3123 SMB LLC, individually, and as assignee, Plaintiff-Appellant,
Steven Horn, Defendant-Appellee.
and Submitted November 15, 2017 Pasadena, California
from the United States District Court No.
2:14-cv-08115-DSF-FFM for the Central District of California
Dale S. Fischer, District Judge, Presiding
C. Knieriem (argued), Law Offices of David C. Knieriem,
Clayton, Missouri, for Plaintiff-Appellant.
Terence Lupton (argued) and George M. Lindahl, Lindahl Beck
LLP, Los Angeles, California, for Defendant-Appellee.
Before: Jacqueline H. Nguyen and Andrew D. Hurwitz, Circuit
Judges, and Steven Paul Logan, [*] District Judge.
panel reversed the district court's dismissal for lack of
subject matter jurisdiction, and remanded for the district
court to consider whether there was jurisdictional
manipulation or an alter ego relationship between Lincoln One
Corporation and 3123 SMB LLC for purposes of establishing
diversity citizenship and jurisdiction.
28 U.S.C. § 1332(c)(1), for purposes of determining
diversity jurisdiction, a corporation is deemed to be a
citizen of the State where it was incorporated and the State
where it has its principal place of business. The Supreme
Court, using a nerve center test, defined "principal
place of business" as "the place where the
corporation's high level officers direct, control, and
coordinate the corporation's activities." Hertz
Corp. v. Friend, 559 U.S. 77, 80 (2010).
One, a holding company, was formed less than one month before
this lawsuit was filed, and its only act during those few
weeks was to incorporate in Missouri.
panel held that what little business Lincoln One conducted
was done in Missouri; and Lincoln One and its wholly-owned
subsidiary, 3123 SMB, were putative citizens of that state
alone. The panel concluded that because defendant Steven Horn
was a California citizen, there appeared to be complete
diversity between the parties. The panel further concluded,
however, that there was evidence that 3123 SMB and Lincoln
One were treated as alter egos, and that Lincoln One's
owners manipulated the ownership structure of the real
property at the center of this lawsuit in order to
manufacture diversity, and these were issues that the
district court did not consider. The panel, therefore,
conditionally reversed the district court's
jurisdictional dismissal and remanded so that the district
court could consider in the first instance whether the
entities were alter egos or whether there was jurisdictional
manipulation that would warrant treating 3123 SMB as a
the question of how to classify the citizenship of a holding
company such as Lincoln One, the panel concluded that a
recently-formed holding company's principal place of
business is the place where it has its board meetings,
regardless of whether such meetings have already occurred,
unless evidence shows that the corporation is directed from
Hurwitz dissented, and would affirm the district court's
dismissal based on its finding that Lincoln One's nerve
center at the time the suit was filed was in California,
where its shareholders and directors resided, and where the
only corporate asset - as apartment complex - was located.
NGUYEN, Circuit Judge.
purposes of determining diversity jurisdiction, "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). While a corporation's state of
incorporation can be determined with ease, its principal
place of business often proves elusive. To simplify the
jurisdictional inquiry, the Supreme Court has defined
"principal place of business" to mean "the
place where the corporation's high level officers direct,
control, and coordinate the corporation's
activities." Hertz Corp. v. Friend, 559 U.S.
77, 80 (2010). This "nerve center" is
"typically . . . found at a corporation's
headquarters." Id. at 81.
what of a corporation that has few, if any, activities?
That's the case for a holding company, which does little
other than passively own other companies and supervise their
management. The corporation at issue here-Lincoln One
Corporation-was formed less than a month before this lawsuit
was filed, and its only act during those few weeks was to
incorporate. Determining Lincoln One's principal place of
business is an existentialist exercise, yet one on which its
entitlement to litigate in federal court depends.
conclude, based on the slim record before us, that what
little business Lincoln One conducted was done in
Missouri-its state of incorporation-making both Lincoln One
and its wholly-owned subsidiary, plaintiff 3123 SMB LLC,
putative citizens of that state alone. Because defendant
Steven Horn is a California citizen, there appears to be
complete diversity between the parties.
is evidence, however, that 3123 SMB and Lincoln One were
treated as alter egos, and that Lincoln One's owners
manipulated the ownership structure of the real property at
the center of this lawsuit in order to manufacture
diversity-issues that the district court didn't consider.
We therefore conditionally reverse the district court's
jurisdictional dismissal and remand so that it may consider
in the first instance whether these entities were alter egos
or there was jurisdictional manipulation that would warrant
treating 3123 SMB as a California citizen.
lawsuit, which involves a claim of legal malpractice, is part
of a larger dispute regarding real property indirectly
controlled by Anthony Kling and his mother, Mary Kling. The
property is a building located at 3115-3125 Santa Monica
Boulevard in Santa Monica, California.
2008, the Klings and various entities associated with their
family sued several defendants in Los Angeles County Superior
Court, claiming that a construction project next to the Santa
Monica property caused subsidence damage due to inadequate
methods of construction. See Kling v. Gabai Constr.,
No. B235367, 2012 WL 5458924, at *1 (Cal.Ct.App. Nov. 9,
2012) (unpublished). The Kling parties, which eventually
included 3123 SMB, subsequently hired Horn to represent
them. Horn is a resident of California.
attorney-client relationship soured when the state court
lawsuit was dismissed. According to 3123 SMB's amended
complaint in the instant case, Horn proffered 27 exhibits for
a "long cause binder" that allegedly "were
incomplete, inadequate, and did not allow the case to be
properly prepared for trial." 3123 SMB terminated Horn
in October 2013. Its new counsel "attempted to augment
and repair" the exhibit list that Horn had prepared. The
state court refused to allow it and, finding the exhibit list
inadequate, dismissed the case for failure to be brought to
trial within five years. See Cal. Civ. Proc. Code
2011, before Horn's representation in the state court
litigation ended, 3123 SMB was organized and registered as a
limited liability company with the Missouri Secretary of
State. At the time, its sole member was another limited
liability company, Washington LLC, which in turn was
controlled entirely by Anthony Kling. 3123 SMB gained
ownership of the Santa Monica property and the litigation
rights in a 2012 transfer. It became a party to the state
court litigation in May 2013. See Kling v. Hassid,
No. B261391, 2016 WL 538238, at *1 n.1 (Cal.Ct.App. Feb. 10,
SMB's sole activity is to manage the Santa Monica
property. Because the building is uninhabitable, 3123 SMB has
little business to transact other than litigation related to
the property damage. Its listed place of business is the
Clayton, Missouri office of its litigation attorney, David
Knieriem. Anthony and Mary Kling are the only persons
authorized to act on behalf of 3123 SMB. It has no officers,
directors, or employees.
Klings reside in California but claim to have longstanding
connections to Missouri. Mary Kling is from St. Louis, and
the Klings still have family there. Anthony Kling goes to St.
Louis "all the time"-usually a couple of times each
year, but it "[d]epends on how the Cardinals are
doing." He has operated "multiple" unnamed
businesses in Clayton, Missouri, where he has unspecified
real and intellectual property interests. He "regularly
interact[s] with businesses [and] government entities, in . .
. Missouri." However, Anthony Kling has lived in Los
Angeles his entire life other than to attend school in New
York, and Mary Kling has resided in Los Angeles since at
least the late 1990s.
September 2014, nearly a year after Horn's representation
ended,  Mary Kling incorporated Lincoln One. The
corporation's Missouri-based agent and corporate
attorney, Alex Kanter, filed the articles of incorporation
with the Missouri Secretary of State, listing his office in
Clayton as Mary Kling's address. Lincoln One acquired the
single membership in 3123 SMB from Washington LLC. The
following month, 3123 SMB filed this suit against Horn for
Kling is Lincoln One's president and secretary.
Initially, she was the sole board member. Subsequently,
Anthony Kling joined the board. He owns 75% of the
corporation's shares, and Mary Kling owns the rest.
to Anthony Kling, Lincoln One's board meetings take place
annually in Clayton, although none had been held at the time
of the lawsuit. Subsequently, Lincoln One held a board
meeting in October 2015. Anthony Kling attended in person,
and Mary Kling attended telephonically due to health issues.