This blog, written by Thomas E. Rutledge, focuses primarily on business entity law in Kentucky. Postings on contract law, contractual and statutory construction, and the entity law of other jurisdictions appear as well. There may as well be some random discussions of classical, medieval and renaissance history.
Wednesday, November 5, 2014
Federal District Court Considers Pleading Standard for Asserting Diversity Jurisdiction
Federal District Court Considers
for Asserting Diversity Jurisdiction
In a decision earlier this year, the Federal District Court for
the Northern District of Indiana considered
the pleading standard required
in order to support an assertion that there exists diversity
of jurisdiction. In this instance, the court held that pleading on the basis of “information and belief” is insufficient; rather, it must be pled on the basis of personal knowledge. Lake v. Hezebicks, No. 1:14-cv-143, 2014 WL 1874853 (N.D. Ind. May 9, 2014).
In order for a federal court to have jurisdiction to
resolve a dispute involving
an LLC, subject to some quite narrow exceptions, it must have either “federal question” jurisdiction or
“diversity” jurisdiction. Almost all commercial disputes will not involve a federal question, so jurisdiction in
the federal court will be dependent upon diversity. Diversity jurisdiction will
exist only if none of the plaintiffs have
the same citizenship or
any of the members, either direct or beneficial, of the LLC. For example, if the plaintiff
is a Delaware business
corporation with its principal place of business in Kentucky, the corporation
will be deemed a citizen of both Delaware and of
a suit by that corporation against an LLC, if any
of the members of the LLC are either domiciled
in or are citizens of either Delaware
or Kentucky, diversity jurisdiction will
and the federal court will not have jurisdiction
to hear the dispute.
The problem arises in that the membership of an LLC or other unincorporated association
is not of public record. Even where the membership of an LLC is known, often the domicile and citizenship will
not be known
or, at minimum, they will be open to debate. How then is to be satisfied the obligation of the party asserting
exist that, in fact, it does? In this instance, the plaintiff, “on information
and belief” asserted that diversity
jurisdiction existed. That assertion was rejected on the basis that “allegations of federal subject
may not be made on the basis of information and
belief, only personal knowledge.”, citing Yount v. Shashek, 2006 WL 4017975 (S.D. Ill. Dec. 7, 2006) and other authorities.
This opinion does not address the availability of
the citizenship/domicile of any of the parties.