• U.S. Supreme Court Resolves Interpretation of "Principal Place of Business" for Diversity Jurisdiction Analysis
  • June 17, 2010
  • Law Firm: Riker Danzig Scherer Hyland Perretti LLP - Morristown Office
  • The federal diversity jurisdiction statute provides that "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." 28 U.S.C. ยง 1332(c)(1). The Circuit courts have applied various tests including the "nerve center," "corporate activities" and "total activity" tests, as well as a combination thereof to determine a corporation's "principal place of business."

    In light of the various Circuit courts' divergent and increasingly complex interpretations of the phrase "principal place of business," the Supreme Court, in Hertz Corp. v. Friend, 559 U.S. (2010), set forth a single, more uniform interpretation of the statutory phrase. The Court determined that a corporation's "principal place of business" for purposes of diversity jurisdiction is the place where the corporation's officers direct, control, and coordinate the corporation's activities, i.e., the "nerve center." According to the Court, the "nerve center," in most cases, is the corporation's headquarters.

    The Supreme Court determined that the "nerve center" test, while admittedly imperfect, is superior to all other possibilities because of its relative administrative simplicity. This case is significant because it sets forth a single, uniform interpretation of "principal place of business" for diversity jurisdiction analysis. As such, this decision promotes greater predictability of jurisdictional issues.