(CN) – A company’s “nerve center” is its “principal place of business,” the Supreme Court ruled Tuesday in a decision that clarified diversity jurisdiction for companies operating in multiple states.
Specifically, the justices agreed with Hertz Corp. that its principal place of business is in New Jersey, not California, meaning a lawsuit filed by two Californians belongs in federal court.
The plaintiffs had filed suit in state court, accusing Hertz of violating state wage and hour laws. In a bid to have the case removed, Hertz submitted records showing that its headquarters are in Park Ridge, N.J., and it has more than 1,600 car rental stores in 44 states, only 273 of which are in California.
But the district court nonetheless remanded, ruling that California is the company’s “nerve center,” or the place where “the majority of its executive and administrative functions are performed.”
The 9th Circuit affirmed, and the U.S. Supreme Court took up the case to clarify the “divergent and increasingly complex interpretations” of other courts.
The justices returned to the so-called “nerve center” test, but came to a different conclusion. They ruled that Hertz’s “nerve center” and corporate headquarters “are one and the same, and they are located in New Jersey, not in California.”
“We conclude that ‘principal place of business’ is best read as referring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities,” Justice Stephen Breyer wrote for the unanimous court.
“It is the place that the Court of Appeals has called the ‘nerve center,'” he wrote. “And in practice it should normally be the place where the corporation maintains its headquarters-provided that the headquarters is the actual center of direction, control, and coordination, i.e., the ‘nerve center,’ and not simply an office where the corporation holds its board meetings.”