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US Supreme Court Adopts "Nerve Center" Test for Determining Diversity Jurisdiction

Posted: February 24, 2010 Filed under: Uncategorized

In Hertz Corporation v. Friend, the Supreme Court of the United States unanimously agreed that a corporations “principal place of business,” for purposes of determining whether federal courts have diversity jurisdiction (that is, all parties on one side of the versus (“v”) sign are from states different from all parties on the opposite side) to hear a case.

Writing for the Court on February 23, 2010, Justice Breyer explained that “principal place of business” refers to the corporations “nerve center,” which is the place the corporation’s high level officers direct, control, and coordinate the corporation’s activities. Usually, Justice Breyer wrote, this will be the corporate headquarters, provided the headquarters are not simply an office where the corporation holds its board meetings.

The Court acknowledged that the nerve center test is not perfect, but it opted for practical outcomes over complex legal rules. “Accepting occasionally counterintuitive results is the price the legal system must pay to avoid overly complex jurisdictional administration while producing the benefits that accompany a more uniform legal system,” said the unified Court.

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