New Supreme Court Ruling Brings Uniformity to the Determination of a
Corporation's "Principal Place of Business."
A recent Supreme Court case which has brought uniformity to the Federal courts' determination of a corporation's "principal place of business" will have significant consequences on whether the corporation can sue or be sued in State or Federal court. In Hertz Corp. v. Friend et al, No. 08-1107 (US Supreme Court, February 23, 2010), the Supreme Court untangled a number of conflicting threads, and ruled that in the Federal courts the proper test to determine a corporation's principal place of business is the location of its "nerve center." Most important, this decision affects where a corporation with offices located in several different locations in the U.S. can be sued on diversity grounds. Generally, under U.S. law, U.S. Federal courts have "diversity" jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between citizens of different States (28 U.S.C. 1332). Under that law, a corporation is deemed to be a citizen of the State in which it has been incorporated and of the State where it has its principal place of business. If diversity jurisdiction does not exist, and there is not a Federal question of a type permitting U.S. court jurisdiction, a case will be tried in a State court - often to a party's disadvantage. The Supreme Court decided that the proper test to determine where a party has its "principal place of business" is the "nerve center test," or, as Justice Breyer wrote, "where the corporation's high level officers direct, control and coordinate the corporation's activities." Lower courts have called that place the corporation's "nerve center." According to Justice Breyer, "we believe that the "nerve center" will typically be found at a corporation's headquarters." In the Hertz case, 2 California plaintiffs sued Hertz in a wage case in California court. Hertz tried to remove the case to the Federal Court on the ground of diversity jurisdiction, arguing that because it was active in 44 states, had its corporate headquarters in New Jersey, and carried out its core executive and administrative operations in New Jersey and Oklahoma, it was not a California citizen. The lower and appellate courts held for the plaintiffs, and Hertz appealed to the Supreme Court. In reversing the lower courts, the Supreme Court ruled that a corporation's "principal place of business" is the place where its officers direct, control and coordinate the corporation's activities, or the "nerve center." That place would normally be where the corporation maintains its headquarters, provided that the headquarters is the actual center of control, not merely a mail drop. This case is fundamental to a determination of a corporation's vulnerability to suit in the Federal courts, whether it wants Federal jurisdiction or it doesn't. Now, a corporation with its biggest operations in one state would not be deemed a citizen of that state simply because of the size of its in-state operations. Instead, its principal place of business is where it's nerve center is located, even if the nerve center only sits a few of the corporation's hundreds of employees. This is especially relevant to corporations in more populous states such as California, Texas and New York. Corporations previously considered citizens of those states - and sometimes more than one - now may reevaluate their corporate citizenship for diversity jurisdiction purposes and seek to remove State court cases to the Federal courts. | 
