BRT Management LLC v. Malden Storage LLC

United States Court of Appeals
For the First Circuit
No. 22-1389
BRT MANAGEMENT LLC,
Plaintiff, Appellant,
v.
MALDEN STORAGE LLC; PLAIN AVENUE STORAGE LLC,
Defendants/Third-Party Plaintiffs, Appellees,
BRIAN WALLACE,
Third-Party Defendant, Appellant,
BANNER DRIVE STORAGE LLC,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. F. Dennis Saylor, IV, U.S. District Judge]
Before
Kayatta, Lynch, and Montecalvo,
Circuit Judges.
John S. Davagian, II and Davagian Grillo & Semple LLP on brief
for appellant.
Alec S. Pine, John H. Brazilian, and Butters Brazilian LLP on
brief for appellees.
May 22, 2023
KAYATTA, Circuit Judge. This lawsuit serves as a
reminder that subject matter jurisdiction cannot be taken for
granted and that special attention need be paid when attempting to
invoke diversity jurisdiction if a party is not a natural person
or a corporation. In this particular case, after six years of
litigation culminating in a trial and an eight-figure judgment
against the plaintiff and third-party defendant, and after three
separate orders warning counsel that jurisdiction was in question,
the parties have been unable to establish that no defendant shares
state citizenship with any plaintiff. We therefore vacate the
judgment and remand to the district court so that any party --
presumably the defendants at this point -- will have one last
chance to demonstrate that there is complete diversity.
I.
Unable to resolve a contract dispute, plaintiff BRT
Management LLC ("BRT") filed this lawsuit in federal district
court. The details of the dispute hold no relevance to our
analysis other than to say that they present no federal question
within the meaning of 28 U.S.C. § 1331.1 Nor do they present any
possible basis for federal jurisdiction other than diversity
jurisdiction under 28 U.S.C. § 1332, which BRT accordingly sought
to invoke. Defendants asserted counterclaims that similarly
1 Although BRT moved to add a federal claim to the suit, its
motion was denied.
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present no basis for federal court jurisdiction other than
diversity.
As to the citizenship of the parties, BRT's complaint
alleged only that "there is complete diversity between the parties"
because BRT was a Massachusetts limited liability company (LLC)
with a usual place of business in Massachusetts and defendants
Malden Storage LLC ("Malden"), Plain Avenue Storage LLC ("Plain"),
and Banner Drive Storage LLC ("Banner") were each Delaware LLCs
with usual places of business in Illinois.2 Defendants replied in
relevant part only by alleging substantially the same facts, i.e.,
that Malden and Plain were both Delaware LLCs with principal places
of business in Northbrook, Illinois.3 These allegations were
plainly insufficient because, as a matter of black letter law,
"[t]he citizenship of an unincorporated entity . . . is determined
by the citizenship of all of its members." Pramco, LLC ex rel.
CFSC Consortium, LLC v. San Juan Bay Marina, Inc., 435 F.3d 51,
54–55 (1st Cir. 2006) (applying this rule to an LLC); see also
D.B. Zwirn Special Opportunities Fund, L.P. v. Mehrota, 661 F.3d
124, 125 (1st Cir. 2011) (per curiam). But neither plaintiff nor
2 BRT also alleged that Malden was registered to do business
in Massachusetts and that Plain was registered to do business in
New York.
3 Defendants also alleged that Banner was not a proper party
to the suit. Banner initially moved to dismiss the claims against
it for lack of both personal jurisdiction and subject matter
jurisdiction, although it made no argument about diversity.
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defendants had yet provided any information about their members'
citizenship.
Noticing this deficiency in the pleadings, the district
court ordered plaintiff to show cause why the action should not be
dismissed for lack of subject matter jurisdiction. The order
pointed out that BRT's complaint failed to "allege that the
citizenship of every member of BRT Management LLC is diverse from
the citizenship of every member of Plain Avenue Storage, LLC,
Malden Storage, LLC, and Banner Drive Storage, LLC." BRT responded
by alleging that its sole member was a natural person who was a
resident of Massachusetts, that the sole member of both Malden and
Plain was C Banner Storage LLC ("C Banner"), a "Delaware LLC," and
that the sole member of Banner was Banner Storage Holding LLC,
"also a Delaware LLC." Although the members of all defendants
were also LLCs, BRT did not allege the citizenship of any members
of those LLCs.
The district court then issued a second order to show
cause, pointing out that BRT's supplemental allegations were still
insufficient because they failed to identify the citizenship of
the members of the LLCs that were members of Malden, Plain, and
Banner. Because LLCs take the citizenship of all of their members,
without the members' citizenships BRT had "failed to properly
allege diversity jurisdiction." Given a second chance, BRT
responded that after diligent investigation it was unable to
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identify the citizenship of those members, and requested limited
jurisdictional discovery to do so. The district court granted
BRT's request.
Following this limited discovery, the parties filed a
"stipulation regarding diversity jurisdiction" purporting to
"stipulate that there exists complete diversity of citizenship"
between plaintiff, defendants, and third-party defendant Brian
Wallace (the sole member of BRT). The stipulation also detailed
several facts, including the states of organization and principal
places of business for Malden and Plain; the sole member of both
of those entities, C Banner Storage LLC; and C Banner's sole
member, B-Dev Manager LLC.4 The stipulation did not identify the
citizenship of the members of B-Dev Manager LLC, which was
necessary to determine the citizenship of C Banner and,
accordingly, defendants Malden and Plain. The stipulation further
stated that there were "more than eighty members of Banner Drive
Storage, LLC, including various individuals, LLCs, and trusts,"5
and that at least one investor in Banner was a Massachusetts
resident. Both parties accordingly agreed to dismiss Banner from
the action so that diversity would not be destroyed.
4 Defendants later clarified on appeal that one of these
assertions was materially incorrect.
5 This appears to conflict with BRT's earlier allegation that
Banner was a sole member LLC but that conflict does not appear to
be relevant for our purposes.
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The district court held a conference with both parties,
and dismissed Banner as requested. See 5 Charles Alan Wright &
Arthur R. Miller, Federal Practice and Procedure § 1208 (4th ed.
2023) (failure to allege complete diversity "typically may be cured
by amending the pleading"); see also Carolina Cas. Ins. Co. v.
Team Equip., Inc., 741 F.3d 1082, 1088 (9th Cir. 2014) (noting in
reversing dismissal based on lack of subject matter jurisdiction
that courts need not dismiss a complaint where the defect can be
cured by amendment, and that jurisdictional discovery may be
appropriate). The action continued, presumably without anyone
noticing the lurking lacuna in the parties' proof of diversity.
The lawsuit eventually led to a nine-day bench trial in
2021. Ultimately, the district court granted judgment for
defendants and awarded them over ten million dollars on their
counterclaims, including attorneys' fees. BRT timely appealed.
Once the parties had filed their briefs on appeal, we
issued an order yet again identifying problems with subject matter
jurisdiction. Like the district court, we pointed out that "[a]
limited liability company is deemed to be a citizen of every state
of which any of its members is a citizen." And just as the district
court had in its second order, we noted that if an LLC's member
"is itself an unincorporated entity, then the citizenship of each
of the entity's members or partners must be disclosed" as well.
We concluded that the record as it existed at that time was not
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sufficient to demonstrate subject matter jurisdiction, and ordered
the parties to file affidavits of jurisdictional facts.
BRT responded to our order by alleging, as it had below,
that as of the relevant date6 it had only one member, a natural
person who was a resident of Massachusetts. Defendants (who by
this point would seem to have had the greatest interest in
demonstrating jurisdiction) responded merely by asserting the same
facts set out in the stipulation in the district court, i.e., the
principal places of business and states of organization of their
members, and the identities of some (but not all) of their members'
members.
BRT apparently recognized that it no longer had any
interest in the jurisdictional viability of this litigation. Along
with its sole member and third-party defendant Brian Wallace, BRT
moved to remand the case to the district court for additional
jurisdictional discovery. It pointed out a number of defects with
defendants' appellate filing, most notably that to identify the
citizenship of the members of B-Dev Manager LLC (the sole member
of C Banner, which was the sole member of both Malden and Plain),
the affidavit alleged only that B-Dev Manager's sole member was
6Both parties agree that for purposes of establishing
subject matter jurisdiction, the relevant citizenship is the
parties' (and their members') citizenship on January 3, 2017, when
the district court complaint was initially filed. See Bearbones,
Inc. v. Peerless Indem. Ins. Co., 936 F.3d 12, 14 (1st Cir. 2019).
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yet another LLC "with no members who are citizens of
Massachusetts." As BRT pointed out, a party "cannot establish
jurisdiction in the negative." See D.B. Zwirn, 661 F.3d at 125–
26. Based on this and other deficiencies, BRT argued that
defendants' filing failed to comply with our order, which was
addressed to both parties and required them to file affidavits of
jurisdictional facts "sufficient to show their citizenship,"
including the members of any entities that were themselves
unincorporated associations.
In response to BRT's motion, Malden and Plain filed under
seal yet another affidavit of jurisdictional facts. This affidavit
corrects an incorrect and material assertion in defendants'
original jurisdictional filings and provides additional
information regarding the ownership of the LLC members of Malden
and Plain, those LLCs' members, and so on and so forth. The
exhibits attached to the affidavit identify the ultimate owners of
defendants' members as individuals, corporations, and trusts.
Defendants identify the citizenship of the individuals by their
domiciles, of the corporations by their principal places of
business and states of incorporation, and the trusts by the
domiciles of their trustees. Defendants assert that this corrected
affidavit shows that there is complete diversity between all
parties.
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We conclude that Malden and Plain's filing is still
insufficient to establish subject matter jurisdiction. Our
reasoning follows.
II.
A.
Diversity jurisdiction allows federal courts to
adjudicate controversies between citizens of different states.
U.S. Const. art. III, § 2, cl. 1; 28 U.S.C. § 1332. Under the
federal statute, as relevant here, diversity must be complete;
that is, no plaintiff may be a citizen of the same state as any
defendant. See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267(1806); Halleran v. Hoffman, 966 F.2d 45, 47 (1st Cir. 1992). "The
burden of establishing federal diversity jurisdiction rests
on . . . the party invoking federal jurisdiction." Carrozza v.
CVS Pharm., Inc., 992 F.3d 44, 51 (1st Cir. 2021).
Key to establishing diversity jurisdiction are the
citizenships of the parties before the court. Natural persons are
citizens of the state in which they are domiciled. See Aponte-
Dávila v. Municipality of Caguas, 828 F.3d 40, 46 (1st Cir. 2016).
But for legal entities, the Supreme Court has explained that the
relevant citizenship for diversity purposes is generally the
citizenship of the entity's members. There is a "limited exception
for corporations"; a corporation is "considered a citizen of the
State where it has its principal place of business," as well as a
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citizen of its state of incorporation. Americold Realty Tr. v.
Conagra Foods, Inc., 577 U.S. 378, 381 (2016); 28 U.S.C. § 1332(c).
"But Congress never expanded this grant of citizenship to include
artificial entities other than corporations, such as joint-stock
companies or limited partnerships." Americold, 577 U.S. at 381.
So, with exceptions not relevant here,7 non-corporate legal
entities take the citizenship of all of their members. Id. It is
therefore the members' citizenships that are relevant for
jurisdictional purposes, not the principal place of business or
the state of organization of the entity. See Carden v. Arkoma
Assocs., 494 U.S. 185, 196–97 (1990) (noting Congress's
designation of principal place of business and state of
incorporation as relevant for corporations, but that "[n]o
provision was made for the treatment of artificial entities other
than corporations").
It is clear in this circuit that an LLC is subject to
this rule and takes the citizenship of all of its members. Pramco,
7 Under the Class Action Fairness Act ("CAFA"), in certain
class actions, an unincorporated entity does not take the
citizenship of all of its members but instead is considered "a
citizen of the State where it has its principal place of business
and the State under whose laws it is organized." 28 U.S.C.
§ 1332(d)(10). The Court has also held that a specific type of
Puerto Rico entity does not take the citizenship of its members.
See Carden v. Arkoma Assocs., 494 U.S. 185, 189–90 (1990)
(explaining that a "sociedad en comandita" is treated as a citizen
of Puerto Rico for jurisdictional purposes, but noting that the
exception is limited to that specific type of entity).
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453 F.3d at 54–55. If the members are themselves unincorporated
associations, then those members' citizenships are relevant too;
the process is "iterative," and a party must "trace the citizenship
of any member that is an unincorporated association through however
many layers of members or partners there may be." D.B. Zwirn, 661
F.3d at 126–27; see also West v. Louisville Gas & Elec. Co., 951
F.3d 827, 830 (7th Cir. 2020) (noting that jurisdictional statement
ultimately revealed 17 layers of ownership of LLC defendant, which
court examined to ensure that "every branch of the chain led to a
corporation that is neither incorporated in Indiana nor has a
principal place of business there"). Parties cannot establish
federal subject matter jurisdiction merely by agreeing that the
basis for jurisdiction is satisfied. See Wis. Dep't of Corr. v.
Schact, 524 U.S. 381, 389 (1998) ("The presence of [a] nondiverse
party automatically destroys original jurisdiction: No party need
assert the defect. No party can waive the defect or consent to
jurisdiction."); Am. Fiber & Finishing, Inc. v. Tyco Healthcare
Grp., LP, 362 F.3d 136, 139 (1st Cir. 2004) ("[P]arties cannot
confer subject matter jurisdiction on a federal court 'by
indolence, oversight, acquiescence, or consent.'" (quoting United
States v. Horn, 29 F.3d 754, 768 (1st Cir. 1994))).
B.
BRT has established that it is a citizen of
Massachusetts, because its sole member is a natural person who is
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a resident of Massachusetts.8 No further question remains about
its citizenship. Defendants, however, are a different story.9
Malden and Plain's initial filings were inadequate
because, as we stated in our order requesting jurisdictional facts,
they did not show the members of all the members of defendant LLCs;
that is, they failed to undertake the "iterative" process that is
required to determine the citizenship of an unincorporated
association whose members are themselves unincorporated
associations. Their latest filing is still inadequate for the
same reason. Although defendants have traced back several of their
members' members to individuals and corporations, their affidavit
and exhibits reveal that some of the ultimate owners of the nested
LLCs that own the defendant LLCs are trusts. For each trust,
8 Although diversity jurisdiction of a natural person is
determined by domicile, there is no allegation in this case that
Brian Wallace's domicile differed from his residence when the
action was filed (or at any time since). See León v. Municipality
of San Juan, 320 F.3d 69, 70–71 (1st Cir. 2003) (holding that using
term "resident" in complaint rather than "citizen" or
"domiciliary" does not preclude exercise of diversity
jurisdiction); see also 13E Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 3612 (3d ed. 2023) ("It is
assumed, for example, that a person's current residence is also
his domicile . . . .").
9 As we noted above, the burden of persuasion is on any party
or parties seeking to invoke federal court jurisdiction. Here,
the defendants have asked us to affirm the judgment of the district
court. The defendants therefore are properly treated as among
those parties seeking to invoke the jurisdiction of the federal
court. We need not decide whether BRT at this point is also
seeking to invoke the jurisdiction of the federal court.
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defendants provided the citizenship of only the trustee without
describing the nature of the trust. This is insufficient to
determine the trusts' citizenships.
As the Supreme Court has explained, sometimes a trust is
treated like an unincorporated association, taking as its
citizenship the citizenship of its members. Americold Realty Tr.,
577 U.S. at 382. In Americold, the Court attributed "confusion"
regarding trust citizenship to "tradition," because
"[t]raditionally, a trust was not considered a distinct legal
entity, but a 'fiduciary relationship' between multiple people,"
so "proceedings involving a trust were brought by or against the
trustees in their own name[s]," and accordingly the trustees'
citizenships were the ones that mattered. Id. at 383. But because
states "have applied the 'trust' label to a variety of
unincorporated entities" that can sue or be sued, those entities
"possess[] the citizenship of all [their] members." Id. Many
circuit courts have interpreted this language to mean that a
"traditional" trust -- one that "exists as a fiduciary relationship
and not as a distinct legal entity" -- takes the citizenship of
its trustee, while a trust which does exist as a separate legal
entity takes the citizenship of all its members. See GBForefront,
L.P. v. Forefront Mgmt. Grp., LLC, 888 F.3d 29, 39 (3d Cir. 2018);
see also Wang ex rel. Wong v. New Mighty U.S. Tr., 843 F.3d 487,
494 (D.C. Cir. 2016); Raymond Loubier Irrevocable Tr. v. Loubier,
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858 F.3d 719, 729–32 (2d Cir. 2017). To determine whether a trust
is traditional, courts have looked to whether it can sue and be
sued, and the extent to which it is otherwise treated as a
juridical person under state law. See Americold, 577 U.S. at 382;
GBForefront, 888 F.3d at 40–41; Wang ex rel. Wong, 843 F.3d at494–95; Loubier, 858 F.3d at 729–31; Alliant Tax Credit 31, Inc.
v. Murphy, 924 F.3d 1134, 1143 (11th Cir. 2019). Defendants have
not provided this information, thus precluding us from even trying
to determine how to treat their trusts.
Nor have defendants provided information about the
trusts' beneficiaries or members (however defined) that might moot
any need to determine whether it is necessary to look beyond the
citizenship of the trust or its trustees. See, e.g., Zoroastrian
Ctr. & Darb-e-Mehr of Metro. Wash., D.C. v. Rustam Guiv Found. of
N.Y., 822 F.3d 739, 749–50 (4th Cir. 2016) (avoiding the need to
determine whether the trustees or beneficiaries need be considered
by showing that all of the trustees and beneficiaries were citizens
of states other than those of which the opposing parties were
citizens).
BRT argues that defendants' submission has further
defects as well. For some entities in defendants' ownership
structures, defendants do not assert what type of organization
(e.g., corporation, limited partnership, LLC) the entity is. As
we have explained, how an entity is classified is relevant to how
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its citizenship is determined for purposes of diversity
jurisdiction. BRT also takes issue with the lack of supporting
documentation to confirm the facts stated in defendants' affidavit
(such as articles of organization or declaration of trusts), as
well as the failure to provide any information about Banner Drive
Storage LLC -- initially a defendant, but dismissed because it
would destroy diversity -- in the affidavit. We express no opinion
about these additional arguments, or any other other than to
emphasize that after several rounds of jurisdictional filings,
including an incorrect affidavit, there may well be cause to ask
for at least some supporting documentation that would otherwise
not normally be required.
In sum, we conclude that the record is insufficient to
establish complete diversity between plaintiff and defendants
because it does not conclusively establish defendants'
citizenships. The parties have now failed multiple times to
establish diversity. Defendants' deficient second affidavit on
appeal is particularly noteworthy because despite prevailing
below, to the tune of millions of dollars, they have still failed
to submit facts that show their citizenships even after being
ordered to do so by this court. Arguably, dismissal would be
appropriate. See Guar. Nat'l Title Co. v. J.E.G. Assocs., 101
F.3d 57, 59 (7th Cir. 1996) (dismissing case where "litigants . . .
had chance after chance to establish diversity of citizenship" but
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failed to do so (quoting America's Best Inns, Inc. v. Best Inns of
Abilene, L.P., 980 F.2d 1072, 1074 (7th Cir. 1992))).
However, given the extent of the time and effort devoted
to this case to date, we think it best to vacate the judgment and
remand the case (while retaining jurisdiction) to give the parties
one more chance to establish that the district court has subject
matter jurisdiction. See Bearbones, Inc. v. Peerless Indem. Ins.
Co., 936 F.3d 12, 16 (1st Cir. 2019) (remanding "to the district
court to find the facts and determine whether there was complete
diversity between the parties at the time the action was commenced"
while retaining jurisdiction); Francis v. Goodman, 81 F.3d 5, 8–9
(1st Cir. 1996) (same). Suffice it to say, defendants should not
expect to recover fees or costs for this appeal to date or for the
proceedings on remand.
C.
We add a coda to recognize that where a plaintiff wishes
to sue an unincorporated entity, the information necessary to
establish jurisdiction may be uniquely in the possession of the
would-be defendant. See Carolina Cas. Ins. Co., 741 F.3d at 1087("The novel issue presented by this case is how a plaintiff may
allege diversity jurisdiction where the facts supporting
jurisdiction are not reasonably ascertainable by the plaintiff.").
The proceedings below, at least initially, illustrate this
predicament. After the district court's second order to show
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cause, BRT asserted that it was unable, through public record
searches, to discover anything about the defendant LLCs other than
their states of organization.
We think sensible the approach adopted by the district
court here, which allowed limited jurisdictional discovery after
noting that "plaintiff ha[d] consulted all available public
information and alleged, in good faith, that there is complete
diversity of citizenship." If done right, limited and succinct
jurisdictional discovery to confirm diversity that is otherwise
not belied by what is known to the parties can assure the parties
and the court at an early stage of litigation that complete
diversity exists.
III.
For the foregoing reasons, we vacate the judgment and
remand this case to the district court to determine whether it has
subject matter jurisdiction. If it does, it should re-enter the
judgment; if not, it should dismiss the case for lack of
jurisdiction. The parties shall bear their own costs.
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