Maley: Diversity jurisdiction and LLCs

Federal courts have limited jurisdiction and can only hear cases based on either: (a) federal question jurisdiction under 28 U.S.C. § 1331, or diversity jurisdiction under 28 U.S.C. § 1332. Whether federal question jurisdiction exists is typically apparent and not contested. Diversity jurisdiction, however, is improperly invoked with frequency.

Section 1332(a)(1) provides, “The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between— (1) citizens of different States.” For individuals, determining diversity of citizenship is usually straightforward — in what state is each party domiciled?

For corporations, Section 1332(c)(1) provides, “(A) corporation shall be deemed 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.” This test is simple enough.

What about for partnerships, LLCs and other entities that are not corporations? Unfortunately, Congress has not kept up with state laws providing for these and other business organizations. So how is citizenship determined for entities such as LLCs?

This issue arises frequently, including just days ago in the Northern District of Indiana. In Calvelage v. Ontime Express, LLC, 2023 WL 6461173 (N.D. Ind. Oct. 4, 2023), plaintiffs brought a diversity action, but the complaint did not establish diversity jurisdiction. Magistrate Judge Susan Collins had ordered plaintiffs to file a supplemental jurisdictional statement. They did so, but failed to remedy the deficiencies identified in the court’s order. Judge Collins order an amended jurisdictional statement to be filed, but it was still deficient.

Judge Collins wrote: “Plaintiffs’ amended jurisdictional statement, however, is still deficient. The problems stem from Plaintiffs’ allegations about the citizenship of each Defendant limited liability company (LLC). Plaintiffs allege: ‘The members of Defendant USAS Transportation, LLC … are citizens of the State of Pennsylvania. On information and belief, no members of said Defendant are citizens of the State of Ohio.’ Similarly, Plaintiffs also allege: ‘The members of Defendant OnTime Express, LLC are citizens of the State of Virginia. On information and belief, no members of said Defendant are citizens of the State of Ohio.’”

She continued: “‘[A] naked declaration that there is diversity of citizenship is never sufficient.’ Thomas v. Guardsmark, LLC, 487 F.3d 531, 533 (7th Cir. 2007). The Court must be advised of the identity and citizenship of each member of an LLC for purposes of determining whether diversity jurisdiction exists. See, e.g., Guar. Nat’l Title Co. v. J.E.G. Assocs., 101 F.3d 57, 59 (7th Cir. 1996) (explaining that the court would ‘need to know the name and citizenship(s)’ of each partner of a partnership for diversity jurisdiction purposes). In turn, for any member who is an unincorporated association such as an LLC or partnership, Plaintiffs must trace the citizenship of the Defendant LLCs’ members through all applicable layers of ownership to ensure that no member shares a common citizenship with Plaintiffs. Mut. Assignment & Indem. Co. v. Lind-Waldock & Co., LLC, 364 F.3d 858, 861 (7th Cir. 2004). Furthermore, ‘[a]llegations of federal subject matter jurisdiction may not be made on the basis of information and belief, only personal knowledge.’Yount v. Shashek, 472 F. Supp. 2d 1055, 1057 n.1 (S.D. Ill. 2006) (citations omitted); see also Am.’s Best Inns, Inc. v. Best Inns of Abilene, L.P., 980 F.2d 1072, 1074 (7th Cir. 1992); Ferolie Corp. v. Advantage Sales & Mktg., LLC, , 2004 WL 2433114, at *1 (N.D. Ill. Oct. 28, 2004).”

Judge Collins noted, “An LLC’s state of organization and the location of its principal place of business are irrelevant when determining an LLC’s citizenship for purposes of diversity jurisdiction.” Notwithstanding the continued deficiency in establishing diversity jurisdiction, she gave plaintiffs 14 days to file a second supplemental jurisdictional statement.

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John Maley — [email protected] — is a partner with Barnes & Thornburg LLP, practicing federal and state litigation, employment matters and appeals. He clerked for Judge Larry McKinney from 1988-90, serves as chair of the Local Rules Advisory Committee, S.D. Indiana, and is a member of the Local Rules Advisory Committee, N.D. of Indiana. Opinions expressed are those of the author.