On November 10, 2009, the United States Supreme Court heard oral argument in Hertz Corp. v. Friend. The question presented to the Court is what is a company's principal place of business for purposes of determining diversity jurisdiction?
Respondents Melinda Friend and John Nhieu filed a class action in California state court against Petitioner Hertz Corporation alleging violations of state wage and hour laws. Hertz removed the case to federal court pursuant to the Class Action Fairness Act of 2005, which provides that class actions may be removed from state court if minimal diversity exists and more than $5 million is in controversy.
Respondents moved to remand the case to state court, arguing that Hertz was a citizen of California, which prompted the question: where is Hertz's principal place of business? Despite the fact that Hertz is headquartered in New Jersey, the Ninth Circuit Court of Appeals determined Hertz's principal place of business to be in California based upon the large amount of business Hertz conducts in the state. Upon finding that diversity jurisdiction did not exist, the Court of Appeals remanded the case to state court. Hertz then appealed.
Counsel for Hertz argued for a headquarters test, which would deem a company's principal place of business as the state where the corporation is headquartered. Hertz's argument focuses on the obvious benefits of this test, arguing that it would be a more administrable test and the simplest rule.
Respondents argued for a multi-factor test based upon where a company's "people and property are." They point to the fact that this test would better prevent a company from "gaming the system" by strategically locating its headquarters in a more advantageous state.
The Justices were active during oral argument, peppering counsel for Hertz with 35 questions, and counsel for Respondents with 37 questions. The Justices appeared to have reservations regarding the multi-factor test that Respondents urged. Justice Sotomayor noted that many lower courts have been confused about the multi-factor test. It was also noted that this test renders many large California companies as citizens of California given the state's size. Chief Justice Roberts echoed this concern. Justice Ginsberg appeared weary of the multi-factor test given its complexity.
Despite discomfort with the multi-factor test, some of the Justices seemed concerned that the headquarters test could effectively shield corporations from state courts. Justice Sotomayer appeared to favor a presumption that a company's principal place of business was the state where its headquarters is located, but which could be rebutted by an opposing party showing substantial business activity in another state. A decision, expected sometime in 2010, could change the landscape for federal jurisdiction based on diversity of citizenship.