In particular, courts have had difficulty when a corporation’s operations are not far-flung but rather limited to only a few states. 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.
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. Lower courts were at times uncertain as to where to look to determine a corporation’s “principal place of business” for diversity purposes. The Supreme Court acknowledged that the phrase “principal place of business” has proven difficult to apply. The district court concluded that it lacked diversity jurisdiction because Hertz was a California citizen under Ninth Circuit precedent, which asked, instead, whether the amount of the corporation’s business activity is “significantly larger” or “substantially predominates” in one state. To show that its “principal place of business” was in New Jersey, not California, Hertz submitted a declaration stating, among other things, that it operated facilities in 44 States, that California accounted for only a portion of its business activity, that its leadership is at its corporate headquarters in New Jersey, and that its core executive and administrative functions are primarily carried out there. Plaintiffs, however, claimed that Hertz was a California citizen, like themselves, and that, hence, diversity jurisdiction was lacking under §1332(c)(1), which provides that “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.” Hertz sought removal to the federal district court, claiming that because it and plaintiffs were citizens of different states, the federal court had diversity jurisdiction.
Plaintiffs, California citizens, sued Hertz Corporation in a California state court. In a decision that will impact when corporations can remove litigation to federal court based on diversity, the Supreme Court this week adopted a new test of corporate citizenship. Our readers know a crucial early decision for defendants in cases brought in state court is whether to seek to remove the case to federal court.
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