Litigation: 8 removal reminders about limited liability companies
It is settled law in virtually every jurisdiction that limited liability companies (LLCs) are treated like partnerships, not corporations, for purposes of diversity of jurisdiction.
April 11, 2013 at 08:24 AM
5 minute read
The original version of this story was published on Law.com
It is settled law in virtually every jurisdiction that limited liability companies (LLCs) are treated like partnerships, not corporations, for purposes of diversity of jurisdiction. By now, most litigators have had to analyze the citizenship of an LLC in the context of removal. But some have not, and even those who have could probably benefit from a reminder about some of the nuances. This article provides eight reminders—some obvious, some less obvious—about the citizenship of an LLC for purposes of removing a case based on diversity jurisdiction.
1. An LLC is a citizen of all states where its members are citizens. Harvey v. Grey Wolf Drilling Co. The state in which the LLC was formed or registered is irrelevant for purposes of determining the citizenship of the LLC.
2. The citizenship of each member and sub-member of the LLC counts for purposes of diversity, regardless of the character of the membership. Fadal Machining Centers, LLC v. Mid-Atlantic CNC, Inc. Even the citizenship of an LLC member with fractional ownership and no operational control must be considered.
3. Citizenship must be traced through all layers of partners and members. Zambelli Fireworks Mfg. Co., Inc. v. Wood. In other words, if the LLC in question has members that are also LLCs or partnerships, you have to drill down until you get to a human or a corporation.
4. If a corporation is member of an LLC, then the LLC is a citizen of the states in which the corporation is a citizen (in addition to citizenship based on the LLC's other members). If a corporation is the sole member of an LLC and has delegated daily decision-making authority to the LLC's officers and directors, then the “nerve center” of the corporation for purposes of diversity jurisdiction is the state where the LLC's officers and directors direct, control, and coordinate the LLC's operations. Brewer v. Smithkline Beacham Corp.
5. If a trust is a member of an LLC, the citizenship of the trust may be the citizenship of the trustee, the citizenship of the beneficiary, or both, depending on the jurisdiction. Mills 2011 LLC v. Synovus Bank.
6. If any member of an LLC has the same citizenship as any party on the other side of the litigation, then no diversity jurisdiction exists. White Pearl Inversiones S.A. (Uruguay) v. Cemusa.
7. A defendant must make a reasonable inquiry into the citizenship of an LLC prior to removal. Key Enterprises, LLC v. Morgan. Simply pleading information and belief is not sufficient. Id.
8. A defendant must state the citizenship of each member and sub-member of each LLC in its removal papers. Lindley Contours, LLC v. AABB Fitness Holdings, Inc.
It is settled law in virtually every jurisdiction that limited liability companies (LLCs) are treated like partnerships, not corporations, for purposes of diversity of jurisdiction. By now, most litigators have had to analyze the citizenship of an LLC in the context of removal. But some have not, and even those who have could probably benefit from a reminder about some of the nuances. This article provides eight reminders—some obvious, some less obvious—about the citizenship of an LLC for purposes of removing a case based on diversity jurisdiction.
1. An LLC is a citizen of all states where its members are citizens. Harvey v. Grey Wolf Drilling Co. The state in which the LLC was formed or registered is irrelevant for purposes of determining the citizenship of the LLC.
2. The citizenship of each member and sub-member of the LLC counts for purposes of diversity, regardless of the character of the membership. Fadal Machining Centers, LLC v. Mid-Atlantic CNC, Inc. Even the citizenship of an LLC member with fractional ownership and no operational control must be considered.
3. Citizenship must be traced through all layers of partners and members. Zambelli Fireworks Mfg. Co., Inc. v. Wood. In other words, if the LLC in question has members that are also LLCs or partnerships, you have to drill down until you get to a human or a corporation.
4. If a corporation is member of an LLC, then the LLC is a citizen of the states in which the corporation is a citizen (in addition to citizenship based on the LLC's other members). If a corporation is the sole member of an LLC and has delegated daily decision-making authority to the LLC's officers and directors, then the “nerve center” of the corporation for purposes of diversity jurisdiction is the state where the LLC's officers and directors direct, control, and coordinate the LLC's operations. Brewer v. Smithkline Beacham Corp.
5. If a trust is a member of an LLC, the citizenship of the trust may be the citizenship of the trustee, the citizenship of the beneficiary, or both, depending on the jurisdiction. Mills 2011 LLC v. Synovus Bank.
6. If any member of an LLC has the same citizenship as any party on the other side of the litigation, then no diversity jurisdiction exists. White Pearl Inversiones S.A. (Uruguay) v. Cemusa.
7. A defendant must make a reasonable inquiry into the citizenship of an LLC prior to removal. Key Enterprises, LLC v. Morgan. Simply pleading information and belief is not sufficient. Id.
8. A defendant must state the citizenship of each member and sub-member of each LLC in its removal papers. Lindley Contours, LLC v. AABB Fitness Holdings, Inc.
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