Facts of the case
Plaintiffs brought a class action suit against Hertz in a California state court. Hertz moved to remove the case to a California federal district court based on diversity jurisdiction. The plaintiffs argued that there was no diversity jurisdiction as Hertz’s principal place of business was California and not New Jersey. The federal district court agreed and remanded the case to the state court.On appeal, the U.S. Court of Appeals for the Ninth Circuit affirmed the federal district court. It held that the district court correctly applied the place of operations testto determine Hertz’s principal place of business. Therefore, there was no diversity jurisdiction and the district court had no authority over the case.
Why is the case important?
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.
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.
(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.
The Court vacated the Ninth Circuit’s judgment and remanded the case for further proceedings. It held: “Principal place of business under § 1332(c)(1) referred to where a corporation’s officers directed, controlled, and coordinated the corporation’s activities, a nerve center.It would normally be a corporation’s headquarters–provided it was not simply an office for board meetings. The nerve centerwas a single place. A more general business activities test led to incorrectly measuring the amount of business activities in a state. The simple nerve centerjurisdictional rule promoted predictability. The nerve centerapproach was simple to apply, comparatively speaking. Section 1332(c)(1)’s legislative history suggested principal place of businesswas not to be interpreted to be complex. The employer’s unchallenged declaration suggested its center of direction, control, and coordination, its nerve center,and its corporate headquarters, were one and the same, located in New Jersey. But, the employees would have a fair opportunity to litigate that issue on remand.”
- Advocates: Sri Srinivasan for the petitioner Todd M. Schneider on behalf of the respondents
- Petitioner: The Hertz Corporation
- Respondent: Melinda Friend, et al.
- DECIDED BY:Roberts Court
- Location: U.S. Court of Appeals for the Ninth Circuit, San Francisco
|Citation:||559 US 77 (2010)|
|Granted:||Jun 8, 2009|
|Argued:||Nov 10, 2009|
|Decided:||Feb 23, 2010|