Master Supreme Court adopts the nerve center test to define a corporation’s principal place of business for diversity jurisdiction. with this comprehensive case brief.
Hertz Corp. v. Friend is the Supreme Court’s definitive statement on how to determine a corporation’s “principal place of business” for purposes of federal diversity jurisdiction under 28 U.S.C. § 1332. Before Hertz, the federal circuits were split among competing approaches—the “place of operations” test, the “nerve center” test, and a “total activities” hybrid—producing inconsistent outcomes and jurisdictional wrangling. The Court’s adoption of a uniform nerve center standard aimed to bring clarity and administrative simplicity to corporate citizenship determinations.
For law students and practitioners, Hertz is a cornerstone case in Civil Procedure and Federal Courts. It provides the controlling rule for corporate citizenship, a threshold determination that often decides whether a case proceeds in state or federal court, including in class actions under the Class Action Fairness Act (CAFA). The opinion emphasizes textual interpretation, legislative purpose, and the pragmatic value of clear rules in jurisdictional analysis.
Hertz Corp. v. Friend, 559 U.S. 77 (U.S. 2010)
California citizens Melinda Friend and John Nhieu, employees of the Hertz Corporation, filed a putative class action in California state court alleging violations of California wage and hour laws. Hertz sought to remove the case to federal court on the basis of diversity jurisdiction, arguing that it was a citizen of Delaware (its state of incorporation) and New Jersey (its principal place of business, where its corporate headquarters and high-level officers were located). The plaintiffs moved to remand, contending Hertz was also a citizen of California because the bulk of its business activities—revenues, number of employees, and rental locations—were greater in California than in any other single state. The federal district court agreed with the plaintiffs, applying the Ninth Circuit’s “place of operations” approach and finding that California was Hertz’s principal place of business due to the predominance of its operating activity there. The Ninth Circuit affirmed. The Supreme Court granted certiorari to resolve a circuit split and to provide a uniform definition of “principal place of business” in 28 U.S.C. § 1332(c)(1), noting as well that the phrase appears identically in CAFA and should bear a consistent meaning.
What does “principal place of business” mean under 28 U.S.C. § 1332(c)(1) when determining a corporation’s citizenship for diversity jurisdiction: the state with the most corporate operations, or the corporation’s “nerve center” where high-level officers direct, control, and coordinate the company’s activities?
For purposes of 28 U.S.C. § 1332(c)(1), a corporation’s principal place of business is its “nerve center”—the place where the corporation’s high-level officers direct, control, and coordinate the corporation’s activities. This will typically be the corporation’s headquarters, provided that the headquarters is the actual center of direction, control, and coordination, and not a mere office for board meetings or a façade. A corporation has only one principal place of business.
The Supreme Court adopted the nerve center test and held that a corporation’s principal place of business is the place where its officers direct, control, and coordinate corporate activities, typically its headquarters. Applying that rule, Hertz’s principal place of business was in New Jersey, not California. The Court reversed the Ninth Circuit and remanded.
The Court, in an opinion by Justice Breyer, began with the statutory text of § 1332(c)(1), emphasizing that the statute confers corporate citizenship in two places only: the state of incorporation and the “principal place of business.” The term suggests a single place, not multiple, and therefore calls for a unitary focal point. Surveying the competing circuit tests, the Court favored the nerve center approach because it provides a simpler, more administrable rule and better serves the longstanding jurisdictional goal of predictability. Jurisdictional rules, the Court explained, should be clear and easy to apply so that litigants can determine, ex ante, where suit may be brought or removed. The Court rejected the Ninth Circuit’s “place of operations” test as prone to indeterminacy, fact-intensive disputes, and inconsistent outcomes—especially for large, far-flung corporations with significant operations in many states. A predominance-of-operations inquiry often devolves into counting employees, sales, or facilities, metrics that can vary and invite manipulation or protracted discovery battles about relative business activity, undermining the efficiency and certainty that jurisdictional statutes are intended to promote. Adopting the nerve center test also accords with Congress’s purpose in the 1958 amendment adding corporate citizenship by principal place of business—to curb jurisdictional gamesmanship and to reduce federal caseloads while guarding against local bias. The nerve center aligns with this purpose by anchoring citizenship to the real locus of corporate direction and control. At the same time, the Court cautioned that a headquarters in name only will not suffice; if the purported headquarters is a sham or merely a mail drop, courts must look to the true center of corporate direction and coordination. Because the undisputed evidence showed Hertz’s officers directed corporate affairs from New Jersey, the Court concluded that New Jersey was the company’s principal place of business and reversed the judgment below.
Hertz resolves a longstanding circuit split and standardizes the determination of corporate citizenship for diversity jurisdiction. By adopting the nerve center test, the Court provides a predictable, generally one-location rule that reduces costly satellite litigation about jurisdiction, facilitates straightforward removals, and promotes uniformity across federal courts. The case is particularly important in class actions and multi-state litigation, where corporate citizenship often determines whether a case proceeds in federal court. For law students, Hertz is a must-know case in Civil Procedure and Federal Courts. It encapsulates statutory interpretation, legislative purpose, and the pragmatic value of administrability in jurisdictional doctrine, and it provides the controlling framework for analyzing corporate citizenship on exams and in practice.
The nerve center test identifies a corporation’s principal place of business as the single place where its high-level officers actually direct, control, and coordinate corporate activities. It will usually be the true headquarters—where top executives work and where corporate policy and strategy are set—so long as that location is not a mere façade.
Typically yes. The Supreme Court said the nerve center is usually the headquarters. But courts must verify that the headquarters is the real center of direction and coordination. If the so-called headquarters is only a mail drop or a nominal site for board meetings while real control occurs elsewhere, the nerve center is wherever the actual control is exercised.
Hertz displaced competing approaches (like the Ninth Circuit’s place-of-operations test and hybrid total-activities tests) and imposed a uniform rule nationwide. After Hertz, courts focus on where corporate control and coordination occur, not on which state has the most employees, revenue, or facilities.
A corporation is a citizen of (1) its state(s) of incorporation and (2) its principal place of business under the nerve center test. This is a dual-citizenship regime. For example, a Delaware-incorporated corporation with its nerve center in New Jersey is a citizen of Delaware and New Jersey.
No. Hertz interprets § 1332(c)(1) for corporations only. Unincorporated entities (LLCs, partnerships) are citizens of every state where their members or partners are citizens. They do not have a principal place of business for citizenship purposes unless Congress provides otherwise.
Hertz Corp. v. Friend supplies a clear, uniform definition of a corporation’s principal place of business, anchoring corporate citizenship to the nerve center where high-level officers direct the enterprise. By prioritizing administrative simplicity and predictability, the Court curtailed fact-intensive battles over which state hosts the greatest volume of operations, thereby streamlining jurisdictional analysis.
This decision is a practical blueprint for litigators and a doctrinal touchstone for students: identify the state of incorporation, locate the true nerve center, and confirm there is complete (or minimal, under CAFA) diversity as required. With Hertz, courts and parties can more confidently and efficiently determine the appropriate forum for multi-state business disputes.