Supreme Court: Principal Place of Business = “Nerve Center”
By The United States Supreme Court recently clarified that, a corporation’s “principal place of business” for diversity jurisdiction in the federal courts is the corporation’s “nerve center,” or “the place where a corporation’s officers direct, control, and coordinate the corporation’s activities.”
Federal courts are granted diversity jurisdiction over certain disputes by federal statute: 28 U.S.C. § 1332. This jurisdiction covers civil actions between citizens of different states where the matter in controversy exceeds $75,000. Under § 1332(c), a corporation is “deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business.” Previously, lower courts were split on what “principal place of business” meant and whether a company could have more than one. Some courts held that it referred to the state where the company did the most business, other courts espoused the “nerve center” test, and still others embraced a feels-like test that combined the various approaches. In Hertz Corp. v. Friend, the Court made clear that “nerve center” is now the law of the land.
The Court had several rationales for adopting this approach. First, the clear language of §1332(c)(1) supported the ruling: the statute used the singular noun “place,” meaning there could be only one, and the qualifier “principal” required that the main, prominent, or most important place be chosen. Second, the Court was attracted to the administrative simplicity of the test. The “nerve center” approach, which will usually mean a corporation’s headquarters, is simple to apply–comparatively speaking. Unlike other tests, it does not require courts to weigh a corporation’s activities, functions, assets, revenues, and the like.
The Court held that the party asserting diversity jurisdiction bears the burden of persuasion and must support its allegations by “competent proof.” The Court also warned against attempts at “jurisdictional manipulation,” explaining that a nerve center must consist of “more than a mail drop box, a bare office with a computer, or the location of an annual executive retreat.” Instead, courts should look to determine the place of the company’s actual “direction, control, and coordination.”
For more information, see Hertz Corp. v. Friend, 130 S.Ct. 1181 (Feb. 23, 2010).
Related content
- Diversity Jurisdiction and Fraudulent Joinder
- Fraudulent Joinder to Defeat Diversity Jurisdiction?
- Restrictive Covenant Lawsuit Dismissed for Lack of Personal Jurisdiction
Previous Post