United States: Limited Liability Companies Are Like Corporations For Purposes Of Determining Citizenship Under CAFA

Last Updated: May 22 2014
Article by CAFA Law Blog

Heckemeyer v. NRT Missouri, LLC, 2013 WL 2250429 (E.D. Mo. May 22, 2013).

The U.S. District Court for the Eastern District of Missouri held that Congress chose to treat limited a limited liability company ("LLC") like a corporation for purposes of determining citizenship under CAFA; thus, an LLC is deemed to be a citizen of the states where its principal place of business is located and the state under whose laws it is organized.

The Missouri resident plaintiffs brought an action under the Missouri Merchandising Practices Act, in Circuit Court of St. Louis County, Missouri, alleging that the defendants knowingly misrepresented the square footage of the homes that the plaintiffs and the putative class members purchased, by including footage of the empty space on the second floor above a two-story entry foyer or two-story great room. The plaintiffs alleged that James Dohr, as NRT Missouri LLC's ("NRT") designated broker, was responsible for supervising NRT's brokers and salespeople and adopting a written policy covering various matters, including the subject matter of the lawsuit.

The defendants removed the action to the District Court, asserting traditional diversity jurisdiction under 28 U.S.C. § 1332(a) and CAFA jurisdiction under § 1332(d). The defendants asserted that complete diversity of citizenship existed for purposes of § 1332(a), because NRT Missouri was a citizen of Delaware and New Jersey and James Dohr was fraudulently joined so his citizenship should not be taken into account. Further, the defendants asserted that the general rule that an LLC's citizenship is based on the citizenship of its members applies under CAFA, such that diversity of citizenship under § 1332(d), also existed.

The plaintiffs moved for remand, arguing that traditional diversity jurisdiction did not exist because Dohr was not fraudulently joined and the defendants did not show that the requisite amount in controversy of $75,000 was met with respect to any one plaintiff. The plaintiffs also argued that jurisdiction under CAFA did not exist because, under CAFA ,an LLC's citizenship is based upon the state in which the LLC is organized and where its principal place of business is located. The plaintiffs asserted that NRT's principal place of business was in Missouri and argued that the defendants did not establish CAFA's requisite $5 million amount in controversy.

First, the District Court noted that the claim of any one plaintiff was less than $75,000, and the defendants made no effort to show otherwise. Thus, the District Court found that the defendants did not meet their burden to establish that traditional diversity jurisdiction existed.

Additionally, the District Court stated that diversity jurisdiction under §1332(a)(1) requires complete diversity, such that no defendant holds citizenship in the same state where any plaintiff holds citizenship. Because an LLC's citizenship for purposes of traditional diversity jurisdiction is the citizenship of each of its members, there was diversity between the plaintiffs and NRT for purposes of traditional diversity jurisdiction. The District Court, however, remarked that, because Dohr was a citizen of Missouri, his presence as a defendant defeated traditional diversity jurisdiction.

Next, the District Court observed that, to prove that a plaintiff fraudulently joined a diversity-destroying defendant, the Eighth Circuit requires a defendant seeking removal to prove that the plaintiff's claim against the diversity-destroying defendant has no reasonable basis in fact and law. Further, the District Court stated that joinder is not fraudulent where there is arguably a reasonable basis for predicting that the state law might impose liability based upon the facts involved.

The District Court also noted the Eighth Circuit's instruction that, where the sufficiency of the complaint against the non-diverse defendant is questionable, the better practice is for the federal court not to decide the doubtful question in connection with the motion to remand but simply to remand the case and leave the question for the state courts to decide. Thus, because the sufficiency of the complaint against Dohr was questionable, the District Court opined that it would be best for a Missouri state court to decide Dohr's potential liability in the present action.

Second, the District Court remarked that, although the defendants had established by a preponderance of the evidence the CAFA jurisdictional requirements of numerosity and amount in controversy, they failed to establish CAFA diversity of citizenship.

Under § 1332(d)(10), CAFA provides that an unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it is organized. Although the Eighth Circuit had not yet addressed the question, the Fourth Circuit held that an LLC is properly considered "an unincorporated association" within the meaning of § 1332(d)(10) and, thus, is deemed to be a citizen of the state both where it has its principal place of business and the state under whose laws it is organized.  Further, the District Court observed that CAFA's legislative history, specifically Senate Report No. 109-14, shows that Congress chose to treat LLCs like corporations for purposes of determining citizenship under CAFA.

The Fourth Circuit also rejected the argument that Congress intended "unincorporated association" to refer only to those non-corporate entities that, unlike an LLC in Missouri, lacked a distinct legal identity under the law of the state where they are organized. The defendants argued that the term "unincorporated association" in § 1332(d)(10) referred to only a narrower subset of non-corporate business forms, a class that excluded entities having a distinct legal identity under the law of the state in which they are organized.

The Fourth Circuit reasoned that the term "business enterprise" includes both corporations and non-corporate entities, and the District Court noted that use of the terms "business enterprise," "corporation," and "unincorporated association" reflects Congress's intent to subdivide the entities covered by the term "business enterprise" into two categories: corporations and non-corporate entities. The District Court stated that CAFA refers to non-corporate entities as "unincorporated associations." To extend CAFA's application, Congress narrowly defined the citizenship of non-corporate entities to include only one or two states, thereby extending federal court jurisdiction over class actions.  Accordingly, the District Court stated that Congress chose to treat LLCs like corporations for purposes of determining citizenship under CAFA.

Next, the District Court analyzed the location of NRT's principal place of business. In Hertz Corp. v. Friend, 130 S. Ct. 1181 (2010), the Supreme Court adopted the "nerve center" test for determining a corporation's principal place of business, defining "principal place of business" as the place where a corporation's officers direct, control, and coordinate the corporation's activities. Further, the District Court opined that the "nerve center" normally was the place where the corporation maintained its headquarters, provided that the headquarters was the actual center of direction, control, and coordination, and not simply an office where the corporation held its board meetings.

The plaintiffs asserted that NRT's principal place of business was Missouri, as evidenced by NRT's judicial admissions in several cases that its principal place of business and corporate headquarters were in Missouri. The plaintiffs also maintained that NRT's principal place of business was Missouri, because NRT Missouri maintained its corporate office in St. Louis County, Missouri operating and doing business under the fictitious name of Caldwell Banker Gundaker.

In support of its contention that its principal place of business was New Jersey, NRT submitted the sworn declaration of its General Counsel who attested that, although business was carried out in Missouri, all NRT's business was subject to the control of its officers in the NRT corporate headquarters in New Jersey.  However, because the District Court found that defendants did not met their burden of establishing that NRT's principle place of business was not Missouri, it held that all plaintiffs and both defendants were citizens of Missouri for purposes of CAFA, and jurisdiction under CAFA did not exist.

Accordingly, the District Court granted the plaintiffs' motion for remand.

CAFA Law Blog

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions