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High Court Makes it Harder for Plaintiffs to Avoid Federal Court in Contract Cases

The Supreme Court today unanimously ruled that plaintiffs cannot insist on California jurisdiction for lawsuits against national corporations just because those corporations do more business in the populous state than in any other state.

California employees of Hertz have sued for alleged unpaid overtime and vacation pay. Hertz has tried to remove the suit to federal court on the ground that it was not a citizen of California, but of New Jersey, where it is headquartered. A 9th Circuit panel had ruled that the lawsuit should remain in California state court because Hertz did more business in California than anywhere else.

The Supreme Court, via Justice Breyer, said a company should be considered a citizen of the state where its corporate "nerve center" is located. "In practice it should normally be the place where the corporation maintains its headquarters." But Justice Breyer referred the case back to lower courts to determine whether this means New Jersey or some other state.

This decision unfortunately won't affect product liability cases much, since plaintiffs can always avoid diversity removal to federal court by joining an in-state defendant (typically a local retailer). But it's good news on the contract front.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.