Pleading the Factual Basis for Diversity Jurisdiction

Pleading the Factual Basis for Diversity Jurisdiction

      A pair of recent decisions stand for the proposition that facts are necessary in order to plead diversity jurisdiction or, from the other perspective, speculation is not sufficient. Those decisions are Platinum-Montaur Life Sciences, LLC v. Navidea Biopharmaceuticals, Inc., Docket No. 18-3535-CV, 2019 WL 6258632 (2^nd Cir. Nov. 25, 2019) and Alanazi v. Avco Corporation, Case No. 6:19-CV-2230-ORL-28 LRH, 2019 WL 6324007 (M.D. Fl. Nov. 26, 2019).

      The Platinum-Montaur case arose out of an alleged breach of contract. After the plaintiff filed suit in Florida, the defendant removed the action to the Federal District Court for the Southern District of New York. While the parties engaged in “limited informal jurisdictional discovery,” Platinum-Montaur’s citizenship was never conclusively determined. The District Court, however, proceeded on the merits on the basis that “it had no ‘good faith basis to believe there is not complete diversity.’” That basis would be reversed by the Second Circuit Court of Appeals

      It was noted that one of Platinum-Montaur’s members (the other two being natural persons) was an investment fund organized as a limited partnership based in the Cayman Islands. As such, the citizenship of each of the partners, limited and general, in that limited partnership would be attributed to Platinum-Montaur in determining its citizenship. One of the limited partners in that partnership was in turn another limited partnership with some 220 limited partners, most if not all of whom would be in the United States. It was not possible, however, to determine the citizenship of each of those persons.   

      Noting that the diversity jurisdiction of the federal courts is limited and that questions as to removability of suit are to be resolved against removal, the Second Circuit wrote that: 

A District Court may not assume subject-matter jurisdiction when the record does not contain the necessary prerequisites for its existence. Here, the District Court erred by exercising diversity jurisdiction on the basis that it did not have a “good faith basis to believe” that the parties before it were not completely diverse.

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At this stage, the District Court had two options. First, it could have remanded the case to state court because Navidea had failed to allege complete diversity of citizenship or to establish diversity through discovery. Second, the District Court could have exercised its discretion to order further discovery to determine whether there was complete diversity of citizenship. ….

Here, none of the underlying state-court pleadings, the notice of removal, or the record as a whole reflected that the parties were completely diverse. Thus, the District Court erred in proceeding on the merits of this case. We therefore re-manned so that the District Court can exercise its discretion to conduct further proceedings, if any, as it deems appropriate. 2019 WL 6258632, *4 (citations omitted).

      In the Alanazi decision, the plaintiff, an individual, filed an action in state court against the nine defendants, of whom three were LLCs. The defendants then removed to federal court on the basis of diversity jurisdiction. The court would remand the case because the removing defendant had failed to specify the citizenship of the plaintiff. In addition, the pleading of the citizenship of the various LLC defendants was deficient. It asserted that none of the members of those LLCs was a citizen of Florida, that being the presumptive citizenship of the plaintiff. That was rejected on the basis that “pleading that none of the members as a citizen of Florida is not sufficient to establish diversity; affirmative pleading of citizenship is required.” The court went on to write that “The citizenship of each member of each LLC must be alleged.”

      In the course of its decision, the court cited an earlier opinion rendered in Wilkins v. Stapleton, 2017 WL 11219132 (M.D. Fla. Aug. 1, 2017) for the following admonition (the emphasis being in the original): 

DO not allege jurisdictional facts “on information and belief.”