When it comes to federal diversity jurisdiction involving an LLC, there are a few things that business owners need to be aware of.
Namely, when looking at federal court as an option for resolving a dispute, you must consider the citizenship of all LLC members. It is not always easy to determine this, as the initial appeal might not specify this information.
However, there are three main steps that those wishing to remove a case to federal court can take to make this happen.
The Difficulty of Qualifying for Diversity Jurisdiction
When it comes to diversity jurisdiction, LLCs can be a tricky business. For federal courts to have diversity jurisdiction over a case, all plaintiffs and defendants must be citizens of different states.
However, when an LLC is involved, the party bringing the case to federal court must take into account the citizenship of each member - and this isn't always easy to do.
Conditions of Qualifying for Diversity Jurisdiction
Three main conditions must be met in order to qualify for diversity jurisdiction:
- Consider the citizenship of each member of the LLC. It can be tricky, as the initial appeal might not specify this information. Also have in mind that the bigger the number of members, the less likely complete diversity will occur. However, it is possible to obtain this information by contacting the LLC directly.
- The amount in controversy must exceed $75,000. It is the monetary value that is being disputed in the case.
If the case meets both conditions, the case will likely be removed to federal court. However, it is vital to remember that this is not always the best option for resolving a dispute. In some instances, state court might be a better option - so it's always important to speak with an attorney before making any decisions!
A Practical Example
Suppose a citizen of California intends to sue an LLC with a Nevada principal place of business in federal court under diverse jurisdiction, and one of the LLC members is a citizen of California. In that case, the court will dismiss the complaint for the lack of subject matter jurisdiction.
In addition, if an LLC is sued and wants the matter to be moved to federal court, it must ensure that its members (and its members' members) are completely diverse.
Steps to Take in the Removal Process
You can take three primary measures to show the court that you did your homework and tried to prove complete diversity. you to find out who the LLC members are and whether or not they are citizens of the same state.
Step 1: Contact Opposing Counsel
When you get your initial papers, and they don't include LLC members or citizenship, the first thing you should do is contact opposing counsel. You can send an e-mail to each LLC member requesting information on their citizenship.
You may not receive a response to this e-mail or a complete response within the timeframe you have set before the removal deadline, but this shows the court that you contacted opposing counsel and requested this material, which the other party did not deliver to you prior to removal.
Step 2: Analyze Publicly Available Data
After that, you should perform a broad search of publicly available data and submit a summary of your findings in your removal documents. You might be able to find the LLC's Articles of Organization, for example. The Articles of Organization may not include the LLC's members. Still, you can have it in an affidavit with your removal papers to show that you looked through all publicly available information and still couldn't figure out who all the members are and where they are from.
Step 3: Make Your Case Based on Information and Belief
Based on your research, you can now argue in your removal papers that the LLC members are not citizens of the states in which the removing party is a citizen. Given that it is the removing party's responsibility to demonstrate diversity, and you still don't know the LLC members or their citizenship for sure, this will show the court that you did everything you could to determine the LLC members' citizenship prior to the removal.
Which Party Needs to Prove the Diversity of the LLC Members?
The party aiming to remove the case to federal court has the duty to demonstrate complete diversity of LLC members' citizenship.
Where Can I Check the Citizenship of the LLC Members?
Do your LLC background research and try to find the LLC's organizing documents. Try to find out if there is any other publicly available information on social media or websites. Another thing you can do is ask the opposing council and ask them where the LLC is located and where the members are from. This way you are demonstrating your due diligence to the court.
Why Should I Remove a Case to Federal Court?
Many firms prefer to settle a dispute in federal court when a conflict reaches a breaking point.
Businesses prefer the federal court because of strict deadlines and the assurance of a highly qualified presiding judge.
A Final Word on Diversity Jurisdiction Involving an LLC
Always be sure to consult with an attorney specializing in business law if you have any questions about the diversity jurisdiction of your LLC. The laws governing this area often change, and it is essential to stay up to date on how they impact your specific situation. By taking a proactive approach and performing your research, you can feel confident that you are making the best decisions for your company.