Civil Practice – Federal Jurisdiction – Diversity – Corporate – ‘Nerve Center’

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Central W.Va. Energy Co. v. Mountain State Carbon LLC. (Lawyers Weekly No. 001-074-11, 12 pp.) (Wynn, J.) No. 10-1486, April 13, 2011; USDC at Beckley, W.Va. (Johnston, J.) 4th Cir.

Holding: In a West Virginia coal sales company’s contract action against steel companies Severstal Wheeling and Mountain State, the 4th Circuit reverses the district court’s dismissal of the case for lack of subject matter jurisdiction; the district court erred in holding that Severstal Wheeling had its principal place of business in Wheeling, W.Va., instead of Dearborn, Mich., its “nerve center.”

In its order dismissing the case, the district court focused on the fact that Severstal Wheeling’s self-described day-to-day operations such as “purchasing, sales, transportation, engineering, human resources and accounting/financial functions” are all handled in Wheeling, W.Va., and noted Severstal Wheeling’s “visibility in and involvement with the Wheeling community.”

For federal diversity jurisdiction purposes, a corporation is a citizen of the states in which it has been incorporated and in which it has its principal place of business. In Hertz Corp. v. Friend, 130 S. Ct. 1181, 1186 (2010), the Supreme Court clarified that the phrase “‘principal place of business’ refers to the place where the corporation’s high level officers direct, control, and coordinate the corporation’s activities.”

In this case, seven of defendant Severstal Wheeling, Inc.’s eight officers, including its chief executive officer, chief operating officer, and chief financial officer, set corporate policies and oversee significant corporate decisions out of Dearborn, Mich., Accordingly, under Hertz, Dearborn is Severstal Wheeling’s principal place of business. We therefore conclude that the district court erred in holding otherwise and reverse.

In Hertz, the Supreme Court made clear that, for purposes of diversity jurisdiction, a corporation’s principal place of business is always its “nerve center.” In this case, the record shows that the place where Severstal Wheeling’s officers direct, control and coordinate the corporation’s activities is Dearborn.

The touchstone now for determining a corporation’s principal place of business for diversity purposes is the place where the corporation’s high level officers direct, control and coordinate the corporation’s activities. Here, that is Dearborn, where nearly all the high-level officers work, make significant corporate decisions and set corporate policy. The district court erred in holding otherwise, and we reverse.

Reversed.