The Effect Of The Supreme Court's Adoption Of The Nerve Center Test On Bankruptcy Venue

The Effect Of The Supreme Court's Adoption Of The Nerve Center Test On Bankruptcy Venue

According to Hertz v. Friend (2010 U.S. LEXIS 1897), the nerve center test is the only appropriate test for determining the location of a principal place of business, Anne Braucher, an associate at McMillan Metro P.C. in Rockville, Md., writes in this Emerging Issues Analysis. The U.S. Supreme 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.

   Anne Braucher

"The decision, Hertz Corp. v. Friend, 559 U.S. ___, 2010 U.S. LEXIS 1897, 130 S. Ct. 1181 (Feb. 23, 2010), 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," she writes.  "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.


"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," she says. "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."

Access the full version of the commentary with your lexis.com ID. Additional fees may be incurred. (Approx. 4 pages.) 

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