U.S. Supreme Court Hears Argument On Corporation's Location For Diversity Purposes

The U.S. Supreme Court heard argument yesterday in Hertz Corp. v. Friend, No. 08-1107 (U.S.), cert. granted at 129 S. Ct. 2766 (June 8, 2009). The case concerns the vexing question of which state(s) constitute a corporation's state of citizenship for purposes of federal diversity jurisdiction under 18 U.S.C. §1332. Section 1332(a)(1) specifies that diversity exists between "citizens of different States," and §1332(c)(1) expressly provides that for purposes of diversity "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business."

That begs the question of how one should determine where a corporation has its principal place of business. The federal appellate courts have taken multiple approaches to deciding that question, and it appears that Hertz Corp. will allow the Supreme Court to resolve the split in the circuits. In the opionion below, Friend v. Hertz Corp., 297 Fed. Appx. 690 (9th Cir. Oct. 30, 2008), the Ninth Circuit held that its "place of operations" test was corerctly applied. Under that framework, if the conglomeration of a corporation’s business activity in one State is significantly larger than that in any other state in which the corporation conducts business, that State is the corporation’s principal place of business. The entirety of the unpublished opinion below is reprinted here:

Hertz's Notice of Appeal makes clear that Hertz removed this class action under the Class Action Fairness Act (CAFA). 28 U.S.C. § 1453(c). Therefore, even assuming we lack authority “to accept an appeal from the denial of a motion to remand when a class action has been removed to federal court on the basis of traditional diversity jurisdiction,” Saab v. Home Depot U.S.A., Inc., 469 F.3d 758, 759 (8th Cir.2006), rather than pursuant to CAFA, we have jurisdiction over Hertz's timely appeal from the district court's order remanding this class action to state court. 28 U.S.C. § 1453(c)(1).

The district court correctly applied the “place of operations” test to determine Hertz's principal place of business. Tosco Corp. v. Communities for a Better Env't., 236 F.3d 495 (9th Cir.2001); Industrial Tectonics v. Aero Alloy, 912 F.2d 1090 (9th Cir.1990).

Taking the facts as set forth in the Declaration of Krista Memmelaar, Hertz's relevant business activities are “significantly larger” in California than in the next largest state, Florida. Although the difference between the amount of Hertz's business activity in California and the amount of its activity in Florida is not as large as the difference deemed to be significant in Tosco, California nevertheless “contains a substantial predominance” of Hertz's operations. Tosco Corp., 236 F.3d at 500.

Neither Tosco nor Industrial Tectonics supports Hertz's argument that we must consider the comparative population of states in which a corporation operates to determine whether activities are significantly larger in one state than another. Id.; Industrial Tectonics, 912 F.2d at 1092. Nor do policy concerns mandate the application of a per capita calculation. With its extensive California contacts and business activities, Hertz is not in jeopardy of being mistreated in California courts.

Because California is Hertz's principal place of business under the “place of operations” test, we do not apply the nerve center test. Tosco, 236 F.3d at 500.

In contrast, the "headquarters" or "nerve center" test looks for the location at which the corporation operates its headquarters. Illinois Bell Tel. Co. v. Global NAPs Ill., Inc., 551 F.3d 587, 590 (7th Cir. 2008). Hertz argued that the headquarters test should be applied instead of the conglomeration method used in the Ninth Circuit. The question presented in its petition for certiorari was "Whether, for purposes of determining principal place of business for diversity jurisdiction citizenship under 28 U.S.C. §1332, a court can disregard the location of a nationwide corporation's headquarters - i.e., its nerve center."

The NLJ reported that at yesterday's oral argument, the Court appeared to be sympathetic to a "headquarters" standard. See their pair of interesting articles posted yesterday and today. Click here to download the Supreme Court brief of Hertz, the opposition brief of Friend, the reply brief of Hertz, and the amicus brief supporting Hertz.