Supreme Court Clarifies Jurisdiction Issue for Multi-State Corporations

By Nate DeBaun

In its recent decision in Hertz Corporation v. Friend, (No. 08-1107, February 23, 2010), the United States Supreme Court attempted to clarify the determination of a multi-state business entity’s principal place of business for purposes of federal diversity jurisdiction. Due to various tests being applied in various ways throughout the federal judiciary, the decision in Hertz brings welcome clarity to the issue of proper jurisdiction when a business entity has locations in various states.

In setting forth the new, uniform standard, the Supreme Court held that for the purposes of federal diversity jurisdiction, an entity’s principal place of business is the location where its high-level officers “direct, control, and coordinate” the business’ activities. The decision helps create a uniform standard focusing on the “nerve center” of the business, rather than on the state where the largest amount of the company’s business is located, which was the previous focus of tests applied in various federal circuits. The Supreme Court held that while the citizenship of a business will normally be the state where the corporate headquarters is located, a company’s direction, control and coordination must stem from that location. Thus, an empty “headquarters” serving solely as a presence within a state of incorporation will not suffice for purposes of jurisdiction. The headquarters will have to be the location from where the company exercises management and control of its affairs.

The Supreme Court’s decision in Hertz, authored by Justice Stephen Breyer, was a unanimous 9-0 opinion.

Published: 03/2010