A recent decision by the United States Supreme Court has resolved a long-standing ambiguity in the statutory requirements for determining the citizenship of a corporation for the purposes of invoking the diversity jurisdiction of the federal courts. 

In Hertz Corp. v. Friend 30 S. Ct. 1181, 175 L. Ed. 2d 1029 (2010), the Supreme Court identified two principal approaches to determining corporate citizenship for diversity purposes:  the locations of a corporation’s “business activities” versus a corporation’s “nerve center,” which might or might not overlap with the corporation’s nominal headquarters.  See id. at 1190-91.  But, despite the Court’s efforts, the shifting nature of the modern business place might reduce Hertz to a mere way-station on a longer journey.

Hertz began as a California state court suit that Hertz removed to district court, invoking the court’s diversity jurisdiction.  The plaintiffs subsequently moved for remand, arguing that, in violation of the requirements of 28 U.S.C. § 1332, Hertz was a citizen of California for jurisdictional purposes.  In arguing that its principal place of business is in New Jersey, Hertz supplied a declaration detailing, among other things, that Hertz’s corporate headquarters are located in New Jersey, not California.  See Hertz, 130 S. Ct. at 1186.

The district court, relying on Ninth Circuit precedent that requires a court to examine the totality of all corporate activities within a state to determine corporate citizenship, agreed with the plaintiffs that Hertz was a citizen of California for jurisdictional purposes.  The Ninth Circuit affirmed the district court’s decision.  See id. at 1187.

The Supreme Court, however, vacated the Ninth Circuit’s judgment and remanded the matter back to the district court.  In brief, the Supreme Court decreed that § 1332’s “principal place of business” language “is best read as referring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities,” or a corporation’s so-called “nerve center.”  Id. at 1192.  The Supreme Court continued that, “in practice it should normally be the place where the corporation maintains its headquarters—provided that the headquarters is the actual center of direction, control, and coordination . . . and not simply an office where the corporation holds its board meetings.”  Id.

It is important to note that Hertz does not announce a new standard that plaintiffs must meet in order to assert diversity jurisdiction.  The holding of the Supreme Court merely resolves the inconsistent tests among the federal circuits to determine a corporation’s principle place of business.  There is no new evidentiary standard for such a showing.  Indeed, the most that Hertz does is simply reject the suggestion that was made by one of the parties that “the mere filing of a form like the Securities and Exchange Commission’s Form 10-K . . . would, without more, be sufficient proof to establish a corporation’s nerve center.”  Id. at 1195 (internal quotation marks omitted and emphasis added).

Several commentators have noted that Hertz is a victory for corporate litigants who have had to navigate the different standards among the various federal circuit courts either to demonstrate that they are citizens of a particular jurisdiction in order to maintain a suit or to defend against motions to remand.  Clearly, Hertz evens out the jurisdictional playing field for corporations, thus increasing predictability and reducing expenses.  But a few wrinkles remain unaddressed.  For example, if corporate decision-makers reside in different jurisdictions, but conduct business via teleconferences hosted at the corporation’s headquarters in yet another jurisdictioin, where is the controlling location that “a corporation’s officers direct, control, and coordinate the corporation’s activities”?  Id. at 1192.  Indeed, the Court foresaw this kind of conundrum when it wrote that “in this era of telecommuting, some corporations may divide their command and coordinating functions among officers who work at several different locations, perhaps communicating over the Internet.”  Id. at 1194.

As the walls between the workplace and the rest of our daily lives becomes thinner, the idea of a central corporate nerve center will likely give way to more attenuated contacts between a corporation and its locale.  Thus, rather than having the final word on corporate citizenship, Hertz will likely prove to be a momentary pause for the Court to catch its breath.