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HO v. IKON OFFICE SOLUTIONS

June 21, 2001

BYRON HO, PLAINTIFF,
v.
IKON OFFICE SOLUTIONS, INC.



The opinion of the court was delivered by: Judge Wayne D. Brazil, United States Magistrate Judge.

ORDER DENYING MOTION TO REMAND AND CASE MANAGEMENT ORDER

I. Introduction

Following the Ninth Circuit's ruling in Tosco Corp. v. Communities for a Better Environment, 236 F.3d 495 (9th Cir. 2001), the court raised sua sponte the question of Ikon's corporate citizenship. In order to determine Ikon's "citizenship," we must identify the state that is most appropriately considered Ikon's "principal place of business." *fn1 If Ikon's principal place of business is a state other than California the court must retain jurisdiction. If,however, we conclude that California is Ikon's principal place of business the parties are not diverse and the court must remand.

II. Policy Underlying Diversity Statute

The primary purpose of the diversity statute is to avoid prejudice against "outsiders."*fn2 Corporations who have minimal contact with the public in a particular state are not likely to be recognized as "locals." The Congress that provided for diversity jurisdiction was concerned that a local jury sifting in state court might exhibit bias in favor of a "local" party who was suing an out-of-state party. Because federal courts draw from a wider jury pool, removal to federal court, so the theory goes, provides a more neutral forum. In contrast, parties who have a great deal of contact with the public in a particular state are not likely to be considered outsiders and, therefore, are not likely to be victims of discrimination by "local" jurors sifting in state court.

III. Discussion A.The Applicable Law

In the Ninth Circuit the court must apply one of two tests in order to identify Ikon's "principal place of business." If any state contains a "substantial predominance" of icon' s corporate business activities, the court applies the "place of operations" test. Industrial Tectonics, Inc. v. Aero Alloy ["ITI'], 912 F.2d 1090 (9th Cir. 1990). The state that substantially predominates, if any, is icon' s principal place of business. In applying the substantial predominance test, the courts are to compare, one at a time, the state in issue to each other individual state in which the company is present. "[D]etermining whether a corporation's business activity substantially predominates in a given state plainly requires a comparison of that corporation's business activity in the state at issue to its business activity in other individual states. [citations omitted.] Thus, "substantial predominance' does not require the majority of a corporation's total business activity to be located in one state, but instead, requires only that the amount of [the] corporation's business activity in one state be significantly larger than any other state in which the corporation conducts business." Tosco, 236 F.3d at 500. The alternative test for identifying a corporation's principal place of business is to be used only if applying the "place of operations" test as clarified in Tosco,the party seeking to invoke federal jurisdiction proves that "no state contains a substantial predominance of the corporation's business activities." Tosco , 236 F.3d at 500 quoting ITI, 912 F.2d at 1094. That alternative test is known as the "nerve center" test. Under it, the state in which the corporation's core executive and administrative functions are carried out is its "principal place of business."

Plaintiff contends that California contains a substantial predominance of Ikon's corporate business activity. Accordingly, plaintiff moves the court to deem California Ikon's principal place of business and to remand the case to the state court.

Ikon asserts that it maintains a relatively small presence in every state and that n state substantially predominates. In that setting, icon argues, the court must apply the nerve center test. According to Ikon, Pennsylvania constitutes its nerve center. Thus according to Ikon, the court has diversity jurisdiction. The law places the burden of persuasion on these issues on the party seeking to invoke the court's diversity jurisdiction. ITI, 912 F.2d at 1092. Ikon must prove, under the Tosco test, that no state contains a substantial predominance of its business activity. B. Comparison of Ikon's Presence in Various States

We utilize the analysis in Tosco as an aide to determining whether application of the place of operations test, as we applied it in Ghaderi, would be consistent with Congress' intentions as reflected in the diversity jurisdiction statute and with Ninth Circuit case law. See, Ghaderi v. United Airlines, Inc., 136 F. Supp.2d 1041 (N.D.Cal. 2001).

In order to determine whether any state contains a "substantial predominance" of Ikon's corporate activity we consider several factors, among those "the location of Ikon's] employees, tangible property, production activities, sources of income, and where sales take place." Tosco, 236 F.3d at 500 citing ITI, 912 F.2d at 1094.

The parties submitted evidence on a variety of factors relating to Ikon's business activities in California and in other states. We summarize that ...


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