Lucas v. Verizon Communications, Inc.

Background

Jeff Lucas sued Verizon Communications, Inc. and Verizon Media, Inc. in New York Supreme Court. The opinion describes the claims as state-law claims involving Lucas’s employment, compensation, restricted stock unit agreements, noncompetition restrictions, and an alleged lost employment opportunity with WarnerMedia. Lucas sought a declaration that the noncompetition restrictions in his 2018 and 2019 agreements were unenforceable and later added a claim for damages based on alleged interference with the WarnerMedia opportunity.

The defendants removed the case to federal court, asserting diversity jurisdiction under 28 U.S.C. § 1332. Diversity jurisdiction generally requires that no plaintiff share state citizenship with any defendant and that the amount-in-controversy requirement be met. Lucas moved to remand, meaning he asked the federal court to return the case to state court. The defendants moved to dismiss for improper venue under Federal Rule of Civil Procedure 12(b)(3) or, alternatively, to transfer the case to the federal court in New Jersey, relying on forum-selection clauses in the stock-unit agreements.

Whether Verizon Media Was a Nominal Defendant

The defendants argued that Verizon Media was merely a nominal defendant whose citizenship should be disregarded when evaluating diversity jurisdiction. The court explained that a nominal defendant is one with little or no interest in the litigation and against whom no claim for relief could be stated. The party asserting nominal status bears the burden of proving it by clear and convincing evidence.

The court rejected the defendants’ argument. It concluded that Lucas’s fraudulent-inducement claim was based on representations by Tim Armstrong, identified in the opinion as the chief executive officer of Oath, later named Verizon Media, concerning the company’s development of premium content and Lucas’s compensation. The court also concluded that Lucas’s claim for breach of the implied covenant of good faith and fair dealing was based on alleged conduct connected to the employment agreement and premium-content compensation. Because those allegations could support claims against Verizon Media, the court held that Verizon Media was not a nominal defendant.

Verizon Media’s Principal Place of Business

A corporation is generally a citizen of its state of incorporation and the state where its principal place of business is located. The Supreme Court’s “nerve center” test identifies the principal place of business as the place where the corporation’s officers direct, control, and coordinate its activities.

The parties agreed that Verizon Media was incorporated in Delaware but disputed whether its principal place of business was in New York or New Jersey. The court concluded that Verizon Media’s principal place of business was in New York. Lucas submitted a sworn declaration stating that Verizon Media’s major business decisions came from its New York City headquarters, that its executive team maintained offices there, and that Verizon Media had no offices or executives in New Jersey. The court also relied on information submitted by the defendants identifying Verizon Media’s chief executive officer as working from New York City.

The court held that Verizon Communications’ supervision of Verizon Media did not make Verizon Communications’ New Jersey location Verizon Media’s principal place of business. It emphasized that an incorporated subsidiary is generally treated as separate from its parent for diversity purposes, absent an exceptional alter-ego or agency relationship. The defendants did not assert either exception and did not provide an independent basis for finding that Verizon Media’s principal place of business was in New Jersey.

Rulings

Because Lucas and Verizon Media were both treated as citizens of New York for purposes of the jurisdictional analysis, the court concluded that complete diversity was lacking. The court therefore held that it lacked subject-matter jurisdiction and granted Lucas’s motion to remand. It directed the Clerk to remand the case to New York Supreme Court, New York County.

The court denied Lucas’s request for costs and attorney fees under 28 U.S.C. § 1447(c), finding that the defendants had an objectively reasonable, or at least colorable, basis for removal even though remand was required. Because the court lacked subject-matter jurisdiction and remanded the case, it denied as moot the defendants’ motion to dismiss for improper venue or, alternatively, to transfer the case. The court also denied the parties’ request for oral argument and directed the Clerk to close the federal case.