United States: In Hertz v. Friend, The U.S. Supreme Court Clarifies The Path To Federal Courts

Last Updated: March 2 2010
Article by Jim E. Hart

By its unanimous decision in Hertz v. Friend (www.supremecourtus.gov/opinions/09pdf/08-1107.pdf),1 the U.S. Supreme Court has made it more likely that a company sued in state court in a state other than where its headquarters and center of direction, control, and coordination are located, will be able to remove the case from state to federal court in that jurisdiction.

Removal of a case from its original location of filing in state court to federal court through so-called "diversity jurisdiction" was originally intended to protect those "who might otherwise suffer from local prejudice against out-of-state parties."2 To that end, when a plaintiff sues a defendant in state court who – at the time the action is filed - is not a citizen of the state in which the action is brought, the out-of-state defendant can "remove" the case from state court and have it litigated in the federal court in that jurisdiction. Some of the benefits of federal court jurisdiction for corporate defendants may include the requirement of a unanimous jury verdict, less crowded dockets with the same judge overseeing the case and deciding all dispositive motions, and automatic disclosure of evidence that generally requires a more cards-on-the-table approach than may be found in some state courts.

When a corporation is a party to litigation, a continuing source of controversy and confusion has been how to determine the corporation's "citizenship." The diversity jurisdiction statute provides that a corporation is deemed to be a citizen of its state of incorporation and the state "where it has its principal place of business."3 Determining the location of incorporation is for the most part clear. Defining a company's "principal place of business," however, has been less clear in the past. To determine a principal place of business, some courts have looked to the company's "nerve center," or, in other words, the place where "the corporation's high level officers direct, control, and coordinate the corporation's activities."4 Other courts, such as the U.S. Court of Appeals for the Ninth Circuit, have analyzed a corporation's business activity on a state-by-state basis and determined the principal place of business based on the state in which the total activity is "significantly larger" or "substantially predominant."5 Where there is no such predominant state, then courts have determined the principal place of business as the corporation's "nerve center," where "the majority of its executive and administrative functions are performed."6

The Lower Courts' Analyses

It is within this context that, on February 23, 2010, the U.S. Supreme Court considered and clarified the concept of principal place of business in Hertz v. Friend. Hertz, like many other corporations, carries on operations in several states. When the company was sued in California state court by California citizens alleging wage and hour violations, the company removed the case to federal court citing diversity jurisdiction. The company argued that – although it operated in 44 states including California – it was not a citizen of California, but rather was a citizen of New Jersey.

Hertz offered a variety of evidence to establish that its principal place of business was New Jersey, not California. To show that Hertz did not have a disproportionate presence in California, the company offered evidence showing that, when comparing its California revenue, employees, transactions, and facilities to other states, it was not a California citizen.

Despite the showing by Hertz, when applying the "substantially predominant" test, the district court found that there was no diversity jurisdiction because the "plurality of each of the relevant business activities" was in California, and "the differential between the amount of those activities" in California and the amount in "the next closest state" was "significant" so that Hertz's "principal place of business" was California.7 The U.S. Court of Appeals for the Ninth Circuit agreed with the district court's analysis.

The Supreme Court's Reasoning

The Supreme Court disagreed with both lower courts, finding that Hertz was not a citizen of California. The Court noted that, where a company's corporate headquarters and a majority of operations are located in one state, determination of the principal place of business is fairly straight forward. Where, however, the corporate headquarters is in one state and corporate plants or centers of business activity are in other states, the answer is less clear. After reviewing the increasingly complex interpretations of a company's citizenship under the "business activities" test, the Court abandoned that test in favor of the "nerve center" test, hoping to "find a single, more uniform interpretation of the statutory phrase, [principal place of business]."8 According to the Court, a corporation's principal place of business:

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.9

The Court found that the statutory language, administrative simplicity and predictability, and legislative history all supported its decision to adopt the "nerve center" test, while recognizing that the "nerve center" test was not perfect and could lead to anomalies, such as telecommuting's potentially problematic impact.

Practically speaking, this case resolves the thorny issue presented to companies (like Hertz) who conduct business in California, New York, or other states with relatively large populations. The Court recognized that one of the problems of using the "business activities" test is that corporations that do business in large states may be deemed to be citizens of those states based on the higher revenue, number of employees, transactions, and/or facilities generated solely by the higher population of the state. As the Court stated, if a "corporation may be deemed a citizen of California on the basis of activities that roughly reflect California's larger population nearly every national retailer—no matter how far flung its operations—will be deemed a citizen of California for diversity purposes."10

In the past, companies seeking to remove state court cases to federal court in populous states have attempted to factor in state population by using census data to assess revenue, headcount, and other factors on a per capita basis. As the lower court opinion in Hertz demonstrates, however, this approach has met with mixed success. In addition, because the required showing of diversity and principal place of business must be established in the removal papers, companies have felt compelled to disclose information that the company considers proprietary or confidential. With the new Hertz decision, the Supreme Court has at least made the path to the federal courts a more clear and manageable affair.


1 Hertz Corp. v. Friend, 08-1107, 2010 U.S. LEXIS 1897 (Feb. 23, 2010).

2 Hertz, 2010 U.S. LEXIS 1897, at *17.

3 28 U. S. C. §1332(c)(1).

4 Hertz, 2010 U.S. LEXIS 1897, at *28.

5 Friend v. Hertz Corp., 297 Fed. App'x 690, 691 (9th Cir. 2008); Tosco Corp. v. Communities for a Better Env't, 236 F. 3d 495, 500–02 (9th Cir. 2001) (per curiam).

6 Hertz, 2010 U.S. LEXIS 1897, at *11.(quoting Friend v. Hertz, 2008 U.S. Dist. LEXIS 111867, at *4 (N.D. Cal. Jan. 15, 2008).

7 Hertz, 2010 U.S. LEXIS 1897, at **11-12.

8 Id. at *28.

9 Id. (emphasis added).

10 Id. at **30-31. (internal quotations and citations omitted).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions