This case was decided in 2003. However, it is worth posting again as these issues seem to come up all the time. The citizenship of an LLC is determined by the citizenship of each member. If you have a member from Illinois, the LLC is an Illinois citizen. If the defendant is from Illinois, there is no diversity of citizenship and no subject matter jurisdiction federal court. 28 USC 1332.

As I have indicated before, the diversity jurisdiction issues relating to LLCs can be more complicated than they seem. In this case, the diversity error was not uncovered until the case had been tried and was on appeal before the Seventh Circuit. The Seventh Circuit did not take kindly to the error. It explained:

Counsel and the magistrate judge assumed that a limited liability company is treated like a corporation and thus is a citizen of its state of organization and its principal place of business. That is not right. Unincorporated enterprises are analogized to partnerships, which take the citizenship of every general and limited partner. See Carden v. Arkoma Associates, 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990). In common with other courts of appeals, we have held that limited liability companies are citizens of every state of which any member is a citizen. See Cosgrove v. Bartolotta, 150 F.3d 729 (7th Cir.1998). So who are Champaign Market Place LLC’s members, and of what states are they citizens? Our effort to explore jurisdiction before oral argument led to an unexpected discovery: Belleville Catering, the corporate plaintiff, appeared to be incorporated in Illinois rather than Missouri!

At oral argument we directed the parties to file supplemental memoranda addressing jurisdictional details. Plaintiffs’ response concedes that Belleville Catering is (and always has been) incorporated in Illinois. Counsel tells us that, because the lease between Belleville Catering and Champaign Market Place refers to Belleville Catering as “a Missouri corporation,” he assumed that it must be one. That confesses a violation of Fed. 693*693 R.Civ.P. 11. People do not draft leases with the requirements of § 1332 in mind — perhaps the lease meant only that Belleville Catering did business in Missouri — and counsel must secure jurisdictional details from original sources before making formal allegations. That would have been easy to do; the client’s files doubtless contain the certificate of incorporation. Or counsel could have done what the court did: use the Internet. Both Illinois and Missouri make databases of incorporations readily available. Counsel for the defendant should have done the same, instead of agreeing with the complaint’s unfounded allegation.

…..

One more subject before we conclude. The costs of a doomed foray into federal court should fall on the lawyers who failed to do their homework, not on the hapless clients. Although we lack jurisdiction to resolve the merits, we have ample authority to govern the practice of counsel in the litigation. See, e.g., Willy v. Coastal Corp., 503 U.S. 131, 112 S.Ct. 1076, 117 L.Ed.2d 280 (1992); Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393-98, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990); Szabo Food Service, Inc. v. Canteen Corp., 823 F.2d 1073 (7th Cir.1987). The best way for counsel to make the litigants whole is to perform, without additional fees, any further services that are necessary to bring this suit to a conclusion in state court, or via settlement. That way the clients will pay just once for the litigation. This is intended not as a sanction, but simply to ensure that clients need not pay for lawyers’ time that has been wasted for reasons beyond the clients’ control.

The judgment of the district court is vacated, and the proceeding is remanded with instructions to dismiss the complaint for want of subject-matter jurisdiction.

Comment: Ouch!

Source: Belleville Catering v. Champaign Market Place, 350 F. 3d 691 – Court of Appeals, 7th Circuit 2003 – Google Scholar

One of the more simple yet frustrating requirements for establishing diversity jurisdiction is to prove that the parties are from different states. Here, a case was filed in federal court and summary judgment was granted to the defendant. Only then, when it reached the 11th Circuit, did that court determine that the parties were from the same state – Florida. How did this happen?

It happened because Thermoset, a Florida corporation, sued RGSO, an LLC. Most people don’t know this, but an LLC’s citizenship is determined by the citizenship of its members. In this case, RGSO had a Florida member. Therefore, citizens of Florida were on both sides of the litigation and there was no diversity of citizenship.

So, if you sue an LLC, make sure you know the citizenship of each member of the LLC. One way to avoid problems is to write a letter to the LLC and request that the LLC inform you of the citizenship of each member.

LLCs cause painful diversity jurisdiction issues all the time, sometimes leading to sanctions against the lawyers who fail to figure out citizenship. This is a danger area for every lawyer who practices in federal court. It is a trap for the unwary and can lead to embarrassment and sometimes worse.

Source: THERMOSET CORPORATION v. BUILDING MATERIALS CORP OF AMERICA, Court of Appeals, 11th Circuit 2017 – Google Scholar

A criminal defendant pleaded guilty in federal court and, later, wished to sue his lawyer for legal malpractice. The case was dismissed for the lack of diversity jurisdiction (both are citizens of Illinois).

Source: Merriweather v. Whitley, Dist. Court, SD Illinois 2016 – Google Scholar

FHL, INC. v. Walker, Dist. Court, MD Alabama 2014 – Google Scholar.

Diversity jurisdiction depends on the citizenship of the parties, not their residences, office addresses or where they conduct business. Although this issue is taught in law school, experienced lawyers sometimes forget to allege the citizenship of the various parties. I will admit that I have even made this mistake in my career. Here the district judge was merciful and allowed the plaintiff to amend the complaint to allege citizenship, not residency or an office address. As the court correctly noted, residency is not enough. Citizenship is the same as domicile.

It is remarkable how many cases are dismissed every year by the federal courts for lack of diversity jurisdiction. You would think we lawyers would have learned by now.

Edward X. Clinton, Jr.

Rago v. ING DIRECT, Dist. Court, ND Illinois 2013 – Google Scholar.

This is a decision holding that the court lacks diversity jurisdiction because the plaintiff could not possibly recover the minimum diversity amount, $75,000. The case is interesting because the plaintiff claimed that the defendant bank breached an agreement to refinance his mortgage in the amount of $493,500.

The bank argued that the diversity amount was met by the $493,500 allegation. Judge Durkin disagreed. The court explained:

“The Court finds that there was never any legal basis for Rago to be awarded an amount in excess of $75,000, let alone the $493,700 described in his original complaint. The $493,700 damage figure was never, and will never be, even plausibly possible. Rago alleges that ING breached a contract to refinance his mortgage such that he lost the opportunity to pay a decreased monthly payment at a lower interest rate and to pay down the principal. On the basis of these allegations, the only damages Rago can possibly seek flow from the higher interest he has paid and the fact that no portion of his payments has been applied to the loan’s principal.”

This is an interesting case because the plaintiff was allowed to amend the complaint to arguably defeat diversity jurisdiction.

Abraham v. NEWBERRY COUNTY, Dist. Court, D. South Carolina 2012 – Google Scholar.

The defendant removed the action, but was unable to identify a federal question set forth in the complaint.  Thus, the case was remanded back to state court.

The court held as follows:

The defendant bears the burden of establishing the existence of removal jurisdiction.Mulachey v. Columbia Organic Chems. Co., 29 F.3d 148, 151 (4th Cir. 1994). Because removal jurisdiction raises significant federalism concerns, a district court must strictly construe removal jurisdiction. Id. (citing Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941)). If federal jurisdiction is in doubt, remand to state court is necessary. Id. Where, as here, the defendant bases subject matter jurisdiction on the presence of a federal question, the court must evaluate the plaintiff’s complaint filed in a state court to determine if federal question jurisdiction is present. Merrell Dow Pharms., Inc. v. Thompson, 478 U.S. 804, 808 (1986).

Plaintiff states he has alleged solely state law claims in the instant action and seeks aremand of this action to state court. Defendant does not oppose a remand. As is appears this court does not have federal question jurisdiction, the court concludes that this action must be remanded to the Court of Common Pleas for Newberry County.

Edward X. Clinton, Jr.

PHILADELPHIA INDEMNITY INSURANCE COMPANY v. YOUR FRIENDS & NEIGHBORS, INC., Dist. Court, ND Indiana 2012 – Google Scholar.

The court found that diversity jurisdiction was lacking because (a) plaintiff alleged residency, not citizenship; and (b) the allegations were made on information and belief.

The court ordered plaintiffs to amend their complaint.

Metheney v. MR. BULT’S INC., Dist. Court, SD Ohio 2012 – Google Scholar.

The court reviewed this case and remanded it to the State Court on the ground that diversity jurisdiction was lacking because the plaintiff and the defendant were both citizens of Ohio.

The lawsuit arose out of a traffic accident.  Plaintiff sued the driver (citizen of Ohio) and his employer (corporation not a citizen of Ohio).  The court rejected any claim that the defendant driver was fraudulently joined to create diversity jurisdiction.

The district court explained:  “In this case, Plaintiffs can pursue claims against both Kirk and MBI within the same action under Ohio law. Plaintiffs can join Kirk and MBI in the same action because the right to relief arises out of the same transaction or occurrence and common questions of law or fact will arise in the action. The same result would occur under Federal Rule of Civil Procedure 20, which applies the same basic test.^[5] See, e.g., Wayman v. Accor North Am., Inc., 486 F.Supp.2d 1280, 1285 (D. Kan. 2007) (holding that plaintiff could join a non-diverse employee and his vicariously liable employer in one action because it satisfied the requirements for joinder under Rule 20)). Plaintiffs, therefore, have not fraudulently joined Defendant Kirk in this action.”

Edward X. Clinton, Jr.