ProfessorBrittany L. Raposa
CaseCast™ – "What you need to know"
Brief Fact Summary. Hertz Corp. (D) had a class action suit against it. It tried to get the suti removed to federal court, citing diversity jurisdiction as the ground. However, the employees (P) raised the objection that since California was the principal source of revenue for Hertz (D), and most of its business activities were performed there, California should be deemed the principal place of business.
Synopsis of Rule of Law. The term “principal place of business” in the federal diversity jurisdiction statute means the location from which the major activities of the corporation are directed, coordinated and controlled by the high level officers of the corporation.
Issue. The question is whether the phrase “principal place of business” in the federal diversity jurisdiction statute refers to the place which serves as headquarters or the center of operations planning.
Held. (Breyer, J.) Yes.
The term “principal place of business” in the federal diversity jurisdiction statute means the place where the cardinal activities of business are carried out, like high-level planning, directing and coordinating corporate strategy and daily activities. It has also been called the nerve center test by some courts. It means the place where the high level officers meet for these activities. The statutory intent of the term is clarified by the use of the singular word ‘place’ rather than ‘places’. Moreover this definition makes the application easier and more straightforward in the interests of upholding judicial power. The history of the statute also seems to confirm that this was the intent of the lawmakers, by refusing to accept a more complex definition like “the place which supplies half of gross income” as initially suggested by the Judicial Conference and later rejected as impractical. The concept of the place being a “nerve center” is simple to grasp and to apply. While every such test will have its drawbacks in terms of administrative ease and fulfilling the purpose of the statute, some complexity must be accepted so that the rule may be clear enough to satisfy the need.
Discussion. The nerve center test in relation to a corporation considers a single place and not the activity of the corporate in the whole state as relevant. The Court considers that this view of the matter increases its ease of applicability and its predictability as regards result, as well as being in conformity with earlier phases of defining the phrase in law. The aim of this legislation was to prevent the determination of the citizenship of a corporate from being complex and impractical. This case is important in that it may help to make this decision as to corporate citizenship more predictable and uniform, especially removing the multifactor tests and assessment of statewide activity among several states in which the corporate had a presence, based on which the principal place of business was to be decided