For federal court diversity purposes, a corporation is considered to be a citizen of its state of incorporation and the state where it has its principal place of business. In a recent Supreme Court case, Hertz was sued for violations of California's wage and hour laws and removed the litigation to federal court on the basis of diversity. The plaintiffs challenged the removal.

The District Court held that Hertz was a California citizen, even though its executive offices were located outside of California. The District Court's decision was based on the fact that the "plurality of each of [Hertz's] relevant business activities" was in California and that "the differential between the amount of those activities" in California and the amount in "the next closest state" was "significant." Hence, the court found that Hertz's "principal place of business" was California, and diversity jurisdiction was lacking.

The Supreme Court rejected the business volume approach and held that an organization's "principal place of business" for federal diversity jurisdictional purposes refers to the place where a corporation's high level officers direct, control and coordinate the corporation's activities, i.e., its "nerve center," typically found at its corporate headquarters, rather than where a corporation's actual business activities occur. See Hertz Corp. v. Friend, No. 08-1107.

This decision may affect broadly how multistate providers organize and conduct their businesses and will impact the judicial recourse available to plaintiffs. Consequently, when determining where an entity should be incorporated and where its executive/corporate headquarters should be located, federal diversity jurisdiction should be considered