The Effect of the Supreme Court's Adoption of the Nerve Center Test on Bankruptcy Venue -- Hertz Corp. v. Friend, 2010 U.S. LEXIS 1897, 130 S. Ct. 1181 (Feb. 23, 2010)

According to Hertz v. Friend, the nerve center test is the only appropriate test for determining the location of a principal place of business. The Court stated that a corporation's principal place of business is the place where its officers direct, control, and coordinate its activities, most often its headquarters. Under bankruptcy law, however, the principal place of business is only one of several venues that a debtor can consider.

Excerpt:

The United States Supreme Court has ruled that, for purposes of establishing diversity jurisdiction, a corporation's principal place of business is the place where the corporation's officers direct, control, and coordinate the corporation's activities, normally its headquarters. The decision, Hertz Corp. v. Friend, 559 U.S. ___, 2010 U.S. LEXIS 1897, 130 S. Ct. 1181 (Feb. 23, 2010) [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law], resolves a split among circuit courts regarding whether a corporation's principal place of business is where it does the most business, where it is headquartered, or some other place where it has a large amount of business assets. The Court stated that identifying a corporation's principal place of business as its headquarters serves the purposes of the diversity jurisdiction statute. A headquarters is a single location that lends predictability and simplicity to a jurisdictional determination.

Background.

Federal courts have jurisdiction in diversity cases pursuant to 28 U.S.C. § 1332(a). According to this statute, a federal court may decide a case in which the defendants are citizens of different states than the plaintiffs. Section 1332(c) further provides that, for purposes of determining diversity, a corporation is a citizen of the states in which it is incorporated and where it has its principal place of business. Over time, courts have developed a great number of tests for determining in which state a corporation has its principal place of business. Depending on the court in which the case is pending, the principal place of business may be the location of a corporation's "center of gravity," "nerve center," principal office, principal business assets, or where it does the most business. Hertz, 2010 U.S. LEXIS 1897, at *26-29, 130 S. Ct. at 1192-3.

Under bankruptcy law, a debtor has several options when deciding where to file its petition. A debtor may file its petition in the district "in which the domicile, residence, principal place of business in the United States, or principal assets in the United States ... have been located for the [180] days immediately preceding such commencement." 28 U.S.C. § 1408(1). In addition, 28 U.S.C. § 1408(2) allows a corporate debtor with multiple subsidiaries and affiliates to file its petition in any district that is appropriate for any single entity in its corporate family. Because principal place of business appears in both the federal diversity jurisdiction statute and the bankruptcy venue statue, the Hertz decision is relevant for both bankruptcy and non-bankruptcy courts.

Access the full version of "Effect of the Supreme Court's Adoption of the Nerve Center Test on Bankruptcy Venue" with your lexis.com ID

If you do not have a lexis.com ID, you can purchase the Emerging Issues Analysis content through our Research Value Packages