Diversity Jurisdiction: You Have to Try
In a recent decision from Nebraska, persons seeking to bring a suit in federal court based upon diversity jurisdiction, where the suit involves LLCs, are reminded of the efforts that must be undertaken in order to show, at least initially, that diversity is present. Ag Navigator, LLC v. Top Gun Ag LLC, 2020 WL 3316106 (D. Neb. June 18, 2020).
Navigator filed suit against Top Gun in state court, and Top Gun removed the action to federal court, asserting that diversity jurisdiction (28 U.S.C. § 1332) existed. After removal, Top Gun sought to dismiss the lawsuit on the basis that the court lacked personal jurisdiction over the defendants. In response, Navigator asserted that the initial removal was improper and that diversity jurisdiction was not present:
Defendants’ notice [of removal] was defective, as it failed to allege the citizenship of each member of each party-LLC. Without that information, Plaintiff's argue, the court cannot determine from the notice whether there is complete diversity, and Defendants have therefore failed to carry their burden of proof.
The magistrate judge would ultimately agree with that determination.
After reciting the settled law that the citizenship of an LLC is determined by that of its members, the court noted that:
That said, this case highlights a quandary faced by state court defendants sued by plaintiff LLCs: It is often difficult to determine whether the case can be removed to federal court based on diversity jurisdiction. Here, and in most complaints filed by LLCs, there are no allegations in the complaint related to the identity (much less the citizenship) of each plaintiff LLCs’ members. This puts defendants in a tough spot. The membership of LLCs and other unincorporated entities are often not publicly accessible. And the deadline to remove a case to federal court is typically 30 days after service – undoubtedly limiting the amount of investigation and discovery a defendant can do prior to filing a notice of removal. Thus, defendants are placed in the precarious position of having to include in their notices of removal allegations regarding the members of entities despite having little or no initial access to the entities’ membership documents. 2020 WL 3316106, *2.
From there, the court noted the various approaches taken by courts as to the availability of jurisdictional discovery in order to confirm (or not) the existence of diversity jurisdiction but having provided that review, the decision continues that is not necessary to select amongst the various test in that Top Gun, who would remove the case to federal court, had “not even attempted” to demonstrate that diversity jurisdiction existed. Having recited the jurisdictional portion of the notice of removal, it was observed:
Defendants’ notice does not indicate that they performed any due diligence regarding member-citizenship. In their brief in opposition to remand, Defendants claim they did not have access to important documents that would reveal the membership of the plaintiff-entities. As noted above, the court is sympathetic to that plight. The Defendants did not alert the court to those issues in their notice. Or plead that they believed that the evidence would bear out that all members were citizens of different states. In fact, Defendants’ notice does not indicate that they understood that LLC citizenship would have any effect on the jurisdictional question. This is highlighted by the fact that they did not include in their notice of membership of the defendant LLC - Top Gun Ag, LLC - whose membership they clearly knew. Id., *3.
The court would go on to review some of the limited information, finding that it indicated that diversity jurisdiction did not, factually, exist.
The court went on to find that the notice of removal was not objectively reasonable, and set forth the procedures by which attorneys’ fees could be awarded to Navigator for having to successfully challenge the removal.
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