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Tuesday, February 23, 2010

Corporate Headquarters, Defined


It just got a lot harder for class actions plaintiffs to bring those actions against corporate defendants in the state courts of their choice.
The United States Supreme Court issued a unanimous opinion this morning in the case of Hertz v. Friend (link unavailable just yet, check back at http://www.supremecourtus.gov/ under 2009 session slip opinions), ruling that a corporate defendant is ruled to be located where its corporate headquarters are, and those headquarters are located not necessarily where the company's operations are, but rather where the operations are directed from by upper management.
Under this reasoning, "operations" can be in state A, but if the corporate headquarters are in state B (and this is often the case for tax and corporate law purposes, such as in Delaware), the class action must be brought in state B.
This may prove to be a very corporate-friendly decision, for it will tend to encourage corporations to locate their upper management in states where "legal precedent" (the body of law comprised of prior court rulings) and the tone of the judiciary are considered pro-business.   Predictability will also be a big factor; corporations and their counsel like to have an idea of the tone of the courts in a state (or county).  Corporations will now have an incentive to locate their management in states which not only offer a nice quality of life and favorable (read: low) tax structure, but which also feature predictably pro-business courts.  

States just got another arena in which to compete against one another to attract business.   And big business just got another powerful reason to move out of New York and New Jersey.    Combine high personal taxes, high corporate taxes, generally onerous and complex regulations (which lawyers who bill by the hour love), unfavorable legal precedent, unsympathetic or outright hostile judges and equally unsympathetic or outright hostile juries, and you have a potentially toxic "perfect storm" for driving big corporations out of the New York metropolitan area.   Now, businesses won't just move their "back offices" out of these states; they can be counted on to move their entire upper management out as well.   After all, Delaware is only 110 miles away.

Eric Dixon is an attorney in New York and New Jersey, concentrating in litigation, investigative matters, and strategic analysis.  He comments regularly on legal, economic and political matters.

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