Grand Union Supermarkets of the Virgin Islands, Inc v. H.E. LOCKHART MANAGEMENT, INC. Grand Union Supermarkets of the Virgin Islands, Inc.

PRECEDENTIAL
Filed January 16, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 02-2578
GRAND UNION SUPERMARKETS OF THE
VIRGIN ISLANDS, INC.
v.
H.E. LOCKHART MANAGEMENT, INC.
Grand Union Supermarkets of the Virgin Islands, Inc.;
Red Apple Group, Inc.,
Appellants
Appeal from the District Court
of the Virgin Islands
(D.C. Civil No. 01-cv-00044)
District Court Judge: Honorable Thomas K. Moore
Argued November 8, 2002
Before: SCIRICA, ALITO and RENDELL, Circuit Judges
(Filed January 16, 2003)
Karin A. Bentz, Esq. [ARGUED]
18 Dronningens Gade, Suite 8
Charlotte Amalie, St. Thomas
USVI 00803
Counsel for Appellants
Gregory H. Hodges, Esq.
Simone R.D. Francis, Esq.
[ARGUED]
Dudley, Topper & Feuerzeig
P.O. Box 756
1A Fredericksberg Gade
Charlotte Amalie, St. Thomas
USVI 00804
Counsel for Appellee
OPINION OF THE COURT
RENDELL, Circuit Judge:
We are asked to decide whether a corporation that
maintains the qualifications to do business in a state, but
no longer enters into any business contracts, makes any
sales or purchases, owns any assets, owns or rents any
property, employs any workers, or maintains an address in
the state, can be said to have its principal place of business

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in that state for diversity purposes. We hold that since such
a corporation is not conducting any "business activity," it is
not a citizen of that state. Accordingly, we will reverse the
judgment of the District Court dismissing the case for lack
of subject matter jurisdiction and will remand for further
proceedings.
I. Background
Grand Union Supermarkets of the Virgin Islands ("Grand
Union") filed the instant suit against H.E. Lockhart
Management ("HELM") in the District Court of the Virgin
Islands on February 26, 2001. The District Court’s
jurisdiction is disputed. The District Court of the Virgin
Islands has general civil jurisdiction equivalent to that of a
United States district court. 48 U.S.C. S1612(a) (2001).
Grand Union claims that the Court has diversity
jurisdiction under 28 U.S.C. S1332 (2001) because HELM is
incorporated and has its principal place of business in the
Virgin Islands, Red Apple (the corporate parent of Grand
Union and a co-plaintiff) is incorporated and has its
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principal place of business in New York, and Grand Union
is incorporated in Delaware and has no principal place of
business. HELM claims, and the District Court held, that
the Court has no diversity jurisdiction because Grand
Union has its principal place of business in the Virgin
Islands. We have jurisdiction under 28 U.S.C. S1291 (2002)
over the District Court’s final order dismissing the case.
This suit arises out of the destruction of the St. Thomas
store by Hurricane Marilyn in September 1995.1 The parties
do not dispute the relevant facts. Grand Union has been
authorized to do business in the Virgin Islands since 1986
and has never conducted business in any other state. From
1986 to 1995, Grand Union operated one grocery store in
St. Thomas, whose premises were leased from HELM, and
one in St. Croix. Between September 1995, when Hurricane
Marilyn hit, and March 1999, Grand Union continued to
own the lease for the St. Thomas store. In March 1999,
Grand Union relinquished the lease to HELM. By that time,
Grand Union had sold its St. Croix store to Pueblo
Supermarkets and no longer operated any grocery stores in
the Virgin Islands.
As of February 2001, when it filed the instant action in
the District Court, Grand Union had no assets in the Virgin
Islands, had not entered into any contracts or made any
sales or purchases for two years, and had not employed
any workers or paid any wages or salaries, occupied any
office space or owned any property, owned, rented, or
possessed any office equipment or furniture, or maintained
an address or telephone number in the Virgin Islands for
six years.
Grand Union had, however, paid franchise taxes, filed
corporate reports, and taken other affirmative steps to

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retain its authorization to do business in the Virgin Islands.
Grand Union had not commenced formal dissolution
procedures or instituted the statutory procedures to
_________________________________________________________________
1. This suit has a long, storied history whose details are not essential to
the jurisdictional issue before us. The District Court’s opinion amply
details the parties’ relationship and litigation. See Grand Union
Supermarkets of the Virgin Islands, Inc. v. H.E. Lockhart Management,
Inc., 171 F. Supp. 2d 507, 508-511 (D.V.I. 2001).
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withdraw its application to do business. As of February
2001, Grand Union remained in good standing to do
business in the Virgin Islands.
II. Discussion
The question before us is whether Grand Union’s taking
steps to remain in good standing to do business in the
Virgin Islands rendered the Virgin Islands its principal
place of business for purposes of its citizenship. Our review
over issues of jurisdiction is plenary. Mennen Co. v. Atlantic
Mutual Ins. Co., 147 F.3d 287, 290 (3d Cir. 1998). We find
that as of February 2001, Grand Union was not conducting
any "business activity" and therefore conclude that it had
no principal place of business and was a citizen of
Delaware only. Therefore, as HELM is a citizen of the Virgin
Islands, diversity between the parties is complete.
A. The "Principal Place of Business" Test
Jurisdiction under 28 U.S.C. S1332(a)(1) (2001) requires
complete diversity of the parties; that is, no plaintiff can be
a citizen of the same state as any of the defendants. Carden
v. Arkmona Assocs., 494 U.S. 185, 187 (1992). For diversity
purposes, citizenship of the parties is determined as of the
time the complaint was filed. Smith v. Sperling 354 U.S. 91,
93 n.1 (1957); Midlantic Nat’l Bank v. Hansen , 48 F.3d 693,
696 (3d Cir. 1995).
A corporation is deemed 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. S1332(c) (2001). In
Hansen, we held that a corporation conducting no business
activities "has no principal place of business, and is instead
a citizen of its state of incorporation only." Hansen, 48 F.3d
at 696. There, we were presented with a corporation that
both parties agreed had ceased all business activities as of
the time the complaint was filed, and were asked to decide
whether that corporation’s last principal place of business
was the corporation’s principal place of business for
diversity purposes. Id. We determined that it was not, and
that such a corporation simply has no principal place of
business. Id.
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In so deciding, we rejected the approaches of the Second
and Fifth Circuit Courts of Appeals, and a number of
United States district courts, that have held that a
corporation’s last principal place of business was either
dispositive or important to the question of principal place of
business. Id. at 697. See, e.g. , Harris v. Black Clawson Co.,
961 F.2d 547, 551 (5th Cir. 1992) (considering the amount
of time that had passed since the corporation last
conducted business in the state); William Passalacqua
Builders v. Resnick Developers, 933 F.2d 131, 141 (2d Cir.
1991) (holding that a corporation is a citizen of the state in
which it last transacted business). We found that our rule
comported with Congressional intent that courts not"strain
to locate a principal place of business when no such place
in reality exists," and that our "bright-line" approach
provided both certainty and clarity.2 Hansen, 48 F.3d at
698.
In Hansen, we were not faced with the precise issue
presented here, namely, what kinds of activity constitute
"business activity." However, in Hansen we did note that a
corporation that has "ceased any and all business
activities" would be considered to have no principal place of
business. Id. at 696 n.4. Thus, our choice of words in
Hansen seems to render the actual business activities
undertaken by a corporation the focus of our inquiry.
For additional guidance on this question, we look to Kelly
v. United States Steel Corp., 284 F.2d 850, 854 (3d Cir.
1960), where we first interpreted the phrase "principal
place of business." In Kelly, we determined that it is the
"business by way of activities . . .[that] indicate the
principal place of business." Id. (emphasis added). We
emphasized that a corporation’s principal place of business
is not "where . . . final decisions are made on corporate
policy," but rather where the corporation "conducts its
affairs." Id. Looking at the facts before us, we found that
even though U.S. Steel filed income taxes and made
corporate policy decisions in New York, it conducted its
business "relating to manufacturing, mining, transportation
_________________________________________________________________
2. HELM urges us to adopt the more flexible approach we specifically
rejected in Hansen. We decline to do so.
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and general operation" in Pennsylvania, and employed more
workers and owned more property there than in any other
state. Id. We therefore concluded that Pennsylvania, not
New York, was its principal place of business. Id.
Taken together, Hansen and Kelly lead us to conclude
that a corporation that is not actively engaged in any actual
business activity in a state cannot have a principal place of
business there. Maintaining corporate trappings or the
qualifications required to potentially conduct business in
the future is not enough; a corporation must actually

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conduct business for it to have a principal place of
business.
Policy considerations support our conclusion. Federal
diversity jurisdiction exists to neutralize local prejudices
against foreign parties and ensure that the outcome of a
trial is unaffected by the parties’ affiliation with the locality.
Bank of the United States v. Deveaux, 9 U.S. (5 Cranch) 61,
87 (1809) (Marshall, J.) ("However true the fact may be,
that the tribunals of the states will administer justice as
impartially as those of the nation, to parties of every
description, it is not less true that the [C]onstitution itself
either entertains apprehensions on this subject, or views
with such indulgence the possible fears and apprehensions
of suitors, that it has established national tribunals for the
decision of controversies between . . . citizens of different
states."). The concept of a principal place of business rests
on the idea that a corporation that centers its major
operations, including plants and people, in a particular
state should be considered a citizen of that state because it
will not be subject to local hostility the way a foreign
corporation might, and therefore need not seek the
protection against local biases provided by the federal
system. See S. Rep. No. 85-1830, at 3101-3102 (1958)
(stating that the "principal place of business" provision was
intended to avoid "the evil whereby a local institution,
engaged in a local business and in many cases locally
owned, is enabled to bring its litigation into the Federal
courts simply because it has obtained a corporate charter
from another State"). This rationale only works when the
corporation has a business presence and is actually
conducting business in the state. A corporation that is
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merely qualified to do so, but has no people or plants there,
is in the same position as a foreign corporation in the eyes
of the locality, and should therefore be given the same
protection and allowed to sue in federal court.
B. Application of Hansen and Kelly
Applying our conclusion that a corporation does not have
a principal place of business if it does not actually conduct
any business to the facts at hand, our task is relatively
simple. Looking at the record before us, we search in vain
for any actual business activity on the part of Grand Union.
Grand Union has not been actually engaged in conducting
any business since 1999, when it relinquished the lease to
its St. Thomas store to HELM. As of February 2001, when
it filed this complaint, it did not own any assets, own or
rent any property, employ any workers, or even maintain
an address in the Virgin Islands. The fact that Grand Union
retained corporate records and paid franchise taxes to
maintain the qualifications that would enable it to do
business in the future does not mean that as of the time of
filing, it was actually conducting any business.
Accordingly, we reject the District Court’s conclusion that

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"business activity" includes taking affirmative steps to
maintain good standing and instituting suit in the Virgin
Islands as contrary to our reasoning in Hansen and Kelly.3
Making a corporate decision to maintain the qualification to
do business at a later date simply does not constitute
actual business activity. We are also not persuaded by the
fact that the Virgin Islands is the only place in which Grand
Union has ever conducted any business, for, as explained
above, we have held that the last principal place of
business is simply not a factor in our principal place of
business analysis. In sum, we find no actual business
activity on the part of Grand Union in February 2001.
_________________________________________________________________
3. There is some dispute between the parties as to whether Grand Union
was required to pay franchise taxes in order to maintain standing to sue
in the Virgin Islands. However, we need not address this issue; even if
Grand Union were not required to pay franchise taxes, the mere fact that
it did so does not in itself make the Virgin Islands its principal place of
business.
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III. Conclusion
At the time it filed its complaint, Grand Union had no
principal place of business and was a citizen of Delaware
only. As there was complete diversity among the parties, we
will reverse the District Court’s dismissal of the case and
remand for further proceedings.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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