California employees sued The Hertz Corporation in California state court for alleged state labor law violations. Hertz removed the case to federal court under diversity jurisdiction, asserting that it was a citizen of New Jersey, where it was incorporated, and Florida, where it claimed its principal place of business was located. The employees argued that Hertz's principal place of business was California because a large amount of its business activity occurred there. The lower courts applied a business-activity-focused approach and concluded that Hertz was a California citizen, defeating complete diversity.
For purposes of 28 U.S.C. 1332(c)(1), how should a court determine a corporation's "principal place of business"?
A corporation's "principal place of business" under 28 U.S.C. 1332(c)(1) is its "nerve center": the place where the corporation's high-level officers direct, control, and coordinate the corporation's activities. In practice, this will normally be the corporation's headquarters, provided that headquarters is the actual center of direction and control and not merely an office for board meetings or a sham location.
The Court held that a corporation's principal place of business is its nerve center, not the state where it conducts the most business activities. It vacated the judgment and remanded for application of that uniform test.
The Court sought a single, administrable rule because lower courts had developed conflicting tests that produced complexity, unpredictability, and jurisdictional litigation. It read "principal place of business" as singular, suggesting one main place where corporate direction and control occur. The nerve-center test best fit statutory text, promoted simplicity, and aligned with administrative needs, even if it sometimes pointed to a state with less visible business activity. The Court also cautioned that courts must look past manipulation and ensure the claimed headquarters is the real center of overall control.
Hertz established the controlling nationwide test for corporate citizenship under the diversity statute, greatly simplifying removal and subject-matter-jurisdiction disputes involving corporations. It rejected more diffuse "place of operations" or "total activity" approaches used by lower courts. The decision builds on the corporate-citizenship framework of 28 U.S.C. 1332(c)(1) and is frequently paired with cases addressing diversity and removal such as Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806), Louisville, Cincinnati & Charleston R. Co. v. Letson, 43 U.S. (2 How.) 497 (1844), and Wis. Dep't of Corr. v. Schacht, 524 U.S. 381 (1998).
Wis. Dep't of Corr. v. Schacht, 524 U.S. 381 (1998) |
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