Fourth Circuit Applies “Nerve Center” Test for Diversity Jurisdiction

Clifton L. Brinson, Michael W. Mitchell and Donald H. Tucker, Jr.

On January 7, 2014, the Fourth Circuit applied the “nerve center” test for determining a corporation’s principal place of business for diversity jurisdiction. The Supreme Court recently adopted the nerve center test in Hertz Corp. v. Friend, 559 U.S. 77, 92-93 (2010).

In Hoschar v. Appalachian Power Co., No. 12-2482 (4th Cir. Jan. 7, 2014), the defendant power company removed the plaintiff’s West Virginia state court action to federal court on the basis of diversity jurisdiction. The plaintiff then moved to remand the case to state court, arguing that the defendant’s principal place of business was West Virginia and, therefore, there was no diversity of citizenship for the purposes of federal court jurisdiction.

The Fourth Circuit affirmed the district court’s denial of the plaintiff’s motion to remand because the evidentiary record before the Court showed that Columbus, Ohio, was the location where the “officers [of the corporation] direct, control, and coordinate the corporation’s activities.” In other words, the corporation’s nerve center was in Ohio, not in West Virginia. The corporation had a substantial corporate presence in West Virginia, but the Ohio corporate office was the place where the Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary, and all Directors made significant decisions and set corporate policy. Twenty-two corporate officers had their offices in Ohio, whereas only five had their offices in West Virginia. The plaintiff correctly noted that the corporation’s website referred to the West Virginia office as the “headquarters,” but the record showed that this was a misnomer and not a reflection of the corporation’s current operations.

This jurisdictional battle was not a mere side-show to the underlying merits of the case, because the district court also had granted the defendant’s motion for summary judgment. The Fourth Circuit went on to affirm the district court’s dismissal of the case on the grounds that the defendant could not have foreseen the harm that occurred to the plaintiff while working at defendant’s power plant.

While this case underscores the fact-intensive inquiry involved in determining diversity jurisdiction, it also reflects the degree of legal clarity that the Supreme Court brought to the inquiry in Hertz.

The Practice Tip here for practitioners is not to underestimate the extent of the factual inquiry that the federal courts will undertake in determining diversity jurisdiction.

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