THE UNITED STATES SUPREME COURT RULES IN HERTZ CORP. v. FRIEND - CREATING A "NERVE CENTER TEST"
Friend v. The Hertz Corporation, No. R G07344896 (Superior Court of California, County of Alameda)
Plaintiffs brought this class action on behalf of current and former location managers (formerly called senior station managers, station managers and branch managers) in California who worked for the Hertz Corporation during the period September 2003 through the present. Plaintiffs allege that The Hertz Corporation's uniform policy of classifying location managers as exempt from the overtime requirements violates California labor law. Plaintiffs allege that this misclassification results in Hertz failing to pay these employees for overtime hours worked and failing to provide uninterrupted meal and rest periods. Plaintiffs also allege that Hertz's vacation policy contains a use-it-or-lose-it provision that violates California law.
Plaintiffs filed this case in Superior Court of California County of Alameda. Hertz has contended that the case belongs in Federal court and removed the case to federal court, the United States District Court for the Northern District of California, on the basis that diversity jurisdiction existed because Hertz is a citizen of New Jersey (where its headquarters is located) and the Plaintiffs are citizens of a different state, California. Plaintiffs then moved to have the case remanded back to the Superior Court of California, which the District Court granted on the basis that due to the volume of business activity Hertz conducts it is a California citizen and therefore since the parties are all citizens of the same state, diversity jurisdiction did not exist. After unsuccessfully appealing that decision to the Ninth Circuit Court of Appeals, Hertz petitioned the United States Supreme Court for certiorari which was granted. The case is currently pending in California state court and the parties are engaged in discovery.
On November 10, 2009, the United States Supreme Court heard oral arguments in this case the proper test for determining a corporation's "principal place of business" for purposes of diversity jurisdiction. During oral argument, Hertz advocated for a headquarters test, which locates the principal place of business in the State that hosts the corporation's headquarters. In response, respondents/plaintiffs defended a multifactor test that focuses, in particular, on the primary location of a corporation's "people and property."
The Supreme Court issued its Opinion in this case on Monday, February 22, 2010. Justice Breyer delivered the opinion for a unanimous Court holding that the phrase "principal place of business" as it relates to diversity jurisdiction, refers to the place where the corporation's high level officers direct, control and coordinate the corporation's activities, i.e., its "nerve center," which will typically be found at its corporate headquarters. The Court acknowledged that while, in practice a corporation's principal place of business may normally be the place of its headquarters, provided that the headquarters is the actual "nerve center" and not simply an office where the corporation holds its board meetings. In establishing its "nerve center" test, the Court recognized that the burden of persuasion for establishing diversity jurisdiction remains on the party asserting it and that when jurisdiction is challenged, the parties must support their allegations by competent proof. In that vein, the Court rejected Hertz's suggestion that the mere filing of a Form 10-K with the SEC listing a corporation's "principle executive offices" would, without more, be sufficient proof to establish a corporation's "nerve center." The Supreme Court vacated the Ninth Circuit's judgment and remanded the case for further proceedings consistent with the opinion and to give respondents/plaintiffs a fair opportunity to litigate their case in light of the Court's holding.
While Abbey Spanier is disappointed with this result, we do not believe it impacts the merits of this case which it believes are quite strong in the favor of plaintiffs.