Officer’s Residence Decides Corporate Citizenship
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A corporation’s principal place of business for diversity jurisdiction purposes is determined by the key controlling officer’s residence, not the location of the company’s main office, according to the U.S. Court of Appeals for the District of Columbia Circuit.CostCommand, LLC v. WH Administrators, Inc. In so deciding, the court adopted the nerve center test that the U.S. Supreme Court pronounced in Hertz Corp v. Friend. ABA Section of Litigation leaders point to new burdens placed upon attorneys in determining a company’s principal place of business.
No Diversity Jurisdiction
A Maryland plaintiff filed suit against WH Administrators (WHA) and other corporate and individual defendants. The plaintiff asserted that WHA’s principal place of business was in Texas, where the company had its corporate address and primary bank account. In addition, the company’s decision-making officers lived in Texas. Initially, WHA admitted in its answer that Texas was its principal place of business and therefore citizenship. However, after another defendant filed a motion to dismiss objecting to diversity jurisdiction because WHA allegedly had its principal place of business in Maryland, WHA agreed and acknowledged that its admission regarding Texas was an error.
After the parties conducted jurisdictional discovery, the district court granted the objecting defendant’s motion to dismiss for lack of diversity jurisdiction. The court found that, under the Supreme Court’s nerve center test, WHA’s principal place of business was in Maryland. One of the founding officers lived in that state. The most significant fact, however, was that the founding officer had complete control over the corporation, including the ability to override decisions of the other two officers. The court of appeals affirmed the district court’s ruling, stating that the Hertz decision “gave clear guidance for determining the location of a corporation’s principal place of business”; that is, where the corporation has its nerve center.
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