Should Headquarter be considered as Principal place of Business – Hertz Corporation vs. Friend
Happened to come across Hertz Corporation v. Friend arguments in US Supreme court, below is the court transcript:
http://www.supremecourtus.gov/oral_arguments/argument_transcripts/08-1107.pdf
Putting some of my thoughts, which happen to be more in favor of Mr. Schneider arguments that “Headquarter” should just not be considered as “Principal place of business”
First of all congress purposefully chose not to use the term “Headquarter” instead used “Principal place of business”, reason being they wanted to emphasize that the citizenship of a company should be of the state where it has a huge presence and this decision should be left to Judges in future (50 yrs from then) as they will be in a better position to decide based on circumstances of the case at the time.
Secondly, the cost and ambiguity associate with not very clear definition of “Principal place of business” is justified but it does not in any way support the argument that Headquarter should be the principal place of business. However there are more convincing arguments against it.
In practice, the plaintiff who is a common man usually just won’t file a law suit on big corporations by himself searching records on internet, but most likely he will first consult lawyers or law firms, and for lawyers predicting the “Principal place of business” may not be very tough or resource consuming.
Secondly, the “Local Bias” will be more prevalent and jury will be more biased towards a corporation headquartered in their community. Because historically headquarters of most of the big corporations is where the founders first started the business, and usually it is their home state. And people feel a sense of pride in having a big corporation or CEO from their place. Also many time most of the corporations have good relations with the community they are headquartered in, as many of them donate for charity or local causes. And since the majority of the business may not be in the same place as headquarter, it would be difficult for local people to understand any malpractice or consumer inconvenience the company actually causing. Given the above scenarios, if the plaintiff is from the place where corporation is headquartered, his/her preferences would be to have the case under Federal court, as the chances of fair trail in federal court would be more.
However if the plaintiff is from a place where Corporation actually sell majority of the products and has its most consumers, then the chances of fair trail are more if the case is in Local (state) court, since local people would understand the corporations practices better from the consumers point of view.
In another argument, since in last 50 years there have been very few cases (I am assuming based on the arguments from Mr. Srinivasan) where the jurisdiction had been challenged at later stage, it does not appear to be a big problem, which would call for making “Headquarter” as the “Principal place of Business”, the reasons for failure of the correct jurisdictions selection at earlier stage may be many other which may be completely irrelevant to the argument of making “Headquarter” as the “Principal place of business” and since reasons are not at all presented by Petitioner, we cannot consider these cases as the supporting reasons for this argument. Moreover, if the “Principal place of Business” would be made as “Headquarters” by Supreme Court then there will be lot of question marks on the validity of already decided cases which may be too many in numbers. And would cost more money and resources to reopen and rerun.
I believe the emphasis of a justice system has to be more on fair trail than saving costs and just simplicity.
Coming to why New Jersey should not be regarded as the Principal place of Business for Hertz, I think we should look into what exactly business in this context means. Does the business means just thought process, decisions or the real and actual execution? Business may originate from a thought and realization of a new opportunity, but what makes it a real success is how it is executed and if it has been directed on the right target customers.
For how it is executed the most important factor is where it is executed because all your presentation budget and resources to sell your product (workforce, advertising, sales, marketing cost) is decided accordingly, based on the likes, preferences and culture of the target customers and their territory.
And obviously business focus is mainly put into places from where it would be getting the most return from. For e.g., Wal-mart may be headquartered in Arkansas, but most of their executives, sale and marketing plan would be focused on Texas, their main success and sources of capital depends on how they execute their business in Texas. For e.g. any major natural catastrophe or new Wal-mart unfavorable laws particularly in Texas would affect the Wal-mart most, although the business might be booming in Arkansas. So Texas should be considered the “Principal place of business”, doesn’t matter if Wal-mart actually started or “Headquartered” in Arkansas. Similarly given the current circumstances Hertz business would actually be effected the most by California than any other state in US.
Moreover, Business cannot be measured in terms of “margin per capita” most of the successful business are all about the volume and not margin, i.e. how many payable customers the corporations can add; corporations focus more on increasing their customers as usually the margin is similar from all the customers. Given that California has the most number of people and most of them have the good buying power, most of the corporations focus their businesses in California. And thus it should not be any surprise why many companies can be considered to have “Principal place of Business” in California.
Secondly, we can draw parallel from wars, the battle field would be considered as the “Principal place of any war” not the A/C rooms where the top General would be sitting and making strategy.
Also the Principal place of business may change from time to time based on where the favorable conditions are and most of the focus of the corporation would shift there. Similar to the way “Principle battle field” is slowly shifting to Afghanistan from Iraq now.
Conclusively, by constraining the “Principal place of Business” to “Headquarter” we may end up creating room for loopholes in future which would prevent fair trials. Since the shape and structure of Corporations are dynamic and their products for the Society are ever-changing, so the scope of Laws and its interpretation has to be dynamic and left to common sense as per the changing time and circumstances, to help trials to be more fair.
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