an event occurs during appeal that eliminates
the court’s power to provide relief.” Stone v. Bd. of Election
Comm'rs for City of Chicago, 643 F.3d 543, 545 (7th Cir. 2011)
(concluding that appeal was moot because the appellant re-
quested an injunction against a municipal election that had
already taken place). “A case that becomes moot at any point
during the proceedings is no longer a Case or Controversy for
purposes of Article III and is outside the jurisdiction of the
federal courts.” United States v. Sanchez-Gomez, 138 S. Ct. 1532,
1537 (2018) (internal quotation marks omitted). The test for
mootness “is not whether we may return the parties to the
status quo ante, but rather, whether it is still possible to fash-
ion some form of meaningful relief to the appellant in the
event he prevails on the merits.” Flynn v. Sandahl, 58 F.3d 283,
287 (7th Cir. 1995) (internal quotation marks omitted). So the
main question is whether the party maintains a personal stake
in the outcome of the appeal. Genesis Healthcare Corp. v.
Symczyk, 569 U.S. 66, 72 (2013). Answering that question re-
quires that we look to whether a party remains injured, as
well as what relief the party requests.
    The Petitioning Creditors seek relief from an injunction
that no longer exists. As discussed, the injunction was part of
the receivership agreement and enjoined most litigation in-
volving receivership property. The Petitioning Creditors filed
their bankruptcy petition anyway. And recall that the district
court first determined that the petition was void, yet it de-
clined to hold the Petitioning Creditors in contempt. Then the
district court reconsidered and determined that the petition
was not void. Putting aside the inconsistency, the receivership
has now been terminated by the district court. This leaves a
bankruptcy continuing in the District of Colorado and no
Nos. 19-3234 et al.                                           15

injunction against the Petitioning Creditors—or, for that mat-
ter, any other interested party.
    Appeals requesting relief from expired injunctions are
generally moot. See Home Care Providers, Inc. v. Hemmelgarn,
861 F.3d 615, 621 (7th Cir. 2017). To determine whether that
initial injunction (now, defunct) was proper would be to ren-
der what is essentially an advisory opinion, which of course
is beyond the judicial power granted to the federal courts in
Article III. See Sanchez-Gomez, 138 S. Ct. at 1537. The Petition-
ing Creditors also do not suffer from the possibility of any
imminent future harm. The district court did not issue a con-
tempt citation, and there is no realistic threat of one for
violating an injunction that no longer exists. This posture dis-
tinguishes this case from Gilchrist v. Gen. Elec. Capital Corp.,
262 F.3d 295, 301 (4th Cir. 2001). There, the Fourth Circuit de-
termined that a live controversy remained because the appel-
lants received a contempt citation and the injunction stayed
in place. Here, there is neither an injunction nor a threat of
contempt. The Petitioning Creditors’ appeal is thus moot and
must be dismissed. See Stone 643 F.3d at 545.
    It is also unclear what remedy this court could fashion for
Novo Advisors and Fox Rothschild. In their brief, they ask us
to reverse the district court’s reconsideration motion in part,
affirm the other receivership orders, and affirm the fee and
termination orders. Even if we voided the bankruptcy peti-
tion, these parties do not ask us to reinstate the receivership.
They also do not ask us to halt the bankruptcy (if that is pos-
sible). The primary goal of their appeal appears to be to de-
fend the fee and termination orders against the Ad Hoc Com-
mittee’s attack. So if the Committee’s appeal is moot, there is
no relief to be given. At oral argument before us, Novo
16                                            Nos. 19-3234 et al.

Advisors and Fox Rothschild conceded as much. Given that
we are dismissing the Committee’s claims, we must also dis-
miss the appeal brought by Novo Advisors and Fox Roth-
schild.
   In summary, the appeals of the Petitioning Creditors, the
Ad Hoc Committee, Novo Advisors, and Fox Rothschild are
dismissed as not justiciable.
     C. Diversity Jurisdiction
    This leaves only Sandton’s allegation that this case lacked
diversity jurisdiction. Article III of the Constitution provides
that “The Judicial Power shall extend to … Controver-
sies … between citizens of different states.” Although this
constitutional grant requires only minimal diversity, the di-
versity jurisdiction statute, 28 U.S.C. § 1332, requires complete
diversity. Page v. Democratic Nat'l Comm., 2 F.4th 630, 636 (7th
Cir. 2021) (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267,
267(1806)). This means no defendant may share the same state
citizenship as any plaintiff. Id. Both the statute and constitu-
tional provision were ostensibly a means of protecting out-of-
state defendants from prejudice in state courts due to their
outsider status. See Henry J. Friendly, The Historic Basis of Di-
versity Jurisdiction, 41 HARV. L. REV. 483, 484 (1928) (describing
the arguments made during ratification for including the di-
versity clause in the Constitution).
    “For the purposes of [the diversity statute] a corporation
shall be deemed to be a citizen of every State and foreign state
by which it has been incorporated and of the State or foreign
state where it has its principal place of business.” 28 U.S.C.
§ 1332. The first citizenship indicator simply requires deter-
mining the state in which a corporation is registered. The
Nos. 19-3234 et al.                                           17

“principal place of business” language presents courts with
more of a challenge. Initially, courts of appeals adopted sev-
eral different tests to determine the location of a corporation’s
principal place of business. See 13F WRIGHT AND MILLER, FED-
ERAL PRACTICE & PROCEDURE § 3625 (3d ed. 2021). The Su-
preme Court eventually weighed in and adopted the “nerve
center” test already in use in this and other circuits. See Hertz
Corp. v. Friend, 559 U.S. 77, 92–93, (2010). A corporation’s
“nerve center” is “the place where a corporation’s officers di-
rect, control, and coordinate the corporation's activities.” Id.
The Court concluded that the nerve center test better com-
ported with the language of the jurisdictional statute and was
easier to administer than the alternative criteria used by other
courts of appeals. Id.
    Sandton argues that complete diversity does not exist
here. Recall that the initial complaint alleged Big Shoulders
was a citizen of Illinois and Delaware, and that Mt. Hood and
SLRG were citizens of Oregon and Colorado. That facially sat-
isfied the complete diversity requirement. Sandton argues
that despite these representations, subsequent events demon-
strate that the case contains Illinois citizens on both sides of
the lawsuit. Sandton’s contention turns on several actions
taken by the receiver. The expanded receivership included
several entities that are citizens of Illinois, Sandton empha-
sizes, including the ultimate parent company, Iowa Pacific. To
Sandton, the Michaud Declaration is evidence that the surface
diversity in this lawsuit may not be all that it seems.
    From these events, Sandton presents three arguments.
First, Sandton argues we should treat the defendant compa-
nies as alter egos of the other receivership companies, partic-
ularly Iowa Pacific, and that we should attribute the parent’s
18                                             Nos. 19-3234 et al.

citizenship (Illinois) to SLRG and Mt. Hood. Second, Sandton
contends the Michaud Declaration demonstrates that the re-
ceivership companies are a single enterprise headquartered in
Chicago, so we should conclude that Illinois is the defendants’
principal place of business. Third, Sandton asserts SLRG and
Big Shoulders colluded to establish diversity jurisdiction be-
fore filing the case. Because we remand for the district court
to apply the “nerve center test,” we reach only the first two
arguments.
       1. Alter Ego Theory
    Typically, courts use an alter ego theory as a means of
“piercing the corporate veil” for liability purposes, but some
courts have expanded this doctrine to the diversity jurisdic-
tion context. See, e.g., Kuehne & Nagel (AG & Co) v. Geosource,
Inc., 874 F.2d 283, 291 (5th Cir. 1989). For those courts, when a
parent or subsidiary is the mere instrumentality of the other
corporation, both corporations should have their citizenship
attributed to each other to limit diversity jurisdiction. See
Rouhi v. Harza Eng'g Co., 785 F. Supp. 1290, 1295 (N.D. Ill.
1992). According to Sandton, the statements in the Michaud
Declaration that the Iowa Pacific companies do not respect
corporate separateness and that their holding company con-
trols all decision-making demonstrate that the defendant sub-
sidiaries in this case are alter egos of Iowa Pacific and its other
subsidiaries. So in Sandton’s view, the Illinois citizenship of
Iowa Pacific and several of its subsidiaries should be at-
tributed to the defendants.
    Sandton’s position implicates a jurisdictional issue of im-
mense complexity. See, e.g., Boim v. American Muslims for Pal-
estine, -- F.4th --, 2021 WL 3616070 (7th Cir. Aug. 16, 2021)
(considering whether new lawsuit against alleged alter ego
Nos. 19-3234 et al.                                            19

company falls within scope of federal question jurisdiction).
That issue includes some fine distinctions about how direct
liability, of which alter ego is one form, and vicarious liability
(like veil piercing), apply, see id. at *5, here, under diversity
jurisdiction.
    To not overcomplicate this inquiry, we do not see this case
as the occasion to resolve this question with its subtle distinc-
tions. Given the nerve center test, and how it answers the
principal place of business question, the alter ego theory need
not be addressed or resolved. Even more, in its submissions
Sandton has not explained how the principal place of business
analysis should be navigated under the alter ego theory. So
we decline Sandton’s invitation to incorporate this concept
into a proper diversity jurisdiction analysis under 28 U.S.C.
§ 1332. We prefer jurisdictional rules to be as clear and
straightforward as possible. See Holmstrom v. Peterson, 492
F.3d 833, 840 (7th Cir. 2007). In this case, applying the “nerve
center” test accounts for many of the same concerns as does
applying the alter ego doctrine.
       2. Nerve Center Test
    That leads us to Sandton’s argument that we should in-
stead determine that either SLRG or Mt. Hood’s principal
places of business are in Illinois on a theory that this is where
the “single enterprise” of the Iowa Pacific companies is lo-
cated. The general rule is that a “subsidiary corporation
which is incorporated as a separate entity from its parent cor-
poration is considered to have its own principal place of busi-
ness.” Schwartz v. Elec. Data Sys., Inc., 913 F.2d 279, 283 (6th
Cir. 1990). If we do not adopt the alter ego theory, we must
determine the potentially separate principal places of busi-
ness of Mt. Hood and SLRG. Sandton avers that they are both
20                                            Nos. 19-3234 et al.

located in Illinois because that is where the Michaud Declara-
tion alleged the “single enterprise” of the Iowa Pacific compa-
nies is located. Big Shoulders argues that we should instead
adhere to the allegations in the complaint that Mt. Hood and
SLRG have principal places of business in Oregon and Colo-
rado.
    A corporation’s nerve center is its brain and synonymous
with its executive headquarters. Illinois Bell Tel. Co. v. Glob.
NAPs Illinois, Inc., 551 F.3d 587, 590 (7th Cir. 2008). The nerve
center must be “the actual center of direction, control, and co-
ordination … and not simply an office where the corporation
holds its board meetings.” Hertz Corp., 559 U.S. at 93. This may
not always be where the corporation implements the direc-
tions from its executives. Sometimes a corporation will con-
duct many of its “on the ground” operations in one state but
its principal place of business will be in another. Id. at 96.
    Doctrinal tension exists here. On the one hand, separate
corporate forms deserve a presumption of validity. See
Pyramid Sec. Ltd., 924 F.2d at 1120. Some decisions stress that
a subsidiary should be allotted a separate principal place of
business “even where the parent owns all the stock of the sub-
sidiary and exercises close control over its operations.”
Schwartz, 913 F.2d at 283. On the other hand, the nerve center
test looks to where the corporation is directed and controlled
to determine its principal place of business as well as subsid-
iary corporations wholly owned and controlled by parent
corporations. Page, 2 F.4th at 635. This could result in many
subsidiary corporations having the same principal place of
business as their parent corporations, and as a result, weaken
their separate corporate form.
Nos. 19-3234 et al.                                            21

    The resolution is to apply the nerve center test by focusing
only on the operations of the subsidiary. If the subsidiary is
wholly owned by its parent corporation but also has its own
executives in a different state, this other state should be the
subsidiary’s principal place of business. See Topp v. CompAir
Inc., 814 F.2d 830, 835 (1st Cir. 1987) (applying this analysis
and determining that although the parent of the defendant
subsidiary exercised substantial control, the subsidiary’s op-
erations were in a separate state). If, however, a subsidiary
does not have any high-level operations outside of the state
where its parent resides and it is “directed and controlled”
from the state where the parent has its headquarters, the sub-
sidiary’s principal place of business should be in the same
state as its parent. Id. In a circumstance where the corporate
form has been disregarded, and the subsidiary and the parent
are not truly separate, the subsidiary is likely to have its prin-
cipal place of business where the parent does. See, e.g., Beightol
v. Capitol Bankers Life Ins. Co., 730 F. Supp. 190, 195 (E.D. Wis.
1992). In this way, the alter ego doctrine and the nerve center
test converge.
    We think it is best here for the district court to apply the
nerve center analysis in the first instance. Sandton did not
present its nerve center argument in the district court. An
analysis under the nerve center test is fact specific, and the
district court is in the best position to make such determina-
tions. In doing so, the district court can consider to what ex-
tent the Michaud Declaration addresses the location of the
nerve centers of Mt. Hood and SLRG in Illinois. That declara-
tion states that all decisions for all the subsidiaries are made
by Iowa Pacific, and that most of the companies are headquar-
tered in Chicago. These averments require investigation by
the district court on remand.
22                                          Nos. 19-3234 et al.

                       III. Conclusion
    Under the reasoning above, we DISMISS the appeals of the
Petitioning Creditors, the Ad Hoc Committee, Novo Advi-
sors, and Fox Rothschild because they lack standing or their
claims are moot. We REMAND for consideration Sandton’s ju-
risdictional argument so the district court can apply the nerve
center test.