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Thursday, March 18, 2010

U.S. Supreme Court Adopts "Nerve Center" Diversity Jurisdiction Test

In Hertz Corp. v. Friend, 2010 U.S. LEXIS 1897 (Feb. 23, 2010), the United States Supreme Court finally resolved a split among the circuits on how to analyze where a corporation’s “principal place of business” is for purposes of diversity jurisdiction. The Court reversed a Ninth Circuit holding that Hertz Corporation was a citizen of California because of the amount of business it did in California compared to other states, including New Jersey, where Hertz claimed was its principal place of business. For example, Hertz operated 273 of its 1,606 car rental locations in California, 3.8 million of its 21 million annual rental transactions took place in California, and approximately 2,300 of its 11,230 full-time employees were located in California. Still, the Supreme Court rejected the Ninth Circuit’s “business activities” test and instead adopted the corporate “nerve center” standard used by numerous other Circuits. The Sixth Circuit, however, applied a "total activities" test, whereby a court had to consider a variety of factors, such as the location of the corporation's nerve center, its administrative offices, its production facilities, and its employees. Gafford v. General Elec. Co., 997 F.2d 150, 163 (6th Cir. 1993). The U.S. Supreme Court concluded that since the headquarters, most of the executives, and the vast majority of the decision-making took place in New Jersey, that was Hertz’s principal place of business. In a unanimous decision the Supreme Court added much needed clarity on how to define a corporation’s so-called “nerve center”—which is now defined as the “the place where the corporation’s high-level officers direct, control, and coordinate the corporation’s activities.”