Class Action

More on Hertz Corp. v. Friend and diversity jursidiction under CAFA

By Kimberly A. Kralowec

The Supreme Court's opinion in Hertz Corp. v. Friend, 599 U.S. ___ (Feb. 23, 2010), does not mention the Class Action Fairness Act by name, although the action was removed to federal court under CAFA, and the remand order reached the Supreme Court only because 28 U.S.C. section 1453(c) permits appeals from remand orders in CAFA cases. (Generally speaking, post-removal remand orders are not appealable.) 

For purposes of CAFA, and the diversity statute generally, a corporation is deemed a "citizen" of its state of incorporation and "the State where it has its principal place of business." 28 U.S.C. § 1332(c)(1). A corporate defendant's citizenship is key to whether diversity (complete or minimal) exists and whether CAFA's "local controversy" or "home state" exceptions apply. See id. § 1332(d)(2)(A), (d)(3), (d)(4).

In Hertz, the Supreme Court construed the phrase "principal place of business" and adopted the so-called "nerve center test":

We conclude that ?principal place of business? is best read as referring to the place where a corporation's officers direct, control, and coordinate the corporation?s activities. It is the place that Courts of Appeals have called the corporation?s ?nerve center.? And in practice it should normally be the place where the corporation maintains its headquarters?provided that the headquarters is the actual center of direction, control, and coordination, i.e., the ?nerve center,? and not simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion).

Slip op. at 14. As the Court points out, this test does have the benefit, with many potential corporate defendants, of simplicity and predictability. Id. at 15-16. The Court also observes, however, that "under the 'nerve center' test we adopt today, there will be hard cases." Id. at 17. The opinion remands the action for further consideration of whether, applying the "nerve center" test, Hertz is a citizen of New Jersey rather than California. Id. at 19.

My original post on the Ninth Circuit's opinion in Hertz is here.

Full post as published by The UCL Practitioner on March 15, 2010 (boomark / email).