Wednesday, June 11, 2014

Master Limited Partnership’s Effort to be Treated as a Corporation for Purposes of Diversity Jurisdiction Rejected

Master Limited Partnership’s Effort to be Treated as a Corporation

for Purposes of Diversity Jurisdiction Rejected

      In a decision earlier this year, a master limited partnership sought to have itself characterized as a corporation for purposes of determining diversity jurisdiction in contrast to the usual rule that with respect to a limited partnership, citizenship is based upon that of each general and limited partner.  Had this effort been successful, the master limited partnership would have been ascribed the citizenship of only its principal place of business and its jurisdiction of organization.  That effort was, however, rejected.  Trafigura AG v. Enterprise Products Operating, LLC, No. H-13-2712, ___ F.Supp.2d __, 2014 WL 501962 (S.D. Tex. Jan. 21, 2014). 
       Suit was brought by Trafigura against Enterprise Products Operating, LLC (“Enterprise”) arising out of certain asserted indemnification obligations from Enterprise in favor of Trafigura.  Enterprise sought dismissal for lack of subject matter jurisdiction.  Trafigura is organized in Switzerland and is therefore a foreign citizen.  Enterprise was organized and had its principal place of business in Texas.  However, Enterprise, as a master limited partnership whose units were publicly traded, had owners in a number of foreign countries.  In response to Enterprise’s efforts to have the case dismissed for lack of diversity, Trafigura argued that Enterprise’s citizenship should be determined utilizing the corporate jurisdiction of organization/jurisdiction of principal business test rather than an unincorporated organization’s citizenship of all members test, reasoning:
Trafigura contends that because a master limited partnership is publicly traded it is more like a corporation than a partnership, and it should therefore get corporate treatment for jurisdictional purposes, such that its citizenship is determined solely by reference to its state of incorporation and its principal place of business.  2014 WL 501962, *2.
      In support of this reasoning, Trafiguro pointed to the Supreme Court’s decision in Puerto Rico v. Russell & Co., 228 U.S. 476, 482 (1933) in which it held that a Puerto Rican sociedad en comandita would, based upon its similarity to a corporation, be similarly treated for purposes of diversity jurisdiction.
      On the basis that these “similarity” arguments were rejected by the Supreme Court in Carden, this Court was not willing to find an exception for a master limited partnership.  Rather, it wrote that:
Nevertheless, despite the practical similarities between certain types of unincorporated entities and corporations, as well as concerns with basic fairness and substance over form, the Supreme Court identified Congress as the appropriate source, rather than the Courts, for aligning the law of federal diversity jurisdiction with the changing realties of commercial organizations.
      Diversity jurisdiction being lacking, the suit was dismissed.

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