LLC Derivative Actions and Diversity Jurisdiction - That Just Don’t Work

LLC Derivative Actions and Diversity Jurisdiction - That Just Don’t Work

     A recent decision out of Iowa illustrates the unavailability of federal diversity jurisdiction in disputes amongst LLC members.  Afshar v. WMG, L.C., No. C 14-3054-MWB, 2015 WL 5602660 (Sept. 21, 2015).

      WMG, LLC was organized in Iowa and, at least as of the time this dispute arose, had four siblings as members. Renée, the plaintiff in this action, alleged that she is a “citizen” of Georgia. She asserted as well that Michael is a “resident” of Wisconsin, which he admitted, that Joseph was a “resident” of Minnesota, which he denied but did not provide an affirmative response, and that Jeanne was a “resident” of Iowa, which Jeanne admitted. After Renée filed a motion for summary judgment with respect to alleged breaches by the company of its agreement to transfer certain assets to her and as well claims for breach of fiduciary duty, the court assessed whether it had subject matter jurisdiction over the dispute.

      Applying the rule that a LLC has the citizenship of each of its members, the court found it not necessary to go further than the fact that Renée is a citizen of Georgia and, for that reason, so is WMG. On that basis, it was determined that complete diversity was lacking and that the case should be dismissed for lack of subject matter jurisdiction. However, the parties were afforded the opportunity to provide additional briefing on the matter.

      Based upon a review of the docket the case has been dismissed without prejudice.  I’m told the suit has been refiled in state court.