Executives’ Remote Work Location Upends Corporation’s Attempt to Establish Diversity Jurisdiction
By: Paula Lopez, November 16, 2023
A California federal court in the case Lee Evans, et al v. Cardlytics, Inc., et al (Docket No. 23-cv-00606) ruled that Cardlytics, Inc., a company incorporated in Delaware with a headquarters in Atlanta, could not establish the existence of diversity jurisdiction in support of removal of an employment action from California state court to federal court.
Two former employees of Cardlytics filed an action asserting claims for, inter alia, breach of contract, breach of implied covenant of good faith and fair dealing, wrongful termination, and retaliation. After Defendants removed the case to federal court under 28 U.S.C § 1332, claiming diversity jurisdiction, Plaintiffs filed a motion to remand the case back to state court.
Removal of an action to federal court based on diversity jurisdiction requires “complete diversity,” which necessitates a showing that each defendant and plaintiff is a citizen of a different state. The party seeking removal bears the burden of establishing that removal is proper. For diversity purposes, a corporation is considered a citizen of the state where it is incorporated and where it maintains its headquarters (a/k/a its principal place of business). In removing the case to federal court, Defendants had taken the position that because Cardlytics’ headquarters is located in Atlanta, Georgia, there is complete diversity with Plaintiffs, who reside in California. Plaintiffs, however, took the position that because the majority of Cardlytics’ leadership team works remotely from California, its principal place of business is located in California, not Georgia.
The court’s analysis in Cardlytics relied heavily on the Supreme Court’s holding in Hertz Corp. v. Friend, 559 U.S. 77 (2010), which identified a corporation’s principal place of business as its “nerve center,” which is the location where the “direction, control, and coordination” of the corporation’s business activities occurs. In applying the Supreme Court’s analysis in Hertz to determine where Cardlytics’ “nerve center” is located, the court focused on the location of Cardlytics’ leadership team, consisting of seven corporate officers. Central to the court’s decision was the fact that of the seven officers, only two reside in Atlanta, while four of the officers reside in California, with two of the four being the CEO and COO of the company.
The court determined that the CEO and COO are the two officers with primary decision-making authority over the corporation’s business affairs. Though the court did not go so far as to rule that California is the location of the corporation’s “nerve center”, it did find that Cardlytics failed to meet its burden to show that removal is proper where the decision-making authority of the officers residing in California is greater than the decision-making authority of those located in Atlanta, and remanded the case back to state court.
Cardlytics provides an example of when an employees’ work location can be pivotal in determining the location from where a business is deemed to operate. The location from where a company’s employees work can significantly impact the legal rights and obligations of the corporation. The court’s analysis in Cardlytics highlights the effect that remote work and the fluidity that permeates today’s corporate framework can have on established legal principles.