Yesterday, in the case of Hertz v. Friend, the U.S. Supreme Court ruled on the issue of what constitutes a principal place of business under a diversity jurisdiction analysis . In a unanimous decision, the Supreme Court held that a corporation’s principal place of business is its “nerve center” -- the place where the corporation maintains its headquarters, so long as the headquarters serves as the actual center of direction, control, and coordination of the corporation’s business operation.
The location of a corporation’s principal place of business is an important consideration in the determination of whether a federal court has jurisdiction to hear a case. As federal courts are of limited jurisdiction, they can only hear cases if there is federal question jurisdiction (i.e., the plaintiff has alleged a violation of the U.S. Constitution or a law of the United States) or diversity jurisdiction (i.e., the amount of money at issue is at least $75,000 and none of the plaintiffs are from the same state as any of the defendants.) Under a diversity jurisdiction analysis, a corporation is treated as a citizen of any State in which it is incorporated and of the State where it has its principal place of business.
For years, practitioners and courts alike have struggled with a uniform test for determining a corporation’s principal place of business, particularly in instances where corporate headquarters and executive offices were located in one State but plants or other centers of business activity were located in other States.
While I agree that yesterday’s Supreme Court decision should bring greater clarity to the issue of what constitutes a corporation’s principal place of business, the “nerve center” test is far from perfect. As technology evolves and businesses become increasingly mobile (and, in some instances, virtual), the task of determining a company’s nerve center will be easier said than done.
For more information on this case, you can read Frank Steinberg’s post on the New Jersey Employment Law Blog or Tony Mauro’s article in the National Law Journal. If you have a lot of free time on your hands with nothing better to do, you can read the official hearing transcript.