Why Suing LLCs in Federal Court Under Diversity Jurisdiction Can Be So Complicated
From Wednesday’s decision by District Judge Cogan (E.D.N.Y.) in Coward v. Nat’l Railroad Passenger Corp.:
The lack of knowledge of the membership of a limited liability company or limited partnership has at times caused an enormous waste of judicial and party resources when a party purports to invoke diversity jurisdiction and it turns out later that there wasn’t any. As the Seventh Circuit held in Belleville Catering Co. v. Champaign Market Place, LLC (7th Cir. 2003):
Once again litigants’ insouciance toward the requirements of federal jurisdiction has caused a waste of time and money…. Counsel tells us that, because the lease between Belleville Catering and Champaign Market Place refers to Belleville Catering as “a Missouri corporation,” he assumed that it must be one. That confesses a violation of Fed. R. Civ. P. 11…. [C]ounsel must secure jurisdictional details from original sources before making formal allegations.
The Court sees no reason to take that risk here….
Plaintiff brought this purported diversity case alleging he is a “resident” of Sicklerville, New Jersey {an inadequate jurisdictional allegation[ because jurisdiction turns on citizenship and not mere residence]} and that defendant Second Street Leasing, LLC is a “limited liability company formed and existing under the laws of the [s]tate of Connecticut.”
As plaintiff subsequently recognized, this was an inadequate allegation of defendant’s citizenship because the citizenship of an LLC has nothing to do with its state of formation or principal place of business; rather, the citizenship of an LLC consists of the imputed citizenship of each one of its members. This Court therefore issued an Order requiring plaintiff to show cause why the cause of action should not be dismissed for failing to adequately plead subject matter jurisdiction.
Plaintiff responded to the Order to Show Cause, in part, with a proposed amended complaint. It repeats the irrelevant allegation (because Second Street is an LLC) that Second Street is formed and existing under Connecticut law, and the equally irrelevant allegation (again, because Second Street is an LLC) that its principal place of busines
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