Establishing Citizenship for Purposes of Diversity Jurisdiction
Diversity jurisdiction is one of two methods for a federal court to have subject-matter jurisdiction over a case. If a defendant wants to remove its state case to federal court, unless federal question jurisdiction is established, the defendant will be required to show diversity jurisdiction.
Diversity jurisdiction has two requirements:
- The damages amount in issue must exceed $75,000; and
- Complete diversity must exist, meaning no plaintiff may share a state of citizenship with any defendant.
Determining Citizenship of an LLC
Determining citizenship for an individual is a generally a simple answer coming down to where that person establishes a permanent residence. An entity, like an LLC, does not make it this simple. Limited Liability Companies have a principal place of business that could be in one state and possibly have several members with different residences, possibly in different states. So, if an LLC finds itself in federal court, how is citizenship determined for purposes of establishing diversity jurisdiction?
To answer this question, we look to the 2019 Fifth Circuit opinion, MidCap Media Finance, LLC v. Pathway Data, Inc. 2019 WL 6699789, (Dec. 9, 2019). In this case it was alleged that the MidCap Media Finance, LLC had its principal place of business in Texas and therefore, could establish citizenship in Texas. However, the Fifth Circuit disagreed with this manner of establishing citizenship of an LLC. The Fifth Circuit opined that the citizenship of the LLC is, in fact, not determined by its principal place of business but rather its members. Therefore, in order to answer this inquiry, one must look to the citizenship of each member within the chain of membership on the date the suit is filed. Any LLC that anticipates finding itself in federal court should consider the citizenship of each of its members to ensure that complete diversity is shown.
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