By Sam Delong

Since it began soliciting proposals in the fall of 2017, tech leader, Inc. (“Amazon”) has continued to raise eyebrows with its decision to open a second corporate headquarters.  Called “HQ2,” the new development anticipates employing up to 50,000 new, full-time employees.  From its shortlist, Amazon proposed to select one of 20 ideal U.S. cities for the $5 billion project.  However, on November 13, 2018, the company announced its choice to split HQ2 between two of the proposed cities: New York City and Arlington, Virginia.  Under this new plan, Amazon ended a great deal of speculation in the business community but sparked a number of new financial and legal considerations.

It is no secret that the financial prospects significantly motivated Amazon’s decision. Amazon’s final choice projects the company to receive close to $3 billion in tax-related incentives.  The Queens, New York headquarters will bring in “performance-based directives of $1.525 billion,” as well as a significant cash grant based on square footage occupied over the next ten years.  In Virginia, the direct incentives total $573 million.  Alongside, the state will provide a $550 million cash grant, based on job creation over the next 12 years.

State political leaders are also touting benefits to be reaped from Amazon’s decision, an expansion of close to 14 million square feet between the two states.  New York Governor Andrew Cuomo (D) promised that welcoming Amazon would attract continued economic growth and new, emerging businesses.  Virginia Governor Ralph Northam (D) is equally optimistic for his commonwealth, stating that the project will bolster “a strong and competitive workforce, a stable and competitive business climate, and a world-class higher education system.”

A unique legal question raised is the effect, if any, that HQ2 will have on Amazon’s defined “principal place of business.”  Under federal law, litigants are generally granted access to the federal court system in cases of citizenship diversity.  In essence, these cases arise when the opposing parties hail from different states.  For an individual, citizenship is determined by one’s “domicile,” or place of residence.  For a company, “corporate citizenship” includes the business’s state of incorporation and its “principal place of business.”  In 2010, in Hertz Corp. v. Friend, 559 U.S. 77 (2010), the U.S. Supreme Court expounded this term’s legal definition.  The Court supported a factually based test where a company’s “nerve center” would characterize a location as its principal place of business.  HQ2 raises a few prospects: (1) the possibility of a company’s ability to have more than one principal place of business; (2) the demise of Hertz Corp test; or (3) no real change at all.

In the digital age, business is increasingly mobile.  Corporate officers are able to conduct substantial business activities across the globe from anywhere, even on the corporate jet.  Equally, the internet allows companies like Amazon to conduct business in every state with fluidity and volume.  Because of this, a comprehensive yet conclusive test is necessary to determine a principal place of business.  The Hertz Corp test aims to provide predictability through substantive analysis.  It does not look at one single factor such as revenue, business activity, or a corporate mailbox; it weighs all factors together, with deference afforded to what is considered the brain of the business.  In the wake of HQ2, the Hertz Corp test still works.

Under Hertz Corp, a corporation’s principal place of business is its “nerve center.”  While the location that a business characterizes as its “headquarters” is a factor used in determining a business’s “nerve center,” the Hertz Corp test is also substantive.  The true “nerve center” is not simply the location where board meetings are held, it is “best read as referring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities.”  No one factor is determinative, not even the company’s own dictation of the location of its executive offices on the Securities and Exchange Commission Form 10-K filing.  Ultimately, the “nerve center” is the one, foremost presence that “radiates out to its constituent parts.”  The current test allows a corporation to choose for itself where to establish its principal place of business.  By this choice, the corporation avails itself to the federal court system in that respective federal district.

Amazon’s choice to create a second HQ2, which, in fact, splits its headquarters between three states, does not necessarily shift its principal place of business.  Veritably, HQ2 will most likely not affect Amazon’s current principal place of business at all.  Its principal place of business would only change if Amazon shifted its “nerve center.”  HQ2 is a substantial new property development, set to employ a great number of new, corporate-level employees.  However, the Court in Hertz Corp denied an interpretation adopted at the time by the Ninth Circuit that focused on factors such as the location of employees, location of property, production, or source of income from sales.  Even with these substantial and tangible developments, only the substantive inclusion of Amazon’s controlling officers at HQ2 would effectuate a shift from the current Seattle “nerve center.”  Equally, the Hertz Corp test does not allow for more than one principal place of business.  The Court noted that the words “place” and “principal,” as used in the controlling statute, refer to a singular, prominent location.  To this end, similar to how an individual may not have two tax homes, as long as Hertz Corp remains good law, HQ2 does not open the possibility for more than one “nerve center.”

In scope, Amazon’s choice to open HQ2 reflects a desire to facilitate management, a necessity for the largest multinational corporation in history.  While Amazon and the business community might characterize HQ2 as an equal, for civil procedure purposes, Seattle will likely remain Amazon’s principal place of business.


Student Bio: Sam DeLong is a third-year student at Suffolk University Law School and a Chief Note Editor of the Journal of High Technology. He is pursuing a J.D. as well as an advanced degree in taxation.

Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.


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