A Broadening of Diversity Jurisdiction

Students of civil procedure—which should mean just about everybody interested in using the formal processes of the law to vindicate rights—will be interested in a decision today by the United States Supreme Court. The opinion concerned the provision in the statutory grant of diversity jurisdiction that deems a corporation “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.” 28 U. S. C. §1332(c)(1) (emphasis added). There has been a longstanding imprecision—a lack of unanimity—within the lower federal courts as to whether a corporation’s “principal place of business” is its “nerve center,” “locus of operations,” “center of corporate activities,” “muscle center” (none of these latter four terms being statutory), or some otherwise determined place. In Hertz Corp. v. Friend, the Court resolved the matter.

In a unanimous opinion by Justice Breyer, the Court held that “the phrase ‘principal place of business’ refers to the place where the corporation’s high level officers direct, control, and coordinate the corporation’s activities.” That is, the Court authoritatively and explicitly identified a corporation’s “nerve center” as its principal place of business and further elaborated that “the ‘nerve center’ will typically be found at a corporation’s headquarters.” As one would expect of a unanimous Supreme Court opinion, the interpretation has much to recommend it, in terms of both textual analysis and administrability: in the latter regard, the Court cited with approval Justice Scalia’s observation in an earlier case that vague boundaries are “to be avoided in the area of subject-matter jurisdiction wherever possible.”

The decision will nonetheless not be warmly greeted across the country. I refer not so much to law professors, although it is true that they will have one less ambiguity with which to becloud—I mean, introduce—the study of law. Rather, many judges of the lower federal courts—which unlike the Supreme Court do not have discretion over their dockets—have long been the most vocal opponents of diversity jurisdiction. After all, one does not become a federal district judge out of an interest to decide state-law suits (such as wage-and-hour claims here) that happen to be in the federal system only because of the fortuity of diversity of citizenship (and the satisfaction of the amount in controversy), does he (or, in places outside of the Eastern District of Wisconsin, she)? Indeed, one can see this reality even in the Ninth Circuit, where Hertz arose: not exactly known for eschewing federal jurisdiction, the court’s failure previously to apply the “nerve center” test had meant that it could deem to be citizens of California many corporations—such as Hertz—with executive offices located elsewhere but with more employees in California than anywhere else (simply because of California’s size). More California “citizen[s],” less diversity jurisdiction, fewer state-law wage-and-hour claims for the federal courts in the Ninth Circuit to decide—but no longer will this be so.

Joseph D. Kearney

Joseph D. Kearney has served as dean and professor of law at Marquette University Law School since 2003. He joined the faculty in 1997.

This Post Has 3 Comments

  1. Bruce Boyden

    I think I can speak for all of my Civ Pro students when I say that anything that eliminates ambiguity from subject-matter jurisdiction is a good thing. Thanks for posting this, I hadn’t actually seen the opinion and it will be worth mentioning to my class.

  2. Richard M. Esenberg

    I certainly agree with Bruce although I got the feeling – this morning – that the class was not thrilled at the prospect of having to read and understand yet another case before the end of April.

    What I wonder about is the extent to which any broadening of diversity jurisdiction is predominantly a “California effect.” Given the outsized nature of the state, the 9th Circuit could substantially reduce the scope of the diversity jurisdiction by adopting a test that looked to where a corporation did the “predominant” amount of its business. It’s not clear to me that any other circuit could make a strategic choice among the various tests for determining a corporation’s “principal place of business” that would have such a predictable limiting effect on diversity jurisdiction. But, then again, I haven’t looked at the issue.

  3. Francisco Quiroz

    I agree with professor Boyden that this should be most helpful to those of us first learning this material. It is hardly a perfect test, as the court readily admits, but it should allow for more consistent decisions. What I find intriguing are the potential hard cases the court envisions will arise due to modern telecommunications.
    It is not hard to envision a virtual company presenting such a difficult case. Does the nerve center become where the CEO or highest level executive work, or is it where the highest concentration of executives and managers congregates?

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