Case Brief
42 PART ONE • Introduction to the Law and the Legal Environment of Business
§ 1332(c)(1), which provides that “a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its prin-cipal place of business.” To show that its “principal place of business” was in New Jersey, not California, Hertz submitted a dec-laration stating, among other things, that it operated facilities in 44 States, that California accounted for only a portion of its business activity, that its leadership is at its corporate headquarters in New Jersey, and that its core executive and administrative functions are pri-marily carried out there. The District Court concluded that it lacked diversity jurisdiction because Hertz was a California citizen under Ninth Circuit precedent, which asks, inter alia, whether the amount of the cor-poration’s business activity is “significantly larger” or “substantially predominates” in one State. Finding that California was Hertz’s “principal place of business” un-der that test because a plurality of the relevant business activity occurred there, the District Court remanded the case to the state court. The Ninth Circuit affirmed. Hertz appealed to the United States Supreme Court.
Justice Breyer The federal diversity jurisdiction statute provides that “a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business.” We seek here to resolve different interpretations that the Circuits have given this phrase. In doing so, we place primary weight upon the need for judicial administration of a jurisdic-tional statute to remain as simple as possible. And we conclude that the phrase “principal place of business” refers to the place where the corporation’s high level officers direct, control, and coordinate the corporation’s activities. Lower federal courts have often metaphori-cally called that place the corporation’s “nerve center.” We begin our “principal place of business” discussion with a brief review of relevant history. The Constitution provides that the “judicial Power shall extend” to “Controversies . . . between Citizens of different States.”. In 1928 this Court made clear that the “state of incorporation” rule was virtually absolute. It held that a corporation closely identified with State A could proceed in a federal court located in that State as long as the corporation had filed its incorporation papers in State B, perhaps a State where the corporation did no business at all. . . . Subsequently, many in Congress and those who testified before it pointed out that this interpretation was at odds with diversity jurisdiction’s basic rationale, namely, opening the federal courts’ doors to those who might otherwise suffer from local prejudice against out-of-state parties. . . . [i]n 1958, Congress both codified the courts’ traditional place of incorporation test and also enacted into law a slightly modified version of the Conference Committee’s proposed “principal place of business” language. A corporation was to “be deemed a citizen of any State by which it has been incorporated and of the State where it has its principal place of business.”
The phrase “principal place of business” has proved more difficult to apply than its originators likely ex-pected. . . . In an effort to find a single, more uniform interpretation of the statutory phrase, we have reviewed the Courts of Appeals’ divergent and increasingly com-plex interpretations. Having done so, we now return to, and expand, Judge Weinfeld’s approach, as applied in the Seventh Circuit. . . . We conclude that “principal place of business” is best read as referring to the place where a corporation’s officers direct, control, and co-ordinate 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 cen-ter,” and not simply an office where the corporation holds its board meetings (e.g., attended by directors and officers who have traveled there for the occasion). Three sets of considerations, taken together, convince us that this approach, while imperfect, is superior to other possibilities. First, the statute’s language supports the ap-proach. The statute’s text deems a corporation a citizen of the “State where it has its principal place of business.” The word “place” is in the singular, not the plural. The word “principal” requires us to pick out the “main, prominent” or “leading” place. And the fact that the word “place” fol-lows the words “State where” means that the “place” is a place within a State. It is not the State itself. A corporation’s “nerve center,” usually its main head-quarters, is a single place. The public often (though not always) considers it the corporation’s main place of business. And it is a place within a State. By contrast, the application of a more general business activities test has led some courts, as in the present case, to look, not at a particular place within a State, but incorrectly at the State itself, measuring the total amount of business activities that the corporation conducts there and de-termining whether they are “significantly larger” than in the next-ranking State. This approach invites greater litigation and can lead to strange results, as the Ninth Circuit has since recognized. Second, administrative simplicity is a major virtue in a jurisdictional statute. . . . Simple jurisdictional rules also promote greater predictability. Predictability is valuable to corporations making business and invest-ment decisions. . . . A “nerve center” approach, which ordinarily equates that “center” with a corporation’s headquarters, is sim-ple to apply comparatively speaking. The metaphor of a corporate “brain,” while not precise, suggests a single location. By contrast, a corporation’s general business activities more often lack a single principal place where they take place. That is to say, the corporation may have several plants, many sales locations, and employees lo-cated in many different places. If so, it will not be as easy to determine which of these different business lo-cales is the “principal” or most important “place.” Third, the statute’s legislative history, for those who accept it, offers a simplicity-related interpretive benchmark. . . .
We recognize that there may be no perfect test that satisfies all administrative and purposive criteria. We recognize as well that, under the “nerve center” test we adopt today, there will be hard cases. . . . Our approach provides a sensible test that is relatively easier to apply, not a test that will, in all instances, automatically gen-erate a result. Petitioner’s unchallenged declaration suggests that Hertz’s center of direction, control, and coordination, its
“nerve center,” and its corporate headquarters are one and the same, and they are located in New Jersey, not in California. Because respondents should have a fair opportunity to litigate their case in light of our holding, however, we vacate the Ninth Circuit’s judgment and remand the case for further proceedings consistent with this opinion.*
Judgment reversed, in favor of Hertz Corporation
When a case falls within the federal court’s concurrent jurisdiction because of either a federal question or diversity of citizenship, the suit may be filed in either state or federal court. If the case is filed in state court, the defendant has a right of removal, which means that he or she may have the case transferred to federal court. All the defendant has to do is file a motion with the court asking to exercise his or her right of removal. Thereupon, the case must be transferred to federal court; the judge has no discretion but must comply with the request.
CRITICAL THINKING ABOUT THE LAW
Justice Breyer is focusing on fairness to the parties in a case where state courts may provide a jury panel that is more homogeneous and perhaps rural than would give the litigants a fair hearing for their arguments. But notice that his reasoning also pays attention to other ethical norms that guide courts when they make legal decisions.
1. What legal norms in addition to fairness does Justice Breyer reference explicitly or implicitly? Return to the discussion of legal norms in Chapter 1. Then go through each of Justice Breyer’s arguments for the nerve center test, asking yourself: does this reasoning point to any of the four primary legal norms that shape judicial decision making.
2. Justice Breyer admits that there will probably be some tough cases in the future that will push the boundaries of the nerve center test. Try to create a set of facts that would result in highlighting the ambiguity in the nerve center test. Make a list of all the factors that lead to the conclusion that a particular state is the nerve center of a business. Now design your set of facts around a situation where some factors are present in one state, while others are present in another state.
3. Justice Breyer can form his reasoning based only on the information he has, not the information he might wish to have but lacks. Justice Breyer spells out his reasoning in an orderly fashion. Choose one of his reasons. What facts, were they true, would damage at least one of Justice Breyer’s reasons for the nerve center test. Look at his discussion of potential jury bias. What fact would make this reasoning invalid in the Hertz decision?
The right of removal arises only when the case is filed in state court; there is no right of removal to state court. As a result, whenever a case is under concurrent jurisdiction, if either party wants the case heard in federal court, it will be heard there. . Why should both parties have the right to have such a case heard in fed-eral court? In certain cases, a party may fear local prejudice in a state court. Juries for a state court are generally drawn from the county in which the court is located. The juries for federal district courts are drawn from the entire dis-trict, which encompasses many counties. Juries in state court are, therefore, usually more homogeneous than those in a district court. One problem that • *Hertz Corporation v. Friend, United States Supreme Court 130 S. Ct. 1181 (2010).
