Federal District Court Considers Pleading Standard for Asserting Diversity Jurisdiction

Federal District Court Considers Pleading Standard

for Asserting Diversity Jurisdiction

 

In a decision earlier this year, the Federal District Court for the Northern District of Indiana considered the pleading standard required in order to support an assertion that there exists diversity of jurisdiction. In this instance, the court held that pleading on the basis of “information and belief” is insufficient; rather, it must be pled on the basis of personal knowledge. Lake v. Hezebicks, No. 1:14-cv-143, 2014 WL 1874853 (N.D. Ind. May 9, 2014).

 

In order for a federal court to have jurisdiction to resolve a dispute involving an LLC, subject to some quite narrow exceptions, it must have either “federal question” jurisdiction or “diversity” jurisdiction. Almost all commercial disputes will not involve a federal question, so jurisdiction in the federal court will be dependent upon diversity. Diversity jurisdiction will exist only if none of the plaintiffs have the same citizenship or domicile as any of the members, either direct or beneficial, of the LLC. For example, if the plaintiff is a Delaware business corporation with its principal place of business in Kentucky, the corporation will be deemed a citizen of both Delaware and of Kentucky. In a suit by that corporation against an LLC, if any of the members of the LLC are either domiciled in or are citizens of either Delaware or Kentucky, diversity jurisdiction will be lacking and the federal court will not have jurisdiction to hear the dispute.

 

The problem arises in that the membership of an LLC or other unincorporated association is not of public record. Even where the membership of an LLC is known, often the domicile and citizenship will not be known or, at minimum, they will be open to debate. How then is to be satisfied the obligation of the party asserting that diversity exist that, in fact, it does?  In this instance, the plaintiff, “on information and belief” asserted that diversity jurisdiction existed. That assertion was rejected on the basis that “allegations of federal subject matter jurisdiction may not be made on the basis of information and belief, only personal knowledge.”, citing Yount v. Shashek, 2006 WL 4017975 (S.D. Ill. Dec. 7, 2006) and other authorities.

 

This opinion does not address the availability of jurisdictional discovery to ascertain the citizenship/domicile of any of the parties.