Tuesday, February 23, 2010

U.S. Supreme Court Clarifies Key Test For Federal Court Jurisdiction

By Scott K. Dauscher and Christopher S. Andre

This morning, in Hertz Corp. v. Friend, a unanimous U.S. Supreme Court vacated the decision of the Ninth Circuit Court of Appeals and held that a corporation’s "principal place of business” under the federal diversity-jurisdiction statute and the Class Action Fairness Act (CAFA):

refers to the place where the corporation’s high level officers direct, control, and coordinate the corporation’s activities. Lower federal courts have often metaphorically called that place the corporation’s “nerve center.” … We believe that the “nerve center” will typically be found at a corporation’s headquarters.

In so holding, the court disapproved Ninth Circuit precedent, which instructed courts as follows:

to identify a corporation's "principal place of business" by first determining the amount of a corporation's business activity State by State. If the amount of activity is "significantly larger" or "substantially predominates" in one State, then that State is the corporation's "principal place of business." If there is no such State, then the "principal place of business" is the corporation's "'nerve center,'" i.e., the place where "'the majority of its executive and administrative functions are performed.'"

Today's decision by the Supreme Court is potentially significant for employers doing business within California but headquartered outside California and vice versa.

Click here to download and read the opinion.