Legal News

Corporations Win Federal Court Access Battle

By (Breaking Legal News)

As litigators, cynics and viewers of A Civil Action know, how and where a lawsuit is brought can determine its outcome at least as often as the merits of the case. Perhaps the most potent civil procedure decision is the case's forum: state or federal court. Generally, corporate defendants prefer federal courts, and plaintiffs' attorneys prefer state courts. As a result "forum shopping" battles dominate the early stages of proceedings, as the sides fight over whether a corporation can be deemed a "citizen" of the state the plaintiffs come from; if both sides are from the same state, the case stays in that state's court.

So the big issue is where a corporation has citizenship. The Circuit Courts have interpreted the key statutory language -- citizenship exists where the "principal place of business" is -- in a few ways, but most assess the "total activity" of the corporation, including its purposes, type of activity, and legal site, and most of the others similarly look to the operations of the business as a whole. Only the 7th Circuit focused on the company's "nerve center", essentially meaning the place where the company is headquartered.

In Hertz Corp. v. Friend, our business-friendly Supreme Court unanimously swept away the case-by-case assessments of where businesses actually conduct their business and adopted the 7th Circuit's nerve center approach. Now corporations can insure federal diversity jurisdiction -- plaintiffs and defendants coming from different states -- whenever they most want it by (re)locating their headquarters.

Expect this decision to produce two dynamics. First, some corporations will relocate out of states where the courts are viewed as particularly plaintiff friendly, insuring claims against them will not be brought in those courts. Second, corporations will threaten to leave, if the state legislatures don't amend their laws to make corporate-friendly outcomes more likely if the case is heard in the state court.

Full post as published by Breaking Legal News on February 24, 2010 (boomark / email).