Principal Place of Business

Recently, in Hertz Corp. v. Friend, the US Supreme Court has unanimously endorsed the so-called "nerve center" test for determining what is a corporation's "principal place of business."

This is an important question in terms of access to the federal courts on a "diversity" rationale. A natural person is deemed to have only one state of residence for purposes of diversity jurisdiction. A corporation is deemed to be a resident of any state in which it is chartered and of the state that is its principal place of business. What does this mean? There has been what the law firm Blank & Rome has called a "cacophony of approaches," circuit by circuit, and SCOTUS now wants to turn this into more of a melody.

In the instant dispute, Friend et al. sued Hertz in a California state court seeking damages for what they claimed were California's wages and hopurs laws. Hertz, presumably believing it would receive better treatment in federal court, sought to remove the issue to same on ground of diversity of citizenship. The federal district court in California refused to take the case. It said Hertz was a citizen of California, so there was no diversity.

SCOTUS has now reversed that, finding that Hertz' nerve center is in New Jersey, so it may get into federal court.

The meaning of the phrase "principal place of business" is also a contested one in the context of bankruptcy, as SCOTUS observed.

Here's a quite recent illustration of that fact.