The Legal Intelligencer Blog

Hertz So Good: High Court Clarifies the Meaning of a Corporation’s “Principal Place of Business”

By Ryan J. Fleming

In a unanimous decision, the Supreme Court recently issued a decision clarifying the “principal place of business” clause of the federal diversity jurisdiction statute, which provides that “a corporation shall be deemed to be a citizen of any State by which is has been incorporated and of the State where it has its principal place of business.” (emphasis added).  The case involved a wage and hour lawsuit filed by two California citizens in California state court against Hertz Corporation. Hertz sought to remove the case to federal court on the basis of diversity jurisdiction, contending that its principal place of business was in New Jersey, not California.  Hertz argued that its leadership, as well as that of its domestic subsidiaries, was based out of Hertz’s Park Ridge, New Jersey corporate headquarters, and that California was just one of approximately 44 states where Hertz had significant business operations.

The California district court, applying the 9th Circuit’s diversity analysis, determined that Hertz was a citizen of California based upon the relative amount of business it does in California.  Because the “plurality of each of [Hertz’s] relevant business activities” occurred in California, the court held that California must be Hertz’s principal place of business. 

The Supreme Court disagreed.  It noted that the statutory language was simply applied if the corporation’s headquarters and executive offices were located in the corporation’s state of incorporation.  But with the preponderance of national and international businesses, the question became more complicated because of the “far-flung” business activities of many corporations. The result was that courts eventually began to rely on one of three corporate citizenship tests: (i) the “nerve center” test – which holds that the relevant state is that containing the place where the corporation has an office from which its business is directed and controlled; (ii) the “business activities” test – which focuses on where a corporation’s actual business activities are located; and (iii) the “total activities” or “center of gravity” test – which combines aspects of the nerve center and business activities tests.

Reviewing all three tests, the court held the nerve center test to be the most appropriate.  First, it is supported by the statutory language, which calls for citizenship based on whether the corporation’s singular, principal place of business is located within the relevant state.  The business activities test, on the other hand, has led courts incorrectly to look at the state itself by analyzing the business activities occurring there. Indeed, the court noted that virtually every large corporation would be held a citizen of California by virtue of its large population if analysis of the corporation’s business activities were determinative.

Further, “administrative simplicity” is a virtue in a jurisdictional statute, according to the court, and promotes greater predictability. Such predictability is of value to corporations in making business decisions and plaintiffs deciding where to file suit.  As the court reads the statute’s legislative history, it is clear that the “principal place of business” must be no more complex than necessary. A nerve center test is comparatively simple in relation to the alternatives.

While, as the court acknowledges, the nerve center test is not perfect, “[a]ccepting occasionally counterintuitive results is the price the legal system must pay to avoid overly complex judicial administration.”

Ryan J. Fleming, a member of Stradley Ronon Stevens & Young's employment and labor practice group, focuses on employment litigation including discrimination and wrongful discharge claims and counsels employers on a variety of employment-related issues. He can be contacted at [email protected] or visit www.stradley.com for more information.

Disclaimer: Blog postings are not legal advice and do not create an attorney-client relationship. Materials posted here represent the views of the poster or commenter and not the views of Stradley Ronon Stevens & Young, LLP or its clients.

The Dog Days of the Supreme Court’s Summer: Scalia vs. Stevens (and Dershowitz) Over the Potential Execution of an Innocent Man

On Aug. 17, the U.S. Supreme Court issued an unusual decision that has generated significant discussion among court watchers.  In the matter of In re Troy Anthony Davis, the court’s transfer of a state death row inmate’s habeas corpus petition to a Georgia federal court for further consideration is not what has drawn interest.  Rather, it is Justice Antonin Scalia’s startling dissent (joined by Justice Clarence Thomas) and Justice John Paul Stevens’ response that have stirred interest.

The inmate, Troy Anthony Davis, was found guilty 18 years ago of the murder of Mark Allen MacPhail, an off-duty police officer.  Davis came before the court seeking the extraordinary relief of original writ of habeas corpus – a petition lodged directly with the Supreme Court itself, rather than a lower state or federal court, based on his “actual innocence.”  His petition contended that since his conviction seven of the state’s key witnesses recanted their trial testimony and several individuals have implicated the state’s principal witness as the shooter.  The court ordered the petition transferred and allowed numerous amici briefs to be filed.

In what is a stunning dissent, Scalia contends the court is sending the Georgia court on a “fool’s errand,” since that court can only order Davis’ release on a habeas writ if the underlying state conviction “was contrary to, or involved an unreasonable application of, clearly established Federal Law as established by the Supreme Court of the United States.”  Scalia argued this was not possible, making the incredible statement that the Supreme Court “has never held that the Constitution forbids the execution of a convicted defendant who has had a full and fair trial but is later able to convince a habeas court that he is ‘actually’ innocent.”

The implication of this statement is startling.  Scalia is essentially arguing that a death row inmate’s innocence is immaterial if he previously received a fair trial.  As Professor Alan Dershowitz stated in a piece published on the Daily Beast, this would mean that:

If a defendant were convicted, after a constitutionally unflawed trial, of murdering his wife, and then came to the Supreme Court with his very much alive wife at his side, and sought a new trial based on newly discovered evidence (namely that his wife was alive), these two justices would tell him, in effect: “Look, your wife may be alive as a matter of fact, but as a matter of constitutional law, she’s dead, and as for you, Mr. Innocent Defendant, you’re dead, too, since there is no constitutional right not to be executed merely because you’re innocent.”

Stevens, joined by Justices Ruth Bader Ginsburg and Stephen Breyer, issued a concurring opinion specifically responding to the dissent.  Stevens stated that surely the “substantial risk of putting an innocent man to death clearly provides an adequate justification for holding an evidentiary hearing.”  Simply, “it would be an atrocious violation of our Constitution and the principles upon which it is based to execute an innocent person,” according to Stevens.

Plainly, logic – and justice – would seem to dictate that the potential execution of an innocent man may present the possibility of an unreasonable application of federal law.  The fact that Justice Scalia disagrees is troubling in the extreme.

Ryan J. Fleming, a member of Stradley Ronon Stevens & Young's employment and labor practice group, focuses on employment litigation including discrimination and wrongful discharge claims and counsels employers on a variety of employment-related issues.

Blog postings are not legal advice and do not create an attorney-client relationship. Materials posted here represent the views of the poster or commenter and not the views of Stradley Ronon or its clients.

Ryan J. Fleming
Stradley Ronon Stevens & Young, LLP
www.stradley.com

U.S. Supreme Court Imposes Tougher Hurdle for ADEA Plaintiffs

In an opinion issued near the end of its most recent term, the U.S. Supreme Court continued its move to the right, increasing the evidentiary burden on age discrimination plaintiffs seeking recovery from their employers.  Gross v. FBL Financial Services Inc. centered around a district court’s jury instructions at trial, where Gross, who alleged he was demoted in favor of a younger employee, introduced evidence showing that the employment decision was at least in part because of his age.  His employer, FBL, defended its decision on the basis that the move was part of a corporate restructuring.  The district court instructed the jury that it must return a verdict for Gross if it found that he proved by a preponderance of the evidence that FBL demoted him and that his age was a “motivating factor” in the demotion, but that the jury must find for FBL if it proved that it would have demoted Gross regardless of his age.  The jury found for Gross and awarded him $47,000 in lost compensation.

The 8th U.S. Circuit Court of Appeals reversed on appeal, holding that the decision violated the allocation of burden of persuasion principles set forth in the Supreme Court’s decision in Price Waterhouse v. Hopkins.  Thus, in a “mixed motive” discrimination case like Gross’ (that is, where both legitimate and illegitimate criteria motivated the employment decision) Gross needed to show “direct evidence” of age discrimination for the burden to shift back to FBL to show it would have acted the same way regardless of age.  Because Gross acknowledged that he could not show direct evidence, the 8th Circuit held the jury should only have been instructed to consider whether Gross had proven that age was the determining factor in FBL’s decision – no burden-shifting instruction was permitted and the burden remained with Gross.

Thus, the question before the Supreme Court on appeal was whether a plaintiff must present direct evidence of discrimination to obtain a mixed-motives, burden-shifting instruction in an ADEA case.  But the court ignored that question altogether, taking a step back to answer the more fundamental question of whether the burden of persuasion ever shifts back to the employer in an ADEA case.

The court held that it does not, noting first that Price Waterhouse – a Title VII case – does not control the court’s interpretation of the ADEA.  The court further noted that while Congress amended Title VII in 1991 to explicitly authorize discrimination claims in which an improper consideration was a motivating factor (rather than the sole factor) behind an employment decision, it did not do so as to the ADEA.  Its decision not to do so was plainly intentional, according to the court.  Therefore, a plaintiff can only show an ADEA violation by showing that the employer acted “because of” her age – that is, that age was the “but for” cause of the employer’s action. 

Justice John Paul Stevens’ dissent argued that the majority had engaged in unnecessary lawmaking by answering a question not before it.  The dissent’s argument that the majority colloquially, and incorrectly, interprets “because of” in the ADEA to mean “but for,” a conclusion rejected by the court and Congress as to Title VII, is unpersuasive in light of the fact that Congress had ample opportunity to create a “mixed motives” ADEA claim when it amended Title VII in 1991, but chose not to. 

With the decision, the court has handed another victory to employers’ counsel, and made it a steeper climb for plaintiffs and their counsel in ADEA cases.

Ryan J. Fleming, a member of Stradley Ronon Stevens & Young's employment and labor practice group, focuses on employment litigation including discrimination and wrongful discharge claims and counsels employers on a variety of employment-related issues.

Blog postings are not legal advice and do not create an attorney-client relationship. Materials posted here represent the views of the poster or commenter and not the views of Stradley Ronon or its clients.

 Ryan J. Fleming
Stradley Ronon Stevens & Young, LLP
www.stradley.com

 

'Strong Basis In Evidence' – Supreme Court Establishes New Standard For Discard Of Administered Promotional Examinations Part 2

In Ricci, the U.S. Supreme Court similarly rejected New Haven’s argument that its “good faith” belief in disparate impact liability should be sufficient to justify its disparate treatment of the white firefighters. The court noted that this approach would “encourage race-based action at the slightest hint of disparate impact.” A standard that low would amount to a de facto quota system focusing on the statistical results only, and would allow an employer to re-test until it reached the racial balance it wanted, in violation of Title VII’s ban on outright racial balancing.

Therefore, the court turned to what the appropriate standard would be, looking to its previous decisions in similar cases, albeit in the Equal Protection Clause context. The court noted that, in those cases, government actions intended to remedy past racial discrimination, even if truly remedial in nature, are only constitutional when there is a “strong basis in evidence” that such actions are necessary. The court held that the use of this standard in Title VII cases is appropriate because it will allow both the disparate impact and disparate treatment provisions to retain their effect, and would ensure that allowing violations of one of those provisions in the name of compliance with the other will only occur in very rare circumstances.

The court held that, to present sufficient evidence of a threat of disparate impact liability, the city would need to show that there was a strong basis in evidence to believe a potential plaintiff could show that the exams were not job-related and consistent with business necessity, or that there was a less discriminatory alternative to the test that the city refused to adopt. Based on the record of the city’s public hearings, the court held that there was not a strong basis in evidence that either deficiency existed. Holding that “fear of litigation alone cannot justify an employer’s reliance on race to the detriment of individuals who pass the examinations and qualify for promotions,” the court held the city’s actions violated Title VII.

Justice Ginsburg dissented, joined by Justices Stevens, Breyer and Souter. The dissent took issue with the very basis of the majority opinion – that is, that when an employer changes an employment practice in an effort to comply with Title VII’s disparate impact provisions it acts “because of race” in violation of Title VII. The dissent noted that the court held in previous disparate impact precedent that an employer can maintain particular employment criteria that operate to the disadvantage of minorities only if the practice is justified by business necessity. Therefore, if an employer rejects such criteria because of reasonable doubts about its reliability, the employer can hardly be held to have engaged in discrimination “because of race,” since clearly the employer acted to comply with Congress’s mandate, via Title VII, regarding disparate impact. The dissenting justices would have held that if an employer has “good cause” to believe that a particular selection device will not withstand scrutiny for business necessity, it cannot be held to have engaged in disparate treatment against the majority when it discards the device upon recognizing its disproportionate racial impact.

The dissent’s argument about the majority holding is compelling. Ginsburg essentially argues that the majority opinion is based on a flawed perception that the city only looked at one factor in making the decision to scrap the test results – the race of the candidates. However, the city looked at a much broader set of criteria in reaching that decision, according to the dissent – including the lengthy history of discrimination against African-Americans and other minorities seeking promotion within fire departments. Therefore, it is too simplistic – and perhaps too easy – to attribute the city’s decision to having been made “because of race.”

Further, while the majority holding clearly makes new law on how such promotional tests will be interpreted in the future, it leaves a glaring hole – it does not set forth a standard for when an employer can be confident that it has the requisite “strong basis in evidence” that its test is likely to result in a disparate impact claim to justify scuttling the results of an administered test that the employer has selected and advocated as the means of promotion. As the dissent notes, since that standard is drawn from “inapposite” Equal Protection Clause precedents that dealt with intentional acts by employers, we are left with an “enigmatic” standard that is not readily applicable in the unintentional, disparate impact context.

In light of the murkiness of some of the majority’s reasoning, the salient points raised by the dissent, and the likelihood of future litigation to fill in the holes, it is likely that this decision will be revisited.

Ryan J. Fleming, a member of Stradley Ronon Stevens & Young's employment and labor practice group, focuses on employment litigation including discrimination and wrongful discharge claims and counsels employers on a variety of employment-related issues.

Blog postings are not legal advice and do not create an attorney-client relationship. Materials posted here represent the views of the poster or commenter and not the views of Stradley Ronon or its clients.

Ryan J. Fleming
Stradley Ronon Stevens & Young, LLP 
www.stradley.com

U.S. Supreme Court Establishes New Standard for Judicial Recusal

On June 8, the U.S. Supreme Court issued its opinion in Caperton v. A.T. Massey Coal Co. Inc., establishing a new standard for judicial recusal. In 2002, a West Virginia jury found A.T. Massey Coal Co. liable to Hugh Caperton and others on fraudulent misrepresentation and other claims, awarding $50 million in compensatory and punitive damages. In anticipation of Massey’s appeal to the state Supreme Court, Don Blankenship, Massey’s chairman, threw his financial support behind Brent Benjamin, an attorney running for a seat on that court in West Virginia’s 2004 judicial elections, contributing more than $3 million to Benjamin’s campaign. Blankenship’s contributions exceeded the total contributions by all other Benjamin supporters combined, and were three times as much as Benjamin’s own campaign committee spent, helping Benjamin win the election with 53.3 percent of the vote.

On appeal, the West Virginia Supreme Court reversed the $50 million verdict against Massey in a 3-2 decision. Caperton moved for rehearing and for Benjamin’s recusal three times. Each time, the court affirmed the reversal of the verdict and each time Benjamin denied the motion for recusal on the grounds that there was no objective evidence that he was biased.

The U.S. Supreme Court considered whether Benjamin’s failure to recuse himself violated the Due Process Clause. In a 5-4 opinion authored by Justice Anthony Kennedy, the court reversed the West Virginia Supreme Court’s decision. The court noted that historically a court could find a constitutionally unacceptable bias sufficient to invoke the Due Process Clause in very limited circumstances typically involving the judge’s personal interest in the case. In those instances, the Supreme Court noted that the inquiry regarding the necessity for recusal must be objective – a court must not inquire into whether a judge was actually biased for some reason, but rather whether the average judge in that position is likely to be biased.

On those grounds, the court rejected Massey’s argument that Benjamin’s reason for denying the recusal motions – that Benjamin’s own analysis concluded that Caperton could not provide any objective evidence that Benjamin was actually biased – was correct. The court noted that judges are asked every day to consider the existence of their own personal bias. It is because of the frequency and the complexity of such self-analysis that an objective standard is required. The court agreed with Caperton’s argument – that the extraordinary nature of Blankenship’s financial contributions to Benjamin’s campaign created a constitutionally intolerable “probability of bias.” While Benjamin would not realize a direct, personal financial gain, the court decided he would certainly feel a “debt of gratitude” to Blankenship and Massey. Considering the size of the contribution and its likely effect on the election outcome, the court held that Benjamin had a duty to recuse himself.

Chief Justice John Roberts issued a blistering dissent, joined by Justice Antonin Scalia, Justice Clarence Thomas and Justice Samuel Alito. The dissent noted that the majority had introduced new grounds for recusal – “probability of bias” – that would prove virtually impossible to limit in any meaningful way. The dissent noted that the majority opinion would require judges to act as political scientists, economists and psychologists in determining the degree to which campaign contributions affected the outcome of a campaign. Thus, the dissent argued, “the cure is worse than the disease” in that the new standard would increase the number of recusal motions, leading to further erosion of public confidence in judicial impartiality – the very ideal the majority claimed its holding was meant to protect.

Ryan J. Fleming, a member of Stradley Ronon Stevens & Young's employment and labor practice group, focuses on employment litigation including discrimination and wrongful discharge claims and counsels employers on a variety of employment-related issues.

Blog postings are not legal advice and do not create an attorney-client relationship. Materials posted here represent the views of the poster or commenter and not the views of Stradley Ronon Stevens & Young, LLP or its clients.

Ryan J. Fleming
Stradley Ronon Stevens & Young, LLP
[email protected]
www.stradley.com

 

Governor Signs Bill Creating Pennsylvania Mini-COBRA Law Affecting Small Employers

On June 10, Gov. Edward G. Rendell signed into law a Pennsylvania “mini-COBRA” bill that will provide for continued health insurance in a manner comparable to the federal COBRA law for employees of small employers in Pennsylvania. The new law will have two important effects. First, it will require small employers’ group health plans that are not subject to the federal COBRA law (those employers with between two and 19 employees) to offer continued group health insurance to employees and qualified dependents of employees who experience a qualifying event, including death of a covered employee, termination of a covered employee’s employment (other than for the employee’s gross misconduct) and a spouse’s divorce or legal separation from the covered employee. Such continuation coverage must be offered at the same level of benefits that the employee received prior to the qualifying event, and for a period of up to nine months from the date of the qualifying event. Coverage will be offered at the employee’s or the qualified dependent’s expense (up to 105 percent of the normal cost of coverage).

The law will exclude from continuation coverage any individual who was not covered by the employer’s group health plan for at least three months prior to the qualifying event; who is eligible for coverage under Medicare; or who is, or could be, covered by another group health insurance arrangement.

Second, and perhaps more importantly, the Pennsylvania mini-COBRA law will enable covered individuals to take advantage of the premium subsidy provisions of the American Recovery and Reinvestment Act of 2009, or ARRA. Under ARRA, any employee of a small employer who becomes entitled to continuation coverage under the Pennsylvania mini-COBRA law by virtue of his or her involuntary termination from employment will be entitled to a federal government subsidy of 65 percent of the premiums for the coverage, so long as the employee pays the remaining 35 percent. An employee will only be eligible for the subsidy if his or her employment termination occurs after the effective date of the new law, which, according to the text of the bill, will be the 30th day after signature by the governor – or July 10 – and before Jan.1, 2010. Therefore, an employer may wish to defer the employment termination of an employee until the expiration of 30 days following the governor’s signature to allow the employee to receive the subsidy.

The new law includes notification requirements applicable to employers, employees and dependents, plan administrators and insurers. The group policy must provide notice of the new law to policyholders within 45 days of the effective date of the law. Employers of covered employees must notify the employee or dependent, the insurer and the plan administrator (unless, obviously, the plan administrator is the employer) of a qualifying event (and, for the employee or dependent, his or her rights under the law) within 30 days of the qualifying event. The covered employee or eligible dependent must notify the plan administrator of his or her election of coverage within 30 days of receiving the notice of rights from the employer.

Employers with between two and 19 employees should review the requirements of the new law and revise their policies to ensure compliance.

Ryan J. Fleming, a member of Stradley Ronon Stevens & Young's employment and labor practice group, focuses on employment litigation including discrimination and wrongful discharge claims and counsels employers on a variety of employment-related issues.

As co-chairman of Stradley Ronon’s employee benefits & ERISA practice group, James Podheiser advises for-profit and not-for-profit organizations and individuals in the areas of employee benefits law, deferred compensation arrangements, stock plans, employee vs. independent contractor issues and all aspects of ERISA.

Blog postings are not legal advice and do not create an attorney-client relationship. Materials posted here represent the views of the poster or commenter and not the views of Stradley Ronon Stevens & Young, LLP or its clients.

Ryan J. Fleming
[email protected]
Stradley Ronon Stevens & Young, LLP
www.stradley.com

U.S. Supreme Court Clarifies When State Legislatures Can Remove State Court Jurisdiction Over Federal Claims

In its recent opinion issued in Haywood v. Drown, the U.S. Supreme Court clarified that a state legislature cannot remove the jurisdiction of certain of its courts to hear particular federal claims simply because the legislature finds those claims frivolous or vexatious. The case stemmed from the New York Legislature’s decision that, in its opinion, lawsuits against corrections officers for damages were too numerous, too frivolous or both. As a result, the Legislature enacted Corrections Law § 24, which stated that any claim against a state correctional officer for damages could only be brought in the New York Court of Claims, and even then only against the state – not the individual officer. This is a significant restriction, as plaintiffs in the Court of Claims have no right to a jury trial and cannot seek attorneys’ fees, punitive damages or injunctive relief.

The pertinent result of Corrections Law § 24 was to remove the jurisdiction of the New York Supreme Court – the state’s court of general, original jurisdiction – over claims asserted under 42 U.S.C. § 1983, the vehicle by which individuals can seek damages or injunctive relief against persons acting “under color of state law.” Thus, when an inmate in New York’s Attica Correctional Facility attempted to bring Section 1983 claims against several corrections employees in the New York Supreme Court his cases were dismissed by that court, and the dismissal upheld by the intermediate court and the New York Court of Appeals.

The U.S. Supreme Court reversed the Court of Appeals in a 5-4 decision. Justice John Stevens’ majority opinion noted that long-standing precedent holds that Section 1983 claims can generally be brought in either state or federal courts. New York’s attempt to evade that result by relying on a “neutral” rule that affected both state and federal damages claims against corrections officers was improper because established precedent precludes a finding of neutrality if the state’s only purpose was to employ a jurisdictional rule to avoid application of a locally disfavored federal statute. The court held that was precisely what New York did here – a conclusion made clear by the fact that the state kept intact plaintiffs’ ability to bring Section 1983 claims for damages against, for instance, police officers, and only restricted such claims against corrections officers. The majority held that the law conflicts with Congress’ determination that all persons who violate federal rights while acting under color of state law must be held liable for damages and, therefore, Corrections Law § 24 violated the Supremacy Clause of the U.S. Constitution.

Justice Clarence Thomas dissented, in an opinion joined by Chief Justice John Roberts and Justices Antonin Scalia and Samuel Alito. The dissent argued from the strict constructionist point of view that because Article III of the Constitution gives Congress the duty of designating federal – and not state – jurisdiction, the states are left to consult their own authority over what cases their courts can and cannot hear. On that basis, then, New York had every right to remove the New York Supreme Court’s jurisdiction to hear Section 1983 claims against state correctional officers.

Ryan J. Fleming, a member of Stradley Ronon Stevens & Young's employment and labor practice group, focuses on employment litigation including discrimination and wrongful discharge claims and counsels employers on a variety of employment-related issues.

Blog postings are not legal advice and do not create an attorney-client relationship. Materials posted here represent the views of the poster or commenter and not the views of Stradley Ronon Stevens & Young, LLP or its clients.

Ryan J. Fleming
Stradley Ronon Stevens & Young, LLP
[email protected]
www.stradley.com