HERTZ CORP. v. FRIEND

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ORAL ARGUMENT OF MR. SRINIVASAN ON BEHALF OF THE PETITIONER

Chief Justice John G. Roberts: We will hear argument next in Case 08-1107, the Hertz Corporation v. Friend.

Mr. Srinivasan.

Mr. Srinivasan: Thank you, Mr. Chief Justice, and may it please the Court:

The diversity statute deems a corporation a citizen of, quote,

"the State where it has its principal place of business. "

closed quote.

The Ninth Circuit erred in holding that Petitioner Hertz is a citizen of California, even though Hertz is headquartered in New Jersey and conducts over 80 percent of its operations outside the State of California, and even though, under the court's approach, national corporations could regularly be deemed California citizens if they conduct operations in that State that are proportional to the State's population.

The better reading of the statute, in our view, is that it points to the location of the corporation's headquarters, the site from which a corporation directs and controls all the company's operations throughout all of its locations.

And that is particularly the correct reading when the statutory language is considered in light of two considerations.

First, the strong preference for simplicity and ease of administration in jurisdictional rules; and second, Congress's purposes in 1958 to preserve diversity jurisdiction for corporations in 48 States and to deny access to diversity jurisdiction only in one State, the State where the corporation had its home or principal place of business.

Now, with respect to the ordinary meaning of the statutory text, the critical phrase is "principal place of business".

And dictionary definitions of that term define the term "principal place of business" as corporate headquarters, and that is fortified by Federal and State laws, which also define the term as "company's headquarters"--

Justice Sonia Sotomayor: Counsel, the problem with every test is that you can find an exception that makes the application ridiculous.

Let's assume that we accept that headquarters or nerve center may have some applicability to a corporation that has a business in a variety of different States.

Mr. Srinivasan: --Sure.

Justice Sonia Sotomayor: All right.

That's -- your situation is perhaps the most attractive--

Mr. Srinivasan: Right.

Justice Sonia Sotomayor: --because whether California has 20 percent and Florida 14 or 15 percent, to me the differences are not terribly substantial.

I can imagine McDonald's having 1 percent in every part of the world, and how do you choose then?

California would say, then you -- you go back to headquarters.

But I don't know why you start there.

But let's posit the simpler situation.

Headquarters in New Jersey, but everything else is in California.

Your test would ignore completely that -- and it depends on how you define "headquarters".

If they have three corporate executives, that's the entire extent -- or let's say one corporate executive who started the company and who lives in New Jersey, and he flies out to California half the time and runs the business from there but happens to live in New Jersey.

Then you would say diversity is still New Jersey, correct?

Mr. Srinivasan: We would, Your Honor.

But let me -- let me start first with accepting Your Honor's premise, that in the situation of a multistate corporation with -- with diverse operations, the principal place of business would be the headquarters.

Now, I take your point that there are situations in which the test may not seem so straightforward, but we think even in the -- the hypothetical that Your Honor posits, the better answer -- at least our first submission would be, the better answer is the headquarters would control.

And that's for a couple of reasons.

Although, again, the one exception that we would have to our rule is exactly Your Honor's hypothetical, and let me just bracket that.

Now, the reason we think, first and foremost--

Justice Sonia Sotomayor: But you have not articulated a -- at least to me, a meaningful principle in which to set that exception.

It has to be tied somehow to the test and why the test in some situations would have applicability and others may not.

Mr. Srinivasan: --Sure.

And let me -- let me--

Justice Sonia Sotomayor: Because I don't know the difference between one headquarters and two places to do business or three, but I can still see that some factoring has to be done when the places of business are more limited.

Mr. Srinivasan: --Well, I -- well, we think first and foremost that the headquarters' role would apply even in Your Honor's situation, and I will get to that to the exception -- fashioning the exception in just one second--

Justice Ruth Bader Ginsburg: But your case doesn't call for that judgment, because you have a multistate corporation, and it -- I assume you would be satisfied with saying that when a corporation has dispersed operations, it doesn't have its business center or its headquarters -- doesn't have its business center dominant in any one State, that it's dispersed, then you take the headquarters, because there's no way to pick among -- choose all the others, and it certainly isn't worth the labor to try to do that.

So you could have a rule that says, dispersed across many States, you pick headquarters.

And that -- you don't have to urge anything further.

Mr. Srinivasan: --No, absolutely, Justice Ginsburg.

And we would certainly accept the resolution of the case in -- in that light.

If the Court were to announce a rule that says, multistate corporations with diverse operations, the principal place of business in that situation is the headquarters, I think Your Honor is correct that certainly we would prevail under that and that would be entirely acceptable to us.

But--

Justice Antonin Scalia: Well, why would we say that?

Just because it wins your case and it solves your problem?

I mean, it seems to me, to do that, you abandon your principal argument, which that -- which is that "place" doesn't mean "State".

Mr. Srinivasan: --Right.

Justice Antonin Scalia: And to talk about the whole State of California as the principal place of doing business -- I mean, if Congress meant that, it would have said, the principal State in which business is done.

Mr. Srinivasan: That's -- that's correct, Justice Scalia.

Justice Antonin Scalia: You don't want to throw away that good argument, do you?

[Laughter]

Mr. Srinivasan: We certainly don't want to throw it away.

We certainly don't want -- first and foremost, we would like to prevail.

And I think even under the narrow approach--

Justice Ruth Bader Ginsburg: You would never get to California's thing about State.

If you say multistate, you pick the place.

The headquarters is the place, it's within a State.

Mr. Srinivasan: --Yes.

And -- and that's why we would accept that result, Justice Ginsburg.

We certainly would.

Let me just put that out there first and foremost.

Now, with respect to--

Chief Justice John G. Roberts: Were you done with your -- were you done with your answer to Justice Sotomayor's hypothetical?

Mr. Srinivasan: --I don't know that I, in fact, started the answer, Mr. Chief Justice--

[Laughter]

--with respect.

The answer is that even in that situation, for the reasons that Justice Scalia highlights, we would say that the headquarters controls.

And let me give two -- two principal reasons why.

The first is that even if the operations are in one State and the headquarters are in a different State, the headquarters still is where the direction and control comes from.

And I think the ordinary meaning of the phrase "principal place of business" in that situation would still direct attention to the headquarters.

And the dictionary definitions that we identified in -- in our brief and every Federal and State law that defines the term "principal place of business" defines it at headquarters -- as headquarters, without any exception for the hypothetical situation that Your Honor posits.

But the other--

Justice Sonia Sotomayor: So what constitutes headquarters?

Mr. Srinivasan: --I'm sorry?

Justice Sonia Sotomayor: How many executives have to live there?

What else has to exist there?

And then what is the default rule if those things don't exist?

Mr. Srinivasan: Right.

Your Honor, I think -- and that -- that is the sort of different set of questions which is other ambiguities with respect to the definition of a headquarters in certain situations.

Now, by and large, the headquarters is relatively straightforward.

It's made in public filings which are an easy place to look, and if you look at the experience of the Seventh Circuit, which of course has applied the headquarters approach across the board over the course of several decades, I think we can see that that test has been straightforward and it is simple in application, in the main.

Now, that is not to say that there are not issues about the definition of headquarters at the outer perimeters.

There are.

And I think the place I would look first and foremost is: Where does direction and control for the corporation come from?

That is the situs at which the headquarters would be found.

And I would look also to what a corporation itself identifies as headquarters in public filings.

In 10-K filings and under the Model Business Corporations Act, corporations have to report their headquarters in annual reports.

And of course they are doing those reports for other reasons other than establishing jurisdiction in a particular case, so I think they come with an air of objectivity about them.

That's where I would look.

Now, I would make this other point, though, about the ambiguity that Your Honor points to with respect to the definition of a headquarters.

That -- that is not at all an ambiguity that only applies to our test, because under Respondent's test and under the test of every court of appeals, they take into account the headquarters.

Now, we would think that that is dispositive.

The other courts consider it at least highly relevant, albeit not dispositive.

But whatever ambiguities--

Justice Ruth Bader Ginsburg: Why did the others all go through some through total, totality of the factors test?

I mean, obviously, you could pick the headquarters.

You'd say Congress wanted one place; headquarters is a logical choice, end of -- but most circuits have made it more complicated than that.

The Seventh Circuit is the only one who said, keep it simple, as you urge -- headquarters.

Why are the other circuits resistant to the solution that you are proposing.

Mr. Srinivasan: --Well, first in a situation with a multistate corporation with dispersed operations, as we point out in footnote 2 of our reply brief, I think the courts of appeal are generally in agreement that the headquarters would control in that situation.

Now, with respect to whether you would have an across-the-board headquarters rule, Justice Ginsburg, I think what happened is, the first court to consider this question was the Third Circuit in the Scott case, pretty soon after the statute was enacted in 1958.

And that court, with respect, didn't wrestle with the ordinary meaning of the statutory terms, and it didn't wrestle with the strong premium on simple and administrable jurisdictional rules.

And then that doctrine sort of took on a life of its own, I think.

Justice Ruth Bader Ginsburg: But is it -- they -- they do it in different ways.

Mr. Srinivasan: They do.

Justice Ruth Bader Ginsburg: Some say business operations, some say headquarters.

Mr. Srinivasan: There -- there is a variety of different approaches.

I think all of them share the common feature that they consider, essentially, a totality of the circumstances.

And all of them, in our view, share a common flaw, which is--

Justice Ruth Bader Ginsburg: How does -- how do the bankruptcy courts do it?

I mean, you brought out that 1332, 1958.

But I -- I don't think that the -- that it is inevitably headquarters for the bankruptcy courts.

I mean, there's -- sometimes it is in other places, isn't it?

Mr. Srinivasan: --Well, the bankruptcy courts -- I think the fairest assessment of the bankruptcy courts as of 1958 was that it was a model.

Now, since then, the Collier's treatise, for example, would tell you that the majority and predominant rule is the headquarters rule, even in the bankruptcy context.

Pre-1958, I think there was a conflict.

That's what the treatises said and that's what we explain in our brief.

But there certainly were some courts that adopted a headquarters approach, even in the bankruptcy context.

But I think one thing I would caution the Court about is assuming that just because some courts in the bankruptcy context, because of bankruptcy-specific considerations -- and a specific consideration was the felt need to have the assets of the bankrupt estate within the purview of the court so that the court could administer the estate -- that Congress would have wanted to import every judicial application down to every nuanced detail in the bankruptcy context over to the jurisdictional context, where we know that Congress thought that simplicity was a real virtue.

And I think, as Your Honor's opinion in Wachovia v. Schmidt a few terms ago points out, there is no reason to assume that Congress would have taken one word in the venue context and applied the exact same meaning to that same word in the jurisdictional context.

And here, because of the strong preference -- excuse me -- in favor of simplicity and administrability in jurisdictional rules, that is a particularly poignant reason why the headquarters approach, in our -- in our point of view, should govern in all circumstances.

Now--

Justice Ruth Bader Ginsburg: In the case -- this is purely hypothetical, but suppose Hertz were to be bankrupt, file a petition in bankruptcy, where -- New Jersey would be the place, on your -- or the assets are dominantly someplace else, so it would be another place?

Mr. Srinivasan: --Well, I think, if -- if what you are asking, Justice Ginsburg, is, where would the principal place of business be under the bankruptcy statute, the majority rule now, under the Fifth Circuit case Commonwealth Oil Refining and the Seventh Circuit case Peachtree, would show that the majority rule now is that the principal place of business would be New Jersey.

And one point I would like to get to in that regard is the sort of oddity of saying that the -- the principal place of business of a company like Hertz would be somewhere other than New Jersey.

The Ninth Circuit has a view that the principal place of business of Hertz is California, based on the fact that Hertz conducts 20 percent of its business in California.

But it is important to bear in mind that this statute is a zero-sum game.

So that if Hertz is deemed to have its principal place of business in California, such that it is disabled from getting access to diversity jurisdiction in California, the consequence is that Hertz would be enabled to gain diversity jurisdiction in every other State -- and I'm putting to one side Delaware, the State of incorporation -- but it would be enabled to gain access to -- to diversity jurisdiction in every other State.

So the consequence would be that if Hertz were sued in a State court action in Park Ridge, New Jersey, the site of its headquarters, Hertz could get Federal court jurisdiction in that jurisdiction on the theory that it's an out-of-State company, it's a California company, because it performs 20 percent of its business in California.

Now that -- the oddity of that, in our view, is particularly poignant if one takes into account a company like Wal-Mart.

Wal-Mart is universally recognized to be an Arkansas corporation because it is headquartered in Bentonville, Arkansas, but Wal-Mart also, it's undisputed, does substantially more business by any of the measures that the Ninth Circuit considers significant in Texas.

It has more employees there; it has more stores there; it generates more revenues there, by a significant factor well in excess of 50 percent over and above any other State.

But the consequence of deeming Wal-Mart a Texas corporation based on the amount of business it does in Texas would be not only that Wal-Mart would be disabled from getting Federal court jurisdiction in Texas, but that Wal-Mart would be enabled to get Federal court jurisdiction in Bentonville, Arkansas, on the theory that even in Arkansas, Wal-Mart would be an out-of-State corporation, a Texas corporation, because of the level of business that it conducts in Texas.

And we don't think that is the result that Congress would have envisioned in 1958 when it enacted the Principal Place of Business provision.

Instead, what Congress presumably had in mind is that corporations, as a general matter, are identified with the location of their headquarters.

So in the Wal-Mart situation, Wal-Mart rightly is universally acknowledged to be an Arkansas corporation because of the presence in that State of its headquarters.

Justice Sonia Sotomayor: Counsel, all you are talking about is not necessarily nerve center, because in reading the examples in your brief, what you are talking about is: Where is the place where they have the most important, significant, influential contact?

Now, the Ninth Circuit has defined that as the place where business is done; you are suggesting that it's the place where the nerve center is.

But it goes back to begging my question: Why -- just simply their declaring it on a tax form doesn't make it important, influential, or significant contact.

There has to be something more to the test, and it can't be just what I declare my headquarters to be.

There has to be some form of activity in that place.

Mr. Srinivasan: There does, Your Honor, and we think -- I guess the -- the comparison I would make is to an individual, because an individual can't declare that he or she is a domiciliary of a particular State and have it be so for citizenship purposes.

There has to be something behind that, and so too with corporations.

Justice Sonia Sotomayor: That's -- that's the point.

Mr. Srinivasan: Exactly, and we -- we share that view.

A corporation couldn't simply declare that its headquarters are located in a -- in a location where it has a mailbox, for example, and have that be dispositive for citizenship purposes.

What--

Justice Sonia Sotomayor: Is there -- is there something to a rule that says headquarters is presumptively the nerve center, but a challenged party, whoever that is, can rebut it?

Mr. Srinivasan: --I think certainly it would be a vast improvement over what the Ninth Circuit has.

So I would say that as a starting point, Your Honor.

I think -- in our view, of course, a principal submission is the headquarters controls in all -- in all situations, and the cost of having, you know, a rebuttable presumption would be: What does it take to rebut it?

That would be question.

And I think--

Justice Sonia Sotomayor: Well, that's the point that I raised, which is that the headquarters is not an important, consequential, or substantial.

You can rebut it if you can show that it is a shell headquarters.

Mr. Srinivasan: --Yes.

And I think in that situation, I guess -- I guess there is two different ways that one could look at that.

One is to say that you could rebut it, but the other is to say that it is not the headquarters.

And I guess that's the way that I would look at it, is to say that if the corporation identifies a location at which it in fact doesn't direct and control the operations of the corporation throughout, it wouldn't constitute the headquarters.

Justice Sonia Sotomayor: Well, but--

Mr. Srinivasan: So I guess that's where I would place the load-bearing weight.

It may be semantic, but--

Justice Sonia Sotomayor: --That's the problem, which is, the party comes in, alleges by summary judgment that -- in a summary judgment motion: This is my corporate headquarters.

The other side's going to have to come forth with evidence that shows something.

Mr. Srinivasan: --Right.

And if -- and--

Justice Sonia Sotomayor: So that it's always a rebuttable presumption.

Mr. Srinivasan: --There is, Your Honor, and if the other side were able to show that the location that the party identifies as -- as its headquarters does not, in fact, function as a headquarters, in the sense that suppose there is no executives there, or suppose that the officials that are there in fact don't direct and control the company's operations in other locations.

Well, then, that -- that would be a real issue.

But there are checks against that, because corporations identify their headquarters in other public filings, and in the main, those headquarters are the locations in -- from which the chief executives direct and control the companies' operations--

Justice Sonia Sotomayor: I actually do not know whether public filings define what "headquarters" mean.

Is there a -- I know you have said it in your brief, but what I didn't know is whether those public filings define the activity necessary to designate a place as "headquarters".

Mr. Srinivasan: --Well, they -- they do in the following sense, Your Honor.

For example, with the 10-K report for publicly traded companies, I think the question that is asked is not the location of the headquarters but the location of the principal executive offices.

And so I think, by definition, in answering that question the principal executives would be located at that -- at that location.

Now, if they weren't, we would certainly take Your Honor's point that there could be a back-and-forth about that, but that--

Justice Ruth Bader Ginsburg: I know, but didn't Congress pick "a principal place of business"?

And we know that they looked at the bankruptcy courts.

There are lots of expressions in other statutes.

Some say "headquarters".

Some say -- well, there are a variety of things, but Congress picked this particular term, "principal place of business".

And I was thinking, when you gave the example of Texas, that the idea of diversity is you are not going to get a Federal forum where you are at home.

And so one would think, well, if Wal-Mart is doing so much in Texas, it's really no stranger in Texas.

Why shouldn't there be diversity in Texas?

Mr. Srinivasan: --Well, in -- in response to the latter point, Your Honor, I think the one thing we do know from 1958 is that Congress didn't think that a corporation should be disabled from getting diversity jurisdiction anywhere where it does a substantial business, because it had that proposal before it, and it rejected it.

Justice Ruth Bader Ginsburg: It rejected it, yes.

Mr. Srinivasan: It instead chose an approach whereby a company is disabled from getting diversity jurisdiction in one, and only one, jurisdiction, the jurisdiction in which it has its principal place of business.

And I think what Congress had in mind is that corporations, as a general matter, are identified with their headquarters.

And that is why Wal-Mart, for example, is universally recognized as an Arkansas company.

It may be that Wal-Mart does substantial business in Texas, substantially in excess of other States, but Wal-Mart also does substantial business in a variety of jurisdictions.

But Congress decidedly didn't have the rule that says wherever Wal-Mart does a substantial business and is a well recognized company, it should be disabled from getting to Federal court.

It limited it to one jurisdiction.

And we think the best reading of the phrase "principal place of business" is the situs of the headquarters in that there were -- with -- with respect to the bankruptcy decisions, Your Honor, there -- there were bankruptcy courts that did have a "headquarters" approach.

And, in fact, the one bankruptcy court of which I am aware that looked at the meaning of the ordinary language -- we cite the -- the relevant -- the portion of the court's opinion at page 50 of our opening brief in footnote 5.

It is the First Circuit's opinion in the Burdick case.

And what the First Circuit said was that a corporation's, quote, "principal office", rather than a factory, mill or mine, according to ordinary understanding and speech, constitutes the principal place of business within the meaning of the Bankruptcy Code.

And so even before 1958, I think there was definitely a sense out there that the term "principal place of business" does mean headquarters.

And this gets to Your Honor's other question which is: If Congress really meant "headquarters", why wouldn't they have used the term "headquarters" instead of "principal place of business"?

And I think our answer to that, with respect to Your Honor, is that "principal place of business" is an alternative formulation for "headquarters".

And so I don't think one can glean too much from the fact that Congress chose "principal place of business" rather than "headquarters" when "principal place of business" in our view is a reference to the headquarters.

And this Court's opinion last term in the Oswell Harlow versus United States case is a good example of that, because there the statute that was at issue used the term "facilitate" rather than the term "aid or abet".

And one could have readily made the argument that because the statute uses the term "facilitate" rather than "aid or abet", that normal principles that accompany aiding and abetting liability shouldn't apply in the statute.

But the Court rightly in our view reached the contrary conclusion, and it was based on the notion that the term "facilitate", according to Black's Law Dictionary, means the very same thing as "aid or abet".

And once you cross that bridge, then you can apply aiding or abetting principles to the term "facilitate".

And here, likewise, the term "principal place of business", according to Black's Law Dictionary, means "headquarters".

That's how Black's Law Dictionary defines the term.

And so the fact that Congress chose one alternate formulation versus another, I don't think speaks too loudly to the question of--

Justice Ruth Bader Ginsburg: What about her argument that -- that Hertz has this New Jersey headquarters, but its reservation center is in Oklahoma?

Mr. Srinivasan: --Sure, and -- and, again, I would look at the public filings.

In the public filings in the 10-K, for example, Hertz universally identifies its headquarters as Park Ridge, New Jersey.

And the reason is that the chief executive officials are all located in Park Ridge.

Now, there is a large administrative apparatus in Oklahoma City, and, according to the affidavit, its administrative activities are performed in Oklahoma City to a lesser extent.

And that is at paragraph 11 of the affidavit, which is at pages 29a to 30a of the appendix to the petition.

But I don't think there is any real dispute that Hertz's main headquarters are located in Park Ridge rather than Oklahoma City.

In point of fact, what you have in Oklahoma City -- and -- and this isn't spelled out in the -- in the affidavit, but what you have in Oklahoma City is essentially the rental call center and plus principal back-office duties like information technology support.

But what you have in Park Ridge is all of the company's chief executives.

So the decision making locus for the company's most important decisions is absolutely in Park Ridge, New Jersey, rather than Oklahoma City.

And there is no dispute on the point that is before the Court.

This Court comes -- this case comes to the Court on the assumption that Hertz's headquarters are located in Park Ridge.

The question for the Court is whether that headquarters location should be dispositive for purposes of defining a company's principal place of business.

Now, if I could -- if I could turn for one moment to the cost in terms of simplicity and demonstrability of an alternative formulation if the Court were to accommodate a formulation that didn't look to the headquarters, we see three potential categories of costs that are brought about by the -- the proposed approach of Respondents in what the Ninth Circuit has established.

The first is the one that underlies the strong preference in favor of simple, demonstrable, jurisdictional rules.

And that is just the time and resources that would be invested at the threshold jurisdictional stage in defining whether the case is -- is before the proper court.

That in itself is reason enough, in our view--

Justice Anthony Kennedy: Not all diversity suits have major law firms in them and a lot of resources to spend in -- in discovery to determine more complex tests.

Mr. Srinivasan: --That's right.

Yes, that's our point, Justice Kennedy, and I think a "headquarters" test is simple and straightforward in that respect, and a "totality of circumstances" approach isn't.

But there is also two additional costs that I would point out about a "totality of circumstances" approach.

One is that you can have the very real possibility because of the indeterminacy in that approach that different courts would reach divergent conclusions about the citizenship of the very same corporation.

And as we point out on page 40 of our brief, that has already happened.

Two district courts in the Ninth Circuit alone in two California courts reached divergent conclusions on the citizenship of United Airlines.

One court concluded that United was an Illinois citizen, and another court concluded that United was a California citizen.

And that is not altogether surprising that you would have those sorts of divergent conclusions given the open-ended nature of the "totality of circumstances" approach.

The third cost that I would point to is the possibility that because of the indeterminacy in the approach you could have a situation in which a district court finds there is jurisdiction, proceeds to have a trial on the merits and renders -- renders judgment on the merits, and then several years later the court of appeals would reverse the judgment because the district court had gotten the jurisdictional input wrong at the outset.

And, again, that also, as with the situation with divergent conclusions on the citizenship of the same corporation, is not just a problem of theory.

It has actually happened.

Justice Ruth Bader Ginsburg: Even -- even when the direct -- the -- even subject-matter jurisdiction is precluded after final -- final judgment after direct -- so that's a little extreme, the example you gave.

Mr. Srinivasan: Well, I think -- I guess my point is that precisely because subject-matter jurisdiction can be raised at any point--

Justice Ruth Bader Ginsburg: Not any point in the direct -- up to denial of cert on direct review.

After that it's precluded, even subject-matter jurisdiction.

You can't collaterally attack on that basis.

Mr. Srinivasan: --Sure, right.

I guess what my point is that you could have a situation where a trial court has reached a resolution on the merits.

Several years -- several years later the court of appeals on direct review would reach the conclusion that the district court got it wrong on subject-matter jurisdiction.

Justice Ruth Bader Ginsburg: Yes.

Mr. Srinivasan: And there is a case that we cite in our brief, the Diaz -- Diaz versus Pep Boys case, that involve that situation.

If the Court has no further questions, I would like to reserve the balance of my time.

Chief Justice John G. Roberts: Thank you, counsel.

Mr. Schneider?

ORAL ARGUMENT OF TODD M. SCHNEIDER ON BEHALF OF THE RESPONDENTS

Mr. Schneider: Thank you.

Mr. Chief Justice, and may it please the Court:

For 50 years every circuit save the -- save the Seventh had agreed -- has agreed on one overriding principle: That courts must perform a balancing in determining the principal place of business of a corporation, and that balancing must include a determination of where the corporation's people and property are.

Chief Justice John G. Roberts: Is -- is that a fair description of what the Ninth Circuit did here?

Did they perform a balancing, or did they look solely to where most of the sales were?

Mr. Schneider: The -- the Ninth Circuit specifically in this case noted that 43 percent more employees for Hertz are in California, 75 percent more property, 60 percent more revenue, and--

Justice Antonin Scalia: More than -- more than what, more than any other single State?

Mr. Schneider: --That's correct, Justice Scalia.

Justice Antonin Scalia: But it doesn't say the -- the "principal State of business".

It's the "principal place of business".

Is there a difference between the two?

Mr. Schneider: I think I have two answers to that, Your Honor.

The first answer is that Congress was using a term of art that was imported from the Bankruptcy Code.

In all of the Bankruptcy Code cases prior to 1958, the 11 USC 11 cases take an aggregation approach when they look at it State-by-State, so, if we raise principal place of business as a term of art that Congress imported into this statute, then we have to look at an aggregated State-by-State approach.

The other answer, I think, is more of a semantic answer, which is how did Congress define the word "place"?

Certainly, the English language provides that a place can be a building, as Hertz would have, or a place could be a State, as we -- my place of birth, for example, is New York State.

Justice Sonia Sotomayor: Why -- why didn't they say place of doing business?

That's not the terminology that they used.

Mr. Schneider: They didn't, and Congress was--

Justice Sonia Sotomayor: That would be more consistent with an aggregation of -- of all of the factors the Ninth Circuit starts with.

Mr. Schneider: --Your Honor, Congress chose the phrase "principal place of business" because, to quote the legislative history, there were many cases on the books, and it was an easily understood phrase.

I think what Congress intended to do was to not have us end up here, to take a phrase which was known in the case law and to import it--

Justice Sonia Sotomayor: Counsel, what's very clear from all of the articles I have read in the lower court decisions is that Congress may have thought it was picking a well-defined phrase, but, in fact, it wasn't, that the Courts below are confused about what they were doing before the statute.

So I don't know why importing the belief that something was clear into a reality that it's not helps us.

Mr. Schneider: --Your Honor, in answer to Justice Scalia's question, I believe it was clear, from all of the case law, that we were talking about place equalling an aggregation of all of the activity in the State.

With regard to your question, we have cited in our brief two district court opinions that performed a scholarly review of all of the case law at the time that Congress passed the 1958 amendments.

Particularly of import is the Inland Rubber case.

And what the court found in the Inland Rubber case is, while there was two lines of thinking, there was the -- what came to be known as the nerve center line of thinking and what came to be known as the business reality line of thinking.

The nerve center test could almost all be explained by the fact that, in those cases, the corporation only had one place of business, there were some outliers, but for the most part, the two judges, in the Gilardi case and in the Inland Rubber case--

Justice Sonia Sotomayor: So why do you -- why do you think that the circuits courts -- the vast majority of them, the third, the first, the second, the fifth, they all start with the proposition that, if a place has far-flung businesses, then the nerve center test should start the inquiry and control it more than in a situation where there are lesser places of business?

Mr. Schneider: --Yes.

That's the total activities test, Your Honor, and the total activities test would put initial weight on the nerve center, but if one -- and then, of course, weigh whether or not there is a substantial predominance of all of -- of all of the other factors somewhere in the country, which, frankly, is not a lot different than the Ninth Circuit case -- test.

The Ninth Circuit simply does it in the other way.

It asks--

Justice Sonia Sotomayor: Well, that's a big difference.

Mr. Schneider: --It asks the same question, whether or not there is a -- a substantial predominance -- finds substantial predominance, not just predominance, but substantial predominance.

Justice Sonia Sotomayor: I -- you know, to me, the word 50 percent.

I'm having a hard time understanding what the appreciable difference is between 20 percent and 14 and the balance being spread over so many other places.

What -- that seems very arbitrary in terms of the place that generates the most money.

That's it.

That's the place you are at home.

Mr. Schneider: I think, to understand it, one must look at the purpose of diversity.

The real question is, is diversity to be used as a sword by a corporation, such that a corporation can choose its place of diversity jurisdiction, or is it a shield to protect the corporation, a truly foreign corporation, from local bias?

Justice Sonia Sotomayor: Well, but that's what -- but that goes back to the point, if we are talking about shields or swords, Congress had before it a provision that would say, anywhere you do business, you are not a foreigner, because you are there.

The people are going to perceive you as a business -- the local business that is doing business in that location, and Congress rejected that.

So foreign has to have a meaning that was somewhat different.

And you don't think the corporate headquarters where management is, where the direction for the operation of the business is coming from, is the place that needs the most protection in this system because they are the ones making the decisions, and so aren't they the ones who need to be protected from local bias?

Mr. Schneider: Courts have found that corporations are best known where they have most of their people and their property.

That's because employees go out in the community, property is bought and sold in the community, so the local people will know the corporation more where they have their people and property than, necessarily, where they have the headquarters.

Until this case began, I had no idea where Hertz headquarters are.

There is many corporations in the State of California, that I have no idea are headquartered in the State of California.

Justice Ruth Bader Ginsburg: The problem with your -- your approach -- and California is unique in this respect, is -- California is a very large State, lots of business, and you are comparing to the next State that has the next number of employees -- you know, Florida.

If I were entertaining your approach, I would think, well, you would compare California against the whole rest of the nation and not pick for a dispersed -- a corporation that is widely dispersed.

California is going to be the big winner in this.

It's going to be able to keep all those cases in its State court because so many multi-State corporations, I imagine, would come out, just the way Hertz does.

Am I right, that, under your analysis, the one place where, if you say, we don't want Federal courts to be dealing with corporations that are at home in the State, but in the State of New Jersey, under your view of things, a New Jersey citizen could sue Hertz in Federal court in New Jersey, right?

Mr. Schneider: That is correct, Your Honor, unless, of course, Hertz were to change its place of incorporation to New Jersey.

Justice Ruth Bader Ginsburg: And why do you say, well -- why is it that the Ninth Circuit's method, California versus Florida, instead of California and let's see what the rest of the business is -- is, in the whole United States?

Mr. Schneider: I think the answer, Justice Ginsburg, to that question goes back to how the phrase "principal place of business" was looked at under the Bankruptcy Code, and in the Bankruptcy Code, it was, in fact, a State-by-State analysis, rather than a State versus country analysis.

Now, Justice Ginsburg, you asked me, did it mean that all corporations were going to end up being California corporations?

California -- the Ninth Circuit has been doing it this way for 50 years.

Every other circuit has had -- save the seventh -- has had some balancing test for 50 years, and it has not come to pass that all corporations are California corporations.

A matter of fact, if you think of a corporation that sells skis, they are likely going to be a Colorado corporation, or they are going to be a Utah corporation.

A -- a corporation that sells mining equipment is likely to end up in West Virginia or one of the mining States.

Justice Antonin Scalia: I don't understand why, somehow, a Californian is more likely to identify with Hertz, simply because there are more Californians and, hence, more Hertz outlets, than a New Jerseyite is likely to identify with Hertz.

Per capita, there are probably as many Hertz outlets in New Jersey as there are in California.

The only reason that you come up with California is it's an enormous State.

It has 10 percent of the population.

But as far as the citizens of the State identifying with that -- with that company and, therefore, the unfairness of -- of letting that company -- you know, remove to Federal court, New Jersey and California are absolutely the same.

Mr. Schneider: Congress made a decision in rejecting the any place where you are doing business test, that it would not prevent corporations from removing cases in any State where they are doing business.

The question in diversity jurisdiction is not whether or not a corporation should be allowed to use the Federal forum to decide if that's the best forum for it, but the question is a different one.

Will there be bias in the -- in the State court?

And because Hertz does so much business in California, it's hard to argue that we bias by being in the State court in California.

Remember, this case--

Justice Ruth Bader Ginsburg: But they cannot be advised by the State court in New Jersey either.

The -- you correctly pointed out that Congress said place of business.

It didn't even do as it did with -- it didn't do as it did with -- with corporate citizenship, that is you could be a citizenship of as many States as you incorporate in.

But if it's got to be one place, so why not just keep it simple and say presumptively it's the business headquarters, in a particular case you could show otherwise.

Mr. Schneider: --Congress had two goals, Justice Ginsburg.

The first goal was to prevent gaming of the system.

The simplest test is also the most easily--

Justice Ruth Bader Ginsburg: But that would be a phony headquarters.

But nobody is suggesting that -- that the headquarters of Hertz in New Jersey, that that's a sham set-up.

Mr. Schneider: --But even a -- even a real headquarters wouldn't prevent gaming of the system.

If -- if a corporation truly wanted to stay out of State court in a State where it was doing significant business, even all of their business under Hertz' test, they would only have to actually move their headquarters out of that State.

There is a second reason that Congress passed the '58 amendment--

Justice Ruth Bader Ginsburg: Is that phenomenon?

I mean, I can see that as a hypothetical, but does it happen in the real world, that a corporation moves its headquarters in order to escape the Federal courts in a particular State?

Mr. Schneider: --Because the test is only a Seventh Circuit test, it wouldn't do any good for a corporation--

Justice Antonin Scalia: Well, it is one of the factors in other -- in other states as well.

It's part of the totality of the circumstances.

You certainly increase your odds to move your headquarters.

Mr. Schneider: --It would, but it wouldn't be dispositive.

We do know that corporations move for all sorts of economic reasons.

They move for tax reasons, they move because--

Justice Ruth Bader Ginsburg: But why would they move simply to avoid a Federal court or to gain access to the Federal court in a particular State?

Mr. Schneider: --There is -- as witnessed by congressional findings in the Class Action Fairness Act, there is a perception that State courts in certain States are not good for corporations.

Whether that -- that perception is a real perception or whether it's not a real perception isn't before us today.

But if a corporation has all of its people and all of its property and is doing all of its business in one of those States, the corporation shouldn't be allowed to game the system by simply moving its headquarters, it's real headquarters out of that State.

Justice Ruth Bader Ginsburg: But we are not talking about all.

I mean, that would be -- that's why you make it a presumption, the headquarters is a presumption which could be rebutted.

But you are not talking about all business.

You are talking about California where there is a sizeable amount of business, simply because it's the size of the State, the population of the State.

And I would understand your position better if you would say, well, we would measure against the entirety of the United States.

But California is going to come out the winner much more often than any other State under this test simply because of its size.

Mr. Schneider: With respect, Justice Ginsburg, I don't believe that the case law has borne that out.

Again, I have read no studies that say corporations are more often California citizens simply because of the population of California -- that doesn't mean that the study hasn't exist -- doesn't exist.

I simply haven't read it.

Justice Antonin Scalia: We don't worry about private individuals gaming the system, do we, by -- you know, in -- in order to get into or out of Federal court, establishing residence in a different State?

We don't worry about them gaming the system, do we?

Mr. Schneider: We do, Justice Scalia.

There is a fact-intensive test for citizenship for individuals based on their intent to stay in a place.

Justice Antonin Scalia: Sure.

But -- but you can have a genuine intent to go somewhere else, and I don't know that people do it for foreign reasons because they want to get in or out of Federal court.

You really don't worry about that, it seems to me.

Mr. Schneider: I do believe it is less likely that an individual would either have the sophistication or, frankly, the litigation volume to make such a decision?

But a corporation may, in fact.

Justice Antonin Scalia: I know some rich individuals that might have the incentive.

Mr. Schneider: I would like to turn, if I may, to the second reason that Congress passed the '58 amendment and that was because of the notion of overcrowding of the Federal docket because too many diversity cases -- because there were too many diversity cases because most litigation was happening far away from the facts.

Suits involving corporations generally arise where they have a lot of contacts with the public, where there people are and where their property are.

If we allow a corporation to move all of its litigation where the bulk of its people and property are to Federal court, Congress's second goal--

Justice John Paul Stevens: Mr. Schneider, can I just inject this thought?

It goes back to Justice Kennedy's question.

I don't think we are just concerned about the defendants gaming the system.

I think one other very important concern is plaintiffs sometimes in small communities want to sue somebody, and sometimes they would much rather be in Federal court, because sometimes the judges are better than the local judges, and so forth.

So there are a lot of reasons why plaintiffs want to get into Federal courts.

And it seems to me it's important to have a rule that makes it easy for the plaintiff to decide what is the citizenship of the defendant, can I get into Federal court or not.

And I see it as a great argument in favor of a very simple rule to benefit plaintiffs.

Mr. Schneider: --The -- again, for 50 years, Justice Stevens, plaintiffs and plaintiffs' lawyers have been able to under the various tests figure out where corporations are citizens.

Justice John Paul Stevens: But you must acknowledge that it's a lot easier for a plaintiff -- there is some place to get on the internet and say where is their principal place and they get a simple answer.

If you get a question, well, I got to analyze their business all over the country to decide, that's a formidable obstacle for a -- for a plaintiff to overcome.

Mr. Schneider: It may or may not be, depending upon the corporation.

The vast majority of corporations are local corporations, so we are really just talking about--

Justice John Paul Stevens: --of an interstate business who are commonly defendants in a lot of lawsuits -- in a personal injury suit, and the question is, can I easily decide what the place of incorporation of that defendant is.

Mr. Schneider: --That's correct, Justice Stevens.

And because most of those entities are public corporations, there is a lot of information available in FCC filings, et cetera, as to where they are actually doing business.

You can also simply look out your door and figure out whether have I seen a lot of Hertz outlets where I am.

Chief Justice John G. Roberts: Where is -- under the Ninth Circuit test, where is -- what is the principal place of business of Starbucks?

Mr. Schneider: Under the Ninth Circuit test, the principal place of Starbucks, there is a case that says Starbucks is in California.

Let me give you, Mr. Chief Justice--

Justice Antonin Scalia: That's a surprise.

[Laughter]

Mr. Schneider: --I was -- I was surprised as well.

But -- but let me give you the numbers so that it makes sense, because I have read the case.

Justice Ruth Bader Ginsburg: Where is -- where is its headquarters.

Mr. Schneider: Headquarters is in Seattle, Washington.

But over -- that's correct, Your Honor.

Justice Sonia Sotomayor: That's the very first little shop was there.

Mr. Schneider: That's my understanding, yes.

However, over 100 percent more workers from Starbucks are in California than Washington.

Justice Sonia Sotomayor: Can you tell me what 100 percent means?

Are the number of workers in Seattle inconsequential?

Is there one worker there or are we talking about 1,000 in--

Mr. Schneider: I don't know the total numbers of the workers.

Justice Sonia Sotomayor: --Isn't that important?

As Justice Scalia said that per capita California is going to dwarf anybody anywhere if you are going to have a multi-location place of business.

So don't you have to know the raw numbers?

Mr. Schneider: I -- I don't know the raw numbers from Starbucks, I'm sorry.

I just read the opinion.

And what the opinion tells us is that Starbucks has 10 percent of its employees in Washington and 27 percent in California.

Over 300 percent more of its gross revenue comes from California than any other State, 200 percent more of its retail stores are in California than in any other State.

Chief Justice John G. Roberts: What about, I guess, mail order houses?

I mean, what's the principal place of business of Eddie Bauer?

Mr. Schneider: It would -- it would be, Your Honor, wherever there is a substantial predominance of its people and property.

I would assume -- and I don't know the facts of Eddie Bauer, but I would assume Eddie Bauer has a central location from which it does its sales, which it does its factory work, where it is shipping things from.

Chief Justice John G. Roberts: Would -- would it make a difference if, say -- it may well be the case, 30 percent of their business is in California?

Mr. Schneider: No.

But by business you mean revenue, Your Honor?

Chief Justice John G. Roberts: Yes.

Mr. Schneider: The test we posit, Your Honor, focuses on people and property.

The test would look first to the location of employees, tangible properties and production activities, and then second to income earned, purchases made and where sales take place.

Mr. Chief Justice, did the Court have interest in the jurisdictional argument?

Chief Justice John G. Roberts: I don't know.

[Laughter]

I can only speak for one member of the Court, and that one doesn't.

Mr. Schneider: Okay.

Then if the Court has any questions about the -- our jurisdictional argument, I would be happy to answer them.

And without further questions--

Chief Justice John G. Roberts: Thank you, counsel.

Mr. Srinivasan, you have four minutes remaining.

REBUTTAL ARGUMENT OF MR. SRI SRINIVASAN ON BEHALF OF THE PETITIONER

Mr. Srinivasan: Your Honor, just one point and I will be brief.

The idea that corporations would switch their -- location of their headquarters in order to achieve jurisdictional results hasn't been borne out in any example in which I'm aware.

And there is a fundamental reason why.

When a corporation decides to relocate its headquarters, it's making a very important business decision about what is the location from which its direction and control is going to emanate.

That is not a gamesmanship decision.

That's a bona fide decision about where its headquarters are going to be located and where its most important decision -- business decisions are going to be made.

If the Court has no further questions--

Justice Antonin Scalia: That means that its principal officers and their families have to move.

Mr. Srinivasan: --It does.

Justice Antonin Scalia: That's the biggest disincentive it seems to me.

Mr. Srinivasan: Absolutely, Justice Scalia.

If the Court has no further questions.

Chief Justice John G. Roberts: Thank you, counsel.

The case is submitted.

Print this transcript Transcript: 

Chief Justice Mr. Chief Justice Robers Jr.: Justice Breyer has our opinion this morning in case 08-1107 Hertz Corporation versus Friend.

Justice Stephen G. Breyer: The Constitution provides that federal courts may hear controversies between citizens of different states.

Let’s supposed the citizen of Nebraska brings a federal diversity case in Federal Court against the corporation that does some business in Nebraska, and some business elsewhere.

Is the corporation a citizen of Nebraska, same state so they couldn’t bring it or of a different state in which case they could?

A congressional statute answers this question by stating that, “a corporation shall be deemed to a citizen of any State by which it has been incorporated and of the State where it has its principal place of business” that helps, but what does principal place of business mean?

Lower courts have reached different conclusions, taking highly divergent approaches to the interpretive problem.

One major treaty for example devotes 73 pages to describing a host of different tests used in different circuits, with some circuits emphasizing the locus of operations, others, the corporate nerve center and still others working with various combinations of plant size, service or sales centers, employment and other factors designed to locate a center of gravity.

Ultimately, we conclude that the phrase “principal place of business” refers to what some lower courts have called the corporation's nerve center.

The place where a corporation's officers direct, control and coordinate the corporations activities.

Typically, the nerve center will be found at a corporation's headquarters.

Our opinion sets forth our reasons for reaching this conclusion in some detail.

They include our reliance upon the statute language, for example, the phrase “principal place of business” that word place is singular not plural and the word principal requires us to pick out the main, prominent or leading place.

But we also place considerable weight upon the practical need for administrative simplicity.

Many of the lower court tests complicate the case, eating up time and money as the parties litigate not the merits of their claims but which court is the right court to decide those merits.

We’ve recognized that there maybe no perfect test that satisfies all administrative and purposive criteria, but we believe a nerve center approach will point courts in the right direction.

It will provide a test that is easier to apply most of the time perhaps not all the time.

Though it will indeed sometimes produce counterintuitive results because the Ninth Circuit approached the jurisdictional problem before us differ.

We vacate its judgment and we remand the case for further proceedings.

Our decision is unanimous.