Diversity Jurisdiction and Donative Trusts; Look to the Citizenship of the Trustee

Diversity Jurisdiction and Donative Trusts; Look to the Citizenship of the Trustee

      In a relatively recent decision of the Second Circuit Court of Appeals, it considered and affirmed the traditional rule with respect to determining the citizenship, for purposes of diversity jurisdiction, of a traditional, donative (as contrasted with a business or statutory) trust. Raymond Loubier Irrevocable Trust v. Loubier, 858 F.3d 719 (2^nd Cir. 2017).

      The federal statute governing diversity jurisdiction requires both that the amount in controversy exceeds $75,000 and, inter alia, that none of the defendants have the same citizenship as any of the plaintiffs. Rather involved and sometimes byzantine rules exist with respect to determining what is the citizenship of various organizations such as corporations and LLCs. Those rules can be particularly complicated in the context of a trust in that trust may be either donative or business; different rules may apply depending upon that characterization. In this instance, the question turned on the citizenship of a traditional donative trust. In that the trust did not have certain characteristics now seen in business trusts, such as the capacity to sue and be sued in its own name, it was a traditional donative type trust.

While the fiduciary relationship established by the plaintiff trusts allow vested beneficiaries to demand accountings from and even to sue the trustees, the trusts themselves are not entities that can be sued except through their trustees. 858 F.3d at 730.

      From there, applying Navarro Savings Association v. Lee, 446 U.S. 458 (1980), the citizenship of the trust parties to this litigation would be determined exclusively with respect to the citizenship of the trustees thereof.

       Ultimately, this case was remanded until such time as a clear determination as to the trustees’ citizenship could be made.