ET Solar, Inc v. SUMECHT NA Inc.

Background

ET Solar sued SUMECHT NA Inc., doing business as Sumec, for breach of contract and related California-law claims. ET Solar alleged that it sold solar modules to Sumec for $10,413,546.19, delivered the modules, and received only about half of the contract price, leaving an alleged balance of $5,662,639.11. A later agreement required Sumec to pay amounts due directly to Jiangsu Xinqi Materials Trading Company. The original contract included an arbitration clause requiring disputes to be arbitrated in Shanghai under the law of the People’s Republic of China.

The complaint invoked diversity jurisdiction, which allows a federal court to hear certain disputes between citizens of different states when more than $75,000 is at stake. ET Solar alleged that it was a California corporation with its principal place of business in California and that Sumec was a Texas company with its principal place of business in Georgia. Sumec challenged that jurisdiction and alternatively relied on the arbitration clause.

Jurisdictional Analysis

The court treated Sumec’s challenge as a factual attack on jurisdiction because Sumec relied on evidence outside the complaint. For a corporation, citizenship includes both the state of incorporation and the state containing its principal place of business. The principal place of business is the corporation’s “nerve center,” meaning the place where its officers direct, control, and coordinate its activities.

The court found that Sumec’s principal place of business was in California. Sumec’s California filings listed a principal office in Costa Mesa, its declaration stated that its only U.S. office was in California, its records were maintained there, and it had no offices or employees in Texas or Georgia. The court concluded that Sumec was therefore a California citizen. Because ET Solar was also a California corporation, complete diversity was absent.

The court noted that the alleged debt exceeded the amount-in-controversy requirement, even though Sumec disputed the debt and argued that the later agreement changed the amount owed. The court also stated that ET Solar could not plead around the parties’ contracts and should provide more detail in any amended complaint about the later agreement and why it did not change the amount owed.

Disposition

The court dismissed the complaint because it lacked diversity jurisdiction. It granted ET Solar’s request for limited jurisdictional discovery. The parties were ordered to confer about a schedule for that discovery and any amended complaint and to update the court by January 7, 2021. The court did not rule on the alternative arbitration argument.