Don’t Dissolve the “Nerve Center”: A Status-LinkedCitizenship Test for Principal Place of Business

INTRODUCTIONConsider an Internet-based corporation that sold clothing and conducts all of its sales activities online.1 Because this company was primarily an online retailer, it made some of its controlling business decisions at a small office in Boston-the corporation's only office-and others by teleconference.2 Two and a half years ago, this corporation dissolved by filing a certification of dissolution with the State of Delaware, its state of incorporation.3 The corporation had failed to make a sufficient profit and its few stockholders unanimously voted to approve dissolution.4 Immediately after dissolving, the corporation broke the lease of its small office, as it could no longer afford to pay the rent. 5 The corporation's officers then left Boston and went home to Philadelphia, where the former chief executive officer-from his apartment-paid and closed the corporation's accounts and sold off its assets.6Two years and nine months after this corporation dissolved, the former landlord sues for the unpaid portion of the commercial lease.7 The landlord brings the action in a state court in Boston, but the corporation is concerned about out-of-state prejudice and seeks to remove the action to the U.S. District Court in Massachusetts.8At this point, because this corporation dissolved nearly three years ago, any local ties that it had in Boston have dissipated.9 Moreover, this corporation did not have many local ties while it was active, as this corporation was an Internet-based company, and its activities were essentially invisible to the public.10 The corporation thus argues that there is complete di-versity among the parties, as Delaware is its state of incorporation, and its "principal place of business" is Pennsylvania, where the officers are currently directing the closing of the business.11 The landlord, however, contends that there is not complete diversity among the parties, as the landlord is a citizen of Massachusetts and the dissolved corporation's principal place of business should be considered the state in which it last conducted business: Massachusetts.12The issue posed by this hypothetical is difficult because once a corporation dissolves or becomes inactive, determining its principal place of business becomes a more complex question.13 Since the financial crisis of 2008, business failure and dissolution has been the unfortunate fate of many corporations and financial institutions.14 When a corporation dissolves or becomes inactive, it ceases its normal business and thus no longer has a principal place of business in the colloquial sense of the term.15 Because such a corporation continues to legally exist, however, this change in active status raises important questions about whether the change impacts its jurisdictional citizenship.16Diversity jurisdiction under 28 U.S.C. § 1332 requires each party on one side of a controversy to be citizens of different states than those on the other side.17 Section 1332(c) indicates that a corporation is a citizen of its incorporat- ing state and its principal place of business.18 Establishing a uniform test to determine the principal place of business has been complicated by the variety of corporate structures and activities.19 As a result, in the 2010 case Hertz Corp. v. Friend, the U.S. Supreme Court provided guidance on this question by adopting a uniform test for all corporations.20 The Hertz Court held that a corporation's principal place of business is its "nerve center" -i.e., its "center of direction, control, and coordination."21This Note argues for a status-linked nerve center test for determining a corporation's principal place of business.22 Despite the Court's adoption of the nerve center test in Hertz, applying this test to atypical corporate structures and activities remains problematic.23 The finding of a status-linked nerve center will ensure that every corporation has a principal place of business and thus meets the dual corporate citizenship requirements of 28 U. …