The United States Supreme Court recently decided a case that will assist corporations in removing litigation from the often unfriendly confines of state courts to the more neutral federal court system. Under federal law, a case filed in state court can be removed (transferred) by the party being sued if there is diversity of citizenship, meaning the parties are citizens of two different states. However, different federal circuits have applied different standards and tests as to how to determine a corporation’s “citizenship.” The recent decision in Hertz Corp v Friend, now provides clarity and uniformity as to how a corporation’s citizenship should be determined when a federal court is deciding whether it has jurisdiction over the case because of diversity of citizenship.
To determine whether Hertz was a citizen of California for purposes of jurisdiction, the lower courts held that the level of Hertz’s business activities within the state were significant enough to satisfy the “principal place of business” standard under the diversity jurisdiction statute. Because the lower court determined that Hertz was a citizen of California, and the plaintiff was as well, there was not diversity of citizenship and the case could not be removed to federal court.
The recent decision by the U.S. Supreme Court adopted a “nerve center” standard for addressing where their principal place of business was and the question whether the corporation was a citizen of the respective state for purposes of diversity jurisdiction. The “nerve center” standard focuses on the location of the corporation’s core executives and where administrative functions are primarily carried out. The application of the new standard will make it easier for corporations to remove cases to federal courts when they are being sued in a forum outside of the state where their “nerve center” is headquartered.
Click here to download a copy of the decision in PDF format.
