Free Response to Order to Show Cause - District Court of California - California

Case 3:08-cv-00478-JM-BLM

Document 25

Filed 05/02/2008

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1 WUFSBERG REESE COLVIG & FIRSTMA
PROFESSIONAL CORPORATION
2 H. James Wulfsberg - 046192

Mark A. Stup - 104942
3 Richard E. Elder - 205389

Kaiser Center
4 300 Lakeside Drive, 24th Floor

Oakland, CA 94612-3524
5 Telephone: (510) 835-9100

Facsimile: (510) 451-2170
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Attorneys for Defendant 7 BLACK & VEATCH CORPORATION
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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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12 SAIGUT S.A. de C.V., a Mexican corporation; and SAIEM S.A., a French corporation,
Plaintiffs,
v.

No. 08 CV 0478 JM BLM

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DEFENDANT BLACK & VEATCH CORPORATION'S RESPONSE TO THE COURT'S APRIL 9, 2008 ORDER TO CAUSE
SHOW

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SEMPRA ENERGY, a Californa corporation; ~l ~g~ 16 SEMPRA LNG, a Delaware corporation;

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ENERGIACOSTAAZL, S. deR.L. deC.V.,

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17 a Mexican corporation; BVT LNG COSTA AZUL, S. de R.L. de C.V., a Mexican 18 corporation; COSTA AZUL BMVT, S.A. de C.V., a Mexican corporation; BLACK &

22 Texas corporation; WHESSOE OIL & GAS LIMITED, a United Kingdom corporation; Q &

19 VEATCH CORPORATION, a Delaware corporation; TECHINT S.A. de C.V., a 20 Mexican corporation; THE KLEINELDER GROUP, INC., a Californa corporation; ARUP 21 NORTH AMRICA LIMITED, a United Kingdom corporation; ARUP TEXAS, INC., a

23 S ENGINERIG, INC., a Californa
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corporation; and DOES 1 through 20, inclusive

Defendants.
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BLACK

Case No. 08cv0478 1M BLM & VEATCH CORP.'s RESPONSE TO OSC

Case 3:08-cv-00478-JM-BLM

Document 25

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1 I. INTRODUCTION
2 Black & Veatch Corporation ("BVC") submits this Memorandum in response to Cour's

3 Order to Show Cause Dated April 9, 2008. BVC requests that the Cour dismiss this case for lack

4 of subject matter jursdiction for at least three reasons:
5 1. Plaintiffs have made no effort to comply with the Cour's OSC or car their burden of

6 establishing diversity in any way.
7 2. Not even plaintiffs' misguided alter ego theory can explain away Whessoe's lack of

8 diversity.
9 3. While alter ego allegations might be capable of destroying diversity, they canot create it.

10 II. PROCEDURA POSTURE
11 The Cour's April 9, 2008 Order to Show Cause required the'Plaintiffs to show cause why

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12 this case should not be dismissed for lack of diversity jursdiction. Plaintiffs' deadline for

òd § g~ 0 13 submitting responsive briefing was April 23, 2008. On the afternoon of April 22, 2008, Plaintiffs'
fß ~ &:l=~~~ 14 counsel informed defendant BVC that SaiGut and Saipem planed to dismiss this Federal action
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15 without prejudice, and to refile the action in Californa state cour. (Dec!. of

Mark A. Stup, ir 3.)

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16 On April 23, in lieu of

filing a response to the Order to Show Cause, Plaintiffs filed a "Stipulation

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17 for Dismissal Without Prejudice" which, however, was not signed by all paries who had appeared
18 in the case. (Stup Decl., ir 4.) The next day, the Cour's staffrecharacterized the "Stipulation" as

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19 a "Joint Motion for Dismissal Without Prejudice". Since then, Plaintiffs have taken no fuher
20 action to have the case dismissed, so far as is known to this defendant, Black & Veatch

21 Corporation. (Stup Decl., ir 4.)

22 On April 29,2008, Plaintiffs refied this case in San Diego County Superior Cour (Case
23 No. 37-2008-82862-CU-CD-CTL), and it is Black & Veatch Corporation's understanding that all
24 paries who had been served with Plaintiffs' Federal case consented to service of

San Diego

25 County action (Stup Decl., ir 5, Ex. 1). Nonetheless, because this Federal case has not been
26 dismissed, and the deadline for Defendants' response to the Order to Show Cause has come,
27 defendant Black & Veatch Corporation submits this responsive brief in compliance with the

28 Cour's order.
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2 III. ARGUMENT
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A.

Plaintiff has the burden of establishing diversity and has failed to do so.
the paries is ajursdictional fact in diversity actions. The burden is on

. 4 The citizenship of

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the plaintiff - the pary invoking federal jursdiction - to plead and prove such facts. McNutt v.

6 General Motors Acceptance Corp. 298 U.S. 178 (1936); Kanter v. Warner-Lambert Co., 265 F.3d

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853,857-858 (9th Cir. 2001) ("the pary asserting diversity jursdiction bears the burden of

proof')

Plaintiffs' failure to respond to the Cour's April 9, 2008 Order to Show Cause which ordered

9 plaintiffs to demonstrate that diversity exists is therefore sufficient grounds to dismiss the action. 10

B. The presence of even one defendant with foreign citizenship destroys diversity
and plaintiffs concede that Whessoe is diverse.
Under 28 USC § 1332, diversity exists only where all plaintiffs are diverse from all

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o(§ g~o 13 defendants. Section 1332( a) states "The distrct cours shall have original jurisdiction of all civil
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actions where the matter in controversy exceeds the sum or value of$75,000, exclusive of

interest

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and costs, and is between. . . (2) citizens of a State and citizens or subjects of a foreign state;"
The Ninth Circuit has unequivocally held that this means that, in a case involving foreign

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17 plaintiffs, the presence of even one foreign defendant destroys diversity. Faysound Limited v. 18

United Coconut Chemicals, Inc., 878 F.2d 290 (9th Cir. 1989) ("Where an alien is made co-

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19 defendant with a citizen-defendant by an alien plaintiff. . . there is no jursdiction over the alien.

20 Ifthe alien defendant is indispensable. . . there is no jursdiction at all.") Plaintiffs, both foreign
21 corporations, allege that "Defendant Whessoe Oil & Gas Limited ("Whessoe") is a corporation

22 formed under United Kingdom law, with offces at Princes Gate, London, U.K." (Complaint at
23 irI2.) Plaintiffs do not even attempt to allege any theory under which any other pary's citizenship

24 should be attbutable to Whessoe. Whessoe's presence alone therefore destroys diversity.
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C. Federal law rejects the theory that a plaintiff may use the alter ego doctrine to
ignore a defendant's place of incorporation and thus preserve diversity.
~.' Plaintiffs have indicated that they intend to rely

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on alter ego allegations to establish

28 diversity jursdiction. However, even if plaintiffs were somehow successful in persuading the

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1 Cour that BVT is the alter ego of

Black & Veatch Corporation (which it is not), such a finding

2 might compel the conclusion that the combined entity would be a citizen of both BVT's place of
3 incorporation (Mexico) and Black & Veatch's place of incorporation (Delaware) and perhaps one
4 or more other "principal place of

business" jursdictions as well, thus destroying diversity on other

5 independent grounds. But, the Code, federal caselaw and leading commentators all unequivocally

6 demonstrate that an alter ego finding would not support a ruling that BVT or the alleged combined
7 entity is only a citizen of

Delaware.

8

The five federal circuits to deal with the issue presented here have all held that alter ego

9 allegations can create additional places of citizenship (and thus narow diversity jursdiction) but
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can never "erase" places of citizenship to expand diversity jursdiction.

· Eleventh Circuit: Fritz v. American Home Shield Corp., 751 F.2d 1152, 1153 (lIth Cir.
1985) ("On appeal, Fritz argues that the state of

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incorporation should not control because its non-Florida citizen parent corporation,

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the Florida corporation was the alter ego of

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defendant. . . whose Californa citizenship should be imputed to it. This novel arguent
has no merit under the clear statutory language and well-settled caselaw.")
· Fifth Circuit: J.A. Olson Co. v. City of

Winona, 818 F.2d 401,412-13 (5th Cir. 1987)

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("The alter ego doctrne may nothe used to create diversity jursdiction by ignoring the
principal place of

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business of a subsidiar corporation and imputing to it the principal place
the parent."); See also Panalpina Welttransport GmBh v. Geosource, Inc.,

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of

business of

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764 F.2d 352,354 (5th Cir. 1985).

· Third Circuit: Lang v. Colonial Pipeline Co., 383 F.2d 986 (3rd Cir. 1967) (affrmng the
Distrct Cour's ruling (266 F.Supp. 552, 557) that "plaintiffs have cited no cases to us and
our research has disclosed none where the cours have overlooked the separate identity of a
wholly owned subsidiary in order to avoid being ousted of

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its diversity jursdiction. . . .")

· Tenth Circuit: Glenny v. American Metal Climax, Inc., 494 F.2d 651,655 (10th Cir. 1974)

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("The tral judge therefore concluded that he was not compelled to retain jursdiction in a
case where diversity is satisfied only by piercing the corporate veiL. We agree with this

reasoning.")

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1 . D.C. Circuit: Pyramid Sec. Ltd. v. IB Resolution, Inc., 924 F.2d 1114, 1120 (D.C. Cir.

2 1991). ("The (district) cour argued that imputing a subsidiar's citizenship to its parent is
3 proper where the latter is the 'alter ego' of

the former. . . We reject this analysis.")

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(1)

Pyramid strongly suggests that the Ninth Circuit would not permit alter

5 ego allegations to expand diversity. 6 Whle the Ninth Circuit has not been presented with an attempt to use a parent's citizenship
7 to create diversity jurisdiction over an alleged alter ego subsidiar, it based its analysis of its the 8 admittedly distinguishable - facts in Danjaq v. Pathe Communications Corp., 979 F .2d 772 (9th

9 Cir. 1992) on Pyramid and concluded that the Central Distrct's dismissal for lack of diversity was
10 proper. In Danjaqthe cour noted the dearh of

Ninth Circuit authority, saying "In the only recent

11 case of

which we are aware involving a parent's citizenship, (Pyramid) the D.C. Circuit refused to

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12 consider a subsidiar's activities." The Ninth Circuit went on to explain with approval the holding

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13 of Pyramid, saying "a parent does not take its subsidiar's citizenship for jursdictional puroses
14 even where the parent is the alter ego of its subsidiar and is being sued for acts of

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the subsidiar."

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(2)

District Courts have condemned plaintiffs' theory as "moribund" and
held that "the case law supports the exact opposite view"

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Several distrct cours agree that alter ego allegations can never create diversity. In Maday

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19 v. Toll Brothers, Inc., 72 F.Supp.2d 599, 606-607 (RD. Va. 1999), the cour described plaintiffs'

20 theory as "moribund" to the extent it "ever had any life." Needham v. Wedtech (USA), Inc., 918

21 F.Supp. 353, 357 (N.D.Ok. 1996) held" Plaintiffs have not cited any cases in which the 'alter ego'
22 exception has been used to create subject matter jurisdiction in a diversity case by imputing the
23 parent's principal place of

business to the subsidiar. Indeed, the case law supports the exact

24 opposite view." See Grunblatt v. UnumProvident Corp., 270 F.Supp.2d 347, 352 (RD.N.Y. 2003);

25 Beightol v. Capitol Bankers Life Ins. Co., 730 F.Supp. 190, 193 (E.D.Wis.1990); Bejcekv. Alled
26 Life Financial Corp., 131 F.Supp.2d 1109, 1112 (S.D. Iowa 2001); Polanco v. HB. Fuller Co.,

27 941 F.Supp. 1512, 1517 (D.Minn. 1996); Mouawad Nat. Co. v. Lazare Kaplan Intern. Inc., 476

28 F.Supp.2d 414,426 (S.D.N.Y. 2007).

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(3)

Leading commentators agree that alter ego allegations can only destroy,

2 never create, diversity jurisdiction.
3 Moore's Federal Practice cites many ofthe authorities discussed above in reaching the

4 conclusion that alter ego allegations can never create diversity. Professor Moore states:
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The attribution of

the parent's citizenship to the subsidiar may expand,

rather than supplant, the citizenship ofthe subsidiar. .. The alter ego

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doctrne canot be used to preserve diversity jursdiction by ignoring the place of incorporation of the subsidiar and treating the subsidiar as if it
were a citizen of the state of incorporation of

the parent corporation.

8 15 Moore's Federal Practice § 102.56 (7)(a) (3d ed. 2008).

9 iv.
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CONCLUSION
Given plaintiffs' failure to even attempt to car their burden of establishing

jursdiction,

11 the presence of at least one pary who plaintiffs admit is not diverse and the substantial body oflaw

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12 rej ecting the theory that alter ego allegations can create diversity, Black & Veatch Corporation

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DATED: May

2, 2008

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WUFSBERG REESE COLVIG & FIRSTMA
PROFESSIONAL CORPORATION

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By lsi Richard E. Elder RICHA E. ELDER
Attorneys For Defendant BLACK & VEATCH CORPORATION

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Case No. 08cv0478 1M BLM BLACK & VEATCH CORP.'s RESPONSE TO OSC