Two residents of California filed a lawsuit against Hertz Corporation on behalf of a group of people arguing that the company’s labor practices were illegal. The corporation was labeling workers as managers and thereby exempting them from receiving overtime pay for overtime hours worked. Hertz had the case removed to a federal court, which is allowed due to the Class Action Fairness Act. The act allows such a move when there is diversity among the parties of a class action lawsuit and the monetary amount in question is over $5 million. The plaintiffs argued that, while Hertz had its headquarters in New Jersey and was incorporated in Delaware, it was still a citizen of California and thus was not diverse from any of the plaintiffs. The district court in California applied the “total activity/place of operations” test, a test that considered a huge number of factors relating to a company to try to determine its principal place of business. Some of these factors include where most “business functions” take place, where most of the company executives work, where most of the sales take place, and where most of the workers are employed. Eventually, the district court determined that Hertz’s principal place of business was California, because much of its business took place there, and remanded the case to the state court. The Ninth Circuit affirmed, and Hertz appealed to the US Supreme Court.
JUSTICE BREYER The District Court concluded that it lacked diversity jurisdiction because Hertz was a California citizen under Ninth Circuit precedent, which asks, inter alia, whether the amount of the corporation’s business activity is “significantly larger” or “substantially predominates” in one State. Finding that California was Hertz’s “principal place of business” under that test because a plurality of the relevant business activity occurred there, the District Court remanded the case to state court. The Ninth Circuit affirmed….
2. The phrase “principal place of business” in §1332(c)(1) refers to the place where a corporation’s high level officers direct, control, and coordinate the corporation’s activities, i.e., its “nerve center,” which will typically be found at its corporate headquarters.

a. A brief review of the legislative history of diversity jurisdiction demonstrates that Congress added §1332(c)(1)’s “principal place of business” language to the traditional state-of-incorporation test in order to prevent corporations from manipulating federal-court jurisdiction as well as to reduce the number of diversity cases.

b. However, the phrase “principal place of business” has proved more difficult to apply than its originators likely expected. After Congress’
amendment, courts were uncertain as to where to look to determine a corporation’s “principal place of business” for diversity purposes.
If a corporation’s headquarters and executive offices were in the same State in which it did most of its business, the test seemed straightforward. The “principal place of business” was in that State. But if those corporate headquarters, including executive offices, were in one State, while the corporation’s plants or other centers of business activity were located in other States, the answer was less obvious. Under these circumstances, for corporations with “far-flung” business activities, numerous Circuits have looked to a corporation’s “nerve center,” from which the corporation radiates out to its constituent parts and from which its officers direct, control, and coordinate the corporation’s activities. However, this test did not go far enough, for it did not answer what courts should do when a corporation’s operations are not far-flung but rather limited to only a few States. When faced with this question, various courts have focused more heavily on where a corporation’s actual business activities are located, adopting divergent and increasingly complex tests to interpret the statute.

c. In an effort to find a single, more uniform interpretation of the statutory phrase, this Court returns to the “nerve center” approach:
principal place of business” is best read as referring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities. 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, i.e., the “nerve center,” and not simply an office where the corporation holds its board meetings.
i. Three sets of considerations, taken together, convince the Court that the “nerve center” approach, while imperfect, is superior to other possibilities. First, §1332(c)(1)’s language supports the approach. The statute’s word “place” is singular, not plural. Its word “principal” requires that the main, prominent, or most important place be chosen. And the fact that the word “place” follows the words “State where” means that the “place” is a place within a State, not the State itself. A corporation’s “nerve center,” usually its main headquarters, is a single place. The public often considers it the corporation’s main place of business. And it is a place within a State. By contrast, the application of a more general business activities test has led some courts, as in the present case, to look, not at a particular place within a State, but incorrectly at the State itself, measuring the total amount of business activities that the corporation conducts there and determining whether they are significantly larger than in the next-ranking State. Second, administrative simplicity is a major virtue in a jurisdictional statute. A “nerve center” approach, which ordinarily equates that “center” with a corporation’s headquarters, is simple to apply comparatively speaking. By contrast, a corporation’s general business activities more often lack a single principal place where they take place. Third, the statute’s legislative history suggests that the words “principal place of business” should be interpreted to be no more complex than an earlier, numerical test that was criticized as too complex and impractical to apply. A “nerve center” test offers such a possibility. A general business activities test does not.
ii. While there may be no perfect test that satisfies all administrative and purposive criteria, and there will be hard cases under the “nerve center” test adopted today, this test is relatively easier to apply and does not require courts to weigh corporate functions, assets, or revenues different in kind, one from the other. And though this test may produce results that seem to cut against the basic rationale of diversity jurisdiction, accepting occasionally counterintuitive results is the price the legal system must pay to avoid overly complex jurisdictional administration while producing the benefits that accompany a more uniform legal system.
iii. If the record reveals attempts at jurisdictional manipulation—for example, that the alleged “nerve center” is nothing more than a mail drop box, a bare office with a computer, or the location of an annual executive retreat—the courts should instead take as the “nerve center” the place of actual direction, control, and coordination, in the absence of such manipulation.

d. Although petitioner’s unchallenged declaration suggests that Hertz’s “nerve center” and its corporate headquarters are one and the same, and that they are located in New Jersey, not in California, respondents should have a fair opportunity on remand to litigate their case in light of today’s holding.

CRITICAL THINKING:
The Supreme Court decided that the previous test used to determine a company’s principal state of residency was too open to different interpretations by different courts. Do you think the new test solves that problem? Why or why not?
ETHICAL DECISION MAKING:
How does this decision affect the future of class action lawsuits between corporations and employees? Which party benefits from the new test designed by the Supreme Court?