Diversity Jurisdiction Involving an LLC (What You Must Know)

Delina Chantel Yasmeh
Published by Delina Chantel Yasmeh | Author
Last updated: February 6, 2024
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When it comes to federal diversity jurisdiction involving an LLC (Limited Liability Company), there are a few things that business owners need to be aware of.

Through countless hours of study and consultation with legal experts, I have delved into a comprehensive understanding of legal jurisdictions and LLCs.

In this article, I aim to share my expertise and provide essential knowledge about federal question jurisdiction related to LLCs.

Quick Summary

  • Federal diversity jurisdiction involving an LLC requires that all plaintiffs and defendants be citizens of different states or countries.
  • To qualify for or exercise diversity, the LLC members' citizenship must be considered.
  • For diversity jurisdiction, the LLC's citizenship is determined by the citizenship of each member.
  • The minimum amount in controversy must also surpass a specified threshold, usually exceeding $75,000 in the United States.


Understanding Diversity Jurisdiction in an LLC

Diversity jurisdiction is a legal principle that confers the authority upon a federal court to handle cases involving parties from different states or countries.

When a legal dispute arises involving an LLC, the invocation of diversity jurisdiction exists under specific circumstances.

When examining the existence of diversity, it is crucial to acknowledge that a corporation is deemed a citizen of both the state where it is incorporated and the state where it maintains its principal place of business.

However, it's important to note that diversity undergoes certain modifications when it comes to class action lawsuits, primarily due to the enactment of the Class Action Fairness Act of 2005 (CAFA) [1].

The Difficulty of Qualifying for Diversity Jurisdiction

Qualifying for diversity can pose challenges, particularly for limited liability companies (LLCs).

To qualify, a plaintiff must meet certain criteria. These can include being a citizen of a different state from the defendant and satisfying the amount in controversy requirement.

Drawing from my legal experience, the criteria's main objectives are to ensure a fair and impartial legal proceeding by allowing cases involving out-of-state parties to be heard in federal law courts.

Conditions of Qualifying for Diversity Jurisdiction

Two office people discussing about llc diversity jurisdiction

Two main conditions must be met to qualify:

1. Citizenship of the Parties

To establish complete diversity jurisdiction involving an LLC, the parties involved must be citizens of different states or countries. Consider the citizenship of each member of the LLC.

In the United States, an individual's citizenship for complete diversity purposes is determined by their state of domicile, typically their primary residence.

For an LLC like ours, its citizenship was determined by the citizenship of each of our members.

If any member of the LLC shares the same state citizenship as any opposing party, it may not be available.

2. Minimum Amount in Controversy

Another requirement is that the amount of controversy exceeds a specified threshold.

This threshold, referred to as the jurisdictional amount, is established by law and varies depending on the jurisdiction.

In the United States, federal courts generally demand an amount in controversy exceeding $75,000 for complete diversity jurisdiction to be applicable [2].

A Practical Example

Suppose a citizen of California intends to sue an LLC with a Nevada principal place of business in state 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.

In the case of Boghozian v. Jaguar Land Rover North America, the plaintiff initiated a lawsuit in the Los Angeles Superior Court against the automotive manufacturer [3].

However, Jaguar Land Rover exercised its right to remove the case to the U.S. District Court for the Central District of California, alleging diversity jurisdiction as the basis for removal.

In the notice of removal, Jaguar Land Rover asserted that it operated as a single-member LLC and that its principal place of business was in another state.

Steps to Take in the Removal Process

Three people at a table taking the steps in removal process

To find out who the LLC members are and whether or not they are citizens of the same state, here are the steps to take:

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.

For our case, we sent an e-mail to each LLC member requesting information on their citizenship.

This showed the court that we contacted opposing counsel and requested this material.

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.

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FAQs

Which Party Needs to Prove the Diversity of the LLC Members?

The party is responsible for proving the diversity of the LLC members typically depending on the specific legal requirements and jurisdiction.

In some cases, it may be the LLC itself, while in others, it could be a party involved in a legal dispute or regulatory compliance.

Where Can I Check the Citizenship of the LLC Members?

You can check the citizenship of the LLC members by referring to official government records, such as the U.S. Citizenship and Immigration Services (USCIS) or the Department of Homeland Security (DHS).

Can an LLC Manipulate Its Membership to Create Diversity Jurisdiction?

An LLC cannot manipulate its membership to create diversity jurisdiction. It requires legitimate diversity of citizenship between the parties involved in a lawsuit. Courts scrutinize membership changes closely to prevent abuse and ensure fairness in jurisdictional matters.

How Does Diversity Jurisdiction Impact Multi-Member LLCs Versus Single-Member LLCs?

Diversity jurisdiction impacts multi-member and single-member LLCs differently. Multi-member LLCs fall under federal jurisdiction in federal courts, while single-member LLCs face limitations without the federal government being involved or having diversity among parties. General judges handle the jurisdiction cases.


References:

  1. https://www.govinfo.gov/content/pkg/PLAW-109publ2/html/PLAW-109publ2.htm
  2. https://www.law.cornell.edu/wex/diversity_jurisdiction
  3. https://casetext.com/case/duff-v-jaguar-land-rover-n-am-llc-1

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