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U.S. Supreme Court

Supreme Court Adopts Headquarters Test, Hampering Forum-Shopping Plaintiffs

Posted Feb 23, 2010 2:34 PM CDT
By Debra Cassens Weiss

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The U.S. Supreme Court may have made it more difficult for tort lawyers to bring lawsuits in plaintiff-friendly state courts with today’s ruling that a company’s principal place of business is typically its headquarters.

The 9-0 ruling is likely to resolve confusion among lower state courts that had adopted many differing standards for establishing a company’s principal place of business in diversity cases, Reuters reports. The opinion by Justice Stephen G. Breyer said a company should be considered a citizen of a state where its “nerve center” is located, the Wall Street Journal (sub. req.) reports.

"In practice it should normally be the place where the corporation maintains its headquarters," he wrote.

The “nerve center” test will be used to establish diversity jurisdiction, allowing more lawsuits to be tried in federal rather than state courts. The decision rejected arguments of lawyers representing Hertz employees in a wage-and-hour suit. They had claimed Hertz’s principal place of business was in California, where more of its business activities take place, even though its headquarters is in New Jersey.

Breyer acknowledged that there will still be some hard cases under the “nerve center” test. “For example, in this era of telecommuting, some corporations may divide their command and coordinating functions among officers who work at several different locations, perhaps communicating over the Internet,” he wrote. “That said, our test nonetheless points courts in a single direction, towards the center of overall direction, control, and coordination.”

The opinion (PDF) is Hertz Corp. v. Friend.

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