Removal of State Court Lawsuits to Federal Court Will Be More Available Due to U.S. Supreme Court Decision

By Glenn Schlabs

For companies that do business in more than one state, the U.S. Supreme Court recently clarified where such a company's "principal place of business" is located. Hertz Corp. v. Friend, Case No. 08-1107, 559 U.S.---, 2010 U.S. LEXIS 1897 (U.S. Feb. 23, 2010). This location can be very important to multistate employers that are sued in state courts and that prefer the cases be heard in federal court.

Federal law provides that U.S. district courts have so-called "diversity jurisdiction", meaning that the federal courts can decide certain lawsuits between citizens of different states. When a defendant is sued in state court, and when the plaintiff and defendant are citizens of different states, the defendant may often remove the case, as a matter of right, from the state court to the region's federal court. For example, when multi-state employers are sued in state court, they may be able to avail themselves of "diversity jurisdiction" and have the case removed to a federal court, where it will be heard instead.

Employers sued in state court may prefer federal courts for a host of reasons, such as the following examples. Many employers believe that federal judges are more familiar with the law governing the claims in the employment lawsuits that the companies face. The pace of the dockets in the federal and state courts within a state may differ significantly. The procedure followed in federal courts is sometimes more predictable than that in state court.

For purposes of diversity jurisdiction, a corporation is a "citizen" of the state of its incorporation and the state where its "principal place of business" is located. A corporation's state of incorporation is readily discernable, but its "principal place of business" is not always so easy to identify. A business might be incorporated, for instance, in Delaware, have corporate headquarters in New York, employ most of its people in Oregon and derive most of its revenue from operations in Arizona.

Before the Supreme Court's decision in Hertz Corp., a variety of different tests were used to determine a corporation's "principal place of business." As a result, whether a case could be removed because of diversity of citizenship was often unclear. The Supreme Court brought certainty to the issue by holding that a company's "principal place of business" is where its officers direct, control, and coordinate the corporation's activities. In other words, the Court adopted the "nerve center" approach to determining the principal place of business. According to the Supreme Court, that place normally would be where the corporation maintains its headquarters, which also is usually the corporation's center of direction, control and coordination.

Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.

	Contact Us Services Attorneys News and Events Publications About the Firm Inclusiveness Careers In the Media Events and Registration Press Releases Speaking Engagements Articles Client Advisories Subscriptions History Offices Pro Bono Interlaw Contact Us Culture Legal Opportunities Support Staff Publications Client Advisories Home > Publications > Client Advisories > View Removal of State Court Lawsuits to Federal Court Will Be More Available Due to U.S. Supreme Court Decision By Glenn Schlabs For companies that do business in more than one state, the U.S. Supreme Court recently clarified where such a company's "principal place of business" is located. Hertz Corp. v. Friend, Case No. 08-1107, 559 U.S.---, 2010 U.S. LEXIS 1897 (U.S. Feb. 23, 2010). This location can be very important to multistate employers that are sued in state courts and that prefer the cases be heard in federal court. Federal law provides that U.S. district courts have so-called "diversity jurisdiction", meaning that the federal courts can decide certain lawsuits between citizens of different states. When a defendant is sued in state court, and when the plaintiff and defendant are citizens of different states, the defendant may often remove the case, as a matter of right, from the state court to the region's federal court. For example, when multi-state employers are sued in state court, they may be able to avail themselves of "diversity jurisdiction" and have the case removed to a federal court, where it will be heard instead. Employers sued in state court may prefer federal courts for a host of reasons, such as the following examples. Many employers believe that federal judges are more familiar with the law governing the claims in the employment lawsuits that the companies face. The pace of the dockets in the federal and state courts within a state may differ significantly. The procedure followed in federal courts is sometimes more predictable than that in state court. For purposes of diversity jurisdiction, a corporation is a "citizen" of the state of its incorporation and the state where its "principal place of business" is located. A corporation's state of incorporation is readily discernable, but its "principal place of business" is not always so easy to identify. A business might be incorporated, for instance, in Delaware, have corporate headquarters in New York, employ most of its people in Oregon and derive most of its revenue from operations in Arizona. Before the Supreme Court's decision in Hertz Corp., a variety of different tests were used to determine a corporation's "principal place of business." As a result, whether a case could be removed because of diversity of citizenship was often unclear. The Supreme Court brought certainty to the issue by holding that a company's "principal place of business" is where its officers direct, control, and coordinate the corporation's activities. In other words, the Court adopted the "nerve center" approach to determining the principal place of business. According to the Supreme Court, that place normally would be where the corporation maintains its headquarters, which also is usually the corporation's center of direction, control and coordination. Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation. ©2010 Sherman & Howard L.L.C. March 5, 2010 Copyright 2000-2012 Sherman & Howard L.L.C. All rights reserved. Privacy Policy \| Terms of Use