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
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
The Federal Appellate Court
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
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
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
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
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