U.S. justices rule in closely watched civil jurisdiction case

By Chris Rizo | Feb 23, 2010

U.S. Supreme Court building

WASHINGTON (Legal Newsline)-The U.S. Supreme Court on Tuesday ruled that a company's principal place of business is where its top executives work, not where most of its business is transacted.

The high court's 9-0 ruling affects where lawsuits are litigated, particularly class actions.

Writing for the court, Associate Justice Stephen Breyer said a firm's principal place of business is the place where a corporation's officers direct, control, and coordinate the corporation's activities.

"Lower federal courts have often metaphorically called that place the corporation's 'nerve center.' We believe that the 'nerve center' will typically be found at a corporation's headquarters," Breyer wrote.

Monday's ruling vacates a 9th U.S. Circuit Court of Appeals decision that a national company's place of business should be determined by where the majority of its operations are located.

The original case comes from Melinda Friend and John Nhieu, who filed a class action lawsuit in 2007 against Hertz Corp., alleging the car rental company had violated state wage and hour laws.

The lawsuit was originally filed in state court. Hertz successfully removed the action to federal district court pursuant to the U.S. Class Action Fairness Act.

At trial, a U.S. District Court determined that the car rental company, a unit of Hertz Global Holdings Inc., is a California company, and as such the case should be heard in a California courtroom.

Because Hertz, which is incorporated in Delaware is headquartered in New Jersey, has more locations and employees in California than in any other state, the San Francisco-based federal appeals court in October 2008 agreed that the lawsuit should be litigated in there.

Hertz appealed the ruling to the U.S. Supreme Court. The high court granted the company's petition for certiorari on June 8.

The California Retailers Association filed a friend-of-the-court brief in the case, urging the justices to overturn the 9th Circuit ruling.

"Retailers with nationwide operations generally do more business in California than in any other state because there are more people, and more consumers, in California," the amicus brief said. "Consequently, under Ninth Circuit law, most nationwide retailers risk being declared California citizens despite the location of their nationwide headquarters and despite their extensive operations outside of California. There is no basis in the diversity jurisdiction statute to deny nationwide corporations doing business in California the benefits of a federal forum simply because they do more business there than any other single state."

On the flip side, the Legal Aid Society argued in a brief that national firms should be held for account where they do most of their business.

"When corporations target California for its resources and markets, performing substantially more activity in our State than in any other, they should not be permitted to avoid the jurisdiction of our judiciary simply by citing to out-of-state headquarters," the group said.

The case is the Hertz Corporation v. Melissa Friend, 08-1107.

From Legal Newsline: Reach staff reporter Chris Rizo at chrisrizo@legalnewsline.com.

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