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Volume XII, Number 231

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This "Defunct" Delaware Corporation Remains A California Citizen

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.  

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XII, Number 180
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

949-851-5428
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