Monday, March 12, 2012

No Pass Given on Demonstrating Diversity Exists

Complexity in Diversity Jurisdiction
       A recent decision from Maryland highlights certain of the complexities involved when seeking to invoke diversity jurisdiction.  Schaftel v. Highpointe Business Trust, 2012 WL 219511 (D. Md. Jan. 24, 2012).
      Highpointe Business Trust, organized in Maryland (“Highpointe”), was successful in rebutting the plaintiff’s assertion that the citizenship of its beneficial owners/shareholders was relevant for determining diversity.  Rather, the focus is upon the citizenship of the trustee and the court “need not consider the citizenship of the beneficiaries of the trust,” citing Navarro Sav. Assoc. v. Lee, 446 U.S. 458, 465 (1980).  Having won that battle, however, it proceeded to nearly lose the war.
      Highpointe’s trustee was HBT Beneficiary, LLC, a Delaware LLC with two members, each a limited partnership for which another limited partnership served as the general partner.  Highpointe did not, however, provide information as to the various limited partners, asserting it:
…lacks sufficient knowledge concerning the structure and residency of these investors and suggests that its “right to remove this action should not be frustrated by its lack of sufficient knowledge concerning parties who invested in an entity several layers removed from the operations and control over [Highpointe].  Such peripheral analysis would not afford [Highpointe] due process to protecting its right to removal.”
     The Court rejected this argument, noting both the settled law that the citizenship of all partners, general and limited, is assessed in determining citizenship, and that the “removing party bears the burden of establishing jurisdiction”:
By simply complaining that it is too cumbersome to parse its own structure, Highpointe does not meet its burden and the Court finds that Highpointe has not established that his action was properly removed.
     The Court afforded Highpointe the opportunity to amend its Notice of Removal to address the question of the citizenship of the ultimate constituents of its constituents.

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