March 10, 2016
U.S. Supreme Court Reaffirms that Only “Humans and Corporations,” Not Unincorporated Entities Like a Trust, May Assert Their Own Citizenship for Purposes of Federal Diversity Jurisdiction
In a unanimous March 7, 2016 opinion authored by Justice Sotomayor, Americold Realty Trust v. Congra Foods, Inc., et al., , the U.S. Supreme Court affirmed an oft-confused holding relating to diversity jurisdiction: the citizenship of any non-incorporated artificial entity is determined by considering all of the entity’s “members,” not of the state where the entity is formed. Americold removed its lawsuit to the federal district court in Kansas, which resolved the lawsuit on its merits. On appeal, however, after supplemental briefing ordered sua sponte by the Court, the Tenth Circuit found that Americold, as an unincorporated real estate investment trust, or REIT, was a citizen of the states of its members. The Supreme Court granted certiorari to resolve a circuit split regarding the citizenship of unincorporated entities. Affirming the Tenth Circuit, Supreme Court reiterated its “oft-repeated rule” that diversity jurisdiction in a suit by or against an entity depends on the citizenship of all of its members. Individuals are citizens of the states in which they reside. The Supreme Court created an early exception in the 19th century—one which was later codified by Congress: based on the tradition of treating corporations as separate juridical “persons,” corporations are considered to be citizens of their state of incorporation, and, Congress later added, also of the state where it has its principal place of business. 28 U.S.C. § 1332(c). This exception was never expanded to unincorporated entities, whose citizenship, the Court reaffirmed, is determined based on the citizenship of its “members.” The Court previously identified the members of a joint-stock company (as its shareholders), the members of a partnership (as its partners), and the members of a union (as the workers affiliated with it). With respect to a REIT, the Court found that because Americold is not a corporation, it possesses its members’ citizenship. Looking at the law of the REIT’s state of organization, Maryland, the court held that, “for purposes of diversity jurisdiction, Americold’s members include its shareholders.” The Court also found that the entity’s membership cannot be restricted to its trustees simply because the entity “happens to call itself a trust.” Absent action by Congress, one must consider to look at the citizenship of the members of various unincorporated entities such as LLCs and Trusts, to determine the existence of federal diversity jurisdiction. For more information regarding federal diversity jurisdiction or the Court’s decision in Americold, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at email@example.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at firstname.lastname@example.org.