Business litigation is very complex and it is important to have an experienced business litigation attorney guiding you.
One of the most complicated components of business litigation cases can be determining which court has the jurisdiction to hear and decide on your case. This problem arises because a business is created and incorporated in one state and may be headquartered in another state; however, it does business in many states. Determining in which state the business has citizenship is integral to establishing which court can hear the case. Therefore, when a case involves two businesses, it becomes incrementally more intricate a determination.
The Eleventh Circuit Court of Appeals discussed the complexity involved in determining the citizenship of a dissolved corporation. Holston Investments In. B.V.I., et al., v. LanLogistics, Corp., No. 11-11122 (11th Cir. Apr. 17, 2012). LanBox Inc. (LanBox) was owned by LanLogistics and its principal business was to deliver consumer purchases throughout the United States, Europe and Latin America. In 2007, LanLogistics decided to sell LanBox and two other companies to Paul Gartlan (Gartlan) for a total of $3.5 million. A little less than half a million was allocated to LanBox from the funds of the Gartlan purchase.
The problem in this case arose because LanLogistics (defendant) had previously signed a contract with Holston Investments Inc. (Holston) giving Holston the right of first refusal (ROFR). This right indicates that defendant is required to negotiate with Holston first in the sale of LanBox. Additionally, where an offer is made regarding LanBox, Holston was supposed to be given the opportunity to match any offer and purchase the company itself. Because LanLogistics had failed to abide by the contractual obligation giving Holston the ROFR, Holston filed suit in federal court.
LanLogistics was incorporated in Delaware but its corporate headquarters were in the state of Florida. Right before Holston filed suit, LanLogistics forfeited its right to conduct business in Florida and was dissolved.
After two years of litigation in the federal courts, LanLogistics argued that it was a citizen of Florida and because of this the case should have been heard in the state of Florida.
When establishing the citizenship of a corporation, a corporation is considered to be a citizen of the state where it is incorporated and any state that is its principal place of business. Because LanLogistics was dissolved it did not have a principal state of business. Thus, it was determined that because LanLogistics was incorporated in Delaware it was a Delaware resident. This was why Holston filed suit against LanLogistics in federal court claiming diversity jurisdiction.
Diversity jurisdiction is a type of jurisdiction used where the citizen of each plaintiff is different from the citizenship of each defendant. At the time the complaint is filed, jurisdiction is determined. In applying this law to the facts, diversity jurisdiction was granted because at the time Holston filed the complaint it was a citizen of Florida and LanLogistics was a citizen of Delaware. So the federal court was given the authority because of this diversity jurisdiction to hear this case, and the state courts were avoided.
Therefore the rule coming out of this case is that when a corporation is dissolved before the entry of suit, the state where it was incorporated is the state of citizenship. The state where the now dissolved corporation had its principal place of business is irrelevant.
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Holston Investments In. B.V.I., et al., v. LanLogistics, Corp., No. 11-11122 (11th Cir. Apr. 17, 2012).