Federal District Court Applies Supreme Court's 'Nerve Center' Test

Recently, in Brewer et al. v. SmithKline Beacham Corporation d/b/a GlaxoSmithKline (Civ. Action No. 10-4443 et seq. (E.D. Pa., March 24, 2011)), the United States District Court for the Eastern District of Pennsylvania applied Hertz in deciding the citizenship, for purposes of the Diversity Statute, of an operating entity organized as a limited liability company (“LLC”) within a corporate holding company structure. In a fact-specific ruling, the district court found that “for purposes of determining the citizenship of a limited liability company whose sole member is a holding company that does not direct or control the operations of the limited liability company, we look to the 'nerve center' of the limited liability company to which the holding company has delegated the operational decision-making.”

The purpose of this article is to discuss these significant developments in the jurisprudence underlying the important concept of federal diversity jurisdiction. While corporate executives and their advisers will no doubt appreciate the certainty provided by the Supreme Court's affirmation of the “nerve center” test for determining a corporation's principal place of business, they must be mindful that the courts will focus on the actual “center of direction, control, and coordination” rather than artificial attempts to manipulate jurisdiction.