July 2, 2010
Written By Attorneys: Paulyne A. Gardner-Smith and Mike R. Fox
This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
On June 23, 2010, the United States District Court for the Eastern District of Pennsylvania remanded a lawsuit back to the Philadelphia Court of Common Pleas, applying the "nerve center" test to determine a company's principal place of business recently established by the United States Supreme Court in the case of Hertz v. Friend, 130 S. Ct. 1181 (2010).
In Monroe v. SmithKline Beecham and GlaxoSmithKline ("GSK"), No. 10-cv-02140, 2010 WL 2606682 (E.D. Pa. 2010), GSK sought removal of the case to federal court based on diversity jurisdiction. Although federal law provides that a defendant may not remove a case from a state of which it is a citizen, GSK maintained that removal was proper because the company recently changed its corporate domicile from Pennsylvania to Delaware. Therefore, it argued its "principal place of business," one of the factors used to determine a corporation's citizenship, was the state of Delaware.
Recently, in Hertz, the Supreme Court interpreted the term "principal place of business" to mean a company's "nerve center", the location where the company is controlled or directed. In Monroe, plaintiffs argued that GSK's "nerve center" was Pennsylvania and therefore the matter should be remanded.
To determine the location of GSK's "nerve center," the Court considered several factors. The first was GSK's 2009 Annual Shareholder's Report, which specifically listed Philadelphia, Pennsylvania as the company's headquarters and also stated that nearly all of GSK's American business activities are directed there. Second, the Court examined two legal documents from recent cases involving GSK where the company either stated affirmatively or admitted in an answer that its "principal place of business" was in Philadelphia. As a result, the Court determined that GSK's "nerve center" was indeed in Pennsylvania, and thus ruled that the removal petition was procedurally defective and the case should be remanded.
The Monroe Court's application of the nerve center test will lend support to plaintiffs who oppose a defendant's removal to federal court, even if diversity jurisdiction exists. Given this potential limitation, and especially in light of the evidence considered by the Monroe Court, companies should be sure that any statements as to where they are controlled, directed or otherwise run are accurate as statements in promotional materials, legal documents, or even everyday speech could be used against a defendant to defeat diversity jurisdiction. GSK has asked the Court to reconsider the Monroe ruling. NLdH will continue to monitor this case and will provide updates as further developments arise.
