Monday, March 7, 2016

US Supreme Court Addresses the Citizenship, for Purposes of Diversity Jurisdiction, of a Business Trust

US Supreme Court Addresses the Citizenship, for Purposes of Diversity
Jurisdiction, of a Business Trust

            In a decision released earlier today, the US Supreme Court has addressed and resolved the question of how the citizenship of a business trust is to be resolved.  Cutting to the chase, it is at least that of the beneficial owners in the trust.  Americold Realty Trust v. Conagra Foods, Inc., No. 14-1382 (March 7, 2016).

            The decision, written by Justice Sotomayor, was unanimous.  It also had a quick turnaround.  The case was only argued on January 19.

            As I have previously discussed (HERE IS A LINK to that posting), the question presented in this case is relatively straightforward, namely whether in determining the citizenship of a business trust for purposes of diversity jurisdiction (28 U.S.C. § 1332), the trust will be deemed to have citizenship of only the trustees, only of the beneficiaries, or other combination of the two. The ultimate decision needed to address the interface of the Supreme Court’s 1980 decision rendered in Navarro Savings Association, in which suit was brought by the trustees as the trustees and, on those facts, only their citizenship was relevant, and Carden v Arkoma Associates, a 1990 decision in which it was held that the citizenship of every “member” of an unincorporated association should apply to determine its citizenship.

       Americold is arguing that the citizenship of only the trustees should be relevant in assessing a trust’s citizenship. This argument is to the effect that a broadly held trust should be able to access the federal courts through diversity jurisdiction. In contrast, ConAgra Foods is seeking the return of the suit to state court by its argument that the citizenship of all of the beneficiaries of Americold is relevant to determine its citizenship.

            The Court came down squarely on the side of Conagra and of the Navarro decision.  Essentially, Navarro was limited to the traditional common law trust in which the trust is itself not subject to being sued – in those cases on the trustees may sue or be sued, and in that circumstance only the citizenship of the trustees will be considered.  Otherwise, as is the case here with respect to a “trust” that is organized under a law that affords it the capacity to sue and be sued in its own name, then the Carden rule is applicable, and the citizenship of all “members,” namely the beneficial owners/shareholders in the trust, will apply.

            My law partner Chris Schaefer and I considered this question in The Trust as an Entity and Diversity Jurisdiction: Is Navarro Applicable to the Modern Business Trust?, 48 Real Property, Trust & Estate Law Journal 83 (Spring 2013) (HERE IS A LINK to that article), and I am glad to say that the analysis we suggested is what the Court adopted. 

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