Dunson v. McNeil-Ppc, Inc.

346 F.Supp.2d 735

Martin L. DUNSON and Lisa M. Jones, Plaintiffs, v. MCNEIL-PPC, INC., et al., Defendants.

No. Civ.A. 04-2020.

United States District Court, E.D. Pennsylvania.

November 16, 2004.

David F. Binder, Raynes McCarty Binder Ross & Mundy, Philadelphia, PA, for Plaintiffs.

Laurie E. Waddy, Dechert LLP, Philadelphia, PA, for Defendants.

MEMORANDUM

ROBRENO, District Judge.

Plaintiffs, Martin L. Dunson and Lisa M. Jones filed the complaint in this products liability action in the Court of Common Pleas of Philadelphia County against McNeil-PPC, Inc., McNeil Consumer Healthcare Division of McNeil-PPC, Inc., and McNeil Consumer & Specialty Pharmaceuticals, a division of Johnson & Johnson, Inc. The plaintiffs allege that the defendants'"Infants' Tylenol" product caused the death of their one year old son.

Defendants removed the case to this Court alleging diversity jurisdiction pursuant to 28 U.S.C. § 1332. The plaintiffs have moved to remand the action contending that there is no diversity because the plaintiffs and the defendant are citizens of Pennsylvania. Presently before the Court is the plaintiffs' motion to remand.¹

McNeil Laboratories, Inc. was acquired by Johnson & Johnson in 1959. It was later merged with Personal Products Corporation, another Johnson & Johnson company, at which time the name was changed to McNeil-PPC, Inc. (hereinafter "McNeil-PPC"). McNeil-PPC is a New Jersey corporation with four unincorporated divisions that include: (1) the McNeil Consumer & Specialty Pharmaceuticals Division (the "McNeil Division"), which makes the Tylenol product that is the subject of the lawsuit and which is headquartered in Pennsylvania; (2) the McNeil Nutritionals Division which has administrative offices in New Jersey and Pennsylvania; (3) the Personal Products Company Division which is located in New Jersey; and (4) the Personal Products Worldwide Division which is also located in New Jersey. The location of McNeil-PPC's principal place of business is at issue. If McNeil-PPC's principal place of business is Pennsylvania, McNeil-PPC will be deemed a citizen of Pennsylvania destroying diversity and requiring the case to be remanded.

Federal "removal statutes are to be strictly construed against removal and all doubts should be resolved in favor of remand." Steel Valley Auth. v. Union Switch and Signal Div., 809 F.2d 1006, 1010 (3d Cir.1987); Abels v. State Farm Fire & Cas. Co., 770 F.2d 26, 29 (3d Cir.1985). This is so because "lack of subject matter jurisdiction voids any decree entered in a federal court and the continuation of litigation in a federal court without jurisdiction would be futile." Steel Valley Auth., 809 F.2d at 1010. The Third Circuit has interpreted this "all doubts" principle to mean that so long as "there is any doubt as to the propriety of removal, [the] case should not be removed to federal court." Brown v. Francis, 75 F.3d 860, 865 (3d Cir.1996).² The burden of proof is on the party removing the case to show the presence of federal jurisdiction. Abels, 770 F.2d at 29.³

Section 1332(a)(1) of Title 28 of the United States Code, the diversity statute, "requires complete diversity between the parties — that is, jurisdiction is lacking if any plaintiff and any defendant are citizens of the same state." Mennen Co. v. Atl. Mut. Ins. Co., 147 F.3d 287, 290 (3d Cir.1998) (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806)). Here, the plaintiffs are citizens of Pennsylvania. The question of McNeil-PPC's citizenship, however, must be resolved.

For purposes of determining whether there is diversity of citizenship, a corporation is deemed a citizen of both the State in which it was incorporated and the State "where it has its principal place of business." 28 U.S.C. § 1332(c)(1). While it is not in controversy that the defendant is a New Jersey corporation, the location of the defendant's principal place of business is at issue. Plaintiffs argue that the defendant's principal place of business is Pennsylvania while defendant McNeil-PPC argues that its principal place of business is either New Jersey, or at least not Pennsylvania.

The Third Circuit "employs the `center of corporate activities' test to determine a corporation's principal place of business." CGB Occupational Therapy, Inc. v. RHA Health Servs., Inc., 357 F.3d 375, 382 n. 5 (3d Cir.2004). See generally 13B Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3625 (2d. ed. 1984 & Supp.2004). This test, adopted in Kelly v. U.S. Steel Corp., 284 F.2d 850 (3d Cir.1960), "requires courts to ascertain `the headquarters of day-to-day corporate activity and management.'" Mennen, 147 F.3d at 291 (citing Kelly, 284 F.2d at 854). Kelly held that "it is the `business by way of activities ... [that] indicate the principal place of business.'" Grand Union Supermarkets of the Virgin Islands, Inc. v. H.E. Lockhart Mgmt., Inc., 316 F.3d 408, 411 (3d Cir.2003) (citing Kelly, 284 F.2d at 854) (emphasis in original). In other words, "a corporation's principal place of business is not `where ... final decisions are made on corporate policy,' but rather where the corporation `conducts its affairs.' "Id. at 411 (citing Kelly, 284 F.2d at 854).⁴

Addressed first here, is the most significant Kelly factor, the location of "headquarters of the day-to-day corporate activities and management decisions." Quaker State Dyeing & Finishing Co. v. ITT Terryphone Corp., 461 F.2d 1140, 1143 (3d Cir.1972). Although according to McNeil-PPC three New Jersey managerial employees, who comprise the board of directors of McNeil-PPC, have been delegated responsibility for managing McNeil-PPC's operations as a whole, others are responsible for managing significant portions of McNeil-PPC's day-to-day operations. For instance, according to the deposition of Thomas Lapinski, vice president of North American operations for the McNeil Division, which is McNeil-PPC's largest division in terms of number of employees and net sales (59%) and which makes the Tylenol product that is the subject of the lawsuit, the McNeil Division has approximately 12 vice presidents and a president, all with offices located in Fort Washington, Pennsylvania. (Lapinski Dep. at 7.) Also according to Mr. Lapinski, the McNeil Division has a plant manager with an office in Fort Washington, Pennsylvania who "has overall responsibility for the employees, the workforce, the production planning and the actual manufacturing of the products [the McNeil Division] made." (Lapinsky Dep. at 17-18.) The plant manager has "major responsibility for the conversion process of raw materials to finished goods." (Lapinsky Dep. at 19.)

Also weighing in favor of Pennsylvania as the headquarters of McNeil-PPC's day-to-day corporate activities and management decisions is the fact that the McNeil Nutritionals Division, which has offices in both New Jersey and Pennsylvania, has its administrative center in Fort Washington, Pennsylvania. (Lapinsky Dep. at 11.) McNeil Nutritionals Division accounts for another 4% of McNeil-PPC's total sales. The office of the president of McNeil Nutritionals Division is also located in Fort Washington, Pennsylvania. (Lapinsky Dep. at 11.)⁵

Consideration of the other Kelly factors lends additional support to the finding that Pennsylvania is McNeil-PPC's principal place of business. With regard to physical location of McNeil-PPC's operations, although two of McNeil-PPC's four unincorporated divisions are located in New Jersey, the McNeil Division, which is the largest division in terms of number of employees and net sales, has administrative offices and a manufacturing facility in Pennsylvania. Further, the McNeil Nutritionals Division has recently moved a substantial portion of its administrative operations and employees from New Jersey to Pennsylvania.

With regard to where the McNeil-PPC workforce is located, a majority (51%) of its roughly 3,410 employees are located in Pennsylvania. Only 267 employees are located in New Jersey.

With regard to the value of real estate and tangible property, the 2003 book value of real estate owned by McNeil-PPC in Pennsylvania is $124,577,783 and the value of tangible property owned in Pennsylvania is $217,803,693. In New Jersey, on the other hand, the 2003 book value of real estate owned is $23,412,963, less than one fifth of the value of real estate owned in Pennsylvania, and the value of tangible property owned is $39,809,397, less than one fifth of the value of tangible property owned in Pennsylvania.

With regard to productive capacity, the McNeil Division accounted for approximately 59% of the net sales of McNeil-PPC. In addition, McNeil Nutritionals Division, which administrative center is in Pennsylvania, is responsible for another 4% of the net sales for McNeil-PPC in 2003.⁶ McNeil-PPC's other two divisions located in New Jersey only accounted for a total of 25% of the net sales of McNeil-PPC in 2003. While it may be true that not all products sold by McNeil-PPC's Pennsylvania divisions were manufactured in Pennsylvania, approximately 15% of all products sold by McNeil-PPC were manufactured there.

There are yet two more factors that militate against the defendant's position that New Jersey, or at least not Pennsylvania, is its principal place of business. With regard to taxes, McNeil-PPC pays taxes in 28 states and those taxes are apportioned upon a three factor basis that takes into consideration (1) number of employees located in the state, (2) assets located in the state, and (3) sales sold in the state. Keeping in mind that states weigh the three factors differently (e.g. Pennsylvania triple weighs the sales factor), the 2002 Pennsylvania Corporate Income Tax Apportionment Factor for McNeil-PPC was 24.2912% while the New Jersey Corporate Income Tax Apportionment Factor was 10.8753%.

Finally, with regard to storage of key documents relating to this litigation, McNeil-PPC has...