The Proponent of the Existence of Diversity Jurisdiction
Bears the Burden of Demonstrating Same
In a recent decision from Colorado, the court has reiterated that it is the burden of the party claiming the existence of diversity jurisdiction to demonstrate that it actually exists. In this case, the court rejected the notion that it could proceed on the basis of incomplete information. Mendoza v. Hospitality Staffing Solutions, LLC, Civ. Act. No. 13:-cv-1286-WJM-MJW (D. Col. June 10, 2013).
In this instance, the Defendants removed the case to federal court based upon alleged diversity jurisdiction. Initially, the Defendants suggested that the citizenship of an LLC should be determined on the same basis as that of the corporation, namely its jurisdiction of organization and its principal place of business. Although the 10th Circuit has not yet issued a ruling on that point, the trial court determined to follow the rulings of every other court that has considered the matter (they being the 1st, 2nd, 4th, 6th, 7th 8th and 9th Circuits) as well as other Colorado courts, it citing Hale v. MasterSaw International Pty, Ltd., 93 F. Supp.2d 1108, 1112 (D. Col. 2000) for the accepted rule, namely that citizenship is dependent upon all the members of the LLC.
In response to an order to show cause, an affidavit had been submitted on behalf of Hospitality Staffing Solutions, LLC reciting two of its members, both of which are themselves partnerships. The decision goes on to recite:
Mr. Woodward then states that the partners comprising Frontenac IX Private Equity Capital are unknown, and their identities are protected by a confidential agreement.
In response thereto, the court wrote:
Defendants’ Response fails to provide the information necessary to definitively determine the citizenship of HSS. The Response is therefore deficient, and does not satisfy the Court’s Order to Show Cause.
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The Court notes that Defendants were specifically warned that this action would be dismissed if they did not properly respond to the Court’s Order to Show Cause. Despite this warning, Defendants failed to provide the information requested. On the current record, the Court finds that Defendants have not met their burden of showing that this Court has jurisdiction over this action. Therefore, Defendants have failed to overcome the presumption against removal in this case, and remand of this case is appropriate. (citations omitted).
Consistent with a number of other decisions, the inability to trace the ownership of an LLC back to either natural persons or corporations will be fatal to a claim of diversity jurisdiction.
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