Friday, February 26, 2010

United States Supreme Court Adopts Headquarters Test for Diversity Jurisdiction

In its 9-0 decision issued earlier this week on February 23, 2010 in the case of Hertz Corp. v. Friend, the United States Supreme Court addressed the confusion among state courts regarding the appropriate standard to establish a corporate or company defendant's place of business in a diversity case. The Court ruled that a company should be considered a citizen of a state where its “nerve center” is located.

Justice Stephen G. Breyer wrote that "In practice it should normally be the place where the corporation maintains its headquarters."

It is anticipated by legal commentators that the “nerve center” test will be used to establish diversity jurisdiction, allowing more lawsuits to be tried in federal rather than state courts. Thus, it is expected that this decision will serve to hamper forum shopping efforts by plaintiffs.

In this case, the Court rejected arguments by Hertz employees in a wage-and-hour suit that Hertz’s principal place of business was in California, where more of its business activities take place, even though its headquarters is in New Jersey.

In his opinion, Breyer noted that there will still be cases that are difficult to under the “nerve center” test for diversity jurisdiction. “For example, in this era of telecommuting, some corporations may divide their command and coordinating functions among officers who work at several different locations, perhaps communicating over the Internet,” he wrote. “That said, our test nonetheless points courts in a single direction, towards the center of overall direction, control, and coordination.”

The opinion (PDF) of Hertz Corp. v. Friend can be viewed by clicking this link:

Source: Debra Cassens Weiss, ABA Journal Law News Now (Feb. 26, 2010) (citing Reuters and The Wall Street Journal).

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