U.S. Supreme Court takes up CAFA case: Hertz v. Friend

In June, the U.S. Supreme Court granted certiorari in a CAFA case, Hertz Corp. v. Friend, no. 08-1107.  Copies of the cert. petition and other briefs are available at SCOTUSBlog.   This is the statement of the question presented:

Whether, for purposes of determining principal place of business for diversity jurisdiction citizenship under 28 U.S.C. § 1332, a court can disregard the location of a nationwide corporation's headquarters - i.e., its nerve center.

I did not previously report on the very short, unpublished Ninth Circuit opinion in this case, Friend v. Hertz Corp.,  297 Fed. Appx. 690, 2008 WL 4750198 (9th Cir. Oct. 30, 2008). The opinion reads, in full:

MEMORANDUM

Hertz's Notice of Appeal makes clear that Hertz removed this class action under the Class Action Fairness Act (CAFA). 28 U.S.C. § 1453(c). Therefore, even assuming we lack authority “to accept an appeal from the denial of a motion to remand when a class action has been removed to federal court on the basis of traditional diversity jurisdiction,” Saab v. Home Depot U.S.A., Inc., 469 F.3d 758, 759 (8th Cir.2006), rather than pursuant to CAFA, we have jurisdiction over Hertz's timely appeal from the district court's order remanding this class action to state court. 28 U.S.C. § 1453(c)(1).

The district court correctly applied the “place of operations” test to determine Hertz's principal place of business. Tosco Corp. v. Communities for a Better Env't., 236 F.3d 495 (9th Cir.2001); Industrial Tectonics v. Aero Alloy, 912 F.2d 1090 (9th Cir.1990). Taking the facts as set forth in the Declaration of Krista Memmelaar, Hertz's relevant business activities are “significantly larger” in California than in the next largest state, Florida. Although the difference between the amount of Hertz's business activity in California and the amount of its activity in Florida is not as large as the difference deemed to be significant in Tosco, California nevertheless “contains a substantial predominance” of Hertz's operations. Tosco Corp., 236 F.3d at 500.

Neither Tosco nor Industrial Tectonics supports Hertz's argument that we must consider the comparative population of states in which a corporation operates to determine whether activities are significantly larger in one state than another. Id.; Industrial Tectonics, 912 F.2d at 1092. Nor do policy concerns mandate the application of a per capita calculation. With its extensive California contacts and business activities, Hertz is not in jeopardy of being mistreated in California courts.

Because California is Hertz's principal place of business under the “place of operations” test, we do not apply the nerve center test. Tosco, 236 F.3d at 500.

AFFIRMED.

(Footnote omitted.)  Another Ninth Circuit case, Davis v. HBSC Bank Nevada, N.A., 557 F.3d 1026 (2009), will probably be impacted as well.  See this blog post for more on Davis.  The petitioner devoted an entire supplemental brief to a discussion of Davis. 

Comments

[Joshua Daniels]

I read the brief by Hertz and I think they miss an important approach. They spend most of their time reasoning about the proper interpretation of the diversity jurisdiction statute with lengthy discussion of the proper interpretation of the "principl place of business test." While I think they make an excellent case and ought to win based on that reasoning, it seems to me courts need more than the correct legal opinion. Too often courts make a decision based on the policy impact of a given decision and then formulate legal reasoning to support the ruling ex post. I think there are two key policy impacts:

1) If Hertz loses, this means any large national business that conducts any operations within California or any other populous state will become a de-facto citizen of that state for purposes of jurisdiction and will continually be haled into state courts (this is bad, unfair, unpredictable, and inefficient). Hertz does argue this. But more importantly...

2) This defies the whole concept of federal regulation of interstate commerce. I think Hertz ought to argue the very real impact this decision would have on the concept of federal regulation in interstate commerce. It is clear that the underlying reason diversity jurisdiction, especially with regard to corporate citizenship, exists as a key to the federal courts, is that the Constitution delegates regulation of interstate commerce to the federal government (and for good reason too). Federal regulation of interstate commerce creates efficiency, fairness, and predictability for corporations that operate on a national basis; this is good for everyone for many reasons. If the court decides against Hertz, they undermine this key fact. I think petitioners should make this clear to the court to give an additional policy impact of the decision.

Furthermore, in a country where ridiculous and seemingly unrelated federal regulations claim "interstate commerce" for their warrant, it would be unfair to then punish corporations by withholding their access to federal court by undermining the regulation of interstate commerce with regard to diversity jurisdiction. This creates an obvious contradiction. Without skipping a beat, the federal government would not hesitate to slap a national corporation like Hertz with any number of federal violations under the guise of interstate commerce merely because the company operates in multiple states, yet the federal court here rejects Hertz as a diverse citizen and claims that they (an obvious national corporation operating in 44 states) is a citizen of California and has no access to the federal court. I think the SCOTUS needs to consider the underlying issue of interstate commerce in this case and rule for Hertz.