The Claim to Be Wrongly Excluded As a Member Precludes Diversity Jurisdiction

The Claim to Be Wrongly Excluded As a Member Precludes Diversity Jurisdiction

In a recent decision from New York, there was considered the consequences, for the purposes of federal diversity jurisdiction, of a claim that the plaintiff had been wrongly excluded as a member in the LLC. Giving credence to that assertion, diversity jurisdiction did not exist and the suit was dismissed. Dykstra v. 6069321 Canada, Inc., 1:19-CV-688-GHW, 2019 WL 4688726 (S.D.N.Y. Sept. 25, 2019).

For purposes of federal diversity jurisdiction, a limited liability company has the citizenship of each of its members. This rule has the effect of keeping most lawsuits involving LLCs out of federal court, particularly when the lawsuit involves an inter-se dispute between the LLC and one of its members. If the plaintiff member is a citizen of jurisdiction X, then the LLC is also a citizen of jurisdiction X, and diversity jurisdiction does not exist.

In this instance, Dykstra asserted that he was, but had improperly been excluded from, membership in a defendant LLC, Rebound Marketing, LLC. Giving credence to Dykstra’s claim, namely that he should be a member of Rebound Marketing and therefore Rebound Marketing should have Dykstra’s citizenship, it was determined that diversity jurisdiction was lacking and the suit should be dismissed.

In the course of its analysis, it was held that Rebound was not a nominal party to the action, but that genuine and substantial relief had been sought against it.