J.A. Olsen v. City of Winona
818 F.2d 401 (5th Cir. 1987)

  • Olsen, a corporation, sued a city in Mississippi (Winona) in Federal Court.
    • Olsen claimed that the Federal Court could hear the case because there was diversity jurisdiction.
    • Olsen was incorporated in Illinois and had bank accounts and made all their important decisions in Illinois. However, Olsen’s only manufacturing plant and almost all of its employees were in Mississippi.
  • The Federal Trial Court dismissed the case for lack of subject matter jurisdiction. Olsen appealed.
    • The Trial Court found that Olsen counted as a Mississippi company, therefore there was no diversity jurisdiction.
  • The Federal Appellate Court affirmed.
    • The Appellate Court used the total activity test to see where the substantial part of Olsen’s business was conducted and the Court decided that was Mississippi.
      • Courts generally use place of activity (in this case Mississippi) and nerve center (in this case Illinois) to determine in which place the corporation conducts principal business.
  • Basically, corporate defendants have dual citizenship: their place of incorporation and their principal place of business. Both of these states of residency must be diverse from the opposing party’s residency in order to maintain a federal claim based on diversity of jurisdiction.
    • 28 USC § 1332(c), which established that a corporation is a citizen of both their State of Incorporation as well as their principle place of business, was written in the 1950, specifically to reduce the case load on Federal Courts.
    • § 1332(c) doesn’t actually define what a principle place of business actually is. It was left up to the courts. The courts came up with two tests for determining principle place of business:
      • The nerve center test: Where is the corporations’ leadership?
        • See Scot Typewriter Co. v. Underwood Corp. (170 F.Supp. 862 (1959)).
      • The total activities test: Where do they do the most business?
        • See Kelly v. United States Steel Corp. (284 F.2d 850 (1960)).
    • Courts have struggled to determine which test to apply.
    • Note that the principle place of business for a corporation can change over time if the company’s business changes.