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Sanderson v. Brooks

United States District Court, Ninth Circuit

July 3, 2013

LISA SANDERSON, Plaintiff,
v.
GARTH BROOKS, an individual; RED STROKES ENTERTAINMENT, INC.; and DOES 1-10, inclusive, Defendants.

ORDER REMANDING CASE TO LOS ANGELES SUPERIOR COURT

OTIS D. WRIGHT, II, District Judge.

I. INTRODUCTION

Defendants Garth Brooks and Red Strokes Entertainment, Inc. removed Plaintiff Lisa Sanderson's state-court action to this Court on diversity grounds. They assert that Red Strokes, as an inactive corporation, is a citizen only of its state of incorporation (Tennessee) for diversity purposes. Because Brooks is an Oklahoma citizen and Sanderson is a citizen of California, Defendants assert that complete diversity exists. But Sanderson contends that Red Strokes is a California citizen for diversity purposes and seeks to have the case remanded to state court. Presently, there is no controlling precedent on the appropriate determination of an inactive corporation's citizenship. After carefully considering the parties' papers, the approaches taken by other circuits, and the statute itself, the Court finds that a "last principal place of business" approach is the best determination of an inactive corporation's citizenship. Because Red Strokes's last principal place of business while it was active was in California, complete diversity is lacking between Red Strokes and Sanderson. Accordingly, the case is hereby REMANDED to Los Angeles County Superior Court for lack of subject-matter jurisdiction.

II. BACKGROUND

In 1993, country-music artist Garth Brooks invited Lisa Sanderson Sanderson to join him in forming a production company. (Sanderson Decl. ¶ 5.)[1] She orally agreed to certain employment conditions irrelevant to the Court's discussion here. Brooks then founded Red Strokes-an entertainment company that developed and produced film and television projects-in 1994 while he was living in Tennessee. (Brooks Decl. ¶ 5, Sanderson Decl. ¶ 2.) The company was incorporated in Tennessee. (Notice of Removal ¶ 13.) Sanderson was named the Chief Executive Officer and Producing Partner; Brooks was the president and sole shareholder. (Sanderson Decl. ¶ 5.) Red Strokes had no other officers, directors, or shareholders. ( Id. )

Sanderson's job entailed overseeing day-to-day operations; deciding which projects to pursue; making casting and hiring decisions; attending meetings with studio executives, financiers, and talent; networking within the entertainment community; making project promotion decisions; and supervising pre- and post-production projects, among other things. ( Id. ¶¶ 11, 13-14, 18.) Sanderson cites to these activities in relation to several specific projects, which span from 2001 until 2010. ( Id. ¶¶ 15-22.) Though Brooks traveled frequently, Sanderson arranged for him to accompany her to the pitch meetings in Los Angeles County. ( Id. ¶¶ 12, 14.) Since the entertainment business is centered in Southern California, most (if not all) of Sanderson's activities on behalf of Red Strokes occurred in Los Angeles, either at the Red Strokes office or at the offices of other entertainment industry executives. ( E.g. , id. ¶ 26.)

From 1998 until its doors finally closed in early 2011, Red Strokes's only office was in Beverly Hills. ( Id. ¶¶ 8, 23-24.) It had one employee, California resident Anka Brazell, who assisted Brooks and Sanderson from the Beverly Hills office for five years prior to Red Strokes going inactive. ( Id. ¶ 9.) Brooks also hired an outside accounting company in Tennessee to provide accounting and payroll services for Red Strokes; various Red Strokes documents were also maintained in Tennessee, at least until 2000. ( Id. ¶ 28; Brooks Decl. ¶ 5.)

Since the corporation went inactive, "Red Strokes has not engaged in any business activities other than those incidental to the winding up of its operations, " such as making final payments and filing tax reports and similar documents. (Brooks Decl. ¶¶ 6, 8.) Red Strokes continued its final "winding up" activities in Tennessee for no more than two to three months in late 2010 and early 2011. ( See id. )

After Red Strokes went defunct, Sanderson began complaining that Red Strokes took unauthorized deductions from her paychecks from May until October 2011, and has neglected to pay her due wages, a 50 percent producing fee, and a $250, 000 severance bonus that was allegedly agreed to when she took the job. Perhaps in response to these contentions, Brooks and Red Strokes filed a lawsuit against Sanderson in November 2011 in a Tennessee state court, claiming that she had defaulted on a subsequent oral loan agreement, and seeking a declaratory judgment against Sanderson's allegations. (Notice of Removal ¶ 27.) Sanderson removed the Tennessee case to the United States District Court for the Middle District of Tennessee on diversity grounds; the action is still pending. ( Id. ¶¶ 26, 28.)

On April 15, 2013, Sanderson brought this action against Garth Brooks and Red Strokes in California Superior Court; Defendants removed it to this District on diversity grounds. (ECF No. 1.) Here-in contradiction to her position in the Tennessee case-Sanderson contends the parties are not diverse and the case should be remanded for lack of jurisdiction. (ECF No. 12.) Aside from disputing Red Strokes current citizenship, Defendants also argue that Sanderson should be estopped from arguing for diversity jurisdiction because it conflicts with her assertions in the Tennessee action. (ECF No. 16.) Sanderson's Motion to Remand is now before the Court for decision.

III. LEGAL STANDARD

Federal courts are courts of limited jurisdiction, having subject-matter jurisdiction only over matters authorized by the Constitution and Congress. U.S. Const. art. III, § 2, cl. 1; e.g. , Kokkonen v. Guardian Life Ins. Co. of Am. , 511 U.S. 375, 377 (1994). A defendant may remove a suit to federal court if the federal court would have had original jurisdiction over the case. 28 U.S.C. § 1441(a). But Ninth Circuit courts strictly construe § 1441 against a finding of removal jurisdiction. "[F]ederal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance." Gaus v. Miles, Inc. , 980 F.2d 564, 566 (9th Cir. 1992). The party seeking removal bears the burden of establishing federal jurisdiction by a preponderance of the evidence. Geographic Expeditions, Inc. v. Estate of Lhotka ex rel Lhotka , 599 F.3d 1102, 1106-07 (9th Cir. 2010).

Federal courts have original jurisdiction where an action presents a federal question under 28 U.S.C. § 1331, or diversity of citizenship under 28 U.S.C. § 1332. Defendants here ground their removal petition solely on diversity. (Notice of Removal ¶ 1.) To exercise diversity jurisdiction, a federal court must find complete diversity of citizenship among the adverse parties, and the ...


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