Thursday, June 5, 2014
Trust, For Purposes of Diversity Jurisdiction, Held to Have Citizenship of its Trustees and Beneficiaries
Trust, For Purposes of Diversity Jurisdiction,
Held to Have Citizenship of its Trustees and Beneficiaries
Determining the citizenship of a trust, for purposes of diversity jurisdiction, is an unsettled question in many jurisdictions. A decision from early this year adopts the 3rd Circuit’s conclusion as set forth in Emerald Investors Trust v. Gaunt Parsippany Partners, 492 F.3d 192 (3rd Cir. 2007). LBR Holdings, LLC v. Poulos, __ F. Supp. 2d ___, 2014 WL 267005 (S.D. W.Va. Jan. 23, 2014).
LBR Holdings brought suit in West Virginia against a number of defendants over the ownership of certain coal bed methane rights. The defendants challenged the existence of diversity. LBR was owned by two trusts (the opinion does not state whether these were donative or business trusts). Two of the defendants were citizens of North Carolina, as were at least one beneficiary of each trust. The trustee of each trust was a citizen of Kentucky.
The question could not be more clearly drawn – if the citizenship of a trust is determined only by the trustee’s citizenship then diversity existed. If on the other hand, the trusts took on the citizenship of also the beneficiaries, then diversity did not exist.
After noting that neither the U.S. Supreme Court nor the 6th Circuit had squarely addressed the question, the Court looked to the Emerald Investors decision and found that is conclusion, namely that a trust has the citizenship of its trustees and its beneficiaries, best reconciles Navarro Savings Ass’n v. Lee, 446 U.S. 458 (1980) and Carden v. Arkoma Assoc., Inc., 494 U.S. 185 (1990).
It was noted that this conclusion was consistent with another ruling of a West Virginia District Court. Poulos v. Geo-Met Operating Company, Inc., 2013 WL 2456044 (W.D. W.Va. June 6, 2013).
For lack of diversity the suit was dismissed.