Emerald Investors v. Gaunt Parsippany ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
6-13-2007
Emerald Investors v. Gaunt Parsippany
Precedential or Non-Precedential: Precedential
Docket No. 05-3706
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007
Recommended Citation
"Emerald Investors v. Gaunt Parsippany" (2007). 2007 Decisions. Paper 844.
http://digitalcommons.law.villanova.edu/thirdcircuit_2007/844
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2007 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 05-3706 and 05-4134
EMERALD INVESTORS TRUST
v.
GAUNT PARSIPPANY PARTNERS;
119 CHERRY HILL ASSOCIATES, L.L.C.;
99 CHERRY HILL ASSOCIATES, L.P.;
HORSEHEADS COMMERCIAL DEVELOPMENT PARTNERS,
L.P.;
RECKSON OPERATING PARTNERSHIP, L.P.;
JOHN DOES 1 THROUGH 10
Gaunt Parsippany Partners;
119 Cherry Hill Associates, L.L.C.;
99 Cherry Hill Associates, L.P.;
Horseheads Commercial
Development Partners, L.P.;
Reckson Operating Partnership, L.P.,
Appellants in No. 05-3706
EMERALD INVESTORS TRUST,
Appellant in No. 05-4134
v.
GAUNT PARSIPPANY PARTNERS;
119 CHERRY HILL ASSOCIATES, L.L.C.;
99 CHERRY HILL ASSOCIATES L.P.;
HORSEHEADS COMMERCIAL DEVELOPMENT
PARTNERS, L.P.; RECKSON
OPERATING PARTNERSHIP, L.P.;
JOHN DOES 1 THROUGH 10
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civ. No. 02-1939)
Honorable William J. Martini, District Judge
Argued November 8, 2006
BEFORE: SLOVITER, CHAGARES, and
GREENBERG, Circuit Judges
(Filed: June 13, 2007)
W. James Cousins (argued)
McGowan & Cousins
P.O. Box 391
Litchfield, CT 06759
Attorneys for Appellants in No. 05-3706
and Appellees in No. 05-4134
Kenneth L. Leiby, Jr. (argued)
Richard J. Shackleton
Shackleton & Hazeltine
159 Millburn Ave.
Millburn, NJ 07041
Attorneys for Appellant in No. 05-4134
and Appellee in No. 05-3706
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. INTRODUCTION
The parties appeal and cross-appeal from a judgment and
orders in this action that Emerald Investors Trust (“Emerald Trust”)
brought, predicated on the district court’s asserted diversity of
2
citizenship jurisdiction, seeking recovery on two unpaid promissory
notes and foreclosure of the mortgages securing the notes. The
district court, over the defendants’ objection, held that it had diversity
of citizenship jurisdiction because the sole beneficiary of Emerald
Trust was Emerald Investors Ltd. (“Emerald Ltd.”), a corporation
incorporated in the British Virgin Islands where it had its principal
place of business, and the defendant partnerships, all of which are
undoubtedly citizens of states within the United States, are not
citizens of the British Virgin Islands.
As always, after we are satisfied of our own jurisdiction,1 the
threshold, and, indeed, as it turns out, the only issue on this appeal is
whether the district court had subject matter jurisdiction. Inasmuch as
we cannot determine if the district court had diversity of citizenship
jurisdiction and there is no other basis for it to have exercised
jurisdiction, we do not reach the merits of the case. Rather, we will
remand the matter to the district court to resolve the jurisdictional
issue after allowing discovery and conducting any hearing that it
deems necessary.
II. FACTS AND PROCEDURAL HISTORY
Defendants, Gaunt Parsippany Partners, 119 Cherry Hill
Associates, L.L.C., 99 Cherry Hill Associates, L.P., and Horseheads
Commercial Development Partners, L.P., whose three principal
owners and partners were Newby Toms, Mitchell Wolff, and Joel
Hoffman (the “partners”), were in the business of owning and
operating office buildings. Though the three partners conducted their
business through these four entities, Horseheads was the only one
existing at the time that Emerald Trust filed the complaint in this case.
Nevertheless, all of the four entities, along within Reckson Operating
Partnership, L.P., have been defendants in this case and all five
entities filed the first, and as it turns out, the principal appeal after
completion of the district court proceedings.
The case may be traced back to January 1994, when the
properties the partners owned in Parsippany, New Jersey, which
consisted of two sites, the 99 Cherry Hill property and the 119 Cherry
1
Clearly, we do have appellate jurisdiction.
3
Hill property (“the NJ properties”), were performing poorly.2 This
circumstance caused the partners to refinance these properties with the
United Bank of Kuwait (“the United Bank”), an undertaking requiring
them to increase the debt on property they owned in Horseheads, New
York, by $2 million to be used by the partners for the NJ properties.
At that time the partners entered into certain agreements relating to
the refinancing.3 First, they agreed to treat the $2 million as a loan
from them, rather than from United Bank, to the entities that owned
the NJ properties even though United Bank supplied the $2 million.
In exchange, each of the two entities owning the NJ properties gave
each of the partners a note for $333,333.33 secured by a mortgage that
was subordinate to the United Bank’s senior mortgage. The notes
bore a 12% annual rate of interest and were due on December 31,
1999. The partners created the subordinated mortgages to protect
their equity in the properties from partnership creditors. As a result of
the subordinated mortgages, the partners appeared to be secured
creditors instead of equity owners with respect to the $2 million. The
partners also entered into parity agreements that provided that they
ranked equally among themselves with respect to payment of or
security on the loans.
Thereafter, the relationship among Toms, Wolff, and Hoffman
deteriorated leading Toms to seek to withdraw from their business
dealings. Accordingly, in 1996 the partners began negotiating the
terms of an agreement for Hoffman and Wolff to acquire Toms’s
interests in the Horseheads and NJ properties. As a result of the
negotiations, the partners simultaneously entered into six related
agreements.4 First, they entered into two mortgage modification
agreements modifying the notes and subordinated mortgages so that
2
The facts in this case are unusually complicated but we have
focused on what needs to be explained for purposes of this opinion. If
we were reaching the merits of the case we would have had to explain
much more. The district court set forth the facts at greater length in its
opinion in Emerald Investors Trust v. Gaunt Parsippany Partners, No.
02-CV-1939, 2005 WL 1705779 (D.N.J. July 21, 2005).
3
Their four entities were also parties to these agreements but we
need not detail which entity was a party to which agreement. Rather, as
a convenience we refer to the agreements as if only the partners signed
them.
4
We do not detail the entities’ roles in these agreements.
4
the sum due on each was increased from $333,333.33 to $583,333.33
with the notes simultaneously becoming non-interest bearing. At the
same time the face value of the notes was reduced to $250,000, the
reduction being contingent on installment payments on them being
timely made. The mortgage modification agreements also provided
that repayment was to be made only to the extent that any refinancing
or sale of the properties resulted in “net proceeds.” The partners also
entered into two subordination agreements with United Bank that
provided that the partners were not entitled to any payment on their
loans until the senior United Bank mortgages were “paid in full.”
Finally, the partners entered into two second mortgage parity
agreements providing for them to share equally in any “net proceeds”
realized from a sale of the properties. In August 1997 Toms assigned
his notes and mortgages to Emerald Trust, an entity that he controlled.
In August 1998 Reckson, which is completely separate from
and independent of the other four defendants, purchased the NJ
properties for $19,905,000. As far as we can ascertain this purchase
was in an arms-length transaction. At that time, even though
approximately $24,000,000 was due to United Bank on the debts its
mortgages on the NJ properties secured, it nevertheless accepted
$16,459,664.955 on the debts and mortgages and discharged the
mortgages, treating them as “satisfied.” App. at 201. According to
defendants, United Bank discharged its mortgages on the NJ
properties for less than was due on them because the approximately
$8 million shortfall to satisfy the obligations to United Bank in full
was added to the debt that the mortgage United Bank held on the
Horseheads property secured.
Wolff and Hoffman also discharged their subordinated
mortgages on the NJ properties marking them as “paid and satisfied”
upon receipt of $1,202,729.44 in the form of Reckson Operating
Units. According to Wolff and Hoffman, they did so because they
had no need to retain the mortgages. Emerald Trust, however, did not
discharge the subordinated mortgages that Toms had assigned it.
Thus, at the closing on the sale of the NJ properties to Reckson all of
the mortgages in favor of United Bank, Wolff, and Hoffman on the NJ
properties were satisfied, leaving the subordinated mortgages
previously held by Toms but since assigned to Emerald Trust as the
5
This sum included principal and interest.
5
only outstanding mortgages on the properties.6 Inasmuch as Emerald
Trust’s mortgages remained outstanding, Hoffman and Wolff entered
into an indemnity agreement with Reckson’s title insurance company
for the NJ properties promising to indemnify it should Emerald Trust
make any claims on the NJ properties by reason of the liens created by
the mortgages that Toms assigned to it. On December 31, 1999, when
Emerald Trust’s notes secured by the NJ properties came due, none of
the defendants nor anyone else paid the notes, defaults that caused
Emerald Trust to file this action on April 25, 2002, to recover on the
notes and to foreclose its subordinated mortgages on the NJ
properties.7
Subsequently, Emerald Trust moved for summary judgment
seeking a judgment of foreclosure but on August 30, 2004, the district
court denied Emerald Trust’s motion and on October 29, 2004, the
court also denied a motion Emerald Trust filed seeking
reconsideration of the August 30, 2004 order. The court thereafter
conducted a bench trial on the merits of the controversy in January
2005. Prior to and during the trial the defendants did not raise any
issue regarding the court’s subject matter jurisdiction which, as we
have noted, Emerald Trust predicated on diversity of citizenship
between Emerald Trust on one hand and the defendants on the other.
The defendants, however, did raise an issue regarding diversity of
citizenship in post-trial submissions. To resolve the jurisdictional
issue the district court directed the parties to submit affidavits
explaining their citizenship following which it heard oral argument
regarding the parties’ citizenship and the court’s diversity jurisdiction.
At the oral argument the defendants requested an opportunity to
engage in further discovery on the jurisdictional issue but the court
rejected that request, though it did permit the parties to submit further
6
We are addressing only preexisting debt and are not considering
any new mortgage that Reckson may have placed on the properties for
if there was such a mortgage it would not be material to the issue on this
appeal.
7
At that point the Emerald Trust’s mortgages no longer may have
been subordinated to any other mortgage as the United Bank mortgages
to which the Emerald mortgages had been subordinated were discharged.
We, however, are not making any determination on that point which
could involve intricate principles of New Jersey law. See East
Rutherford Sav. Loan & Bldg. Ass’n v. Neblo, 139 A. 172 (N.J. Ch.
1927).
6
briefing on the issue.
Ultimately the court found that Emerald Trust was an
unincorporated business trust and it concluded that the law applied in
this circuit directs a court to look to the citizenship of the trust’s
beneficiaries when determining the citizenship of such a trust.8 As we
already have indicated, the court found that Emerald Trust’s sole
beneficiary was Emerald Ltd., a corporation incorporated in the
British Virgin Islands where it also had its principal place of business,
and thus Emerald Trust was a citizen of the British Virgin Islands for
jurisdictional purposes. It is interesting that this finding was
inconsistent with Emerald Trust’s complaint in this case as it asserted
in the complaint that it was a citizen of Florida. Inasmuch as
defendants conceded that they were not citizens of the British Virgin
Islands and undoubtedly were citizens of states within the United
States, the court concluded that it did have diversity of citizenship
subject matter jurisdiction.9
After determining that it had jurisdiction the district court
reached the merits of the case with respect to which it concluded:
At its core, this case concerns two partners’ attempt to
dispose of secured properties without the consent of
their former partner despite their former partner’s
secured interests in the properties. Unable to obtain
Toms’ consent to release his mortgages on the [NJ]
properties, Wolff and Hoffman decided to take their
chances that under the relevant agreements
(specifically, the [mortgage modification agreements])
8
This conclusion was directly contrary to a dictum in General
Heat & Power Co. v. Diversified Mortgage Investors, 552 F.2d 556, 557
n.1 (3d Cir. 1977), in which in a case involving a business trust we said,
without limiting the type of trust to which we were referring, that “the
citizenship of a trust is generally that of the trustee.”
9
A court’s accepting a party’s representation as to its citizenship
might be problematical as a party by a false concession seemingly could
create subject matter jurisdiction by consent, something it cannot do. In
this case, however, we are satisfied that the concession was correct as we
can discern nothing in the record suggesting that any defendant could be
a citizen of the British Virgin Islands or was a citizen anywhere other
than in the United States.
7
they would owe nothing to Toms despite the
properties’ sale. They therefore agreed to indemnify
the title insurer on the transaction. Hoffman and
Wolff, however, miscalculated. Under the [mortgage
modification agreements] Emerald was entitled to
recover on its notes at least its share of the
$2,659,994.65 in net proceeds from the sale of the
properties. However, Defendants having breached this
and other obligations under the [mortgage modification
agreements], the [mortgage modification agreements]
ceased to place any limitation on Emerald’s rights
under the notes and mortgages after December 1999.
Nor did the Subordination Agreements or Second
Mortgage Parity Agreements continue to place any
limitations on Emerald’s rights under the notes and
mortgages once [United Bank], Hoffman, and Wolff
released their mortgages. Thus, when the notes came
due in December 1999 and nothing was paid, Emerald
became entitled to recover on the terms stated on the
faces of its notes and mortgages.
Emerald Investors Trust v. Gaunt Parsippany Partners, No. 02-CV-
1939, 2005 WL 1705779, at *6 (D.N.J. July 21, 2005).
Accordingly, the district court found that Emerald Trust was
due $583,333.33 on each note, plus 12% in prejudgment interest, a
rate that the parties had fixed, calculations that yielded a total
judgment of $1,193,678.52. This calculation did not allow Emerald
all of the interest it sought to recover. Of course, if defendants did not
pay this sum there would be a sale of the NJ properties to satisfy the
judgment. Defendants then appealed from the order entering
judgment and Emerald Trust cross-appealed from the order denying
its motion for summary judgment, the order denying reconsideration
of the denial of that motion, and the judgment and order partially
denying its claim for interest.
III. JURISDICTION AND STANDARD OF REVIEW
The district court attempted to exercise diversity of citizenship
jurisdiction pursuant to 28 U.S.C. § 1332(a) and we have jurisdiction
pursuant to 28 U.S.C. § 1291. The parties raise numerous issues on
8
this appeal and cross-appeal which we would review under various
standards if we reached them. But our disposition of this appeal
begins and ends with an examination of whether the district court had
subject matter jurisdiction. Thus, the principle that a determination of
“[w]hether the district court possessed subject matter jurisdiction is an
issue of law which this court reviews de novo” governs our review. In
re Phar-Mor, Inc. Litig., 172 F.3d 270, 273 (3d Cir. 1999). If we
determined that the district court did not have subject matter
jurisdiction we would direct it to dismiss the case even at this late
stage of the litigation. See Great S. Fire Proof Hotel Co. v. Jones, 177
U.S. 449, 453-54, 20 S.Ct. 690, 691-92 (1900).
IV. DISCUSSION
As we have explained, the district court decided that it could
exercise diversity of citizenship jurisdiction because: (1) Emerald
Trust is an unincorporated business trust; (2) a court determines the
citizenship of an unincorporated business trust by determining the
citizenship of its beneficiary or beneficiaries; (3) the sole beneficiary
is Emerald Ltd., a corporation incorporated in the British Virgin
Islands and having its principal place of business there; and (4) none
of the defendants are citizens of the British Virgin Islands. The court
did not consider the citizenship of Michael Houlis, a citizen of
Florida, the trustee of Emerald Trust, in making this determination.
This appeal requires us to determine whether, when ascertaining the
citizenship of a trust for diversity of citizenship purposes, we should
look to the citizenship of the trust’s beneficiary, its trustee, or both, or
use an alternative method to determine citizenship based on the
functions of the trustee and beneficiary with respect to management of
the trust in the particular case.10 It is
10
We address certain of the defendants’ arguments at this point
because their disposition will not be controlling and it is convenient to
consider them at the outset of the discussion section of the opinion.
Defendants argue: (1) Emerald Trust is a traditional express trust and
not, as the district court held, an unincorporated business trust, and, thus,
we should look to the citizenship of its trustee who it asserts is a citizen
of Florida (Apparently Emerald Trust which alleged in the complaint that
it was a citizen of Florida originally also believed that citizenship of its
trustee controlled.); (2) even if Emerald Trust is a business trust and we
should look to the citizenship of its beneficiary, Emerald Ltd., to
9
determine Emerald Trust’s citizenship, Emerald Ltd.’s principal place of
business is in New York. Thus, Emerald Trust is a citizen of New York
and there would not be complete diversity of citizenship between
Emerald Trust and the defendants; and (3) Emerald Trust, though the
plaintiff, is not the real party to the controversy and thus its citizenship
is not the determinative factor in a diversity of citizenship analysis.
Our research, however, has not led us to conclude that the type
of trust calls for a difference in treatment when determining a trust’s
citizenship for diversity of citizenship jurisdictional purposes. The
distinction between a traditional express trust and a business trust is that
“[i]n what are called ‘business trusts’ the object is not to hold and
conserve particular property, with incidental powers, as in the traditional
type of trusts, but to provide a medium for the conduct of a business and
sharing its gains.” Morrissey v. Comm’r of Internal Rev., 296 U.S. 344,
356-57, 56 S.Ct. 289, 294-95 (1935). The cases defendants cite do not
support its contention calling for differential treatment based on the type
of trust. Moreover, Emerald Trust may be, as the district court believed,
a business trust for the trust agreement states: “The purpose of the Trust
shall be to make, hold, liquidate, and distribute investments of any
lawful kind or character in trust for and for the benefit of Grantor,
without regard to any rule of prudent investment by fiduciaries.” App.
at 319. The reference to nonapplicability of limitations on fiduciaries
suggests that Emerald Trust may not be a traditional express trust. But
we reach no conclusion on that point.
Defendants’ second argument is also without merit as the record
now appears. The district court determined that the British Virgin
Islands was Emerald Ltd.’s principal place of business, basing its
determination on the affidavit of R. John Usher, the director of the
company, Valdex Investments Ltd., that caused the formation of Emerald
Trust. Usher stated that the Emerald Ltd.’s only office was in the British
Virgin Islands and all of its directors always have been in the British
Virgin Islands. While defendants challenge this conclusion, they have
not demonstrated that the corporation’s principal place of business was
in New York.
Defendants’ third argument is also unpersuasive because
defendants advance it in an attempt to invoke a “real party to the
controversy” test that the Supreme Court rejected in Carden v. Arkoma
Associates, 494 U.S. 185, 187 n.1, 110 S.Ct. 1015, 1017 n.1 (1990), as
the Court observed in that case that not a single case cited by the dissent
10
surprising that at this date after so many years of litigation involving
trusts that the method for determination of a trust’s citizenship rather
than being settled is a subject of great differences of opinion.
1. The Supreme Court: Navarro Savings and Carden.
In 1978, we looked to the citizenship of both the trustees and
the investors (beneficiaries) in determining the citizenship of a trust
for diversity purposes. Riverside Mem’l Mausoleum, Inc. v. UMET
supported the assertion that the “real party to the controversy” test is
relevant to the citizenship for diversity purposes of an artificial entity.
Of course, as we explain below, the test with respect to the citizenship
of an entity is distinct from the test applied with respect to the
citizenship of trustees if they sue in their own names. When trustees sue
in their own names it is critical that they be the real parties to the
controversy.
Defendants also make the argument related to their real party in
interest contention that Emerald Trust could not bring this action in its
own name as “a traditional express trust is not recognized as a separate
entity with capacity to sue or be sued in its own name.”
Appellants/cross-appellees’ br. at 24. We reject this argument. Under
Federal Rule of Civil Procedure 17(a) “[e]very action shall be prosecuted
in the name of the real party in interest.” Certainly, inasmuch as Toms
made his assignments of his notes and mortgages to Emerald Trust, in
ordinary understanding Emerald Trust would be regarded as the real
party in interest as it holds the notes and mortgages that it seeks to
enforce in this action. In short, we cannot understand why if Emerald
Trust has the capacity to hold the notes and mortgages it should not have
the capacity to enforce them.
In this regard we point out that a determination that a trust itself
is the real party in interest with the capacity to sue or be sued can exist
side by side with a rule requiring that the citizenship of the trustee or
beneficiary or both determines the trust’s citizenship for diversity of
citizenship purposes. On this point, however, as we shall explain later,
we are not precluding defendants from making an alter ego argument
with respect to Emerald Trust on the remand that we are ordering.
See infra note 21. While it is true that Rule 17(a) indicates that a trustee
of an express trust “may” sue in its own name without joining the trust
as a plaintiff, the rule does not require that he do so and does not provide
that an express trust cannot sue in its own name.
11
Trust, 581 F.2d 62, 65 (3d Cir. 1978).11 But since Riverside, the
11
Actually our holding in Riverside was not completely clear as
there we were focusing on the effect on a citizenship determination of
the citizenship of the investors in an action against a trust. Riverside,
581 F.2d at 65. But we are confident that in Riverside we intended to
hold that a court should examine the citizenship of the trustees and the
beneficiaries to determine the citizenship of the trust as we completed
our discussion on the jurisdictional point by indicating that “we
conclude, as did the district court, that we must look to the citizenship
of the [trust] investors and not simply that of the trustees.” Id. (emphasis
added). Though we acknowledge that in reaching our conclusion we are
relying on our use of the word “simply” in Riverside and that we
therefore are placing our reliance on an arguable point, still we think our
reading of Riverside is correct, though we acknowledge that there may
be a contrary view. See Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 466
n.1, 100 S.Ct. 1779, 1784 n.1 (1980) (Blackmun, J., dissenting). In this
regard we point out that only 15 months before we decided Riverside, in
General Heat & Power Co. v. Diversified Mortgage Investors, 552 F.2d
556, 557 n.1 (3d Cir. 1977), in a dictum in a case involving, as the
district court held was true of Emerald Trust, a business trust, we
indicated that “the citizenship of a trust is generally that of the trustee.”
Thus, it was perfectly logical in Riverside to use the word “simply” to
harmonize Riverside with General Heat as we presume that when we
decided Riverside we were aware of General Heat. But even if our
reading of Riverside is not correct and in Riverside we intended to say
that only the citizenship of the investors mattered, and thereby jettison
the General Heat dictum, we would reach the result we do in this case.
We emphasize that in Riverside we had no need to use “simply”
if the citizenship of the trustees was not to be examined. Rather, we
could have omitted “simply” and said “look to the citizenship of the
[trust] investors and not that of the trustees.” But if we do not look at
both then “simply” has no meaning. We believe that the district court in
Riverside spoke only of the beneficiaries as diversity jurisdiction in that
case turned on their citizenship. In this regard we point out that the
district court decided Riverside less than four months after we decided
General Heat, see Riverside Mem’l Mausoleum, Inc. v. UMET Trust,
434 F. Supp. 58 (E.D. Pa. 1977), and we doubt that, dictum or not, the
district court would have declined to follow General Heat. On appeal,
we agreed with the district court with respect to looking to the
beneficiaries but it was at least implicit in our opinion that the trustees
should be considered as well.
12
Supreme Court has decided Navarro Savings Association v. Lee, 446
U.S. 458, 100 S.Ct. 1779 (1980), and Carden v. Arkoma Associates,
494 U.S. 185, 110 S.Ct. 1015 (1990), which require us to reconsider
Riverside as we have not considered the place of a trust’s citizenship
since these Supreme Court decisions.
In Navarro, eight individual trustees of a business trust, suing
in their own names, brought an action for breach of contract. 446
U.S. at 459-60, 100 S.Ct. at 1781. The plaintiffs premised federal
jurisdiction on diversity of citizenship, an allegation that the
defendants disputed, as they claimed that the trust beneficiaries, and
not the trustees, were the real parties to the controversy and the
citizenship of the beneficiaries from whom they were not diverse
should control. Thus, the question before the Court was whether
“trustees of a business trust may invoke the diversity jurisdiction of
the federal courts on the basis of their own citizenship, rather than that
of the trust’s beneficial shareholders.” Id. at 458, 100 S.Ct. at 1780-
81.
The Court looked at the role of the trustees and the
shareholders with respect to the trust. Under the trust, the trustees had
exclusive authority over the property. Id. at 459, 100 S.Ct. at 1781.
Moreover, the declaration of trust “authorized the trustees to take
legal title to trust assets, to invest those assets for the benefit of the
shareholders, and to sue and be sued in their capacity as trustees.” Id.
at 464, 100 S.Ct. at 1784. In contrast, the shareholders did not have
such authority. Id.The Court found that “a trustee is a real party to the
controversy for purposes of diversity jurisdiction when he possesses
certain customary powers to hold, manage, and dispose of assets for
the benefit of others,” and “[t]he trustees in this case have such
powers.” Id. at 464, 100 S.Ct. at 1783-84. The Court concluded that
“trustees who meet this standard [may] sue in their own right, without
regard to the citizenship of the trust beneficiaries.” Id. at 465-66, 100
S.Ct. at 1784.
Ten years later in Carden, the plaintiff, a limited partnership,
brought a complaint concerning a contract dispute in a district court
relying on diversity of citizenship for federal jurisdiction. 494 U.S. at
186, 110 S.Ct. at 1016. The Court rejected the limited partnership’s
attempt to extend a corporation’s artificial-person treatment to the
partnership for the purposes of determining citizenship, id. at 189, 110
13
S.Ct. at 1018, and further rejected the limited partnership’s attempt to
have the Court determine citizenship of the partnership “solely by
reference to the citizenship of its general partners, without regard to
the citizenship of its limited partners.” Id. at 192, 110 S.Ct at 1019.
The Court concluded that in a suit by or against an artificial entity,
diversity of citizenship “depends on the citizenship of ‘all the
members.’” Id. at 195, 110 S.Ct. at 1021 (citation omitted). Carden
distinguished Navarro, remarking that “Navarro had nothing to do
with the citizenship of the ‘trust,’ since it was a suit by the trustees in
their own names.” Id. at 192-93, 110 S.Ct. at 1020.
Thus, in light of Navarro and Carden, the Supreme Court has
established the following rules. In a suit by or against the individual
trustees of a trust, where the trustees “possess[ ] certain customary
powers to hold, manage and dispose of assets,” their citizenship, and
not that of the trust beneficiaries, is controlling for diversity of
citizenship purposes. Navarro, 446 U.S. at 464-66, 100 S.Ct. at 1783-
84. The rule, however, is different when an artificial entity sues or is
sued in its own name. In that situation, because artificial entities,
unlike corporations, are not “citizens” under 28 U.S.C. § 1332,
diversity jurisdiction by or against an artificial entity depends on the
citizenship of “all the members.” Carden, 494 U.S. at 195, 110 S.Ct.
at 1021.
2. The four alternatives.
In the light of Navarro and Carden and other cases that we
have examined we conclude that a court might determine the
citizenship of a trust by selecting among four possible tests: (a) look
to the citizenship of the trustee only; (b) look to the citizenship of the
beneficiary only; (c) look to the citizenship of either the trustee or the
beneficiary depending on who is in control of the trust in the
particular case; or (d) look to the citizenship of both the trustee and
the beneficiary.12
(a) look to the citizenship of the trustee
12
We express the tests in the singular with respect to the trustee
and beneficiary because we are treating this case as we find it with
respect to Emerald Trust, i.e., one trustee and one beneficiary.
Obviously if there are more trustees or beneficiaries then the test is
applied to all the trustees and beneficiaries.
14
Navarro, though involving an action that the trustees
themselves brought, could be understood as suggesting that a court
should look to the citizenship of the trustee in determining the
citizenship of a trust without regard to the citizenship of the
beneficiary, so long as the trustee “possesses certain customary
powers to hold, manage, and dispose of assets for the benefit of
others.” Navarro, 446 U.S. at 464, 100 S.Ct. at 1783. In the
circumstances, it is not surprising that some courts of appeals, with
citation to Navarro, have held that the “citizenship of a trust is that of
the trustee.” Hicklin Eng’g, L.C. v. Bartell, 439 F.3d 346, 348 (7th
Cir. 2006); see also Johnson v. Columbia Props. Anchorage, LP, 437
F.3d 894, 899 (9th Cir. 2006) (“A trust has the citizenship of its
trustee or trustees.”); Indiana Gas Co. v. Home Ins. Co., 141 F.3d 314,
318 (7th Cir. 1998). Indeed, before Navarro, in a dictum in General
Heat & Power Co. v. Diversified Mortgage Investors, 552 F.2d 556,
557 n.1 (3d Cir. 1977), we said “the citizenship of a trust is generally
that of the trustee.”
We are reluctant, however, to agree with those courts, or for
that matter regard ourselves as confined by General Heat, as we do not
join in those courts’ reading of Navarro in creating this bright-line
rule, and surely their opinions are inconsistent with Riverside.
Moreover, we decided General Heat before Riverside and before the
Supreme Court decided Navarro and Carden. Navarro simply does
not say that the citizenship of a trustee determines the citizenship of a
trust. After all, as the Court emphasized in Carden, in Navarro the
trustees were suing in their own names and, as we already have
recognized, “[t]he question before the Court . . . was whether ‘trustees
of a business trust may invoke the diversity jurisdiction of the federal
courts on the basis of their own citizenship, rather than that of the
trust’s beneficial shareholders.’” Trent Realty Assocs. v. First Fed.
Sav. & Loan Ass’n of Philadelphia, 657 F.2d 29, 32 (3d Cir. 1981)
(quoting Navarro, 446 U.S. at 458, 100 S.Ct. at 1780-81).
In contrast to Navarro, in the above cases, as well as in this
case, the question is what is the citizenship of an entity when the
entity itself is a party to the action.13 Navarro simply does not address
that question as Carden made clear when it said that “Navarro had
nothing to do with the citizenship of the ‘trust,’ since it was a suit by
13
In Hicklin and Johnson trusts were among the owners of the
entities involved, either a limited liability company in Hicklin, 439 F.3d
at 347, or a limited partnership in Johnson, 437 F.3d at 896-97.
15
the trustees in their own names.” Carden, 494 U.S. at 192-93, 110
S.Ct at 1020. We are not at liberty to disregard this observation.
Additionally, the trustee-only rule in an action by the trust
itself seems to contradict Carden because that case held that an
“artificial entity,” a term that we will treat as including a trust, should
assume the citizenship of all of its “members.” Id. at 195, 110 S.Ct. at
1026. The trustee-only rule may contravene Carden because it
disregards the citizenship of the trust’s beneficiary who may be in a
position similar to that of the limited partners in a limited partnership.
(b) look to the citizenship of the beneficiary
The Court of Appeals for the Eleventh Circuit took the
different approach that Carden made clear that the citizenship of the
“members,” who it believed were only the beneficiaries, determines
the citizenship of a business trust. See Riley v. Merrill Lynch, Pierce,
Fenner & Smith, Inc. 292 F.3d 1334, 1338 (11th Cir. 2002).14 This
alternative, though not inconsistent with Carden unless, of course, a
trustee is a member of the trust, is not the best rule because in many
cases the beneficiary-only rule may lead to an untoward result, as for
example, would be the situation if a trust in which the beneficiary has
delegated all control of the trust to the trustee brings the action. It
seems to us that reliance only on the citizenship of the beneficiary in
these circumstances would be inconsistent with the reasons justifying
the existence of diversity of citizenship jurisdiction because in that
situation it is logical to think that if the trust had a local advantage or
faced a local prejudice it would be on the basis of the identification of
14
Actually Riley arguably may not be inconsistent with Hicklin
and Johnson as Riley involved a business trust and the trusts involved in
Hicklin and Johnson appear to have been traditional express trusts.
Though we do not distinguish between business trusts and traditional
express trusts when determining citizenship, an argument can be made
that there should be such a distinction. Yet we note that it might be
thought that inasmuch as Navarro involved trustees of a business trust
if there is a distinction between express and business trusts for
citizenship purposes the results of the three cases would have been
reversed. This anomaly only can reinforce our unwillingness to
distinguish between business trusts and express trusts for citizenship
purposes.
16
the trustee not the beneficiary.15
(c) look to the citizenship of either the
trustee or the beneficiary depending on
who is in control of the trust in the
particular case
The third alternative is a less definite, case-by-case rule. In
this regard Wright & Miller in their well known treatise suggest that
“[t]he citizenship of an active trustee, rather than that of the
beneficiaries of the grantor, is decisive, but again a different result is
reached with regard to a passive trustee who has only a naked legal
title to the property.” 13B Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 3606 (2d ed. 1984) (footnote
omitted). The problem with this rule is that it places a great and
unnecessary burden on both the litigants and the courts themselves.
The Wright & Miller rule would require that in each case where a
trust is a party and the plaintiff relies on the court’s diversity of
citizenship jurisdiction, the court would have to monitor jurisdictional
discovery to the same extent that it monitors any discovery in the case,
and make findings with respect to the roles of the trustee and
beneficiary in the affairs of the trust, all in a case that might be
dismissed, or, if removed from a state court, remanded to it.16
Considering the burdens created by a case-by-case approach, it
is not surprising that some courts of appeals have “resisted efforts to
base determinations of citizenship on functional considerations.” May
Dep’t Stores Co. v. Fed. Ins. Co., 305 F.3d 597, 599 (7th Cir. 2002);
see also Kuntz v. Lamar Corp., 385 F.3d 1177, 1183 (9th Cir. 2004)
(“[J]urisdictional rules should be as simple as possible, so that the
time of litigants and judges is not wasted deciding where a case
should be brought and so that fully litigated cases are not set at
15
It long has been recognized that the need for both the reality
and the perception of impartial administration of justice is the reason
justifying the existence of diversity of citizenship jurisdiction. See Bank
of the U.S. v. Deveaux, 9 U.S. (5 Cranch) 61, 87, 3 L. Ed. 38 (1809).
16
In fact, inasmuch, as the parties cannot by consent invest a
federal court with subject matter jurisdiction, the Wright & Miller rule
in a particular case in which the court’s suspicions were aroused might
require the same type of process in a case in which no party questioned
the court’s subject matter jurisdiction.
17
naught.”) (quoting Cote v. Wadel, 796 F.2d 981, 983 (7th Cir. 1986));
Saadeh v. Farouki, 107 F.3d 52, 57 (D.C. Cir. 1997); SHR Ltd. P’ship
v. Braun, 888 F.2d 455, 458-59 (6th Cir. 1989). Though we recognize
that, as this case demonstrates, rejection of the Wright & Miller rule
will not ensure that a diversity of citizenship determination will not
require discovery and a hearing, we nevertheless would be reluctant to
adopt a case-by-case test and thereby aggravate the burden on the
litigants and the courts that we have identified.
(d) look to the citizenship of both the
trustee and the beneficiary
The final alternative is to look to the citizenship of both the
trustee and the beneficiary in all cases in which a trust is a party. We
consider that approach to be best for several reasons. First and
foremost, this rule does not contradict the Supreme Court precedent in
either Navarro and Carden, which, of course, we cannot do. Navarro
is not implicated because it dealt with a situation in which the trustees
brought the action in their own names, a situation different from that
here in which the trust is the plaintiff. Moreover, the dual trustee-
beneficiary rule does not offend Carden, a case we discuss at greater
length below, because the dual approach asks a court to look at the
citizenship of all of the “members,” at least the beneficiary of the
“artificial entity,” and merely directs a court to look at the citizenship
of the trustee as well.
The concern with respect to Carden is raised by treating that
case as applying to a trust. In this regard we point out that, so far as
we are aware, historically the term “members” has not been applied in
the context of a trust. Nevertheless, applying Carden to a trust, as we
shall explain below we do not see why a trust’s “members” include
only its beneficiary and not its trustee. Of course, if a trustee is a
member of a trust then when Carden is applied to a trust, a court in
determining its citizenship must consider the trustee’s citizenship.
A second reason for adopting the dual trustee-beneficiary rule
is that it obviates the possibility of an illogical outcome under a
trustee or beneficiary-only approach in a case in which the trustee
controls the trust and the beneficiary is merely passive, or vice versa.
A third reason is that a bright-line rule is preferable to a case-by-case
functional rule as it is the most efficient rule to utilize in determining
whether a district court has subject matter jurisdiction.
18
Moreover, the dual rule approach best accommodates our
“concerns of judicial economy and of due respect for the principles of
federalism” when “matters of diversity jurisdiction are implicated.”
Carlsberg Res. Corp. v. Cambria Sav. & Loan Ass’n, 554 F.2d 1254,
1256 (3d Cir. 1977). In Carlsberg, we recognized that the extension
of diversity jurisdiction
would impose additional burdens on a federal judicial
system which already strains to process cases that are
necessarily lodged with it. Relaxation of diversity
requirements, intentional or otherwise, inevitably will
increase access to the federal courts by litigants now
confined to state courts, thereby augmenting the
volume of business of the federal tribunals. Such an
occurrence also may postpone or even forestall the
vindication of the rights of litigants–criminal and
civil–who are properly in the federal courts.
Even more serious would be the disservice rendered to
the cardinal precepts of federalism . . . . By its very
nature, the diversity jurisdiction of the federal courts
interferes with the autonomy of state tribunals by
diverting litigation, ordinarily handled by such courts,
to federal forums. Although the rule of Erie R.R. v.
Tompkins, [304 U.S. 64, 55 S.Ct. 817 (1938)]
requiring that state law be applied in diversity cases,
operates to ameliorate the dislocative impact of such
diversion, the fact remains that diversity jurisdiction
prevents the states from adjudicating and resolving
important matters that they otherwise would handle.
Since conflict resolution constitutes one of the core
public functions of state government, the exercise of
diversity jurisdiction necessarily encroaches, in some
fashion, on the ability of the states to engage in this
traditional activity.
Id. at 1256-57 (footnote omitted); see also City of Indianapolis v.
Chase Nat’l Bank of N.Y., 314 U.S. 63, 76, 62 S.Ct. 15, 20 (1941)
(“The dominant note in the successive enactments of Congress
relating to diversity jurisdiction is one of jealous restriction, of
avoiding offense to state sensitiveness, and of relieving the federal
courts of the overwhelming burden of business that intrinsically
belongs to the state courts in order to keep them from for their
19
distinctive federal business.”) (internal quotation marks omitted). The
comments that we made 30 years ago in Carlsberg with respect to the
burdens on the federal courts now are true to an enhanced degree as it
is a matter of common knowledge that there has been a massive
increase in the quantity of litigation in the federal courts for the last 30
years, far outpacing the growth in the size of the federal judiciary.17
For the foregoing reasons, after considering Navarro and
Carden, we reaffirm the rule that we adopted almost 30 years ago in
Riverside that the citizenship of both the trustee and the beneficiary
should control in determining the citizenship of a trust.18
In reaching our result we discuss Carden further because we
recognize that that case might be understood as pointing to a
beneficiary-only rule. Thus, it is important to emphasize that the
issue before the Court in Carden was very different than the issue now
before us. In Carden the issue was whether a court can look to the
citizenship of less than all of the partners of a limited partnership to
determine the partnership’s citizenship. See Carden, 494 U.S. at 186,
17
We realize that in cases dealing with a claim that a federal court
should abstain from adjudicating a matter the Supreme Court has
indicated that the district courts have a “virtually unflagging obligation
. . . to exercise the jurisdiction given them.” Colorado River Water
Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236,
1246 (1976). Moreover, Thermtron Products, Inc. v. Hermansdorfer,
423 U.S. 336, 96 S.Ct. 584 (1976), makes it clear that a district court
may not remand a case properly removed to it from a state court to
reduce its docket as that motivation is not a reason statutorily authorized
for a remand. But these cases are not instructive on the very different
question here which deals with determining whether the court has
jurisdiction rather than whether it should exercise jurisdiction that it does
have.
18
Obviously, in view of our internal operating procedures, see
Third Circuit IOP 9.1, if possible we should reach the result we do.
Nevertheless, Navarro and Carden, which the Supreme Court decided
after Riverside, have compelled us to reconsider the result we reached in
that opinion. We hasten to add, however, that even in the absence of
Riverside we would reach the result we do and, in the light of Navarro
and Carden, would do so even if in Riverside we intended to hold that
a court should look only to the beneficiary in determining a trust’s
citizenship.
20
110 S.Ct. at 1016 (“The question presented in this case is whether, in
a suit brought by a limited partnership, the citizenship of the limited
partners must be taken into account to determine diversity of
citizenship among the parties.”). In its holding, the Court “reject[ed]
the contention that to determine, for diversity purposes, the citizenship
of an artificial entity, the court may consult the citizenship of less than
all of the entity’s members.” Id. at 195, 110 S.Ct. at 1021 (emphasis
added).
Thus, it is clear that Carden tells us that a court must take into
account not “less than all of the entity’s members” when determining
the citizenship of an artificial entity. Obviously, because the Court
was looking at a partnership, which is owned by all the partners who
under any theory are its only members, there could not be a need to
look to any persons other than the partners and other than the partners
there could be no one else to look to. But because Carden was dealing
with a partnership, the Court did not deal with the entirely separate
question of whether citizenship treatment may extend to individuals in
addition to “members” with respect to other entities, and in any event,
the Court did not consider the critical question of who is a “member”
of such entities.
Our decision cannot be inconsistent with the holding in
Carden as we are not concluding that a court may “consult the
citizenship of less than all of the entity’s members” in a citizenship
determination. Rather, our opinion does not offend Carden no matter
how one decides to define “member” in the context of a trust. If a
trustee is not a “member,” then rather than looking to “less than all of
the entity’s members,” we are looking beyond that criterion because
of the unique characteristics of a trustee, a situation that Carden does
not address. On the other hand, if a trustee is a “member,” then
clearly we must look to his citizenship under Carden. In either
circumstance, our holding is not inconsistent with Carden.
Moreover, assuming that Carden governs trusts and that a
court should look only to the citizenship of a trust’s “members” for
the purposes of diversity of citizenship, we believe that a “member,” a
term left undefined by Carden which thus can be applied to different
artificial entities in various ways, includes a trust’s trustee as well as
its beneficiary. We reach this conclusion in recognition of the law
that a trustee is more than a mere manager of a trust inasmuch as title
to a trust’s assets is fragmented with its legal title being vested in the
trustee and its equitable title being vested in the beneficiary. See In re
21
Columbia Gas Sys. Inc., 997 F.2d 1039, 1059 (3d Cir. 1993);
Restatement (Second) of Trusts § 2 cmt. f (1959). A court should not
ignore the legal interest held by the trustee as Congress itself has
treated it as important as the equitable interest held by a beneficiary.
Thus, in requiring that a judge must recuse himself in cases in which
he has a “financial interest,” Congress defines that term as including a
legal or equitable ownership interest. See 28 U.S.C. §
455(b)(4),(d)(4). Overall, we see no reason why a trustee, who, in
fact, has a significant ownership interest in the title to the assets of the
trust in addition to management responsibilities, should not be
deemed a “member” of a trust for purposes of determining the trust’s
citizenship in a diversity of citizenship case.19 See also 11 U.S.C. §
541(a)(1) (with exceptions “all legal or equitable interests of the
debtor” become property of the bankruptcy estate).
Finally in adopting the dual approach to determining
citizenship of a trust we point out that our result is not inconsistent
with Chapman v. Barney, 129 U.S. 677, 682, 9 S.Ct. 426, 428 (1889).
That case concluded in a result that still is followed that corporations
but not unincorporated business entities are citizens for purposes of
diversity of citizenship. We are in no way acting inconsistently with
that principle as we do not suggest that a trust should be assimilated to
the status of a corporation for diversity purposes, a task that if it is to
be done at all is for Congress and not for us. See Carden, 494 U.S. at
196-97, 110 S.Ct. at 1022.
19
We point out that while our treatment of a trustee as a member
of a trust is categorical and thus is not fact specific, a trustee is likely to
be compensated from the assets of the trust, though in this case the trust
agreement provided that the compensation of the trustee was to be an
expense of Emerald Ltd., the beneficiary of the trust. Indeed, Florida
law, pursuant to which Emerald Trust was established, provides that “[i]f
the terms of a trust do not specify the trustee’s compensation, a trustee
is entitled to compensation that is reasonable under the circumstances.”
Fla. Stat. Ann. § 736.0708 (West 2007). New York law, the state of
which defendants claim Emerald Ltd. and thus Emerald Trust are
citizens, provides among numerous provisions dealing with a trustee’s
compensation, that “[a] trustee of an express trust shall be entitled to
commissions and the allowance of his expenses and compensation . . .
.” N.Y.C.P.L.R. § 8005 (McKinney 1981). By reason of a trustee’s right
to compensation for his services his legal interest in a trust is likely to be
a beneficial interest and thus supports a conclusion that he is a member
of the trust.
22
3. Application of the dual approach to this case
We now apply the trustee-beneficiary rule we have adopted to
the facts here. The facts relating to the citizenship of the parties
follows.20 The plaintiff is Emerald Trust, the beneficiary of which is
Emerald Ltd., a corporation incorporated in the British Virgin Islands
with its principal place of business there as well.21 Michael Houlis, a
Florida citizen, is the trustee of Emerald Trust.
Defendant Reckson Operating Partnership, L.P., is a Delaware
limited partnership whose sole general partner is Reckson Associates
Realty Corp., a Maryland corporation with its principal place of
20
We base our statements relating to the parties’ citizenship on
the record as it now exists. Therefore we do not preclude the district
court from coming to contrary conclusions after full discovery and, if
necessary, a hearing on the jurisdictional issue. We do observe,
however, that inasmuch as Gaunt Parsippany Partners, 119 Cherry Hill
Associates L.L.C., and 99 Cherry Hill Associates, L.P., did not exist at
the time that Emerald Trust filed the complaint in this case, their
citizenship might not be relevant for diversity purposes. See Midlantic
Nat’l Bank v. Hansen, 48 F.3d 693, 696 (3d Cir. 1995) (“Whether
diversity jurisdiction exists is determined by examining the citizenship
of the parties at the time the complaint was filed.”). We, however, do
not decide this point but note that on the remand if the district court
decides that without these three entities it has subject matter jurisdiction
then it should do so. Moreover, we do not find it necessary in this
opinion to explain the history of the four entities. We also point out that
even though our references to the parties’ citizenship are in the present
tense, as Midlantic makes clear, the inquiry on remand should be on
citizenship when the complaint was filed.
21
As we explained above, defendants dispute that the British
Virgin Islands is Emerald Ltd.’s principal place of business as they
contend that New York is its principal place of business. Defendants
raised this point in the district court, but the court denied their request for
“jurisdictional discovery” as it believed that there was incontrovertible
evidence demonstrating that Emerald Ltd.’s principal place of business
was in the British Virgin Islands. Thus, defendants could not uncover
facts to support their New York claim. In considering the question of
Emerald Ltd.’s citizenship we note that defendants contend that it may
be the alter ego of Toms and his, wife, Laurie Kraus. If necessary, the
district court should consider this argument on remand.
23
business in New York. According to an affidavit filed in the post-trial
jurisdictional inquiry proceedings, “among” its limited partners are
“individuals residing in New York, Florida, Connecticut, Virginia,
New Jersey, Maryland, Arizona, and Illinois.” App. at 285 (emphasis
added).22
Defendant Horseheads Commercial Development Partners,
L.P., is a limited partnership whose sole general partner is Horseheads
Commercial Development, Inc., a New York corporation. Its sole
limited partner is Stratford Business Associates, L.P., a limited
partnership with its general partner Cannon Street Properties, L.L.C.
(itself a limited liability company with New Jersey citizens Wolff and
Hoffman as its sole members), and with limited partners Wolff and
Hoffman.
Thus, as the record now stands, plaintiff Emerald Trust
appears to be a citizen of the British Virgin Islands (the citizenship of
the beneficiary corporation) and Florida (the citizenship of its trustee).
Defendant Reckson, a limited partnership, has a limited partner or
partners that “resides or reside” in Florida23 but we do not know the
state or states of Reckson’s citizenship inasmuch as the district court
did not make a determination as to the domicile and thus the
citizenship of its limited partners.24 It does appear that defendant
22
It appears that Reckson attempts to keep the identity of its
limited partners confidential insofar as possible. Obviously, however,
the district court must know who they are and where they are citizens
and its need for that information will trump Reckson’s policies.
23
The citizenship of a partnership is determined by the citizenship
of “all of the entity’s members,” i.e., the citizenship of both the general
and limited partners. Carden, 494 U.S. at 195, 110 S.Ct. at 1021.
24
Domicile is what matters for the purposes of determining
citizenship; residence is different:
A difference between the concepts of
residence and domicile has long been
recognized. A person is generally a
resident of any state with which he has a
well-settled connection . . . . ‘Intent to
remain indefinitely’ in the State need not
be shown in order to be considered a
24
Horseheads is not a citizen of the British Virgin Islands.
Clearly our uncertainty as to the citizenship of the parties
requires us to remand this case to the district court to determine if it
has diversity of citizenship jurisdiction. In this regard the citizenship
of Reckson’s limited partners may be pivotal as the trustee of Emerald
Trust apparently is a citizen of Florida and Reckson also may be a
citizen of Florida because more often than not an individual who
resides in a state is a citizen of that state and Reckson has a limited
partner or partners who reside in Florida. Therefore we have grave
doubts as to whether the district court had subject matter jurisdiction
in this case.25
resident of a state.
Martinez v. Bynum, 461 U.S. 321, 338-39, 103 S.Ct. 1839, 1847-48
(1983) (citations omitted). On the other hand,
[c]itizenship is synonymous with
domicile, and the domicile of an
individual is his true, fixed and
permanent home and place of habitation.
It is the place to which, whenever he is
absent, he has the intention of returning .
. . . An individual can change domicile
instantly. To do so, two things are
required: [h]e must take up residence at
the new domicile and he must intend to
remain there.
McCann v. Newman Irrevocable Trust, 458 F.3d 281, 286 (3d Cir. 2006)
(citations and internal quotation marks omitted).
25
There could be a further complication here if, as now appears
to be the case, Emerald Ltd. is the beneficiary of Emerald Trust and
Emerald Ltd. is a citizen of the British Virgin Islands. In that case
Emerald Trust would be a citizen of the British Virgin Islands. The
complication would arise if any of the defendants are citizens or subjects
of a foreign state in which event there would be citizens or subjects of
a foreign state on both sides of the controversy. See Dresser Indus., Inc.
v. Underwriters at Lloyd’s of London, 106 F.3d 494 (3d Cir. 1997); Field
v. Volkswagenwerk AG, 626 F.2d 293 (3d Cir. 1980). We, however, are
not addressing that possibility because, as we said above, we can discern
25
V. CONCLUSION
For the foregoing reasons we will vacate the judgment and
orders from which the parties have appealed and cross-appealed,
namely the order entering judgment of July 21, 2005, in favor of
Emerald Trust, the order of August 30, 2004, denying Emerald Trust’s
motion for summary judgment, the order of October 29, 2004,
denying Emerald Trust’s motion for reargument and reconsideration
with respect to the August 30, 2004 order, and the judgment and order
of August 31, 2005, partially denying Emerald Trust’s request for
prejudgment interest. We will remand the matter to the district court
which should allow full discovery on the issue of the parties’
citizenship. Nothing that we have stated with respect to the facts
relating to the parties’ citizenship will bind the district court on the
remand from making contrary factual findings predicated on the more
complete record that will be developed on the remand.
At the conclusion of discovery the district court, at its
discretion, may hold such hearing or hearings, if any, as it regards
necessary to determine its jurisdiction, and shall make findings as to
whether it has subject matter jurisdiction in this case. In making those
findings it will apply the principles that we have set forth. It then
either will reinstate the judgment and orders we have vacated or
dismiss the action, depending upon whether it determines that it does
or does not have jurisdiction. But nothing herein shall preclude the
district court from modifying its judgment or orders in accordance
with any procedure applicable under the Federal Rules of Civil
Procedure. See Fed. R. Civ. P. 60. We do not retain jurisdiction so
that any further appeals in this matter shall be from the reinstated
judgment and orders, the order for dismissal to be entered on the
remand, or such other judgments or orders as may be entered on the
remand.26 The parties will bear their own costs on this appeal.
nothing in the record that suggests that a defendant could be a citizen
anywhere other than in the United States. See supra note 9.
Nevertheless we are aware of that possibility and if it arises the district
court may have to deal with it on remand.
26
We have no reason at this time to consider whether Emerald
Trust could appeal the order denying it summary judgment and the order
denying reargument of the order denying summary judgment. We do
state, however, that these orders might be moot in view of the outcome
of the trial and the entry of the July 21, 2005 judgment. We mention this
26
point because we do not want to imply that the summary judgment
orders are not moot and are appealable. Rather, we state no opinion on
that point.
27