Update -- The United States Supreme Court Defines Corporate Citizenship
Last November, I addressed the struggles of our Federal Courts to determine corporate citizenship for purposes of diversity jurisdiction. My previous entry details the issues surrounding diversity jurisdiction as well as the various tests utilized by Federal Courts to determine corporate citizenship. At that time, the U.S. Supreme Court had just heard oral argument in Hertz Corporation v. Friend on this issue.
Today, the U.S. Supreme Court issued it opinion in Hertz Corporation v. Friend. Justice Breyer delivered the unanimous opinion of the Court. In its decision, the Court stated:
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 metaphorically called that place the corporation’s “nerve center.”
. . .
We believe that the “nerve center” will typically be found at a corporation’s headquarters.
What is the likely outcome of today's decision? Clearly, the U.S. Supreme Court opted for a test that will be easier for courts to apply. This test will also produce a greater consistency of results as opposed to the more subjective tests analyzing all the business operations of a corporation.
However, from a practical perspective, I believe it will also result in Federal Courts exercising greater jurisdiction over significant claims involving large corporations. For example, a corporation could have its "nerve center" in Georgia but most of its actual operations in Alabama. In such a case, the most likely location of a significant injury due to corporate operations would be Alabama. Yet, the company would be considered a citizen of another state, Georgia, for establishing diversity jurisdiction. As a result, it would be more likely that a Federal Court, instead of an Alabama Court, would ultimately decide any resulting legal claim.
Nice to see the court adopt such a practical approach to the issue of corporate responsibility.
Ahh very interesting - you bring up an excellent point about the likelihood of injuries outside of the nerve center state.
Another factor I've heard discussed (and I believe is going to be important as time goes on) is the movement of business nerve centers into an ethereal online space. More and more companies are doing massive telecommuting and essentially hold their nerve center in a location that is not at all physical.