Supreme Court Provides Corporate Defendants with Greater Access to Federal Courts Through Diversity Jurisdiction
Today the Supreme Court issued a unanimous opinion in Hertz Corporation v. Friend (authored by Justice Breyer) that defined the term "principal place of business" for purposes of determining when a corporation can remove a case to federal court. The Hertz case involved a wage and hour class action initially filed by California citizens against Hertz Corporation in California state court. Hertz, which has a corporate headquarters in New Jersey, preferred to defend itself in federal court, not state court. Hertz removed the lawsuit to federal court on the basis of diversity of citizenship; however, the federal district court concluded that Hertz was a citizen of California, like the plaintiffs, because the business Hertz conducted in California substantially predominated over its business in all other states. According to the federal district court, that meant California was the principal place of business for Hertz, making it a citizen of California and destroying diversity. In short, Hertz was precluded from defending itself in federal court.
The Supreme Court reached a different result, and held that a corporation's "principal place of business," for purposes of federal diversity jurisdiction, is the state where the corporate "nerve center" is located. The Supreme Court reasoned in pertinent part that:
The Hertz opinion clarifies and limits the definition of "principal place of business." The case will likely have significance in employment class action lawsuits, and will be viewed by defendant-employers as a favorable decision. For example, in wage and hour litigation, it is common for national employers to be sued in state courts in jurisdictions those employers may view as unfriendly. The federal diversity jurisdiction statute provides a way for corporations to guard against getting "homered" in these unfriendly state courts, by removing these cases into federal court. Once in federal court, the corporate litigant has, at a minimum, a more familiar set of procedural rules. Also, the federal system sometimes provides mobility so that litigation can be transferred to another federal district.
By providing a definitive and simple test for determining which state is the principal place of business, Hertz adds a degree of certainty to a procedural issue that previously lacked certainty, and in some cases will serve to increase a corporate employer's access to the federal courts through diversity jurisdiction.
The Supreme Court reached a different result, and held that a corporation's "principal place of business," for purposes of federal diversity jurisdiction, is the state where the corporate "nerve center" is located. The Supreme Court reasoned in pertinent part that:
"[P]rincipal place of business" is best read as referring to the place where a corporation's officers direct, control, and coordinate the corporation's activities. It is the place that Courts of Appeals have called the corporation's "nerve center." And in practice it should 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).
Under the diversity jurisdiction statute, a corporation is deemed to be a citizen of both the state where it was incorporated, and the state where it has its "principal place of business." 28 U.S.C. § 1332(c)(1). Therefore, when sued in the state court of those states by citizens of those states, a corporate defendant cannot remove the litigation to federal court on the basis of diversity jurisdiction. Over the last 50 years, federal courts around the country have developed varying tests for determining which state is a corporation's principal place of business.
The Hertz opinion clarifies and limits the definition of "principal place of business." The case will likely have significance in employment class action lawsuits, and will be viewed by defendant-employers as a favorable decision. For example, in wage and hour litigation, it is common for national employers to be sued in state courts in jurisdictions those employers may view as unfriendly. The federal diversity jurisdiction statute provides a way for corporations to guard against getting "homered" in these unfriendly state courts, by removing these cases into federal court. Once in federal court, the corporate litigant has, at a minimum, a more familiar set of procedural rules. Also, the federal system sometimes provides mobility so that litigation can be transferred to another federal district.
By providing a definitive and simple test for determining which state is the principal place of business, Hertz adds a degree of certainty to a procedural issue that previously lacked certainty, and in some cases will serve to increase a corporate employer's access to the federal courts through diversity jurisdiction.
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