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Federal Bar Update: Diversity test for corporations now settled

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For diversity jurisdiction purposes, one area of uncertainty for many years has been how to determine the citizenship of a corporation. Four different standards had evolved among the Circuits, with the 7th Circuit embracing the so-called "nerve-center" approach. Wisconsin Knife Works v. National Metal Crafters, 781 F. 2d 1280, 1282 (7th Cir. 1986). The Supreme Court finally resolved the split among the Circuits in late February in Hertz Corp. v. Friend.

The dispute centered on the language of 28 U.S.C. § 1332(c)(1), which provides that for diversity purposes "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." Courts had differed on how to determine the principal place of business.

In Hertz, the Supreme Court adopted the 7th Circuit's nerve-center test. The court explained: "In an effort to find a single, more uniform interpretation of the statutory phrase, we have reviewed the Courts of Appeals' divergent and increasingly complex interpretations. Having done so, we now return to, and expand, Judge Weinfeld's approach, as applied in the Seventh Circuit."

The court continued, "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. It is the place that Courts of Appeals have called the corporation's 'nerve center.'"

The court described how this test should operate in practice, writing, "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 (for example, attended by directors and officers who have traveled there for the occasion)."

With the test now settled, there should be fewer disputes over this aspect of diversity jurisdiction. And, fortunately for 7th Circuit practitioners, the standard will remain the same.

7th Circuit Conference - The 7th Circuit Judicial Conference will be May 2-4 in Chicago. This is an excellent program with great opportunities to interact with the federal bench and bar. To register, see www.7thcircuitbar.org.


John Maley is a partner with Barnes & Thornburg in Indianapolis where he practices nationally in litigation, employment, and appellate matters. The opinions expressed in this column are those of the author.

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  1. Major social engineering imposed by judicial order well in advance of democratic change, has been the story of the whole post ww2 period. Contraception, desegregation, abortion, gay marriage: all rammed down the throats of Americans who didn't vote to change existing laws on any such thing, by the unelected lifetime tenure Supreme court heirarchs. Maybe people came to accept those things once imposed upon them, but, that's accommodation not acceptance; and surely not democracy. So let's quit lying to the kids telling them this is a democracy. Some sort of oligarchy, but no democracy that's for sure, and it never was. A bourgeois republic from day one.

  2. JD Massur, yes, brings to mind a similar stand at a Texas Mission in 1836. Or Vladivostok in 1918. As you seemingly gloat, to the victors go the spoils ... let the looting begin, right?

  3. I always wondered why high fence deer hunting was frowned upon? I guess you need to keep the population steady. If you don't, no one can enjoy hunting! Thanks for the post! Fence

  4. Whether you support "gay marriage" or not is not the issue. The issue is whether the SCOTUS can extract from an unmentionable somewhere the notion that the Constitution forbids government "interference" in the "right" to marry. Just imagine time-traveling to Philadelphia in 1787. Ask James Madison if the document he and his fellows just wrote allowed him- or forbade government to "interfere" with- his "right" to marry George Washington? He would have immediately- and justly- summoned the Sergeant-at-Arms to throw your sorry self out into the street. Far from being a day of liberation, this is a day of capitulation by the Rule of Law to the Rule of What's Happening Now.

  5. With today's ruling, AG Zoeller's arguments in the cases of Obamacare and Same-sex Marriage can be relegated to the ash heap of history. 0-fer

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