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Supreme Court rules corporation's principal place of business is its 'nerve center'

By Bernard Hibbitts (editor) and University of Pittsburgh School of Law students.

[JURIST] The US Supreme Court on Tuesday ruled unanimously in Hertz Corp. v. Friend that, for the purposes of diversity jurisdiction, a corporation's principal place of business shall be determined by the "nerve center" test. The US Court of Appeals for the Ninth Circuit had affirmed the district court's application of the "place of operations" test, which looks to the location of the corporation's business activities and only considers its "nerve center" if the activities do not substantially predominate in any one state. In reversing the decision below, Justice Stephen Breyer wrote for the court:The federal diversity jurisdiction statute provides that "a corporation shall be 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." We seek here to resolve different interpretations that the Circuits have given this phrase. In doing so, we place primary weight upon the need for judicial administration of a jurisdictional statute to remain as simple as possible. And we conclude 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. Lower federal courts have often metaphorically called that place the corporation's "nerve center."The court noted that "the 'nerve center' will typically be found at a corporation's headquarters." Tuesday's ruling resolves a split among the circuit courts, which had been applying four different tests to determine a corporation's principal place of business. The Ninth Circuit applied the "place of operations" test, while the Seventh Circuit has used a "nerve center" test that only looks to where the corporation has its headquarters. The Third Circuit looked to the corporation's center of activity, while the Fifth, Sixth, Eigth, Tenth, and Eleventh Circuits considered the totality of the corporation's activities.

Full post as published by JURIST - The Paper Chase on February 23, 2010 (boomark / email).