More Mud in the Water of Diversity Jurisdiction and Trusts

More Mud in the Water of Diversity Jurisdiction and Trusts

      As recently noted HERE, a pair of West Virginia courts have held that for purposes of what appear to have been testamentary trusts, citizenship would be determined by that of the trustee and that of the beneficiaries.  It should not therefrom be concluded, however, that the matter is resolved.  Rather, a November 2013 decision reached the opposite conclusion.  Thales Alenia Space France v. Thermo Funding Co., LLC, __ F.Supp.2d ___, 2013 WL 599648 (S.D. N.Y. Nov. 12, 2013).

      Thermo, a Colorado LLC, was wholly owned by a testamentary trust of which the sole trustee was a Colorado citizen.  One of the trust beneficiaries was domiciled in Australia.  When Thales brought suit against Thermo on the basis of diversity jurisdiction, Thermo challenged that jurisdiction on the basis that, in that it had a non-U.S. resident citizen, it as well was “foreign.”  Thus was framed the question as to how one determines, for diversity jurisdiction purposes, the citizenship of a trust; is that only of the trustee(s), or is the citizenship of the beneficiaries as well attributed to the trust?

      After noting a variety of opinions as to the question, the Court’s first analytic path was to distinguish the donative trust here at issue from a business trust, noting that one is a vehicle (created for profit) while the other is an estate planning vehicle.  Focusing then on the law of traditional donative trusts, the Court began by noting that such is not a “business entity or unincorporated association covered by Carden,” that being the Supreme Court decision in which it was held that the citizenship of all members of an unincorporated association, in this case all general and all limited partners of a limited partnership, would apply for purposes of diversity analysis.  2013 WL 5996148, *6.  From there, relying primarily upon Navarro, the Court held that the citizenship of the LLC, determined through its sole member, a trust, would be restricted to the citizenship of the trustee without consideration of the citizenship of any of the beneficiaries.