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Bearbones, Inc. v. Peerless Indemnity Insurance Co.

United States Court of Appeals, First Circuit

August 21, 2019

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


          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.

          Before Thompson, Selya, and Barron, Circuit Judges.


         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 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 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] 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 ...

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