Bearbones, Inc. v. Peerless Indemnity Insurance

936 F.3d 12

• Court: Court of Appeals for the First Circuit
• Decided: August 21, 2019
• Docket: 18-1139P
• Status: Published

Opinion

United States Court of Appeals For the First Circuit

No. 18-1139

BEARBONES, INC., d/b/a Morningside Bakery and AMARAL ENTERPRISES LLC,

Plaintiffs, Appellants,

v.

PEERLESS INDEMNITY INSURANCE COMPANY,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Katherine A. Robertson, U.S. Magistrate Judge]

Before

Thompson, Selya, and Barron, Circuit Judges.

Richard W. Gannett, with whom Gannett & Associates was on brief, for appellants. William O. Monahan, with whom Edward A. Bopp and Monahan & Associates, P.C., were on brief, for appellee.

August 21, 2019 SELYA, Circuit Judge. This case, which floats to the

surface in the water-logged aftermath of a ruptured pipe in a

commercial bakery, pits two affiliated insureds against their

insurer. Although the insureds (qua appellants) proffer several

assignments of error, we are held at the starting line by an

apparent jurisdictional barrier. Concluding, as we do, that

additional factfinding may be enlightening, we remand to the

district court (albeit retaining appellate jurisdiction).

Certain facts are undisputed. Bearbones, Inc. and

Amaral Enterprises LLC (collectively, the insureds or the

appellants) operated and owned a commercial bakery in Pittsfield,

Massachusetts. At the times material hereto, defendant-appellee

Peerless Indemnity Insurance Company had in effect a commercial

business insurance policy covering the bakery. A pipe ruptured on

February 19, 2013, causing a number of covered losses.

The parties were unable to settle the ensuing insurance

claims. Consequently, the appellants commenced a civil action

against Peerless in the United States District Court for the

District of Massachusetts. The complaint identified Bearbones as

a Massachusetts corporation with its principal place of business

there; identified Amaral Enterprises as a Massachusetts limited

liability company with its sole member residing in New York; and

identified Peerless as an Illinois corporation with its principal

place of business in that state. Based on these allegations and

- 2 - the claimed amount in controversy, the appellants invoked federal

diversity jurisdiction. See 28 U.S.C. § 1332.

Peerless did not challenge the propriety of diversity

jurisdiction; instead, it simply answered the complaint. In its

answer, Peerless admitted that it was an Illinois corporation, but

averred that its principal place of business was located in

Massachusetts. Peerless filed a corporate disclosure statement

that same day, see Fed. R. Civ. P. 7.1, which appeared to confirm

that its principal place of business was in Massachusetts.

Curiously, the discrepancy relating to Peerless's

principal place of business seems to have gone unnoticed by either

the parties or the district court. Thus, the case proceeded in

the ordinary course. Along the way, the parties consented to allow

a magistrate judge to preside. See 28 U.S.C. § 636(c); Fed. R.

Civ. P. 73. Following considerable skirmishing, not relevant here,

the magistrate judge granted Peerless's motion for summary

judgment, see Fed. R. Civ. P. 56(a), and the appellants filed a

notice of appeal.

After the appeal was fully briefed and an argument date

was set, we noticed an apparent jurisdictional glitch (described

below). Recognizing that "[i]n the absence of jurisdiction, a

court is powerless to act," Am. Fiber & Finishing, Inc. v. Tyco

Healthcare Grp., LP, 362 F.3d 136, 138 (1st Cir. 2004), we directed

the parties to show cause why the case should not be sent back to

- 3 - the district court with instructions to vacate the judgment and

dismiss the action without prejudice for want of subject-matter

jurisdiction.1

As said, the appellants filed this action based on the

putative existence of diversity jurisdiction. Diversity

jurisdiction requires both an amount in controversy in excess of

$75,000 and complete diversity of citizenship between all

plaintiffs, on the one hand, and all defendants, on the other hand.

See 28 U.S.C. § 1332(a); Barrett v. Lombardi, 239 F.3d 23, 30-31

(1st Cir. 2001); see also Strawbridge v. Curtiss, 7 U.S. (3 Cranch)

267, 267 (1806). The allegations of the complaint satisfy the

amount in controversy requirement, and we will make no further

reference to that component of the jurisdictional calculus. The

problem lies with diversity of citizenship.

Diversity of citizenship is measured by the "facts that

existed at the time of filing—whether the challenge be brought

shortly after filing . . . or even for the first time on appeal."2

1 There is no doubt that jurisdictional deficiencies may be raised for the first time on appeal. See Am. Fiber & Finishing, 362 F.2d at 138-39. Moreover, "[f]ederal courts are expected to monitor their jurisdictional boundaries vigilantly and to guard carefully against expansion." Id. at 139. 2 We note that, notwithstanding the length of litigation or

the resources that have been devoted to the matter, "parties cannot confer subject matter jurisdiction on a federal court 'by indolence, oversight, acquiescence, or consent.'" Am. Fiber & Finishing, 362 F.2d at 139 (quoting United States v. Horn, 29 F.3d 754, 768 (1st Cir. 1994)).

- 4 - Grupo Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567, 570-71

(2004); see ConnectU LLC v. Zuckerberg, 522 F.3d 82, 91 (1st Cir.

2008) (citing Mollan v. Torrance, 22 U.S. (9 Wheat.) 537, 539

(1824)). Special rules guide the citizenship inquiry for

corporations. Congress has declared (by a statute enacted in 1958

and amended in 2011) that "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) (2011). Although Congress did not give any

interpretive guidance as to how to identify a corporation's

principal place of business, the Supreme Court has filled this

gap, instructing lower courts to use the "nerve center" test.

Hertz Corp. v. Friend, 559 U.S. 77, 93 (2010). For purposes of

this test, "[a] corporation's 'nerve center' . . . is the

particular location from which its 'officers direct, control, and

coordinate the corporation's activities.'" Harrison v. Granite

Bay Care, Inc., 811 F.3d 36, 40 (1st Cir. 2016) (quoting Hertz,

559 U.S. at 92-93). A corporation's "nerve center" is often the

location of its headquarters. Id.

Consistent with the neurological metaphor, "a corporate

'brain' . . . suggests a single location." Hertz, 559 U.S. at 95.

Seen in this light, the test demands facts sufficient to "find the

one location from which a corporation is ultimately controlled."

Harrison, 811 F.3d at 41.

- 5 - Here, the allegations of the complaint, viewed in

isolation, suggest that complete diversity exists between the

parties. It alleges, in effect, that the appellants are citizens

of Massachusetts and New York,3 and that Peerless is a citizen of

Illinois. But the complaint cannot be viewed in isolation:

Peerless denominated Massachusetts as its principal place of

business in its answer and in other filings. If those statements

are correct, Peerless is a citizen of both Illinois (its state of

incorporation) and Massachusetts, see 28 U.S.C. § 1332(c)(1), and

there is not (nor has there ever been) complete diversity of

citizenship.

It is apodictic that "the burden of proving a

corporation's principal place of business . . . rests upon the

party asserting existence of diversity jurisdiction." Media

Duplication Servs., Ltd. v. HDG Software, Inc., 928 F.2d 1228,

1236 (1st Cir. 1991). At the show-cause hearing, the appellants

3 For purposes of diversity jurisdiction, the citizenship of a limited liability company is determined by the citizenship of its members. See Sterngold Dental, LLC v. HDI Glob. Ins. Co., 929 F.3d 1, 6 n.2 (1st Cir. 2019); Pramco, LLC ex rel. CFSC Consort., LLC v. San Juan Bay Marina, Inc., 435 F.3d 51, 54-55 (1st Cir. 2006). Here, the appellants identified the residency, not the citizenship, of Amaral Enterprises's sole member. We recognize that, "[j]urisdictionally speaking, residency and citizenship are not interchangeable." Valentín v. Hosp. Bella Vista, 254 F.3d 358, 361 n.1 (1st Cir. 2001). But even if the member's state of citizenship differs from his state of residency, the jurisdictional glitch — which turns on the location of Peerless's principal place of business — would remain.

- 6 - attempted to close the circle through the submission of documents

indicating that Peerless has "a business location" in Illinois.

These submissions prove too little: they fail to shed any light

on where Peerless's principal place of business is located. When

pressed, appellants' counsel complained that he did not have enough

time to collect the facts necessary to prove the location of

Peerless's principal place of business and asked that we remand to

permit discovery and further factfinding.

We take this plaint with several grains of salt. After

all, jurisdictional facts ought to be gathered and assessed before

an action is commenced. Cf. Murphy v. United States, 45 F.3d 520,

522 (1st Cir. 1995) (observing that conclusory jurisdictional

facts in a complaint will not defeat a motion to dismiss for lack

of subject-matter jurisdiction because "the party invoking the

jurisdiction of a federal court carries the burden of proving its

existence" (quoting Taber Partners, I v. Merit Builders, Inc., 987

F.2d 57, 60 (1st Cir. 1993))). Here, moreover, the appellants

should have been alerted to this potential jurisdictional problem

by Peerless's assertion in its answer and other filings, more than

four years ago, that its principal place of business was in

Massachusetts. Even so, we have decided, in our discretion, to

grant the appellants' request.

In its present posture, this case turns on whether there

was complete diversity of citizenship when the action was

- 7 - commenced.4 The record before us is conflicted, and the parties

can point to nothing that definitively locates Peerless's

principal place of business at the relevant time. Mindful that

"[a]ppellate and trial courts have different institutional

competencies," Ungar v. Palestine Liberation Org., 599 F.3d 79, 87

(1st Cir. 2010), we remand to the district court to find the facts

and determine whether there was complete diversity between the

parties at the time the action was commenced.

The district court shall report its findings and

conclusions to us, in written form, within ninety days of the date

of this opinion. We retain appellate jurisdiction pending our

4At the show-cause hearing, counsel for Peerless suggested that federal subject-matter jurisdiction may have attached through the appellants' aborted attempt to supplement their complaint by adding federal constitutional claims. But the appellants have never asserted federal question jurisdiction, see 28 U.S.C. § 1331, and in any event, the magistrate judge denied the appellants' motion to supplement the complaint. See Bearbones, Inc. v. Peerless Indem. Ins. Co., No. 15-30017, 2016 WL 5928799, at *10 (D. Mass. Oct. 11, 2016). Federal subject-matter jurisdiction cannot be premised on claims that were never made part of the case. See Bell v. Hood, 327 U.S. 678, 681 (1946) (explaining that "the District Court must look to the way the complaint is drawn to see if it . . . claim[s] a right to recover under the Constitution and laws of the United States"); BIW Deceived v. Local S6, Indus. Union of Marine & Shipbldg. Workers of Am., 132 F.3d 824, 831 (1st Cir. 1997) ("The gates of federal question jurisdiction are customarily patrolled by a steely-eyed sentry . . . which, in general, prohibits the exercise of federal question jurisdiction if no federal claim appears within the four corners of the complaint.").

- 8 - receipt of a report from the court below and our further actions

in consequence of that report.

So ordered.

- 9 -