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Peterson v. Cooley

United States Court of Appeals for the Fourth Circuit · 1998 · Civil Procedure

Civil ProcedureDiversity JurisdictionPrincipal Place of BusinessTortious InterferenceVirginia Business Conspiracydiversity jurisdictionremovalprincipal place of business

Facts

DEP executed two promissory notes payable to Central Fidelity and secured by deeds of trust on Virginia real property, and the Petersons endorsed the notes. While the Petersons negotiated with Central Fidelity to buy the notes at a discount, Cooley—who already held a judgment against Barrie Peterson tied to a junior interest in one property—sought to purchase the bank's position to protect his ability to collect. Central Fidelity prepared a written settlement agreement after earlier negotiations, but the Petersons never signed it, and a later June proposal expressly stated it was for discussion only and not binding. C.F. Trust, a Florida corporation formed solely to acquire and hold the notes, ultimately purchased the notes from Central Fidelity, after which the Petersons filed this action.

Issue

Whether removal was proper because C.F. Trust's principal place of business was Florida rather than Virginia, and whether defendants were entitled to summary judgment on the Petersons' claims for tortious interference with contract, tortious interference with business expectancy, and statutory conspiracy under Virginia law. More specifically, the court had to determine whether any binding contract or protected expectancy existed and whether defendants used improper methods or acted with a purpose to injure the Petersons' business.

Rule

For a corporation whose activities consist primarily of owning and managing investment assets, the nerve center test is the more appropriate way to determine principal place of business; the place of operations test is less useful where the corporation lacks geographically rooted physical operations. Under Virginia law, tortious interference requires a valid contract or business expectancy, knowledge, intentional interference causing breach or termination, and resulting damage; if the claim is based on expectancy rather than an existing contract, the plaintiff must also prove improper methods. Improper methods are means that are illegal, independently tortious, violative of established professional standards, unethical, or amount to sharp dealing, overreaching, or unfair competition. A claim under Virginia Code § 18.2-499 requires proof that defendants acted with a purpose of willfully and maliciously injuring the plaintiff in business.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Heron Asset Trust is incorporated in Delaware and formed solely to acquire distressed mortgage notes secured by shopping centers in North Carolina. Its president works from Tampa, its books are kept in Florida, and it has no employees or offices in North Carolina. A North Carolina borrower sues Blue Heron in state court, and Blue Heron removes based on diversity.

If the borrower argues removal fails because the collateral is located in North Carolina, how should the court rule on Blue Heron’s principal place of business?

Explanation. The majority held that when a corporation is essentially a passive investment vehicle engaged in owning and managing debt instruments, the nerve center test is the appropriate measure of principal place of business. The location of collateral does not control because the corporation lacks geographically rooted physical operations. Here, direction, management, and records are centered in Florida, so Florida is the principal place of business. (Derived from Peterson v. Cooley (n.d.).)