11th Circuit Creates Bright-line Rule to Determine Citizenship of Dissolved Corporations in Diversity Cases

Recently, the Eleventh Circuit Court of Appeals, which controls all federal courts in the State of Florida, set out a bright-line rule for determining the citizenship of a dissolved corporation for purposes of establishing subject matter jurisdiction.  In Holston Investments, Inc. B.V.I. v. Lanlogistics, Corp., Case. Nos. 10-13442; 11-11122 (April 2012), the Eleventh Circuit was faced with determining whether the District Court had subject matter jurisdiction over a diversity case that went to judgment.

In Holston, the Defendant had sold a subsidiary company to a non-party, despite that Defendant had given a contractual right of first refusal to the Plaintiff.  Plaintiff alleged it had not been made aware of the offer to purchase the subsidiary and was deprived of its right of first refusal.  Defendant was a Delaware corporation headquartered in Miami, Florida.  After the sale, but before Plaintiff filed suit, the Defendant corporation dissolved and formally forfeited its right to conduct business in Florida.  After two years of litigation, and entry of a judgment in favor of the Plaintiff, the Defendant challenged the District Court’s subject matter jurisdiction, which had been based on diversity jurisdiction pursuant to 28 U.S.C. § 1332.

Under 28 U.S.C. § 1332, the federal courts have subject-matter jurisdiction to hear matters where the amount in controversy exceeds $75,000, and the action is between citizens of different states.  28 U.S.C. § 1332(a)(1).  Defendant argued that since (1) its principle place of business had been in Miami, Florida, and (2) Plaintiff was from Florida, there was not complete diversity of citizenship between the parties; therefore, Defendant argued, the District Court did not have subject matter jurisdiction over the matter.

The Eleventh Circuit recognized that this was an issue of first impression for this Circuit and analyzed conflicting decisions from the Second, Third, Fourth and Fifth Circuit Courts of Appeals.  Coming down on the side of the Third Circuit, and reasoning in a manner it felt was consistent with the U.S. Supreme Court’s Ruling in Hertz Corp. v. Friend, 130 S.Ct. 1181 (2010), the Eleventh Circuit established the bright-line rule that “a dissolved corporation has no principal place of business” and can only be a citizen of the state in which it had been incorporated.  Consequently, the Court held that Defendant was a citizen ofDelaware and there had been complete diversity of citizenship establishing the District Court’s subject matter jurisdiction.

By Peter E. Berlowe, Esq. is a shareholder of Assouline & Berlowe, P.A.  His practice consists of a wide array of business and intellectual property litigation.  Prior to becoming an attorney, he practiced engineering in Miami, Florida.  Mr. Berlowe can be reached at 305-567-5576 or peb@assoulineberlowe.com

ASSOULINE & BERLOWE

www.assoulineberlowe.com

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