Reference no: EM131674649

Question: HERTZ CORPORATION v. FRIEND UNITED STATES SUPREME COURT

FACTS: California employees sued their employer, Hertz Corporation, in state court, alleging violations of the state's wage and hour laws. Defendant Hertz, claiming diversity of citizenship, removed the case to the federal district court. Hertz argued that it was a citizen of New Jersey because New Jersey is its principal place of business. It is its principal place of business because Hertz has facilities in 44 states, but its leadership is at its corporate headquarters in New Jersey, and its core executive and administrative functions are primarily carried out there. Hertz also stated that California accounted for only a small portion of its business activities. The District Court concluded that it lacked diversity jurisdiction because Hertz was a California citizen under Ninth Circuit precedent, which asks whether the amount of the corporation's business activity is "signifi cantly larger" or "substantially predominates" in one state. Finding that California was Hertz's "principal place of business" under that test because a plurality of the relevant business activity occurred there, the District Court remanded the case to state court. Hertz appealed, and the Ninth Circuit Court of Appeals affi rmed. Hertz then appealed to the U.S. Supreme Court. ISSUE: For purposes of establishing citizenship of a corporation to determine whether there is diversity of citizenship to give the federal court jurisdiction, what test should the courts use to determine a corporation's principal place of business, a nerve center test or a predominance of business activity test?

REASONING: "Principal place of business" is best read as referring to where a corporation's offi cers direct, control, and coordinate the corporation's activities. In practice, it should normally be where the corporation maintains its headquarters-provided that the headquarters is the actual center of direction, control, and coordination, that is, the nerve center and not simply an offi ce where the corporation holds its board meetings. Three reasons support use of the nerve center approach. The fi rst is that the approach is consistent with the language of the jurisdictional statute. The statute's word "place" is singular, not plural. Its word "principal" requires the main, prominent, or most important place to be chosen. And the fact that the word "place" follows the words "State where" means that the "place" is a place within a State, not the State itself. A corporation's nerve center, usually its main headquarters, is a single place. The public often 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 to look not at a particular place within a State but incorrectly at the State itself, measuring the total amount of business activity the corporation conducts there and determining whether it is signifi cantly larger than in the next-ranking State. Second, administrative simplicity is desired in a jurisdictional statute.

A nerve center approach, which ordinarily equates that center with a corporation's headquarters, is simple to apply, comparatively speaking. Third, the statute's legislative history suggests that the words "principal place of business" should be interpreted to be no more complex than an earlier, numerical test that was criticized as too complex and impractical to apply. A nerve center test offers such a possibility. A general business activities test does not. This test is relatively easier to apply and does not require courts to weigh corporate functions, assets, or revenues different in kind, one from the other. This test may produce results that seem to cut against the basic rationale of diversity jurisdiction; accepting occasionally counterintuitive results is the price the legal system must pay to avoid overly complex jurisdictional administration while producing the benefi ts that accompany a more uniform legal system. DECISION AND REMEDY: For purposes of federalcourt diversity jurisdiction, a corporation's principal place of business refers to the place, often called nerve center, from which the corporation's high-level offi cers directed, controlled, and coordinated corporation's activities. Although it appeared from the evidence that Hertz corporate offi ces and its nerve center are located in New Jersey, the respondents should have a fair opportunity on remand to litigate this issue in light of this holding as to the applicable rule. SIGNIFICANCE OF THE CASE: The case settles a long-standing confl ict among the circuits about what test to apply to determine where a corporation's primary place of business is.

CRITICAL THINKING: Which critical-thinking skill is the focal point of this case? Which words are not clear?

ETHICAL DECISION MAKING: What primary value can you hear in the court's reasoning?