Friday, April 22, 2016

Diversity Jurisdiction and Dissolved Entities

Diversity Jurisdiction and Dissolved Entities
      A recent decision from Maryland addresses how a dissolved corporation is assessed for purposes of diversity jurisdiction. On the facts here at issue, you do it the same way you would with a non-dissolved corporation. Stanback v. Levitas, Civ. Act. No. WMN-15-3064, 2016 WL 893245 (D. Md. March 9, 2016).
      Plaintiff Stanback brought suit against a variety of dependents including State Real Estate, Inc., a corporation whose charter had been forfeited some two years prior to the time the complaint was filed. Levitas had been a director of State Real Estate and became a trustee of its assets at the time the corporation’s charter was forfeited. Levitas sought to remove the action to federal court on the basis of diversity jurisdiction. Stanback would resist removal to federal court on the basis that, notwithstanding its dissolution, State Real Estate’s citizenship in Maryland would continue and would preclude diversity jurisdiction.
      Looking to Maryland law, notwithstanding a provision to the effect that corporate powers are rendered “inoperative, null, and void” as of the forfeiture of the charter, it is otherwise provided that “a corporation continues to exist, at least for some limited purposes beyond forfeiture or dissolution of its charter.” From there, citing a variety of authorities, the court was able to determine that a dissolved corporation that remains in the winding up phase is still “alive” for purposes of suing and being sued in order to satisfy its debts and liabilities. In that the court found that State Real Estate still had certain assets, namely an insurance policy, it was determined that it could be sued in its own name as a Maryland corporation. As such, the corporation was a party to the action and would continue to be deemed a citizen of its jurisdiction of organization and that in which it had its principal place of business. That being Maryland, diversity was absent and the case was remanded to state court.

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