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Most law professors discourage offering disclaimers about your self-doubt to maintain maximum credibility and confidence in front of your audience. I learned this stuff only in the last week, though, so here's the disclaimer: Hopefully I haven't displayed a severe misunderstanding of this material in front of whole world, but if I have, let me know in the comments. — Ed. note
Yesterday, the Supreme Court held that the "nerve center" test is the only test, that "the phrase 'principal place of business' refers to the place where the corporation’s high level officers direct, control, and coordinate the corporation’s activities." Slip op., p. 1.
via Litigation & Trial The slip opinion (a court decision is called a "slip" opinion if it is not yet, or not going to be, published in a reporter) for the case of
Hertz Corporation v. Friend is attached above and, at a miniscule 23 pages, is worth a read. It's of particular interest to me because my Civil Procedure class at
Temple Law just concluded a discussion on the determination of corporate citizenship with respect to diversity jurisdiction (the need for federal courts to hear a case involving parties from two or more states).
For those of you who haven't had the pleasure of plodding through the seminal developmental cases regarding diversity jurisdiction, I'll do my best to bring you up to speed. The idea is that any litigation in which one of the parties is from a different state than any of the other parties is eligible for filing in federal courts. So, if a Pennsylvania resident sues a New York resident, one or the other party has the option of trying to get the case into federal court.
But what about when one of the parties is a corporation? After all, many corporations incorporate in Delaware to take advantage of that state's reduced taxation, but the same corporations often have their "principal place of business" in another state. Such a corporation may be sued by opponents in either of those states without triggering the possibility of diversity jurisdiction.
Thus, it is important to know with legal certainty (a) in which state a corporation has incorporated; and (b) in which state that corporation has its principal place of business. The former is easy, as there is an official incorporation process that documents the information. The "principal place of business," however, is not always so black-and-white a determination.
As Philadelphia-area
litigator,
blogger and
Twitter user Max Kennerly, Esq. pointed out in his
post about the decision, and as my Civil Procedure class recently learned, there have traditionally been several options for a court looking to decide a corporation's principal place of business:
- "Nerve center" test: This approach places the corporation's principal place of business within the state in which its administrative leadership is based. The court uses the location of executive leadership like the CEO, president, and board of directors to determine the principal place of business.
- "Strength center" test: This approach places the corporation's principal place of business within the state in which its operational activities are based. The court uses the location of factories, shipping facilities, and other substantial operational components to determine the principal place of business.
- "Totality of the circumstances" test: Some courts use a combination of the first two tests to make the determination.
This Supreme Court decision in Hertz Corporation v. Friend erases the second and third test and establishes the "nerve center" test as the sole means by which courts may determine principal place of business with respect to diversity jurisdiction.
This replaces the three-part balancing paradigm listed above with a bright-line rule that makes this aspect of corporate citizenship determination a bit more predictable.
[More on
Hertz Corporation v. Friend at
ScotusWiki.]
