Martinez v. Morgan Stanley & Co. Inc., NO. 09CV2937-L(JMA), 2010 WL 3123175 (S.D. Cal. Aug 09, 2010).

A District Court in California remanded the action to state court holding that to establish the principal place of business of a corporation under the “nerve center test,” only persons who have ‘personal knowledge’ concerning the place from where the executive officers of the corporation “direct, control, and coordinate” the company’s business can give evidence.

The plaintiff, a broker assistant, brought a wages and hours action in the state court alleging that the defendants–Morgan Stanley & Co. Inc., Morgan Stanley DW, Inc. and Morgan Stanley Smith Barney LLC– failed to pay their broker assistants overtime wages, compensation for missed meal and rest breaks, and failed to furnish itemized wage statements accurately reflecting the hours worked as required under the California labor law.

The defendants removed the action to the federal court based on diversity jurisdiction pursuant to 28 U.S.C. §§1332 and 1441, or in the alternative, on CAFA, 28 U.S.C. §§1332(d) and 1453. The plaintiff filed a motion to remand arguing that the defendants failed to establish the requisite diversity of citizenship and the jurisdictional amount in controversy, which the District Court granted.

The Court noted that under §1332(d)(2)(A) of CAFA, the minimal diversity requirement is met when “any member of the class of plaintiffs is a citizen of a State different from any defendant.” Here, it was undisputed that the plaintiff was a California citizen, and the defendant, Morgan Stanley & Co. Inc. was incorporated under the laws of Delaware. The plaintiff disputed, however, that the defendants submitted sufficient evidence of its principal place of business.

The Court noted that for purposes of diversity under §1332(c)(1), a corporation is “deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business.” And a corporation’s principal place of business is its “nerve center,” i.e., the place where a corporation’s officers direct, control, and coordinate the corporation’s activities.

In response to the plaintiff’s challenge, the defendants submitted a declaration of Cheryl Grassman, who stated that the company’s corporate headquarters wase located in New York, and its executive and administrative functions were performed there.  Grassman further stated that all of Morgan Stanley’s executive officers were located in the New York headquarters, they direct, control, and coordinate Morgan Stanley’s activities from the New York headquarters, and its officers were not located in California.

As foundation, Ms. Grassman offered that because of her job duties as the Assistant Secretary of Morgan Stanley employed in its Legal and Compliance Department, she knew the facts in her declaration to be true of her own ‘personal knowledge.’ The Court remarked that Ms. Grassman did not elaborate on her job duties or state how they made it possible for her to acquire the personal knowledge regarding where the executive officers “direct, control, and coordinate” the company’s business.  She did not provide any other basis for her personal knowledge, for example, that she worked at an office in the headquarters and frequently saw the executive officers direct, control, and coordinate the company’s business at that location.  As noted in Hertz Corp. v. Friend, 130 S. Ct. 1181 (2010), an office where the corporation merely holds its board meetings is not necessarily its principal place of business.  Further, the negative statement that the “officers were not located in California” lacked foundation for the same reasons.

Furthermore, the Court found that Grassman’s declaration did not address the nerve center test, which did not consider simply where the officers were located but where they direct, control, and coordinate the corporation’s activities.  Because Ms. Grassman’s declaration regarding Morgan Stanley’s principal place of business lacks foundation, the Court concluded that it was insufficient to overcome the plaintiff’s objections to removal.

In the alternative, the plaintiff argued that the defendants did not meet their burden to show that the amount in controversy was met either under 28 U.S.C. §§1332(a) or (d).

Because the complaint did not specify the damages the class claimed, the Court found that the defendants must prove by a “preponderance of the evidence” that the amount in controversy requirement had been met.

Accordingly, in an attempt to argue that the plaintiff’s individual claim for unpaid overtime exceeded $75,000, the defendants assumed that the plaintiff worked four hours of unpaid overtime per workday for the entire class period without supported by the plaintiff’s allegations or any evidence submitted by the defendants.

To argue that the matter in controversy for the class exceeded $5 million as required under CAFA, the defendants again based their argument on the assumption that every assistant who worked for them during the class period worked overtime.  Rather than alleging that every assistant worked overtime, the complaint alleged that every assistant who worked overtime was a putative class member. Thus, the number of class members might be smaller than the total number of associates who worked for the defendants during the class period, the Court remarked.

Further, the Court found that the defendants’ estimation of overtime hours the class members worked, the number of meal periods they missed, the amount of penalties class members were entitled were also an outcome of assumption.