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Volume XXV, No. 18, October 1, 2013

From the Law Offices of Garan Lucow Miller, P.C.

From the Editor: Simeon R. Orlowski

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CORPORATE DEFENDANT’S ABILITY TO REMOVE  CASE FROM  MICHIGAN STATE COURT TO FEDERAL COURT ON BASIS OF DIVERSITY OF CITIZENSHIP JURISDICTION USUALLY DEPENDS ON LOCATION OF CORPORATION’S “NERVE CENTER,” OR HEADQUARTERS

CONTRIBUTOR – DAVID M. SHAFER

 

When can a corporate defendant in a civil lawsuit in a Michigan state court “remove” the case to a U.S. district court on the basis of the “diversity of citizenship” of the parties?

In general, a federal court has three main sources of subject matter jurisdiction: federal question jurisdiction, ancillary jurisdiction, and diversity of citizenship jurisdiction.

Federal question jurisdiction allows federal courts to decide cases that concern federal laws or the federal Constitution.  Ancillary jurisdiction allows federal courts to decide cases that concern state-law claims that are related to a claim that is already properly within the jurisdiction of the federal court.  Diversity of citizenship jurisdiction allows federal courts to decide cases in which the opposing parties are citizens of different states and the amount in controversy exceeds $75,000.

Here, we are concerned only with the question of when a corporate defendant in a civil lawsuit in a Michigan court can remove a lawsuit against it to a U.S. district court in Michigan on the basis of the diversity of citizenship.

First, the amount in controversy must exceed $75,000.  Second, the plaintiff and the corporate defendant(s) must be citizens of different states.  Therefore, if the plaintiff is a citizen of Michigan, the corporate defendant must be a citizen of some other state.  For purposes of the federal diversity statute, a corporation is deemed to be a citizen of the state in which it is incorporated and also of the state in which it maintains its “principal place of business.”  If either one of those states is Michigan, then the U.S. district court would not have subject matter jurisdiction over the lawsuit, because the plaintiff and the defendant would be citizens of the same state, namely, Michigan.

In many instances, the matter will be decided by whether the corporate defendant has its “principal place of business” in Michigan or in some other state.  Of course, the plaintiff, who originally filed the lawsuit in a Michigan state court, will argue that the corporate defendant’s “principal place of business” is Michigan, whereas the corporate defendant, wanting the lawsuit to be decided in federal court, will argue that its “principal place of business” is not Michigan, but rather is some other state.

For many years, the term “principal place of business” was interpreted differently among the federal circuits throughout the nation.  For example, some circuits interpreted this term using the so-called “corporate activities/place of activities” test, which emphasized the location of production activities or service activities of the corporate defendant.  Other circuits interpreted the term using the so-called “nerve center” test, which emphasized the place of corporate decision-making authority and overall control of the corporate defendant.  Then there were circuits, like the 6th Circuit (which includes Michigan), that interpreted the term using the so-called “total activity” test, which emphasized the necessity of taking into consideration all the relevant factors and then weighing them in light of the facts in the case.

In other words, for many years, the term “principal place of business” spawned several inconsistent tests that got more and more complicated and convoluted over time.

In 2010, the U.S. Supreme Court finally entered the fray, frankly acknowledging that the tests that the various circuits had developed over the years for determining a corporate defendant’s “principal place of business” for purposes of federal diversity jurisdiction had become too inconsistent and too complicated to be of much use.  In Hertz Corp. v Friend, 130 S Ct 1181 (2010), the Supreme Court issued an opinion intended to clarify and simplify the applicable test in this area.

In an unanimous opinion, the Supreme Court in Hertz Corp. held that a corporation’s “principal place of business” for diversity jurisdiction purposes is its “nerve center,” which it described as “the place where the corporation’s high level officers direct, control, and coordinate the corporation’s activities.”  The Supreme Court stressed that this “nerve center” will “typically be found at the corporation’s headquarters.”

The Supreme Court asserted that this test, while not perfect, “provides a sensible test that is relatively easier to apply” than all the earlier tests, although it might, from time to time, “produce results that seem to cut against the basic rationale” for the federal removal statute itself.  For example, the Supreme Court gave the following example as one of those instances in which a surprising result might be obtained under its “simplified” test.

For example, if the bulk of a company’s business activities visible to the public take place in New Jersey, while its top officers direct those activities just across the river in New York, the “principal place of business” is New York. . . .  [and] the corporation will still be entitled to remove a New Jersey state case to federal court.  [Hertz Corp v Friend, 130 S Ct at 1194.]

So this is what to keep in mind: if a corporate defendant wants to remove a civil action against it from a Michigan state court to a U.S. district court in Michigan on the basis of diversity of citizenship, for the most part, its citizenship will be determined by the state of its “principal place of business,” which in turn will be determined by the location where its top officers actually direct, control, and coordinate the corporation’s activities, which will typically be found at the corporation’s headquarters.

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REGISTER NOW! | BUCKEYE SEMINAR

THE BUCKEYE SEMINAR WILL TAKE PLACE ON THURSDAY OCTOBER 17, 2013 AT THE GREATER COLUMBUS CONVENTION CENTER.  PLEASE CONTACT EILEEN CARTY AT (248)641-7600 OR ecarty@garanlucow.com

Seminar Agenda:

8:30 – 9:00 a.m. CONTINENTAL BREAKFAST / REGISTRATION

9:00 – 9:05 a.m. WELCOME AND INTRODUCTION

Speaker: SUSAN M. WILLIAMS

9:05 – 9:35 a.m. NO-FAULT LAW UPDATES

Speaker: ADAM K. GORDON

9:35 – 10:05 a.m. TRANSPORTATION & HOME ACCOMMODATION ISSUES POST ADMIRE

Speaker: BRYAN VALENTINE

10:05 – 10:35 a.m. TIPS & STRATEGIES IN DEFENDING PIP PROVIDER LAWSUITS

Speaker: STACEY L. KING

10:35 – 10:50 a.m. BREAK

10:50 – 11:20 p.m. WORK LOSS CLAIMS:

DEALING WITH SELF EMPLOYED & SMALL BUSINESS CLAIMANTS

Speaker: NATHAN WELCH

11:20 – 12:30 p.m. DEPOSITION/TRIAL TESTIMONY TIPS FOR CLAIMS ADJUSTERS:

PRODUCING/KEEPING CLAIMS FILES

Speaker: JOHN W. WHITMAN

12:30 – 1:00 p.m. QUESTION & ANSWER SESSION

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REGISTER NOW! | WINDY CITY SEMINAR

THE WINDY CITY SEMINAR WILL TAKE PLACE ON WEDNESDAY NOVEMBER 13, 2013 AT THE MARRIOTT SCHAUMBURG. PLEASE CONTACT EILEEN CARTY AT (248)641-7600 OR ecarty@garanlucow.com

Seminar Agenda:

8:30 – 8:55 A.M. CONTINENTAL BREAKFAST / REGISTRATION

8:55 – 9:00 A.M. WELCOME AND INTRODUCTION

Speaker: DAVID A. COUCH, Esq.

9:00 – 9:30 A.M. MICHIGAN THIRD PARTY UPDATES

Has the application of the serious impairment of body function threshold really changed after McCormick v Carrier?

Speaker: DAVID A. COUCH

9:30 – 10:00 A.M. ILLINOIS THIRD PARTY UPDATES

Speaker: GREGORY M. BOKOTA, Esq.

10:00 – 10:30 A.M. PREMISES LIABILITY UPDATE-NATURE OF THE DEFECT AND NOTICE

Speaker: NATHAN A. DODSON, Esq.

10:30 – 10:45 A.M. BREAK

10:45 – 11:15 A.M. MICHIGAN FIRST PARTY NO-FAULT (PIP) UPDATES

New limitations on payment of Guardian and Conservator fees as well as handicap modified vehicles.

Speaker: DAVID A. COUCH, Esq.

11:15 – 11:45 A.M. ILLINOIS FIRST PARTY UPDATES

Speaker: GREGORY M. BOKOTA, Esq.

11:45 – 12:15 P.M. PREMISES LIABILITY-OPEN AND OBVIOUS

Speaker: NATHAN A. DODSON, Esq.

12:15 – 12:30 P.M. QUESTION AND ANSWER SESSION

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