Case: Hertz Corp. v. Friend, 130 S.Ct. 1181 (2010).
Topic: Diversity Jurisdiction and the Best Test for Corporate Principal Place of Business
Representatives of a potential class action brought suit in California state court against corporate defendant Hertz. Hertz claimed New Jersey as its principal place of business and sought removal to federal court alleging diversity jurisdiction. Hertz argued for New Jersey as its principal place of business because the corporation's headquarters and key executives are located there. However, the prevailing jurisdictional test in the Ninth Circuit test determined principal place of business based on percentage of business done within a state. Because Hertz's activities in California "substantially predominated" its business in other states, the district court found that it lacked diversity jurisdiction and the court of appeals affirmed. That decision reflected a growing trend towards increasingly complex and divergent standards between circuits for determining principal place of business. The Supreme Court granted certiorari in order to establish a uniform and administratively simple standard for corporate diversity jurisdiction cases. The Court adopted the "nerve center" test which locates a corporation's principal place of business in that state where the corporation officers direct, control and coordinate the corporation's activities-most usually where the corporate headquarters is located. The Court anticipated and accepted that this test might occasionally produce anomalous results but found that judicial interests in uniformity and simplicity prevailed.
- The "nerve center" test applies whether the corporation conducts its activities in every state or just some of them.
- In practice the principal place of business will "normally be the place where the corporation maintains its headquarters-provided that the headquarters is the actual center of direction, control, and coordination, i.e., the ‘nerve center,' and not simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion)."
- The burden of persuasion for demonstrating diversity remains with the party claiming it, and that claimmust be supported by competent proof sufficient to establish a corporation's nerve center.
KISS-Keep it simple, skipper. The Hertz decision shows just how far you can go with a procedural argument that offers a court an easily administered, uniform process, especially if that process serves to lighten a court's ever-crowded docket.
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