Home Is Where the Nerves Are: What to Know About a Subsidiary’s Principal Place of Business When Diversity Jurisdiction Is at Stake by Taylor Stukes


It goes without saying that it is vitally important to place your client in the most advantageous position at the outset of a lawsuit. For a defense attorney, the conventional wisdom is that federal court is often the best forum to defend a complex lawsuit against a corporate client. However, a defense attorney is well-advised to consider challenging federal court jurisdiction in appropriate cases. Diversity jurisdiction, of course, is a common and familiar gateway into the federal court system. However, in Hertz Corp. v. Friend, 130 S. Ct. 1181 (2010), the United States Supreme Court altered the landscape by establishing the "nerve center" test to determine a corporation's principal place of business. Although this test clarifies the often-confusing standards previously used by various courts across the country, a defense attorney needs to understand the impact this case has on its corporate client, especially a corporation with either a geographically decentralized management structure or a subsidiary that is closely controlled by an out-of-state corporate parent. This article discusses the latter type of corporate relationship and considers the tactical options for an attorney who either represents such a corporation or is defending against the claims brought by that corporation.

Defense attorneys are often hardwired to seek and defend federal court jurisdiction for a lawsuit which alleges state law causes of action. However, for many of these attorneys, the particulars of diversity jurisdiction have faded after their Civil Procedure or Federal Jurisdiction final exam in law school, and in practice, the focus is on a quick checklist: 1) does any plaintiff "reside" in the same state as any defendant, and 2) is more than $75,000 in controversy? However, after the Supreme Court's decision in Hertz, a deeper look is now necessary either to defend or defeat a claim to diversity jurisdiction.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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