Academic journal article Northwestern University Law Review

Digging Up the Corp(ses): Holston Investments V. Lanlogistics Corp. and the Continuing Struggle to Determine the Citizenship of Dissolved and Inactive Corporations for the Purposes of Diversity Jurisdiction

Academic journal article Northwestern University Law Review

Digging Up the Corp(ses): Holston Investments V. Lanlogistics Corp. and the Continuing Struggle to Determine the Citizenship of Dissolved and Inactive Corporations for the Purposes of Diversity Jurisdiction

Article excerpt

ABSTRACT-Since the early 1990s, the U.S. Circuit Courts of Appeals have been divided on how to determine the citizenship of dissolved or inactive corporations for the purposes of diversity jurisdiction. By the beginning of the twenty-first century, courts of appeals addressing the issue had settled on one of three conclusions: (1) citizenship should be determined only by the corporation's state of incorporation; (2) citizenship should be determined both by the corporation's state of incorporation and its last principal place of business; or (3) citizenship should always be determined by the corporation's state of incorporation, but only be determined by principal place of business on a case-by-case basis. In 2010, the U.S. Supreme Court in Hertz Corp. v. Friend clarified the standard for determining an active corporation's principal place of business. Two years later, the Eleventh Circuit Court of Appeals in Holston Investments, Inc. B.V.I. v. LanLogistics Corp. ruled that the reasoning of Hertz settled the debate over the citizenship of dissolved or inactive corporations: only the inactive or dissolved corporation's state of incorporation determines citizenship. This Note argues that although Hertz provided useful guidance to the courts of appeals on how to determine the citizenship of dissolved and inactive corporations, the Eleventh Circuit misinterpreted that guidance. The Eleventh Circuit should have adopted a modified version of an existing rule, which always factors both an inactive or dissolved corporation's state of incorporation and its last principal place of business when determining citizenship. This test better accords with the Court's reasoning in Hertz, the intent behind the statutory definition of corporate citizenship, and broader principles of diversity of citizenship jurisdiction.

INTRODUCTION

In May 2007, shipping and aviation entrepreneur Paul Gartlan closed a deal with LanLogistics Corporation to purchase subsidiary companies of LanLogistics, including one called LanBox.1 LanLogistics was a Delawarechartered corporation that had its corporate headquarters in Florida.2 According to Holston Investments, Inc., B.V.I.-a British Virgin Islands company with a Florida business affiliate-this violated a contract between Holston and LanLogistics.3 Holston had previously purchased a separate subsidiary from LanLogistics and it now argued the deal between Gartlan and LanLogistics violated Holston's contractual right of first refusal to purchase LanBox.4 In the aftermath of the deal with Gartlan, LanLogistics formally dissolved and forfeited its authority to conduct business in Florida at the end of 2007.5 Five months later, Holston Investments and its Florida affiliate sued LanLogistics in the U.S. District Court for the Southern District of Florida under diversity jurisdiction for breach of contract.6 At the time of the lawsuit, all parties seemingly agreed that the federal court had the requisite diversity jurisdiction to hear the case: LanLogistics's supposed Delaware citizenship was diverse from the plaintiffs' Florida and British Virgin Islands citizenship.7

Over two years after the action in federal court commenced, the federal district court issued judgment for the plaintiffs on the breach of contract claim.8 Only after the supposed disposition of this straightforward state law claim did the case transform into the latest battle over the citizenship of inactive or dissolved corporations for federal diversity jurisdiction.

Soon after receiving an adverse judgment, LanLogistics moved to vacate the judgment for lack of subject matter jurisdiction, arguing that the two parties' citizenships were not truly diverse at the time the lawsuit was filed.9 For the first time, LanLogistics brought to the trial court's attention that Florida had been its principal place of business at the time of the deal with Gartlan that gave rise to Holston's claim.10 LanLogistics now argued that its late-2007 dissolution did not change the fact that, at the time the suit was filed, LanLogistics was a citizen of both Delaware and Florida. …

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