Tuesday, March 20, 2012

“Virtually Impossible” Not a Defense to Obligation to Prove Diversity

“Virtually Impossible” Not a Defense to Obligation to Prove Diversity
      In a recent decision the District Court for the Southern District of Illinois has held that there is not a “virtually impossible” exception to the obligation to prove the existence of complete diversity among the parties.  James v. Myers, 2012 WL 525583 (S.D. Ill. Feb. 16, 2012).
      Defendant Super Service, LLC, a Delaware LLC with a principal place of business in Michigan, removed the action to the federal court on the basis of diversity, alleging no more than that in its Notice of Removal.  In that the Notice of Removal “inadequately alleged Super Service LLC’s, [sic] citizenship,” the Court ordered additional briefing, which revealed that the LLC’s sole member is another LLC and its sole member is a limited partnership, Wayzata Opportunities Fund II, LP (“Wayzata”).  But here the trail came to an end; information as to the partners in Wayzata was not provided.  The Court wrote:
However, defendants argue, Wayzata is an “investment fund with tens of thousands of investors,” it is “virtually impossible” for it to allege the citizenship of its members.”  Thus, defendants argue this Court should “confer jurisdiction over this matter on the basis that Super Service, LLC, Super Service Holding, LLC and Wayzata Opportunities Fund [II], LP are not organized or principally located in the same state as the Plaintiff.  2012 WL 525583, *2.
Rejecting that invitation, the District Court observed:
[T]he Seventh Circuit has made abundantly clear that the Court must consider the citizenship of all the members of defendant Super Service, LLC, through the pertinent limited liability company, Super Service Holding, LLC, through all the layers of ownership of the pertinent limited partnership, Wayzata, until the Court reaches only individual human beings and corporations.  2012 WL 525583, *3.
Responding to the lament that it could not meet the burden imposed, the Court held:
…as defendants admit it is “virtually impossible” to allege the citizenship of Wayzata’s members, defendants have not met their burden of presenting competent proof, or a reasonable probability, that complete diversity exist among the parties.  Id.
      This holding pairs nicely with that of the 9th Circuit in Fadel Machinery Center, LLC v. Mid-Atlantic CNC, Inc., 2012 WL 8669 (9th Cir. Jan. 3, 2012), and its rejection of the suggestion that there is a de minimis exception to the requirement of complete diversity.

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