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Tuesday, February 22, 2011

Civil Procedure: Diversity Jurisdiction-- Hertz v. Friend

Hertz Corp v. Friend:
Supreme Court of the United States
130 S.Ct. 1181
Issue: Has diversity jurisdiction been established?
Rule: Federal Diversity Jurisdiction Statute: "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"
Application: In resolving the different interpretations of the Federal Diversity Jurisdiction Statute, primary weight must be placed upon the need for judicial administration of a jurisdictional statute to remain as simple as possible.
-"Principal place of business" refers to the place where the corporation's high level officers direct, control, and coordinate the corporation's activities.
-Lower federal courts have metaphorically called that place the corporation's nerve center.
-Nerve Center: The place from which its officers direct, control and coordinate all activities without regard to locale, in the furtherance of the corporate objective.
-Did not address when a corporation is not "far-flung," but rather limited to a few states.
-Many of the circuits have different interpretations of what test to use here (business activities, etc)
-Nerve Center is the best approach, for 3 reasons.
  1. The statute's language supports the approach
    1. The statute's text deems a corporation a citizen of the "State where it has its principal place of business"
    2. "Place" is singular, "Principal" requires the main, prominent, or leading place to be chosen
    3. Because "place" follows "state where" means that the "place" is a place within a state. It is not the state itself
    4. A corporations "nerve center" is a single place (usually HQ).
  1. Administrative simplicity is a major virtue in a jurisdictional statute
    1. Complex jurisdictional tests complicate a case, eating up time and money as the parties litigate, not the merits of their claims, but which court is the right court to decide those claims.
    2. Complex tests produce appeals and reversals, encourage gamesmanship, and diminish the likelihood that results and settlements will reflect a claim's legal and factual merits.
    3. Simple Jurisdictional rules promote greater predictability
  1. The statute's legislative history, for those who accept it, offers a simplicity-related interpretive benchmark.
    1. Initial version of its proposal suggested a numerical test.
    2. The history suggests that the words "principal place of business" should be interpreted to be no more complex than the initial "half of gross income" test.
-There will be hard cases under this test. For example, a corporation may divide their command and coordinating functions over several states.
-The test will nonetheless point courts in a single direction
-This test can also produce results that will seem to cut against the rationale for 28 U.S.C. 1332.
-For example, if the bulk of a company's business activities visible to the public take place in new jersey, while its top officers direct those activities just across the river in NY, the "principal place of business" is NY
-While such anomalies will arise it is a necessary complication in exchange for having a clearer rule.
-The burden of persuasion for establishing diversity jurisdiction remains on the party asserting it.
-Defendant's unchallenged declaration suggests that its center of direction, control and coordination, its "nerve center" and its corporate headquarters are on and the same, located in New Jersey, and not California
Conclusion: Yes, Vacate and remand.

-Plaintiff/Respondent: Melinda Friend and John Nhieu, California citizens
-Defendant/Petitioner: Hertz Corporation

-Sept 2007: Plaintiffs sue Defendant in California state court.
-Sought damages for claimed violations of California's wage and hour laws
-Requested relief on behalf of a potential class composed of California citizens who had allegedly suffered similar harms.
-Hertz filed a notice seeking removal to a federal court, claiming that the plaintiffs and it were citizens of different states.
-Plaintiffs claimed that Hertz was a California citizen, like themselves, and thus diversity jurisdiction was lacking.

-Hertz: Submitted a declaration by an employee relations manager that sought to show that Hertz's "principal place of business" was in New Jersey, not California.
-Showed that Hertz operated facilities in 44 states ;and that California had about 12% of the nations population.
-Has 273 of 1,606 car rental locations
-2,300 of its 11,230 full-time employees
-$811m of its $4,371b in annual revenue
-3.8m of its approximately 21m annual transactions
-Also stated that the "leadership of Hertz and its domestic subsidiaries" is located at hertz's "corporate headquarters" in Park Ridge, New Jersey. It's "core executives" and administrative functions are carried out there and "to a lesser extent" in Oklahoma City. Also, that it's "major administrative operations are found" at those two locations

Procedural History:
-District Court: Accepted Hertz's statement of facts as undisputed. Concluded that, given those facts, Hertz was a citizen of California.
-Applied 9th circuit precedent, which instructs courts to identify a corporation's "principle 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 "principle place of business."
-If there is no such state, then the "principle place of business" is the corporation's "nerve center"
-Court of Appeals: Affirmed
-SCOTUS: Vacate and Remand


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