February 23, 2010

Today, all 9 Justices embrace a clear rule over a more nuanced and litigation-breeding interpretation.

Now, there's a whole day of Civil Procedure class notes down the drain!

In Hertz Corp. v. Friend (PDF), the Supreme Court unanimously adopted the "nerve center" test as the meaning of a corporation's "principal place of business" for the purpose of federal court diversity jurisdiction (i.e., cases that can be brought in federal court not because they arise under federal law, but because they are between citizens from different states):
We ... recognize that the use of a "nerve center" test may in some cases produce results that seem to cut against the basic 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 New York, the "principal place of business" is New York. One could argue that members of the public in New Jersey would be less likely to be prejudiced against the corporation than persons in New York — yet the corporation will still be entitled to remove a New Jersey state case to federal court....

We understand that such seeming anomalies will arise. However, in view of the necessity of having a clearer rule, we must accept them. 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.
That "One could argue" business has fueled endless hours of Civil Procedure discussions. But no more! Thanks for simplifying things— even if it means that diversity jurisdiction makes even less sense than ever. Which is a good thing, right?

20 comments:

Big Mike said...

... even if it means that diversity jurisdiction makes even less sense than ever.

The law is supposed to make sense??? Who knew?

Joe said...

Hell just froze over.

traditionalguy said...

The law needs jurisdiction rules that are not litigation subjects themselves. Categories are clear now. Courts cannot be totally immitating fairness all the time. They need resolution and finality. And life goes on.

From Inwood said...

Guess it will liven up those dull SEC reports & opinion letters e.g.,

"Address of Principal Executive Offices"

in SEC Form 10-K will have to be changed to

"Address of 'nerve center'".

Hey, the name of the alleged torture chamber in GITMO can be changed to "nerve center".

See, I told you that your Blog was more interesting & more au courant then dry law reviews!

Thorley Winston said...

So basically “home is where your head is.”

And I agree, a clear bright line that gives predictability to the actors versus making this (yet another) source of litigation is a better result.

rhhardin said...

What if the customer's nerve center is in New York as well while his visible self is in New Jersey.

Henry said...

Primitive forms of business just have nerve networks.

Lem said...

Thanks for simplifying things..

General Motors
1600 Pennsylvania Avenue NW
Washington, DC 20500

campy said...

If all the courts were staffed with wise latina judges, it wouldn't matter which had jurisdiction.

Original Mike said...

Thanks for simplifying things— even if it means that diversity jurisdiction makes even less sense than ever. Which is a good thing, right?

Absolutely.

After all, makes more sense to whom?

ricpic said...

OT -- Rush just said that watching the baby boomers age ain't gonna be a pretty sight. No truer words ever spoken.

John Lynch said...

I like it when gov't takes into account the effect of a rule, instead of just the intent.

Skyler said...

Will this be testable on day two of the bar exam?

Three cheers for the Supreme Court. No one ever really pretended that the law makes sense anyway. Since it's all based on rationalized whims, it might as well be simpler to understand. Nuance isn't usually a good thing.

Rob said...

OK - so the company that I work for has two owners/officers/directors. One, the founder, majority owner and CEO, lives in one state and the other, who is the EVP and the does 95% of day to day executive level work, lives in the other. The EVP is subject to the CEO's veto of any decision, although it almost never is exercised. When our business partners, customers and vendors want to do anything with us, they contact the EVP's office. Which is the nerve center?

Expat(ish) said...

@Rob - the EVP's secretary, silly.

-XC

Nasty, Brutish & Short said...

You mean I can't bill a client $20,000 anymore for meaningless litigation over whether we litigate a case here or across the River? CRAP.

mccullough said...

I can't believe this took more than 50 years to resolve.

Well done. Principal place of business is where the "high level officers direct, control and coordinate" operations of the country.

Now 50 years of what constitutes a "high level" officer and law school hypotheticals on whether, if the CEO directs from Boston but the CFO and COO control from Phoenix, and the General Counsel coordinates from Los Angeles, is Phoenix, is the principal place of business Massachusetts or Arizona or California.

From Inwood said...

Rob & mccullough

(I know you're being sarcastic.)

You need to go to your lawyer who will give you a (very expensive) opinion as to where your respective nerve center is.

PS What place, if any, did you consider your "principal place of business" or "Address of Principal Executive Offices" before this decision?

Rob said...

I am a lawyer and I still don't know the answer.

The Elder said...

Big Law litigation departments just lost 10% of their billing opportunities as a result of this clear, straightforward rule.

Way to go Supremes!