Hertz Corp. v. Friend

Supreme Court of the United States
Argued November 10, 2009 Decided February 23, 2010
Full case name	The Hertz Corporation v. Melinda Friend, et al.
Docket no.	08-1107
Citations	559 U.S. 77 (more) 130 S. Ct. 1181; 175 L. Ed. 2d 1029; 78 U.S.L.W. 4153; 10 Cal. Daily Op. Serv. 2181; 2010 Daily Journal D.A.R. 2667; 22 Fla. L. Weekly Fed. S 130; 2010 U.S. LEXIS 1897
Argument	Oral argument
Opinion announcement	Opinion announcement
Court membership
Chief Justice John Roberts Associate Justices John P. Stevens · Antonin Scalia Anthony Kennedy · Clarence Thomas Ruth Bader Ginsburg · Stephen Breyer Samuel Alito · Sonia Sotomayor
Case opinion
Majority	Breyer, joined by unanimous
Laws applied
28 U.S.C. § 1332

Hertz Corp. v. Friend, 559 U.S. 77 (2010), was a United States Supreme Court case in which the Court determined the proper test to apply when determining a corporation’s “principal place of business” for purposes of federal diversity jurisdiction. Prior to Hertz, circuit courts had applied a litany of overlapping and competing tests to determine a corporation’s principal place of business when applying the federal diversity statute, 28 U.S.C. § 1332.^[1] The Court in Hertz recognized this lack of uniformity, resolving the circuit split by holding that a corporation’s principal place of business is its “nerve center”—the place where the corporation’s officers direct, control and coordinate the corporation's activities.^[2]

In September 2007, respondents Melinda Friend and John Nhieu, both citizens of California, sued the Hertz Corporation in a California state court, seeking damages for an alleged violation of California's wage and hour laws.^[2] Hertz attempted to remove the case to federal court, claiming that the two parties were citizens of different states and therefore that the federal court possessed diversity jurisdiction.

Under 28 U.S.C. § 1332, a corporation is a citizen of the state in which it is incorporated as well as the state “where it has its principal place of business.”^[1] Since Hertz was incorporated in Delaware, diversity jurisdiction therefore hinged on whether Hertz’s principal place of business was in California or a different state. To support the claim that it was not a California citizen, Hertz provided evidence that only 273 of Hertz’s 1,606 car rental locations were based in California, that Hertz’s corporate headquarters was located in Park Ridge, New Jersey, and that its “major administrative operations” were conducted at its New Jersey headquarters and another location in Oklahoma City, Oklahoma.^[2]

The California district court accepted Hertz’s evidence as true, but nonetheless concluded that Hertz was a citizen of California. In reaching this conclusion, the district court applied the Ninth Circuit’s test for determining a corporation’s principal place of business. Under the Ninth Circuit test, a corporation is a citizen of a particular state if the amount of business activity in that state “substantially predominates” over the corporation’s business activities in other states.^[2]

Applying this test, the district court determined that Hertz’s California activities substantially predominated, thereby making Hertz a California citizen. The district court therefore ruled that diversity jurisdiction did not exist, and remanded the case to California state court. Hertz appealed to the Ninth Circuit Court of Appeals, which affirmed the lower court’s decision. The Supreme Court subsequently granted certiorari in order to resolve the circuit split as to the correct test to apply to determine a corporation’s principal place of business for purposes of diversity jurisdiction.^[2]

In a unanimous decision, the Supreme Court held that the appropriate test to apply to determine a corporation’s principal place of business is the “nerve center” test, which seeks to identify the corporation’s “center of direction, control, and coordination.” In most cases, the “nerve center” is the corporation’s headquarters. Applying the nerve center test, the Court determined that Hertz’s “center of direction, control, and coordination” was its corporate headquarters in New Jersey.^[2]

Writing for the Court, Justice Stephen Breyer recognized the need to address the circuit courts’ “divergent and increasingly complex interpretations” of the phrase “principal place of business” within the diversity statute. The Court concluded that the nerve center test is (1) supported by the text of the statute, (2) promotes administrative simplicity and predictability relative to other tests that circuit courts had applied, especially tests that attempt to engage in complex comparisons of a corporation’s business activities across various states, and (3) aligns with the legislative history, which favored a “simplicity-related interpretive benchmark.”^[2]

The Court acknowledged that the nerve center test may generate difficult cases and occasionally lead to outcomes that seem to cut against the rationale of the diversity statute. Indeed, the Court observed that “there may be no perfect test that satisfies all administrative and purposive criteria.” In embracing the nerve center test as the best test among many, Justice Breyer wrote that “Our approach provides a sensible test that is relatively easier to apply, not a test that will, in all instances, automatically generate a result… 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.”^[2]

• Text of Hertz Corp. v. Friend, 559 U.S. 77 (2010) is available from: Cornell Justia Oyez (oral argument audio) Supreme Court (slip opinion) (archived)