The Final Gasp of Alphonse in Federal Court

The Final Gasp of Alphonse in Federal Court

            For a number of years the Alphonse case has been litigated in the Louisiana Federal District Court an in the Fifth Circuit Court of Appeals.  For most of that time the most interesting (at least to me) aspect of the case has involved the treatment of the series to which Alphonse’s mortgage had been associated.  Those issues were reviewed in Rutledge, The Internal Affairs Doctrine and Series Limited Liability – Never the Twain to Meet?, 17 Bus. Entities 4 (March/April 2015).   HERE IS A LINK TO THAT ARTICLE.

            Most recently, the Fifth Circuit confirmed that there was no diversity jurisdiction even though the non-diverse Louisiana resident was remote from Arch Bay.  Alphonse v. Arch Bay Holdings, L.L.C., No. 14-31320, __Fed. App. __, 2015 WL 4187585 (5^th Cir. July 13, 2015).

            The District Court had determined that diversity jurisdiction was lacking in that ultimately Arch Bay had a member domiciled in Louisiana.  While Alphonse did not challenge that determination of citizenship, he challenged the use of a person with a remote interest in Arch Bay to determine its citizenship.

Alphonse does not contest these facts or offer any evidence that the member is not a citizen of Louisiana. Instead, he argues that the standard established in Harvey “can be stretched to an illogical absurdity.” He claims that such an absurdity exists in this case because the non-diverse member is in fact a member of a member of one of Arch Bay’s members, is a limited partner with no managerial responsibilities, and was difficult to locate. Id. at *2.

 

Explaining why this position is “unpersuasive,” the Fifth Circuit wrote:

The Supreme Court has explicitly “reject[ed] the contention that to determine, for diversity purposes, the citizenship of an artificial entity, the court may consult the citizenship of less than all of the entity’s members.” Applying Carden, this court, as well as all other circuits to address the issue, have held that “the citizenship of a LLC is determined by the citizenship of all of its members.”  Moreover, no case law has suggested that this conclusion may be disregarded when one of the LLC’s members is an artificial entity comprised of additional entities. Indeed, we have observed that the “appropriate tests for citizenship” involve “tracing [entities’] citizenships down the various organizational layers where necessary....” Accordingly, we reject Alphonse’s contention that less than all of an LLC’s members may be considered when determining its citizenship. Id. (citations omitted).

 

            This ruling follows from similar determinations that there is no de minimus exception to the requirements of diversity jurisdiction.