Corey Berman, Weil Gotshal & Manges LLP, Miami.

A recent court filing by the Derek Jeter Marlins' ownership group raised eyebrows: it claimed that the Miami Marlins were citizens of the British Virgin Islands (BVI) and not Florida. This filing drew questions as to how the Miami Marlins could be considered a citizen of a foreign country. Moving past the superficial oddity of a baseball team in Miami claiming BVI as home, the Jeter Marlins' ownership group might actually have a good chance of prevailing on its legal arguments.

The Miami Marlins are currently embroiled in a public dispute with Miami-Dade County and the city of Miami regarding whether the Jeter group and former-owner Jeffrey Loria owe the county a share of the profits from the sale of the team. The disputed provision appears in an ironically named “nonrelocation agreement,” negotiated in order to bind the team to the county and city that helped pay for the team's Miami ballpark, which also contains an arbitration provision at the center of the Jeter group's recent court filing. Relying on this arbitration clause, the Miami Marlins sought refuge in federal court by removing the state-court lawsuit in order to compel arbitration of the parties' dispute.

The Jeter group is attempting to take advantage of a little known statute related to the “Convention of the Recognitions and Enforcement of Foreign Arbitral Awards of June 10, 1958” (the “New York Convention”). Under 9 U.S.C. Section 205, certain state-court actions that relate “to an arbitration agreement or award falling under the [New York] Convention,” may be removed to federal court. Section 202 details the types of arbitration agreements that fall under the New York Convention. Notably, Section 202 provides that “an agreement or award arising out of a relationship which is entirely between citizens of the United States shall be deemed not to fall under the convention.” The Jeter group has seized on the negative implication of this provision in order to remove the state-court action to federal court by contending that Marlins Teamco—the entity that owns the Marlins team—is a BVI citizen.

This assertion naturally begs the question of how a Miami-based sports team owned by a Delaware LLC could possibly not be a citizen of the United States. The answer comes from the statute itself. Section 202 defines a corporation as a citizen of the United States if it is “incorporated or has its principal place of business in the United States.” Section 202 does not provide any instructions as to how to determine the citizenship of an unincorporated association like an LLC, which is neither a natural person nor a corporation. This statutory language does, though, harken to the well-known diversity of citizenship provision, Section 1332(c), which deems a corporation to “be a citizen of every state and foreign state by which it has been incorporated and of the state or foreign state where it has its principal place of business.” Like Section 202, Section 1332(c) does not delineate how to determine the citizenship of unincorporated associations. Case law, however, makes it clear that an LLC is a citizen of any state of which a member of the LLC is a citizen. And if an LLC's sole member is also an LLC, then the citizenship of the members must be traced all the way up until either a natural person or a corporation is located in the corporate chain.

Here, Marlins Teamco is a wholly-owned LLC of Marlins Funding LLC, which is a wholly-owned LLC of Marlins Holdings LLC. One member of Marlins Holdings LLC, Abernue Ltd., is a corporation organized under the laws of the BVI with its principal place of business in the BVI.  But that would only answer the question as to whether the parties were diverse for diversity jurisdiction purposes; what about for purposes of 9 U.S.C. Section 205? And would complete diversity of citizenship be required as courts have required under Section 1332?

There is sparse case law on the subject, with none addressing the complete diversity issue, and with those addressing the process for determining an LLC's citizenship for section 205 purposes pointing in different directions. On the one hand, a court for the Southern District of Alabama simply borrowed from the diversity cases for determining an LLC's citizenship for purposes of Section 202. See, e.g., Outokumpu Stainless v. Siemens Industries, No. CV 15-00243-KD-N, 2015 WL 6966150, at *5 n.4 (S.D. Ala. Oct. 20, 2015) (in section 202 case, plaintiff's citizenship, as an LLC, was the citizenship of its members). On the other hand, in a case cited by the city of Miami and Miami-Dade County in its motion for remand, a court for the District of Colorado found the foreign citizenship of an American LLC which sought to remove a case to federal court under section 202 to be irrelevant in questioning whether it had jurisdiction to hear the case.  See Colorado Mills v. Sunrich, No. CIV.A 10CV00673CMA, 2010 WL 1413173, at *1 (D. Colo. April 2, 2010) (“The agreement, however, was signed not by the Canadian parent, SunOpta, but rather its American subsidiary, Sunrich.”).

Neither result is inevitable. Although the policies underlying diversity jurisdiction—protecting out-of-state litigants from suffering from the “home field advantage” that an in-state litigant was presumed to receive in his or her home-state courts—are not necessarily the same as those underlying the United States' recognition of certain arbitration provisions and awards related to foreign parties, the similarities in language between the statutes and the current lack of an alternative make the courts' decision to borrow from the diversity framework understandable, predictable, and workable for litigants and judges. Nevertheless, arbitration is a creature of contract and the American tradition and practice of respecting corporate formalities, including for LLCs, would suggest that only the contracting party's citizenship should be considered for section 205 purposes.

Putting aside whether the court ultimately finds the Marlins to be considered a BVI citizen (and whether they have satisfied the other requirements for federal jurisdiction) this case demonstrates the importance of understanding how courts determine the citizenship of corporations and associations such as LLCs. And it is a particularly good reminder to practitioners that the law and rules of federal jurisdiction are often highly technical, even if they lead to a seemingly absurd result. The Miami Marlins' facially curious assertion that it is a foreign citizen of the BVI may ultimately work. And this just might be the team's most meaningful victory this year.

Corey Berman is a Weil, Gotshal & Manges associate in Miami and a member of its complex commercial litigation practice. Contact him at [email protected].