SXSW v. Federal Insurance ( 2023 )

Case: 22-50933 Document: 00516921423 Page: 1 Date Filed: 10/05/2023
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
____________ FILED
October 5, 2023
No. 22-50933 Lyle W. Cayce
____________ Clerk
SXSW, L.L.C.,
Plaintiff—Appellant,
versus
Federal Insurance Company,
Defendant—Appellee.
______________________________
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:21-CV-900
______________________________
Before Willett, Engelhardt, and Oldham, Circuit Judges.
Andrew S. Oldham, Circuit Judge:
This appeal involves an insurance coverage dispute between SXSW,
L.L.C. and Federal Insurance Company. But we cannot reach the merits
because the parties have failed to establish diversity of citizenship. We
remand to allow the district court to consider additional evidence regarding
jurisdiction.
I.
SXSW planned to hold its annual “South by Southwest” festival in
Austin in March 2020. But the City of Austin cancelled the 2020 festival on
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No. 22-50933
account of the COVID-19 pandemic. When SXSW refused to refund ticket
purchases, a group of would-be festival goers sued in a class action. The class
settled, with a total litigation cost to SXSW of over $1 million.
SXSW sued its insurer, Federal, for failing to defend SXSW in the
class action. Adopting the magistrate’s report and recommendation, the
district court denied SXSW’s partial motion for summary judgment and
granted Federal’s motion for summary judgment. SXSW appealed.
II.
In their opening appellate briefs, the parties agreed that the district
court had jurisdiction under 28 U.S.C. § 1332(a)(1). SXSW contended that
we have jurisdiction under 28 U.S.C. § 1291.
Notwithstanding the parties’ agreement, we have an independent
obligation to assess subject matter jurisdiction before exercising the judicial
power of the United States. See Steel Co. v. Citizens for a Better Env't, 523 U.S.
83, 93–99 (1998). We could not find proper allegations or evidence of
SXSW’s citizenship. So we gave notice before oral argument that the parties
should discuss this issue. When questioned, the parties pointed to one page
in the record. Oral Arg. Trans. 16:30–17:00; ROA.519. But that record cite is
insufficient to support jurisdiction.
A.
Because federal courts have limited jurisdiction, parties must make
“clear, distinct, and precise affirmative jurisdictional allegations” in their
pleadings. Getty Oil Corp. v. Ins. Co. of N. Am., 841 F.2d 1254, 1259 (5th Cir.
1988). To properly allege diversity jurisdiction under § 1332, the parties need
to allege “complete diversity.” McLaughlin v. Miss. Power Co., 376 F.3d 344,
353 (5th Cir. 2004) (per curiam). That means “all persons on one side of the
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controversy [must] be citizens of different states than all persons on the other
side.” Ibid. (quotation and citation omitted).
This case presents two evergreen issues related to diversity
jurisdiction: residency versus citizenship for individuals and citizenship for
LLCs. See, e.g., MidCap Media Fin., LLC v. Pathway Data, Inc., 929 F.3d 310(5th Cir. 2019).
“The difference between citizenship and residency is a frequent source
of confusion.” Id. at 313. For natural persons, § 1332 citizenship is
determined by domicile, which requires residency plus an intent to make the
place of residency one’s permanent home. See Gilbert v. David, 235 U.S. 561,
568–69 (1915); cf. Joseph Story, Commentaries on the
Conflict of Laws §§ 41, 44 (1st ed. 1834); Restatement (First)
of Conflict of Laws § 15 (1934). An allegation of residency alone
“does not satisfy the requirement of an allegation of citizenship.” Strain v.
Harrelson Rubber Co., 742 F.2d 888, 889 (5th Cir. 1984) (per curiam).
For limited liability companies, § 1332 citizenship is determined by
the citizenship of “all of its members.” Harvey v. Grey Wolf Drilling Co., 542
F.3d 1077, 1080 (5th Cir. 2008). To establish diversity jurisdiction in a suit
by or against an LLC, a party “must specifically allege the citizenship of every
member of every LLC.” Settlement Funding, LLC v. Rapid Settlements, Ltd.,
851 F.3d 530, 536 (5th Cir. 2017).
B.
In its complaint dated October 6, 2021, SXSW noted that it was a
limited liability company. ROA.8. Instead of alleging the citizenship of all of
its members, SXSW only alleged its principal place of business, confusing
LLC citizenship with corporate citizenship. ROA.8; cf. 28 U.S.C.
§ 1332(c)(1).
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In an exhibit dated December 14, 2021 and attached to its motion for
summary judgement, Federal detailed SXSW’s organizational structure.
ROA.519. The exhibit stated that SXSW, LLC has two members: SXSW
Holdings, Inc. and Starr Hill Presents – SX, LLC. ROA.519. SXSW
Holdings, Inc.’s corporate citizenship (Texas and Texas) is alleged
elsewhere in the record. ROA.225. But Federal’s chart nowhere alleged the
citizenship of Star Hill Presents – SX, LLC. ROA.519. And the parties have
not pointed us to another place in the record. The only allegation regarding
the citizenship of Star Hill Presents – SX, LLC comes 14 months later in
SXSW’s opening brief in our court, dated February 22, 2023. Blue Br. 1. The
brief’s jurisdictional statement specified “Starr Hill Presents – SX LLC is
wholly owned by Starr Hill Presents LLC, which is wholly owned by Robert
C. Capshaw, a Virginia resident.” Ibid.This procedural history reveals at least three potential jurisdictional
defects in SXSW’s citizenship.
First, there is a potentially important difference between LLC
membership and LLC ownership. State law governs LLC formation and
organization. Several states permit LLC membership without ownership.
See, e.g., Del. Code Ann. tit. 6, § 18-301(d); Tex. Bus. Orgs.
§ 101.102. But SXSW’s jurisdictional statement refers only to the ownership
of Starr Hill Presents – SX LLC and Starr Hill Presents LLC. Blue Br. 1. And
SXSW has not shown the relevant LLCs were formed in States that equate
membership and ownership. 1 If those LLCs have non-owner members, the
citizenship of those members will trickle up to SXSW, potentially defeating
complete diversity. In any event, the lack of clarity does not satisfy our
_____________________
1
Insofar as one might infer that both Starr Hill Presents – SX LLC and Starr Hill
Presents LLC are Virginia LLCs because of their ultimate owner’s residency, Virginia law
also appears to allow non-owner members. See Va. Code Ann. § 13.1-1038.1(C).
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requirement of “clear, distinct, and precise affirmative jurisdictional
allegations.” Getty Oil, 841 F.2d at 1259.
Second, SXSW stated that Capshaw was a Virginia resident. But
residency is not citizenship for purposes of § 1332. See MidCap, 929 F.3d at
314; Strain, 742 F.2d at 889; Stine, 213 F.2d at 448.
Finally, there is a timing issue. For diversity jurisdiction, we look to
citizenship at the time the complaint was filed. See Newman-Green, Inc. v.
Alfonzo-Larrain, 490 U.S. 826, 830 (1989). SXSW filed its complaint on
October 6, 2021. ROA.8. The complaint makes no allegations about the
citizenship of SXSW’s members. Federal’s December 14, 2021 exhibit
contains some additional information, ROA.519, as does SXSW’s February
22, 2023 appellant brief. Blue Br. 1. But we have no way of knowing whether
those later documents reflect SXSW’s membership structure as of October
6, 2021. And we know from oral argument that SXSW’s organizational
structure has undergone significant changes in the last few years. Oral Arg.
Trans. 1:30–5:00. This too prohibits us from exercising jurisdiction at this
stage. 2
* * *
_____________________
2
At oral argument, SXSW’s counsel said that he used the words “owner” and
“member” interchangeably to mean the same thing. Oral Arg. Trans. 2:00–2:30. He asked
for the court’s leave to amend SXSW’s allegations or supplement the complaint to make
affirmative assertions. Oral Arg. Trans. 2:30–3:30; see 28 U.S.C. § 1653 (“Defective
allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts.”).
But Section 1653 is only helpful where there is evidence of jurisdiction in the record. See
Howery v. Allstate Ins. Co., 243 F.3d 912, 919–20 (5th Cir. 2001); see also MidCap, 929 F.3d
at 315 (“Since at least 1878, the Supreme Court has prohibited us from receiving
jurisdictional evidence on appeal.”). Where “the party asserting federal jurisdiction has
failed to specifically plead that the parties are diverse” and where “there is no evidence of
diversity on the record, we cannot find diversity jurisdiction….” Howery, 243 F.3d at 919–
20.
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“On every writ of error or appeal, the first and fundamental question
is that of jurisdiction, first, of this court, and then of the court from which the
record comes. This question the court is bound to ask and answer for itself,
even when not otherwise suggested, and without respect to the relation of the
parties to it.” Great S. Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 453 (1900).
The parties have not presented sufficient evidence of subject matter
jurisdiction. We therefore REMAND to the district court for the limited
purpose of determining whether jurisdiction exists. See MidCap, 929 F.3d at
316; Mullins v. Testamerica Inc., 300 F. App’x 259, 261 (5th Cir. 2008) (per
curiam); see also 16 Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 3937.1 (3d ed. Apr. 2023). The
parties do not need to file a new notice of appeal to obtain appellate review of
the district court’s decision. See Royal Bank of Canada v. Trentham Corp., 665
F.2d 515, 519 (5th Cir. 1981). The clerk of the district court need only
supplement the appellate record with “copies of the new filings below and
the district court’s opinion on jurisdiction.” Mullins, 300 F. App’x at 261;
Royal Bank of Canada, 665 F.2d at 519. The panel retains jurisdiction over
this limited remand. See United States v. Perez, 27 F.4th 1101, 1105 (5th Cir.
2022); Petition of Geisser, 627 F.2d 745, 749 (5th Cir. 1980).
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