Siloam Springs Hotel, L.L.C. v. Century Surety Co.

FILED
United States Court of Appeals
Tenth Circuit
March 31, 2015
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
SILOAM SPRINGS HOTEL, L.L.C.,
Plaintiff-Appellant,
v. No. 14-6119
CENTURY SURETY COMPANY,
Defendant-Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
(D.C. NO. 5:13-CV-00572-M)
Tom E. Mullen (Sterling E. Pratt with him on the briefs), Fenton, Fenton, Smith,
Reneau & Moon, Oklahoma City, Oklahoma, for Plaintiff-Appellant.
Phil R. Richards (Randy Lewin with him on the briefs), Richards & Connor,
Tulsa, Oklahoma, for Defendant-Appellee.
Before BRISCOE, Chief Judge, MURPHY, and MATHESON, Circuit Judges.
MURPHY, Circuit Judge.
I. INTRODUCTION
This case requires that we decide how to determine the citizenship, for
purposes of diversity jurisdiction, of a limited liability company (“LLC”). Like
every other circuit to consider this question, this court concludes an LLC, as an
unincorporated association, takes the citizenship of all its members. See Zambelli
Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 419-20 (3d Cir. 2010) (citing cases
from eight circuits for the proposition that “every federal court of appeals to
address the question has concluded that a limited liability company, as an
unincorporated business entity, should be treated as a partnership for purposes of
establishing citizenship”); see also ConAgra Foods, Inc. v. Americold Logistics,
LLC, 776 F.3d 1175, 1180 (10th Cir. 2015) (holding Supreme Court precedent
“dictates that the citizenship of any non-corporate artificial entity is determined
by considering all of the entity’s members”). Because the materials before this
court do not demonstrate that complete diversity of citizenship existed at the time
of the filing of the complaint, Grupo Dataflux v. Atlas Global Group, L.P., 541
U.S. 567, 570–71 (2004), the matter is remanded to the district court for further
proceedings.
II. BACKGROUND
Siloam Springs Hotel, LLC (“Siloam Springs”), operates a Hampton Inn
hotel in Siloam Springs, Arkansas. It purchased a general liability insurance
policy (the “Commercial Lines Policy”) from Century Surety Company (“Century
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Surety”) covering the Hampton Inn for the period of November 13, 2012, through
November 13, 2013. Siloam Springs purchased the Commercial Lines Policy
through Century Surety’s agent, RCI Insurance Group of Claremore, Oklahoma.
On January 21, 2013, several guests at the Hampton Inn suffered bodily
injury due to a sudden, accidental leak of carbon monoxide from the heating
element of an indoor swimming pool. Siloam Springs sought coverage under the
Commercial Lines Policy. Century Surety denied coverage, relying on an
exclusion set out in the Commercial Lines Policy. That provision (the “Indoor
Air Exclusion”) excludes from coverage “‘[b]odily injury’ . . . arising out of,
caused by, or alleging to be contributed to in any way by any toxic, hazardous,
noxious, irritating, pathogenic or allergen qualities or characteristics of indoor air
regardless of cause.”
In response to Century Surety’s denial of coverage, Siloam Springs filed
suit in Oklahoma state court seeking a declaration that the Commercial Lines
Policy provides coverage for the bodily injuries suffered by the Hampton Inn
guests as a result of the carbon monoxide leak. Century Surety filed a notice of
removal, removing the case from state court to the United States District Court
for the Western District of Oklahoma. See 28 U.S.C. §§ 1441, 1446. As the basis
for removal, Century Surety asserted the existence of complete diversity of
citizenship and an amount in controversy exceeding $75,000. See id. §§ 1332(a),
1441(b). With regard to diversity of citizenship, Century Surety asserted (1) it is
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“a corporation organized under the laws of Ohio, with its principal place of
business in Michigan,” and (2) Siloam Springs is “a corporation organized under
the laws of Oklahoma, with its principal place of business in Arkansas.” No one
questioned the propriety of removal or the existence of diversity jurisdiction in
the district court.
After Century Surety removed the case to federal court, the parties filed
cross-motions for summary judgment. In its motion, Century Surety asserted that
because the insurance contract was to be performed in Arkansas, Oklahoma
choice-of-law rules made Arkansas law applicable. It further argued that the
Indoor Air Exclusion unambiguously excluded coverage for the carbon-monoxide-
based injuries to the guests at the Hampton Inn. For its part, Siloam Springs
“decline[d] to contest” Century Surety’s assertion that Arkansas law applied
because, it asserted, “Arkansas law does not differ from Oklahoma law in any
way material to [the] coverage dispute.” As to the merits, Siloam Springs
asserted the Indoor Air Exclusion was ambiguous and, as such, had to be
construed in favor of coverage. Without definitively resolving whether Oklahoma
or Arkansas law applies, but relying on precedent from Arkansas, the district
court granted summary judgment to Century Surety. In so doing, it concluded the
Indoor Air Exclusion unambiguously excluded coverage for bodily injuries
resulting from sudden, accidental exposure to carbon monoxide. But cf. Century
Sur. Co. v. Casino W., Inc., 329 P.3d 614, 618-19 (Nev. 2014) (holding, on
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materially indistinguishable facts, that identical exclusion was ambiguous and did
not bar coverage because a policyholder “could reasonably expect that the indoor
air quality exclusion applies only to continuously present substances that render
the air harmful, and that the policy allows recovery for an unexpected condition
that temporarily affects the air quality inside of a building”).
Siloam Springs brought this timely appeal challenging the district court’s
conclusion that the Indoor Air Exclusion unambiguously excluded coverage under
the facts of this case. After the parties filed their merits briefs, this court
recognized a potential jurisdictional defect in the notice of removal. Century
Surety’s notice of removal labeled Siloam Springs a “corporation” and asserted
Siloam Springs was organized under Oklahoma law and had its principal place of
business in Arkansas. Cf. 28 U.S.C. § 1332(c) (setting out corporate citizenship
rules for purposes of diversity and removal statutes). In contrast to this assertion,
however, Siloam Springs is not a corporation; it is an Oklahoma limited liability
company. See generally Okla. Stat. tit. 18, §§ 2000 to 2060 (setting out the
Oklahoma Limited Liability Company Act).
On January 8, 2015, this court issued to Century Surety an order to show
cause noting this discrepancy. The order further noted that although this court
had yet to address the issue, every circuit to consider the citizenship of an LLC
for purposes of diversity jurisdiction has held that an LLC’s citizenship is
determined by reference to the citizenship of each and every one of its members.
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See Zambelli Fireworks, 592 F.3d at 420 (collecting cases). Finally, the order
indicated that if this court were to adopt the unanimous approach of the other
circuits, Century Surety’s notice of removal would not establish the required
complete diversity of citizenship because it does not set out the citizenship of the
members of Siloam Springs. See Full Life Hospice, LLC v. Sebelius, 709 F.3d
1012, 1016 (10th Cir. 2013) (“[B]ecause the jurisdiction of federal courts is
limited, there is a presumption against [federal] jurisdiction, and the party
invoking federal jurisdiction bears the burden of proof.” (alteration and quotation
omitted)). Accordingly, this court ordered Century Surety to file a supplemental
brief addressing the following two questions:
1. How should this court determine the citizenship of an LLC
for purposes of determining the existence of complete diversity?
2. Assuming the citizenship of an LLC for purposes of
diversity jurisdiction is properly determined by reference to all
members of an LLC, what is the citizenship of Siloam Springs, LLC?
In its supplemental brief, Century Surety asserts this court should treat
LLCs like corporations for diversity purposes and determine an LLC’s citizenship
by reference to its state of organization and principal place of business.
Alternatively, Century Surety argues that if this court determines the citizenship
of an LLC for purposes of diversity jurisdiction must be determined by reference
to all members of the LLC, this court should conclude Siloam Springs is a citizen
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of Oklahoma, Florida, New York, North Carolina, and Texas. For the reasons set
out below, Century Surety’s arguments in these regards are unpersuasive.
III. ANALYSIS
Century Surety asserts this court should treat LLCs like corporations for
purposes of diversity jurisdiction citizenship. In so arguing, Century begins by
noting that in Shell Rocky Mountain Production, LLC v. Ultra Resources, Inc.,
415 F.3d 1158, 1162 (10th Cir. 2005), this court stated that because a party was a
Delaware LLC with its principal place of business in Houston, it was a citizen of
both Delaware and Texas. The problem with Century Surety’s reliance on Shell is
that Shell did not definitively state (or even remotely analyze) the question
whether this is the appropriate standard to be used in determining an LLC’s
citizenship. An exercise of jurisdiction by this court without any analysis of
whether that action is proper does not constitute binding precedent for the
proposition that jurisdiction must exist when this court is again faced with a
similar set of facts. Lewis v. Casey, 518 U.S. 343, 352 n.2 (1996) (collecting
cases for proposition that “the existence of unaddressed jurisdictional defects has
no precedential effect”); HealthTrio, Inc. v. Centennial River Corp. (In re
HealthTrio, Inc.), 653 F.3d 1154, 1162 n.8 (10th Cir. 2011) (holding that lack of
analysis of, or actual decision on, a jurisdictional issue precludes stare decisis
effect on the jurisdictional point). Thus, Shell does not require that this court
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treat an LLC like a corporation for purposes of determining citizenship in a
diversity case.
Alternatively, Century Surety asserts an LLC is sufficiently like a
corporation so that it should be treated similarly to a corporation for purposes of
28 U.S.C. § 1332. In particular, Century Surety notes an LLC is treated as a
“separate legal entity” that can sue and be sued under Oklahoma law, Okla Stat.
tit. 18, §§ 2003, 2004(B), and members of an LLC are shielded from personal
liability, id. § 2017. Century Surety also points out this court has recognized that
under Delaware law the interests of members of an LLC are analogous to the
interests of shareholders of a corporation. See Birmingham v. Experian Info.
Solutions, Inc., 633 F.3d 1006, 1018 n.3 (10th Cir. 2011).
Century Surety is wrong in asserting an LLC is equivalent to a corporation
under Oklahoma law. Rather, an LLC is defined under the Oklahoma code as “an
entity that is an unincorporated association or proprietorship having one or more
members.” Okla. Stat. tit. 18, § 2001(11) (emphasis added). Thus, without
regard to whether the interests of the members of an LLC can be analogized to the
interests of a corporate shareholder for some legal purposes, Oklahoma law makes
clear that an LLC is not a corporation but is, instead, an unincorporated
association. As this court recently held in ConAgra, Supreme Court precedent
“dictates that the citizenship of any non-corporate artificial entity is determined
by considering all of the entity’s members.” 776 F.3d at 1180.
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In any event, even if the corporation-like status of LLCs under Oklahoma
law was unclear, the Supreme Court has specifically held that only those state-
created entities that are corporations, in the traditional understanding of that
word, will be treated as a person for purposes of diversity jurisdiction:
[T]he course we take today does not so much disregard the policy of
accommodating our diversity jurisdiction to the changing realities of
commercial organization, as it honors the more important policy of
leaving that to the people’s elected representatives. Such
accommodation is not only performed more legitimately by Congress
than by courts, but it is performed more intelligently by legislation
than by interpretation of the statutory word “citizen.” The 50 States
have created, and will continue to create, a wide assortment of
artificial entities possessing different powers and characteristics, and
composed of various classes of members with varying degrees of
interest and control. Which of them is entitled to be considered a
“citizen” for diversity purposes, and which of their members’
citizenship is to be consulted, are questions more readily resolved by
legislative prescription than by legal reasoning, and questions whose
complexity is particularly unwelcome at the threshold stage of
determining whether a court has jurisdiction. We have long since
decided that, having established special treatment for corporations,
we will leave the rest to Congress; we adhere to that decision.
Carden v. Arkoma Assocs., 494 U.S. 185, 197 (1990). 1
1
It is worth noting that Congress has indeed prescribed a different rule as to
unincorporated associations for purposes of the Class Action Fairness Act
(“CAFA”). Under CAFA, suits brought by “unincorporated association[s]” are
treated like suits by corporations in that the citizenship of the association for
diversity purposes is determined by its state of organization and principal place of
business, not by the citizenship of its members. 28 U.S.C. 1332(d)(10). Given
that the Supreme Court has made clear it is solely Congress’ prerogative to alter
the historical rule limiting citizenship status to one special type of entity, the
traditional corporation, and given that Congress has chosen to exercise that
prerogative when appropriate, Century Surety’s request that this court expand to
LLCs the established rule for corporations is particularly unpersuasive.
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Under Oklahoma law, an LLC is an unincorporated association or
proprietorship. Okla. Stat. tit. 18, § 2001(11). Supreme Court precedent makes
clear that in determining the citizenship of an unincorporated association for
purposes of diversity, federal courts must include all the entities’ members.
Carden, 494 U.S. at 195-96; ConAgra, 776 F.3d at 1180. Thus, this court must
reject Century Surety’s request to determine the citizenship of Siloam Springs by
reference to its state of organization and the state of its primary business
operations and, instead, joins all other circuits that have considered the matter in
concluding Siloam Springs takes the citizenship of all its members. See Zambelli
Fireworks, 592 F.3d at 420 (collecting cases).
Century Surety asserts that should this court hold that Siloam Springs’s
citizenship for purposes of § 1332 is determined by reference to all its members,
this court should conclude Siloam Springs is a citizen of Oklahoma, Florida, New
York, North Carolina, and Texas. Century Surety’s argument is based on a letter
Siloam Springs filed with this court in response to the show cause order issued to
Century Surety. In that letter, Siloam Springs indicated as follows: “Some time
after Century removed this case, we made inquiry of our client as to the members
of the [LLC and partnership that together own] Siloam Springs Hotel, LLC. . . .
When we asked for the name and place of residents [sic] of the [members of the
LLC and partnership], we received the enclosed.” The enclosed list sets out a
name and address associated with each member of the entities with an ownership
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interest in Siloam Springs. Those members, according to the unsworn list, reside
in Oklahoma, Florida, New York, North Carolina, and Texas. Relying on this list,
Century asserts this court should conclude diversity jurisdiction is proper in this
case.
This court notes at least two overwhelming problems with Century Surety’s
argument. An individual’s residence is not equivalent to his domicile and it is
domicile that is relevant for determining citizenship. Whitelock v. Leatherman,
460 F.2d 507, 514 n.14 (10th Cir. 1972) (holding that “an allegation that a party
defendant is a resident of a state is not equivalent to an allegation of citizenship
and is insufficient to confer jurisdiction upon the District Court” (quotations
omitted)). Century Surety notes, however, that Whitelock recognized the
proposition that in “certain circumstances . . . proof that a person is a resident of
a state may prima facie indicate that he is a citizen of that state.” Id. The
problem with Century Surety’s reliance on this aspect of Whitelock is that
Whitelock makes clear the prima facie case flowing from an allegation of
residence must be backed up by a district court finding, at some later point in the
proceeding, as to the existence of diversity at the time of the filing of the
complaint. 2 Id. Because the district court did not make any such finding in this
2
Whitelock v. Leatherman describes the relevant rule as follows:
[This court’s decision in Kelleam v. Maryland Casualty Co., 112
F.2d 940 (10th Cir. 1940), rev’d on other grounds, 312 U.S. 377(continued...)
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case, and because this court is not equipped to make such a finding, Whitelock is
not applicable.
In any event, it is clear the relevant time period for determining the
existence of complete diversity is the time of the filing of the complaint. Id.;
Grupo Dataflux, 541 U.S. at 570-72. On its face, the letter from Siloam Springs
to this court specifically states that the determination of its members’ “place of
residents [sic]” occurred “[s]ome time after Century removed this case.” Thus,
the information set out in the letter is simply not relevant to the question of
whether complete diversity existed at the time Siloam Springs filed its suit in
Oklahoma state court.
2
(...continued)
(1941)], while expressly recognizing that an allegation that a party
defendant is a resident of a state is not equivalent to an allegation of
citizenship and is insufficient to confer jurisdiction upon the District
Court, indicates under certain circumstances that proof that a person
is a resident of a state may prima facie indicate that he is a citizen of
that state. See also Walden v. Broce Construction Company, 357
F.2d 242 (10th Cir. 1966). Jurisdiction in Kelleam was sustained
notwithstanding failure of the complaint properly to allege the
citizenship of the parties because of a finding by the trial court after
hearing that diversity of citizenship actually existed. The allegations
of residence rather than citizenship were treated in effect as amended
to conform to proof. Cf. Willingham v. Morgan, 395 U.S. 402, 407
(1969). In the case at bar there was neither proof nor finding of
diversity of citizenship; only the general conclusion that the court
had jurisdiction, which Mitchell v. Parham, 357 F.2d 723 (10th Cir.
1966), teaches is insufficient.
460 F.2d 507, 514 n.14 (10th Cir. 1972) (quotations omitted).
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Because the allegations in Century Surety’s notice of removal do not
properly allege diversity of citizenship, and because this court cannot determine
the existence or non-existence of diversity jurisdiction based on the record before
us, the appropriate course is to remand this matter to the district court for further
proceedings. Penteco Corp. Ltd. P’ship v. Union Gas Sys., Inc., 929 F.2d 1519,
1523 (10th Cir. 1991). In light of the need to remand this case for further
development of the jurisdictional record, it is worth noting that states have a
particularly strong interest in insurance regulation. Cf., e.g., The Aransas Project
v. Shaw, 775 F.3d 641, 650 (5th Cir. 2014); Gov’t Emps. Ins. Co. v. Dizol, 133
F.3d 1220, 1232 (9th Cir. 1998) (en banc) (Alarcon, J., dissenting) (collecting
cases); Ford Motor Co v. Ins. Comm’r, 874 F.2d 926, 934 (3d Cir. 1989).
Furthermore, although the parties argue the coverage issue exclusively by
reference to generally applicable contract principles, it is far from clear the
coverage issue at the center of this case is completely devoid of public policy
implications. Given these factors, should the district court conclude on remand
that diversity jurisdiction is proper, it would be well advised to move on to
consider whether the state’s interest in insurance regulation would be best served
by certifying the coverage questions at issue in this case to the appropriate state
supreme court. 3 Such consideration is especially appropriate because
3
Of course, to determine the appropriate state supreme court to which to
certify the issue, the district court would have to apply Oklahoma choice-of-law
(continued...)
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certification, “in the long run,” “helps build a cooperative judicial federalism.”
Lehman Bros. v. Schein, 416 U.S. 386, 391 & n.8 (1974); see also Hartford Ins.
Co. of the Midwest v. Cline, 427 F.3d 715, 716-17 (10th Cir. 2005) (certifying a
question regarding construction of “family member” under New Mexico’s vehicle
insurance statute and noting the insurance question was “distinctively a state-law
issue”); Mitcheson v. Harris, 955 F.2d 235, 237 (4th Cir. 1992) (noting district
courts have discretion to decline to resolve declaratory judgment actions and
holding “[t]here exists an interest in having the most authoritative voice speak on
the meaning of applicable law, and that voice belongs to the state courts when
state law controls the resolution of the case”).
IV. CONCLUSION
This matter is hereby remanded to the district court for further proceedings
consistent with this opinion.
3
(...continued)
rules and definitively decide whether this case is governed by Arkansas or
Oklahoma law.
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