New Decision on Diversity Jurisdiction

What is the principle place of business for a corporation for purposes of determining whether a federal court has diversity jurisdiction under 42 U.S.C. Sec. 1332(c)(1)?   Well, what you thought you knew is no longer the law.

The United States Supreme Court ruled yesterday that the phrase

"principal place of business’ is best read asreferring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities. It is the place that Courts of Appeals have called the corporation’s “nerve center.” And in practice it should normally be the place where the corporation maintains its head-quarters—provided that the headquarters is the actual center of direction, control, and coordination, i.e., the “nerve center,” and not simply an office where the corpora-tion holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion).

The Court also explained that

The burden of persuasion for establishing diversity jurisdiction, of course, remains on the party asserting it. Kokkonen v. Guardian Life Ins. Co. of America, 511 U. S. 375, 377 (1994); McNutt v. General Motors Acceptance Corp., 298 U. S. 178, 189 (1936); see also 13E Wright & Miller §3602.1, at 119. When challenged on allegations ofjurisdictional facts, the parties must support their allega-tions by competent proof. McNutt, supra, at 189; 15 Moore’s §102.14, at 102–32 to 102–32.1. And when faced with such a challenge, we reject suggestions such as,for example, the one made by petitioner that the mere filing of a form like the Securities and Exchange Commission’s Form 10–K listing a corporation’s “principal execu-tive offices” would, without more, be sufficient proof toestablish a corporation’s “nerve center.” See, e.g., SEC Form 10–K, online at form10-k.pdf. (as visited Feb. 19, 2010, and available in Clerk of Court’s case file). Cf. Dimmitt & Owens Finan-cial, Inc. v. United States, 787 F. 2d 1186, 1190–1192 (CA71986) (distinguishing “principal executive office” in the taxlien context, see 26 U. S. C. §6323(f)(2), from “principal place of business” under 28 U. S. C. §1332(c)). Such possibilities would readily permit jurisdictional manipulation,thereby subverting a major reason for the insertion of the ‘principal place of business” language in the diversity statute.’  If the record reveals attempts at jurisdictional manipulation—for example, that the alleged ‘nerve center’ is nothing morethan a mail drop box, a bare office with a computer, or the location ofan annual executive retreat—the courts should instead take as the ‘nerve center’ the place of actual direction, control, and coordination, in the absence of such manipulation.

You can read the opinion in Hertz v. Friend,  No. 08-1107  (USSC 2/23/10) here.

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