The Citizenship of a Limited Liability Company

The Citizenship of a Limited Liability Company

      In a recent decision by Judge Bunning, he considered how to determine the citizenship of a limited liability company, itself owned by a limited liability company, ultimately finding the diversity of citizenship existed. In doing so, he also dismissed consideration of a poorly reasoned decision from Pennsylvania. Carr v. Lake Cumberland Regional Hospital, LLC, Civ. Act. No. 15-138-DLB, 2016 WL 868869 (E.D. Ky March 7, 2016).

      This dispute arose out of an allegation of medical negligence against parties including Lake Cumberland Regional Hospital, LLC (“LCRH”). The suit was removed to federal court on the basis of diversity jurisdiction, i.e., the plaintiff Carr did not share the same citizenship with any of the defendants. In an effort to remand the action back in Kentucky state court, Carr alleged that LCRH is a Kentucky citizen and therefore removal was barred by the “forum-defendant rule,” it provided, inter alia, that even if diversity of citizenship exists, a defendant may not remove to federal court if sued in the jurisdiction in which they are a citizen. Ergo, if LCRH is a Kentucky citizen, removal was improper.

      LCRH has only a single member, LifePoint of Lake Cumberland, LLC, and its sole member is LifePoint Holdings 2, LLC. The sole member of LifePoint Holdings 2, LLC is LifePoint Hospitals Holdings, LLC, a Delaware corporation with its principal place of business in Tennessee. Under the rules governing the citizenship of LLCs, LCRH would be deemed a citizen of both Delaware and Tennessee.

      The plaintiffs in this action, in support of remand of the action to state court, relied upon Brewer v. SmithKline Beacham Corp., 774 F. Supp. 2d 720 (E.D. Pa. 2011), for the proposition that, where a holding company is utilized in a multilevel structure involving LLCs, citizenship is determined based on the “nerve center”/the location where the operational decision-making takes place. As correctly recognized by Judge Bunning, the Brewer decision both conflicts with the ruling of the Sixth Circuit in Delay v Rosenthal Collins Group, LLC, 585 F.3d 1003, 1005 (6^th Cir. 2009) as to the citizenship of an LLC and wrongly incorporates the “principal place of business” test applicable to corporations in accordance with 28 U.S.C. § 1332(c) into the realm of the unincorporated limited liability company.

      In that complete diversity existed (the plaintiff was a citizen of Ohio, LCRH was a citizen of Delaware and Tennessee, and another defendant was a citizen of California) and because LCRH was not a citizen of Kentucky, the forum-defendent rule did not apply. Hence, no remand.