Thursday, May 2, 2013

Death and Diversity Jurisdiction

      A recent case has considered the question of whether one should ascribe to an LLC the citizenship of a now-deceased member whose estate has brought suit against the LLC and the remaining member.  In this instance, the court determined that the citizenship of the deceased member is not relevant for purposes of diversity jurisdiction.  Tormey v. Mourning Dove, LLC, No. CIV-12-1328-D (W.D. Okla. April 9, 2013).
      Tormey was a member of Bridgewater Office Park, LLC (“Bridgewater”) in which Mourning Dove, LLC (“Mourning Dove”) was the other member.  Subsequent to Tormey’s death, his personal representative initiated suit against both Bridgewater and Mourning Dove alleging breach of the operating agreement as well as fiduciary duties existing thereunder.  The basis for bringing the suit in federal court was diversity jurisdiction.
      Seeking to have the suit dismissed, the defendants argued that diversity was lacking in that Bridgewater would have the citizenship of Tormey, and on that basis complete diversity would be lacking.  In response, Tormey’s representative argued that diversity jurisdiction is determined as of the time the suit is filed.  She, as his personal representative, would be attributed with his citizenship.  Conversely, the operating agreement of Bridgewater provided that his status as a member terminated upon his death, whereupon he became a creditor of the LLC.  No other member of the LLC having the same citizenship as Tormey/his personal representative, “because the lawsuit was not filed until after his death,” she argued “complete diversity of citizenship existed when the lawsuit was filed.”
      The operating agreement described death as an “event of dissociation” triggering a series of call rights in the remaining members to acquire the membership interests of the deceased.  The agreement provided also “[f]rom and after the Event of Dissociation, the Dissociated Member shall be considered a creditor of the Company . . . and all other statutory and contractual rights associated with the former Member’s interest shall cease.”
      Confirming that complete diversity existed, the Court wrote:
Thus, under the clear terms of the operating agreement, Mr. Tormey was no longer a member of Bridgewater following his death, and his estate holds the status of a creditor of Bridgewater.  The only remaining member of Bridgewater is Mourning Dove, and Mourning Dove is a citizen of Oklahoma for diversity purposes.  As Mr. Tormey’s personal representative, Plaintiff is deemed to be a citizen of Utah.  Because Mr. Tormey was no longer a member of Bridgewater at the time this lawsuit was filed, his Utah citizenship would not be attributed to Bridgewater, and diversity of citizenship existed when this lawsuit was filed on November 29, 2012.

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