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Martinez v. Morgan Stanley & Co. Inc.

August 9, 2010


The opinion of the court was delivered by: M. James Lorenz United States District Court Judge


Defendants removed this wages and hours action from State court. The notice of removal is based on diversity jurisdiction pursuant to 28 U.S.C. Sections 1332 and 1441, or in the alternative, on the Class Action Fairness Act ("CAFA"), 28 U.S.C. §§ 1332(d) and 1453. (Notice of Removal at 2-3.) Plaintiff filed a motion to remand arguing that Defendants failed to establish the requisite diversity of citizenship and the jurisdictional amount in controversy. For the reasons which follow, Plaintiff's motion is GRANTED.

"Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution or a statute, which is not to be expanded by judicial decree. It is to be presumed that a cause lies outside this limited jurisdiction and the burden of establishing the contrary rests upon the party asserting jurisdiction." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); see also Abrego Abrego v. The Dow Chem. Co., 443 F.3d 676, 684 (9th Cir. 2006). "Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. §1441(a).

Consistent with the limited jurisdiction of federal courts, the removal statute is strictly construed against removal jurisdiction. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992); see also Sygenta Crop Prot. v. Henson, 537 U.S. 28, 32 (2002); O'Halloran v. University of , 856 F.2d 1375, 1380 (9th Cir. 1988). "The strong presumption against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper." Gaus, 980 F.2d at 566; see also Nishimoto v. Federman-Bachrach & Assoc., 903 F.2d 709, 712 n.3 (9th Cir. 1990); O'Halloran, 856 F.2d at 1380. "The traditional rule of burden allocation in determining removal jurisdiction was meant to comport with what the Supreme Court has termed '[t]he dominant note in the successive enactments of Congress relating to diversity jurisdiction,' that is, 'jealous restriction, of avoiding offense to state sensitiveness, and of relieving the federal courts of the overwhelming burden of business that intrinsically belongs to the state courts in order to keep them free for their distinctive federal business.'" Abrego Abrego, 443 at 685, quoting Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 76 (1941).

This putative class action was removed in part based on diversity jurisdiction under 28 U.S.C. Section 1332(d). "Section 1332(d), added by [Class Action Fairness Act of 2005, "CAFA"], vests the district court with 'original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which' the parties satisfy, among other requirements, minimal diversity." Id. at 680 (footnote omitted). The burden of establishing removal jurisdiction, including the amount in controversy requirement under CAFA, is on the defendant. Id. at 682-85. Plaintiff argues that Defendants failed to meet their burden with respect to the minimal diversity of parties and jurisdictional amount requirements.

The minimal diversity requirement is met when "[a]ny member of the class of plaintiffs is a citizen of a State different from any defendant." 28 U.S.C. § 1332(d)(A). It is undisputed that Plaintiff is a California citizen. (Notice of Removal at 3.) At the time of removal, Plaintiff had named three Defendants: Morgan Stanley & Co. Incorporated, Morgan Stanley DW, Inc. and Morgan Stanley Smith Barney LLC.*fn1

For purposes of diversity, a corporation is "deemed to be a citizen of any 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). It is undisputed that Defendant Morgan Stanley & Co. Incorporated was incorporated under the laws of Delaware. (See Decl. of Cheryl A. Grassman in Supp. of Defs' Opp'n to Pl.'s Mot. to Remand ("Grassman Opp'n Decl.") at 2.) Plaintiff disputes, however, that Defendants submitted sufficient evidence of its principal place of business.

A corporation's principal place of business is its "nerve center," i.e., the place where a corporation's officers direct, control, and coordinate the corporation's activities. . . . And in practice it should normally be the place where the corporation maintains its headquarters - provided that the headquarters is the actual center of direction, control, and coordination . . . and not simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion).

The Hertz Corp. v. Friend, __ U.S. __, 130 S.Ct. 1181, 1192 (2010). "The burden of persuasion for establishing diversity jurisdiction [rests] on the party asserting it. When challenged on allegations of jurisdictional facts, the parties must support their allegations by competent proof." Id. at 1194-95 (internal citations omitted).

In response to Plaintiff's challenge, Defendants submitted a declaration of Cheryl Grassman. (Grassman Opp'n Decl. at 2.) She stated that the company's corporate headquarters are located in New York, and its corporate books and records are located in New York. Most of Morgan Stanley's executive and administrative functions are performed in its New York headquarters. Morgan Stanley's officers, including the president, chief executive officer, chief administrative officer, chief financial officer, corporate secretary, and treasurer, all work out of the New York headquarters. Morgan Stanley's executive officers direct, control, and coordinate Morgan Stanley's activities from the New York headquarters. Its officers are not located in California. . at 2-3.)

Plaintiff argues that the declaration is conclusory, just a bare reciting of the holding in , and notes that no executive officer of Morgan Stanley & Co. Incorporated offered a declaration. (Reply at 3-4).*fn2 Plaintiff's arguments are primarily directed to the lack of foundation for the statements regarding the principal place of business. See Fed. R. Evid. 602.

As foundation Ms. Grassman offered that because of her job duties as the Assistant Secretary of Morgan Stanley & Co. Incorporated employed in its Legal and Compliance Department, she knew the facts in her declaration to be true of her own personal knowledge. (Grassman Opp'n Decl. at 2.) Ms. Grassman did not elaborate on her job duties or state how they made it possible for her to acquire the personal knowledge regarding where the executive officers "direct, control, and coordinate" the company's business. She did not provide any other basis for her personal knowledge, for example, that she worked at an office in the headquarters and frequently saw the executive officers direct, control, and coordinate the company's business at that location. As noted in Hertz, an office where the corporation merely holds its board meetings is not necessarily its principal place of business. 130 S.Ct. at 1192; see also id. at 1195. The negative statement that the "officers are not located in California" lacks foundation for the same reasons. Furthermore, it does not address the nerve center test, which does not consider simply where the officers are located but where they direct, control, and coordinate the corporation's activities. Because Ms. Grassman's declaration regarding Morgan Stanley & Co. Incorporated's principal place of business lacks foundation, it is insufficient to overcome Plaintiff's objections to removal.

Ms. Grassman's declaration regarding the principal place of business of Defendant Morgan Stanley DW, Inc., prior to its merger with Morgan Stanley & Co. Incorporated (see Grassman Opp'n Decl. at 3), is almost identical as with respect to Morgan Stanley & Co. Incorporated and suffers from the same lack of foundation.

Because Defendant Morgan Stanley Smith Barney LLC is not a corporation, the jurisdictional inquiry differs somewhat from that for corporate defendants. The citizenship of a limited liability company for purposes of diversity jurisdiction is determined by examining the citizenship of each of its members. Carden v. Arkoma Assoc., 494 U.S. 185, 195-96 (1990). Defendants filed three declarations addressing the complex ownership structure of Morgan Stanley Smith Barney LLC. (See Grassman Opp'n Decl. at 3; Decl. of Charlene R. Herzer in Supp. of Defs' Opp'n to Pl.'s Mot. to Remand ("Herzer Opp'n Decl.") at 2; Decl. of Eugene V. Clark in Supp. of Defs' Opp'n to Pl.'s Mot. to Remand at 2.) Ultimately Morgan Stanley Smith Barney LLC is owned by several corporations, including MS Financing, Inc., Morgan Stanley Commercial Financial Services, Inc., Morgan Stanley International Holdings, Inc. and Defendant Morgan Stanley & Co. Incorporated. (See Grassman Opp'n ...

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