U.S. Supreme Court Issues New Ruling Regarding the Proper Location for Suing Multi-State Corporations
The U.S. Supreme Court recently issued a new, unanimous decision regarding the proper location for suing corporations that have operations in multiple states. Per the governing federal statute, corporations can be sued in federal jurisdictions encompassing the state where the corporation was incorporated and where it had its “principal place of business.” However, the phrase “principal place of business” was never defined in the statute, leading to different federal courts reaching different conclusions about what constituted a corporation’s “principal place of business.”
For example, federal courts in California considered the location where the corporation had the "substantial predominance" of its business activities – including revenue, employees, and facilities – as the corporation’s “principal place of business” and thus the proper location for filing suit against the corporation. For federal court jurisdictional purposes, this made it possible for a company’s “principal place of business” to be different from where its true headquarters was located. Other federal courts used tests such as the “total activity” standard and the “center of corporate activity” standard to determine where a corporation’s “principal place of business” was for purposes of federal court jurisdiction.
The result of these varying standards was that a corporation with operations in more than one federal jurisdiction could be subject to “forum shopping” by plaintiffs who sought what they perceived as the most friendly jurisdiction in which to bring their claims against the corporation.
In the recent case, the Supreme Court defined where a corporation’s “principal place of business” is. The Supreme Court’s ruling specifies that a corporation’s “principal place of business” is its “nerve center,” which is generally where the corporation’s headquarters is located. As a result of the Supreme Court’s ruling, most federal lawsuits against corporations will have to be filed in either the state where the corporation was incorporated or the state where the corporation’s headquarters is located.
While this decision will have a major impact on where federal court cases are brought against large, multi-state business operations, it could also have an impact on smaller, closely held companies who have operations in more than one state. Any questions regarding how this decision could affect a particular company’s operations should be directed to knowledgeable legal counsel.
For example, federal courts in California considered the location where the corporation had the "substantial predominance" of its business activities – including revenue, employees, and facilities – as the corporation’s “principal place of business” and thus the proper location for filing suit against the corporation. For federal court jurisdictional purposes, this made it possible for a company’s “principal place of business” to be different from where its true headquarters was located. Other federal courts used tests such as the “total activity” standard and the “center of corporate activity” standard to determine where a corporation’s “principal place of business” was for purposes of federal court jurisdiction.
The result of these varying standards was that a corporation with operations in more than one federal jurisdiction could be subject to “forum shopping” by plaintiffs who sought what they perceived as the most friendly jurisdiction in which to bring their claims against the corporation.
In the recent case, the Supreme Court defined where a corporation’s “principal place of business” is. The Supreme Court’s ruling specifies that a corporation’s “principal place of business” is its “nerve center,” which is generally where the corporation’s headquarters is located. As a result of the Supreme Court’s ruling, most federal lawsuits against corporations will have to be filed in either the state where the corporation was incorporated or the state where the corporation’s headquarters is located.
While this decision will have a major impact on where federal court cases are brought against large, multi-state business operations, it could also have an impact on smaller, closely held companies who have operations in more than one state. Any questions regarding how this decision could affect a particular company’s operations should be directed to knowledgeable legal counsel.