Hertz Corp. v. Friend

Hertz Corp. v. Friend, 559 U.S. 77 (2010), was a United States Supreme Court case which held that for the purposes of diversity jurisdiction, a corporation's principal place of business is its "nerve center": the state in which its high-level executives work and direct the corporation. Diversity jurisdiction, described in the Judiciary Act of 1789, allows federal courts to hear cases on state law if the parties are "citizens" of different states. Since 1958, a corporation's citizenship is determined based on its principal place of business and where it is incorporated.

In 2007, two employees of The Hertz Corporation who lived in California sued the company over unpaid overtime, a violation of California state law. Hertz sought to remove the case from California state court to federal court on the basis that the corporation was a "citizen" of New Jersey, where its headquarters was, and Delaware, where it is incorporated. Under Hertz's theory, diversity jurisdiction applied because neither of those significant locations was California. At the time of the case, the Ninth Circuit, which oversees federal courts in California, primarily determined a corporation's principal place of business based on the state in which it conducted the most business. Hertz, doing more of its business in California than any other state, argued in the Supreme Court that this test should be replaced with a "headquarters test" that designated a corporation's headquarters as its principal place of business.

The Supreme Court unanimously rejected both the Ninth Circuit's test and Hertz's proposal, opting to instead determine the principal place of business based on the corporation's "actual center of direction, control and coordination". This "nerve center" test had prior only been used by the Seventh Circuit, and the Supreme Court's decision resolved a circuit split. Justice Stephen Breyer, writing for the court, argued that the nerve center test best reflected the language of the Judiciary Act, was administratively simple, and best fulfilled Congress's intent in passing the Act. Hertz was considered a win for business defendants, who prefer litigating in federal courts, and a loss for plaintiffs across the country, who had a new obstacle in suing national corporations in California state court. The decision is considered a landmark opinion in American civil procedure and is taught in law schools as part of their elementary civil procedure curriculum.