This "Defunct" Delaware Corporation Remains A  California Citizen

Allen Matkins

Allen Matkins

Diversity jurisdiction of the federal courts requires complete diversity of citizenship.  28 U.S.C. § 1332.   If a party is a corporation, then it becomes necessary to determine the location of the corporation's citizenship.  In a recent decision, Magistrate Judge Donna M. Ryu summarized three different approaches adopted by the federal courts:

Some courts look to both to the state of incorporation and to the state of the corporation's last business activity. * * * Some courts hold an inactive corporation has no "place of business" and therefore is a citizen only of its state of incorporation. * * * Other courts adopt a case-by-case approach: i e, if the corporation has been inactive for a substantial period of time (e g, 5 years), it is a citizen only of the state where it is incorporated. Otherwise, the court must examine the company's activities as it was closing its doors and determine whether its business had a continuing impact in that locale. If so, the place of its last business activity would be relevant to (but not dispositive of) the determination of its "principal place of business."

Atneosen v. XPT, Inc., 2022 WL 1400847 (citing Patel v. Sugen, Inc., 354 F. Supp. 2d 1098, 1111-12 (N.D. Cal. 2005), quoting Schwarzer, Tashima & Wagstaffe, Cal. Practice Guide: Federal Civil Procedure Before Trial at ¶ 2:321.4 (2004)).

Getting "burned in a three way script"

The case involved a Delaware corporation with its principal place of business in California.  The corporation filed its certificate of surrender with the California Secretary of State about three months before the plaintiff filed its complaint.  Applying the third test (aka the "functional approach"), Judge Ryu found that the corporation had not been inactive for a "substantial period of time".  Thus, she concluded that the Delaware corporation was a citizen of the State of California.  

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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