Thursday, October 24, 2013
Federal Court Mis-steps in Assessing Citizenship of LLC with Business Trust as a Member
I would encourage you to review Doug Batey’s review of WBCMT 2007-C33 N.Y. Living, LLC v. 1145 Clay Ave. Owner, LLC, No. 13 Civ. 2222(WHP), 2013 WL 4017712 (S.D.N.Y. July 30, 2013) and its assessment of the citizenship, for purposes of diversity, of an LLC having a business trust as its sole member. Here is a LINK to that review.
As I commented on Doug’s blog, the Court mis-stepped and looked at only the trustee rather than the trust of which the trustee was the trustee, noting:
I'm in agreement with Doug on this one. If the trustee is acting as a principal then under the Navarro decision only the citizenship of the trustee matters. Where the action in is the name of the trust or when the action is brought by an unincorporated association of which a trust is a member then under the Carden decision the citizenship of all members, including all trust beneficiaries, matter. Here the LLC is the principal party to the action. The trust is a member through its trustee. Ergo the citizenship of every trust beneficiary should be attributed to the LLC.
The opportunity here missed (well, beyond that of the court ab initio applying the correct rule) is the court considering how one determines the diversity citizenship of a series entity. Is it based only upon the beneficiaries associated with the series or of all beneficiaries of the trust regardless of individual association?