24 February 2010

SCOTUS Adopts Nerve Center Test

For diversity jurisdiction purposes, corporations (but not limited liability companies or partnerships) are citizens of their place of incorporation and their principal place of business.

Where is the principal place of business?

In the "nerve center" of the corporation where its executive headquarters is really located in fact. Specifically:

[T]he phrase "principal place of business" refers to the place where the corporation’s high level 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.

Alterntiaves were considered, such as the state with the biggest sales. This would have meant that most multi-state corporations would have been citizens of California. This approach was unanimously rejected. A key point in opinion was that "place of business" referred to a place within a state, not an entire state.

This means fewer diversity jurisdiction cases in non-California jurisdictions, and more diversity cases in California. It also focuses the scope of evidence that is relevant in a diversity jurisdiction determination.

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