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Supreme Court rejects “place of operations” test.

Today the U.S. Supreme Court decided Hertz Corp. v. Friend, 9-0, which overrules the Ninth Circuit’s decision that Hertz Corporation should be deemed a citizen of the State of California because its California operations are larger than those of any other state.  (My commentary on the Ninth Circuit case is here.)  Since I saw some commentary elsewhere wondering whether this is another example of the corporatist federal courts once again making it more difficult for the little guy to sue, I feel the need to point out that this decision has limited impact, and does not seem based on any intent to prevent people from suing corporations.  (Otherwise the case would likely not have been decided by a 9-0 margin.)

All the decision does do is allow corporations like Hertz to remove cases to federal court even in states where the bulk of their operations are found.  Every corporation is deemed a citizen of at most two states, its place of incorporation and its principal place of business.  Now it is clear that principal place of business is the place where the corporation’s activities are directed, and not necessarily the place where the bulk of those activities are conducted. That might seem unfair in some cases, but it does seem to accord with the common sense view of what a corporate headquarters is. This case does not change the fact that those are the only two states where corporations cannot remove state law-based cases brought by citizens of those states. Corporations could, both before and after this decision, remove diversity cases in the other 48 or 49 (depending on whether a corporation is headquartered in the same state as it is incorporated) states.  The Hertz decision only impairs the ability of plaintiffs in states where corporations maintain their largest share of operations–which might have been deemed the corporate headquarters under the Ninth Circuit’s rejected test–to maintain their actions in state court.

So while Hertz gets to remove cases in California to federal court, and thus escapes the terrible fate of being forced to defend actions by California citizens in California state courts, Hertz will still have to face the citizens of New Jersey in state court, since no diversity of citizenship will be present in cases brought in New Jersey, where Hertz maintains what the federal courts now must uniformly define as its principal place of business. Since I spend a lot of time practicing in the California state courts, and have a lot of respect for California state judges, I can’t say that Hertz will really be better off trading the Golden State’s courts for the state courts of the Garden State. Or is it possible that Hertz took this case all the way up to the Supreme Court merely to establish its pride in its New Jersey headquarters?

(photo of Hertz headquarters in Park Ridge, New Jersey, fromAmerican Companies.com)

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