GBForefront LP v. Forefront Management Group LLC

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 16-3905
_____________
GBFOREFRONT, L.P.,
Appellant
v.
FOREFRONT MANAGEMENT GROUP, LLC;
FOREFRONT CAPITAL MANAGEMENT, LLC;
FOREFRONT CAPITAL MARKETS, LLC;
FOREFRONT ADVISORY, LLC;
PENNY WEINER; GEOFFREY BLOCK
_______________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2-11-cv-07732)
District Judge: Hon. Mitchell S. Goldberg
_______________
Argued
January 11, 2018
Before: JORDAN and ROTH, Circuit Judges, and
MARIANI, ∗ District Judge.
(Filed April 19, 2018)
_______________
Kenneth B. Danielsen, Esq.
Christopher Nucifora, Esq. [ARGUED]
Kaufman Dolowich & Voluck
21 Main Street, Suite 251
Hackensack, NJ 07601
Eileen M. Ficaro, Esq.
Kaufman Dolowich & Voluck
1777 Sentry Park West
Dublin Hall, Suite 100
Blue Bell, PA 19422
Gary P. Lightman, Esq.
Glenn A. Manochi, Esq.
Lightman & Manochi
1520 Locust Street, 12th Floor
Philadelphia, PA 19102
Counsel for Appellant
∗
The Honorable Robert D. Mariani, United States
District Court Judge for the Middle District of Pennsylvania,
sitting by designation.
2
Sean L. Corgan, Esq.
Francis J. Grey, Jr., Esq.
Ricci Tyrrell Johnson & Grey
1515 Market Street, Suite 700
Philadelphia, PA 19102
Gary M. Fellner, Esq. [ARGUED]
Porzio Bromberg & Newman
156 West 56th Street, Suite 803
New York, NY 10019
Counsel for Appellees
_______________
OPINION OF THE COURT
_______________
JORDAN, Circuit Judge.
This case requires us to consider whether, in assessing
diversity-of-citizenship jurisdiction under 28 U.S.C. § 1332(a),
the citizenship of a traditional trust is determined differently
than that of a business trust. In light of the Supreme Court’s
decision in Americold Realty Trust v. Conagra Foods, Inc., 136
S. Ct. 1012 (2016), we conclude that the citizenship of a
traditional trust is based only on the citizenship of its trustee.
In so holding, we acknowledge that Americold Realty
abrogates part of our opinion in Emerald Investors Trust v.
Gaunt Parsippany Partners, 492 F.3d 192 (3d Cir. 2007),
which stated that it was unnecessary to distinguish between
types of trusts when determining diversity jurisdiction. Id. at
198 n.10, 205.
3
Based on the distinction we recognize today between
traditional trusts and business trusts, we will vacate the District
Court order dismissing this case for lack of jurisdiction.
Because the record on appeal is insufficient for us to proceed
further, we will remand the case with instructions to determine
whether the trusts at issue are of the traditional or business
variety and whether there is diversity jurisdiction. We also
instruct the District Court to give leave to further amend the
complaint within a reasonable time to cure defective
jurisdictional allegations.
I. BACKGROUND
Following an investment opportunity gone awry, the
details of which are immaterial at this point, GBForefront,
L.P., filed suit in the District Court against Forefront
Management Group, LLC (“FMG”); Forefront Capital
Management, LLC; Forefront Capital Markets, LLC; and
Forefront Advisory, LLC, (collectively, the “Defendants”) for
breach of contract and unjust enrichment. Initially,
GBForefront, which is a limited partnership, had sued only
FMG, a limited liability company (or “LLC”), and alleged that
the Court had diversity jurisdiction under 28 U.S.C. § 1332because, among other things, GBForefront’s general partner
was an LLC whose sole member was a “resident” of
Pennsylvania and “none of [FMG’s] members are residents of
Pennsylvania.” 1 (J.A. at 50, 719-20.)
1
The pertinent language of 28 U.S.C. § 1332 is, along
with a brief description of diversity jurisdiction, provided in
Section II.A, infra.
The operative pleading is the first amended complaint.
In that complaint, GBForefront refers to a “principal” of both
4
After years of litigation, GBForefront accepted an offer
of judgment made by the Defendants pursuant to Federal Rule
of Civil Procedure 68. The District Court accordingly entered
judgment in favor of GBForefront and against the Defendants.
Later, when a difficulty arose with satisfaction of the judgment,
the parties submitted a joint motion to amend the judgment to
effectuate a new settlement agreement. Pursuant to the terms
of that agreement, GBForefront and the Defendants signed a
consent judgment against Forefront Capital Markets, and they
agreed that, in the event of any default by the Defendants in
satisfying the settlement, GBForefront could immediately file
a motion to enter that consent judgment. The District Court
GBForefront General, LLC, and WFP2, LP. (J.A. at 720.) But
in its initial complaint, GBForefront referred to a “member” of
those entities. (J.A. at 50.) We understand GBForefront to be
referring to the sole member of GBForefront’s general partner,
GBForefront General, LLC, and to the sole member of Weiner
2 General LLC, the general partner of GBForefront’s limited
partner WFP2, LP.
At the time the complaint was filed, GBForefront, L.P.,
was a limited partnership composed of a general partner,
GBForefront General, LLC, and a limited partner, WPF2, LP.
The sole member of GBForefront General was Warren Weiner,
alleged to be a resident of Pennsylvania. Limited partner
WPF2 itself was a limited partnership composed of a general
partner, Weiner 2 General LLC, and a series of five trusts as
limited partners. The sole member of Weiner 2 General LLC
was Warren Weiner. Those trusts were established for each of
Warren Weiner’s five grandchildren with Warren Weiner
designated as the trustee of each trust. At least three of those
grandchildren lived in New Jersey at the time the complaint
was filed.
5
granted the joint motion, and everyone thought the case was
over.
It was not. GBForefront soon alleged that “[c]ertain
Forefront entities” 2 had defaulted on the terms of the
settlement agreement, and it thus moved for entry of the
consent judgment. (J.A. at 923). With the assistance of new
counsel, the Defendants cross-moved to dismiss the case for
lack of subject matter jurisdiction, claiming that GBForefront
had not adequately pled the citizenship of FMG and that
complete diversity was lacking when the lawsuit was initially
filed. The parties briefed the issue of diversity jurisdiction, but
then came a twist. The Supreme Court issued its opinion in
Americold Realty, specifically dealing with the citizenship of
trusts.
After holding a hearing and considering the parties’
supplemental briefing on the new precedent, the District Court
granted the Defendants’ motion to dismiss because the Court
determined the membership of GBForefront included at least
three trusts whose beneficiaries were citizens of New Jersey3
and FMG also had a member who was a citizen of New Jersey. 4
2
As the District Court noted, it is unclear which entities
GBForefront was referring to.
3
See supra n.1.
4
GBForefront did not plead the citizenship of the
beneficiaries and member in its complaint. See infra Section
II.B. The District Court said that the parties had agreed at the
hearing to those factual statements regarding the parties’
citizenship. But nothing was said or agreed upon at the hearing
6
The Court reasoned that Emerald Investors instructed it not to
distinguish between traditional trusts and business trusts for
jurisdictional purposes, and that Americold Realty required the
citizenship of a business trust to include all its members,
including its beneficiaries.
GBForefront timely appealed the dismissal.
II. DISCUSSION 5
On appeal, GBForefront argues that the Americold
Realty holding described by the District Court applies only to
business trusts, while the trusts composing GBForefront are
traditional trusts whose citizenship is based only on the
citizenship of their trustees. The Defendants of course
disagree, asserting that Americold Realty requires that the
citizenship of trust beneficiaries always be accounted for when
determining diversity jurisdiction. The Defendants further
regarding the citizenship of Warren Weiner, the trustee of
several of the trusts at issue. See supra n.1.
5
The parties dispute whether the District Court had
jurisdiction. GBForefront maintains that the District Court had
jurisdiction under 28 U.S.C. § 1332 because there was
diversity of citizenship. The Defendants contend that the
District Court lacked any jurisdiction. We have jurisdiction
pursuant to 28 U.S.C. § 1291. “Our review of the District
Court’s dismissal of a complaint pursuant to Federal Rule of
Civil Procedure 12(b)(1) is de novo.” In re Horizon
Healthcare Servs. Inc. Data Breach Litig., 846 F.3d 625, 632
(3d Cir. 2017).
7
assert that GBForefront comprises a series of trusts whose
beneficiaries’ citizenship prevents subject matter jurisdiction
based on diversity. The resolution of this jurisdictional dispute
accordingly turns on the Supreme Court’s Americold Realty
opinion. In our view, that case instructs that, for purposes of
diversity jurisdiction, the citizenship of a traditional trust must
be determined by the citizenship of its trustee alone. 6
A. General Principles of Diversity Jurisdiction
It is fundamental that federal courts must have subject
matter jurisdiction before reaching the merits of a case, and, as
its name indicates, jurisdiction based on diversity of citizenship
requires that opposing parties be citizens of diverse states.
Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 418 (3d
Cir. 2010). Under the dictates of 28 U.S.C. § 1332(a), for
diversity jurisdiction to exist, “no plaintiff [may] be a citizen
of the same state as any defendant[,]” and the amount in
controversy must exceed $75,000. 7 Id. at 419. A challenge to
6
For simplicity, we express our holding in the singular
with respect to the trustee, but, of course, nothing in our
decision here limits the number of trustees or beneficiaries that
a trust may have. “Obviously[,] if there are more trustees or
beneficiaries[,] then the [rule] is applied to all the trustees and
beneficiaries.” Emerald Investors, 492 F.3d at 201 n.12. Thus,
where a traditional trust has multiple trustees, we consider it to
have the citizenship of each of its trustees.
7
Section 1332(a) provides, in relevant part: “The
district courts shall have original jurisdiction of all civil actions
where the matter in controversy exceeds the sum or value of
8
subject matter jurisdiction may be raised at any point in the
litigation, and, when the jurisdictional basis is diversity of
citizenship, diversity is assessed as of the time the complaint
was filed. Grupo Dataflux v. Atlas Glob. Grp., L.P., 541 U.S.
567, 570-71 (2004).
Most rules for determining the citizenship of natural
persons and business entities are well-established. Zambelli
Fireworks, 592 F.3d at 419. The citizenship of a natural person
is the state where that person is domiciled. Id. The citizenship
of a corporation is both its state of incorporation and the state
of its principal place of business. Id. A partnership, as an
unincorporated business entity, assumes the citizenship of all
its partners. Id. Likewise, a limited liability company is a
citizen of all the states of its members. Id. at 420. But, as this
case demonstrates, there are still some rules in flux. Hence the
challenge to jurisdiction we address here.
When a party raises an issue regarding a jurisdictional
defect, courts must determine whether the challenge is a facial
attack or a factual attack. Constitution Party of Pa. v. Aichele,
757 F.3d 347, 357 (3d Cir. 2014). “A facial attack ... is an
argument that considers a claim on its face and asserts that it is
insufficient to invoke subject matter jurisdiction of the court
because, for example, ... there is no indication of a diversity of
citizenship among the parties[.]” Id. at 358.
“A factual attack, on the other hand, is an argument that
there is no subject matter jurisdiction because the facts of the
case ... do not support the asserted jurisdiction.” Id. To resolve
$75,000, exclusive of interest and costs, and is between ...
citizens of different States ... .”
9
a factual challenge, the “[c]ourt may look beyond the pleadings
to ascertain the facts[.]” Id. Again, “for example, while
diversity of citizenship might have been adequately pleaded by
the plaintiff, the defendant can submit proof that, in fact,
diversity is lacking.” Id. The defendant has the initial burden
of production to raise a factual challenge. See Washington v.
Hovensa LLC, 652 F.3d 340, 345 & n.2 (3d Cir. 2011)
(distinguishing between burden of proof and burden of
production, in that the latter “determines which party must first
present evidence sufficient to raise a given issue as pertinent”).
Once a factual challenge has been raised, the plaintiff then has
the burden of proof to establish diversity jurisdiction by a
preponderance of the evidence. McCann v. Newman
Irrevocable Tr., 458 F.3d 281, 288-89 (3d Cir. 2006).
The Defendants here mounted both a facial challenge
and a factual challenge to GBForefront’s assertion of diversity
jurisdiction.
B. Facial Challenge To Diversity Jurisdiction
In the District Court, the Defendants’ facial challenge
was “that GBForefront never alleged the citizenship of the
members of the LLC defendant entities” in its complaint. (J.A.
at 6.) The Court recognized that issue but did not resolve it
because the Court concluded that diversity jurisdiction was
lacking based on the Defendants’ factual challenge. 8 On
8
Although the District Court said that it was addressing
a “facial attack[,]” the Court’s analysis actually addressed the
Defendants’ factual attack because the Court considered
information outside the pleadings, as agreed to by the parties
(J.A. at 8). The factual attack ultimately came down to a
10
appeal, the parties have not addressed the facial challenge at
all. We nevertheless have an independent obligation to address
it.
The Defendants are indeed correct that GBForefront
failed to plead the citizenship of FMG’s members. It failed
even to plead its own citizenship. Instead, GBForefront, a
limited partnership, alleged that Warren Weiner, who was the
sole member of the general partner of GBForefront and also
the sole member of the general partner of the limited partner of
GBForefront, was a “resident” of Pennsylvania and that “none
of [FMG’s] members are residents of Pennsylvania”; nothing
is mentioned about citizenship. 9 (J.A. at 719-20); see supra
note 1. Alleging residency alone is insufficient to plead
diversity of citizenship, McNair v. Synapse Grp. Inc., 672 F.3d
213, 219 n.4 (3d Cir. 2012), while changing allegations of
residency to ones of citizenship fortifies a complaint against a
facial attack on jurisdiction, assuming there are no other
obvious flaws. See Lincoln Benefit Life Co. v. AEI Life, LLC,
800 F.3d 99, 107 (3d Cir. 2015) (“A State X plaintiff may
therefore survive a facial challenge by alleging that none of the
defendant association’s members are citizens of State X.”).
question of law on how to determine the citizenship of certain
trusts.
9
In addition to not pleading citizenship, we also notice
that the complaint lacks any reference to the identities of the
limited partners of WFP2, which was the limited partner of
GBForefront. Other evidence in the record on appeal indicates
that the limited partners of WFP2 were five trusts and that
Warren Weiner was the trustee of each of those trusts.
11
The clear pleading problem here may be amenable to
easy solution. “Defective allegations of jurisdiction may be
amended, upon terms, in the trial or appellate courts.” 28
U.S.C. § 1653; see also Newman-Green, Inc. v. Alfonzo-
Larrain, 490 U.S. 826, 832 (1989) (explaining that § 1653
allows appellate courts to remedy inadequate jurisdictional
allegations); Scattergood v. Perelman, 945 F.2d 618, 627 (3d
Cir. 1991) (“[Section 1653] permits amendments broadly so as
to avoid dismissal of diversity suits on technical grounds.”
(citation omitted)). Pursuant to that provision, we may allow
the plaintiff to amend its complaint before us when the factual
record on appeal establishes that complete diversity exists.
McCurdy v. Greyhound Corp., 346 F.2d 224, 225 n.1 (3d Cir.
1965). Alternatively, we may instruct the district court on
remand to allow the plaintiff to remedy its inadequate
allegations of diversity jurisdiction. Chem. Leaman Tank
Lines, Inc. v. Aetna Cas. & Sur. Co., 177 F.3d 210, 222 n.13,
232 (3d Cir. 1999); see Barclay Square Props. v. Midwest Fed.
Sav. & Loan Ass’n of Minneapolis, 893 F.2d 968, 969-70 (8th
Cir. 1990) (remanding with instructions to allow the plaintiff
to amend its complaint when the appellate court cannot
determine complete diversity based on the record).
Considerations of efficiency, fairness, and judicial economy
often counsel against dismissal of an action at a late stage of
litigation when a simple pleading error can be corrected.
Zambelli Fireworks, 592 F.3d at 420-21.
GBForefront’s diversity allegations appear to be
nothing more than inartful drafting on a technical point, albeit
a serious one. Accordingly, because the factual record on
appeal is insufficient for us to determine whether complete
diversity existed when the complaint was filed, see infra
Section II.C, we instruct the District Court to give GBForefront
12
the opportunity pursuant to 28 U.S.C. § 1653 to remedy its
defective jurisdictional allegations by filing, with the District
Court and within a reasonable time, a motion with an
appropriately amended complaint. 10
C. Factual Challenge To Diversity Jurisdiction
We turn next to the Defendants’ factual challenge to
diversity jurisdiction, which is simply that complete diversity
was lacking when the lawsuit was filed.
When a business entity consists of constituent parts that
are also business forms, the inquiry into jurisdictional
citizenship “can become quite complicated. ... [T]he
citizenship of unincorporated associations must be traced
through however many layers of partners or members there
may be.” Lincoln Benefit Life Co., 800 F.3d at 105 n.16
(internal quotation marks and citation omitted). This is such a
case, with trusts serving as limited partners of a limited
partnership that is in turn a limited partner of GBForefront. See
supra note 1 (describing GBForefront’s ownership structure).
And that is on just one side of the “v.” The Defendants’ factual
challenge hinges on the proper interpretation of Americold
Realty in determining the citizenship of the several trusts that
are layered within GBForefront.
10
In addition to alleging citizenship, not residency, the
amended complaint must add the identities and citizenship of
the limited partners of WFP2, which, if trusts, must also
include their trustees. If such amendment would destroy
diversity, the complaint must be dismissed.
13
1. Jurisdictional Citizenship When A
Trust Is Involved In A Lawsuit
Through a progression of cases, the Supreme Court has
established three rules for determining jurisdictional
citizenship when a trust is involved in a lawsuit.
First, in Navarro Savings Association v. Lee, 446 U.S.
458 (1980), the Court said that, when a trustee sues or is sued
on behalf of a trust, the citizenship of the trust is based on that
of the trustee alone. Id. at 465-66; see also Americold Realty,
136 S. Ct. at 1016. In such cases, trustees may invoke diversity
jurisdiction based on their own citizenship, without accounting
for the citizenship of the trust’s beneficiaries. Navarro, 446
U.S. at 465-66. In Navarro, eight individual trustees of a trust
organized under Massachusetts law sued a savings association
in federal court on a breach of contract claim. Id. at 459. The
citizenship of the trustees differed from that of the savings
association, but some of the trust’s beneficiaries were citizens
of the same state as the savings association. Id. at 460.
Because the trustees who initiated the lawsuit “possesse[d]
certain customary powers to hold, manage, and dispose of”
trust properties, the trustees were permitted “to sue in their own
right, without regard to the citizenship of the trust
beneficiaries.” Id. at 464-66. Although the trust in some
respects more closely resembled a business association than a
traditional trust, the Supreme Court said that when trustees
initiate a lawsuit in their own name or are the target of a suit,
courts consider only the citizenship of the trustees for purposes
of determining diversity jurisdiction. Id. at 465-66; see also
Americold Realty, 136 S. Ct. at 1016.
14
Second, in Carden v. Arkoma Associates, 494 U.S. 185(1990), the Court held that, when an artificial legal entity
besides a corporation sues or is sued, diversity is determined
by looking to the citizenship of the entity’s members. Id. at
195; see also Americold Realty, 136 S. Ct. at 1016. In that
particular case, a limited partnership brought a contract dispute
to federal court, based on diversity jurisdiction. Carden, 494
U.S. at 186. One limited partner of the partnership was a
citizen of the same state as that of a defendant. Id. The limited
partnership argued that jurisdiction should be determined
solely on the basis of the citizenship of its general partners,
who “have exclusive and complete management and control of
the operations of the partnership[,]” akin to the approach taken
with the trust at issue in Navarro. Id. at 192 (citation omitted).
The Supreme Court declined to extend its reasoning from
Navarro, though, saying 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. Carden, in contrast,
concerned determining the citizenship of “an artificial entity,
[i.e., a limited partnership,] suing or being sued[.]” Id. at 192.
Ultimately, the Court held that the citizenship of a limited
partnership is based on the citizenship of all its partners; that
is, the citizenship of each general and limited partner. Id. at
195-96.
Finally, in Americold Realty, the Supreme Court
decided that the citizenship of a business trust includes the
citizenship of all its members. 136 S. Ct. at 1016. The dispute
involved a group of corporations whose goods perished in a
warehouse fire. Id. at 1014. They brought a breach-of-contract
suit in state court against the warehouse owner, which was a
real estate investment trust (“REIT”). Id. The REIT removed
the case to federal court based on diversity jurisdiction. Id. On
15
appeal, the United States Court of Appeals for the Tenth
Circuit looked at the citizenship of the REIT’s members for
purposes of determining diversity jurisdiction, and the
Supreme Court affirmed that choice. Id. at 1014-15. The
Supreme Court likened the REIT to other unincorporated
business associations, like joint-stock companies or
partnerships, each of which has as its citizenship the
citizenship of its members. Id. at 1016. The Court declined to
base its reasoning on Navarro, because, “[a]s [it] ha[s]
reminded litigants before, ... Navarro had nothing to do with
the citizenship of [a] trust.” Id. (internal quotation marks
omitted and last alteration in original) (citing Carden, 494 U.S.
at 192-93). It was instead about the trustees’ citizenship. The
Navarro rule – that the jurisdictional citizenship of a trustee
filing a lawsuit in his own name is the state where he is
domiciled – is compatible with the rule applied to REITs and
other business trusts, namely, that the jurisdictional citizenship
of an artificial entity suing or being sued in its name includes
the citizenship of each of its constituent members. Id.Citing our decision in Emerald Investors Trust v. Gaunt
Parsippany Partners, 492 F.3d 192 (3d Cir. 2007), the
Supreme Court noted the challenge courts have had in deciding
how to assign citizenship for jurisdictional purposes when a
trust is a party to a suit. Id. The Court said:
confusion regarding the citizenship of a trust is
understandable and widely shared. See Emerald
Investors ... (discussing various approaches
among the Circuits). The confusion can be
explained, perhaps, by tradition. Traditionally, a
trust was not considered a distinct legal entity,
but a “fiduciary relationship” between multiple
16
people. Such a relationship was not a thing that
could be haled into court; legal proceedings
involving a trust were brought by or against the
trustees in their own name. And when a trustee
files a lawsuit or is sued in her own name, her
citizenship is all that matters for diversity
purposes. Navarro, 446 U.S., at 462–466 ... . For
a traditional trust, therefore, there is no need to
determine its membership, as would be true if the
trust, as an entity, were sued.
Id. (some citations omitted). The Court then went on to
distinguish business trusts from traditional trusts, as follows:
Many States, however, have applied the “trust”
label to a variety of unincorporated entities that
have little in common with this traditional
template. Maryland, for example, treats a real
estate investment trust as a “separate legal
entity” that itself can sue or be sued. So long as
such an entity is unincorporated, we apply our
“oft-repeated rule” that it possesses the
citizenship of all its members. Carden, 494 U.S.,
at 195, ... . But neither this rule nor Navarro
limits an entity’s membership to its trustees just
because the entity happens to call itself a trust.
Id. (citation omitted).
While there has been some question about what the
Court meant when it said, “[f]or a traditional trust, therefore,
there is no need to determine its membership, as would be true
17
if the trust, as an entity, were sued,” 11 one thing seems clear:
the Court was declaring that, because a business trust is an
artificial legal entity and a traditional trust is not, the
citizenship of a traditional trust must be determined differently
than that of a business trust. 12 Id. We therefore conclude that
the citizenship of a traditional trust is based solely on that of its
trustee. The United States Courts of Appeals for the Second
11
“For example, does the phrase mean that there is no
need to determine entity membership for diversity purposes
when a ‘traditional trust’ is sued as an entity? Or do we read
the statement to mean that a trust sued as an entity must prove
entity membership because it is a separate legal person from
the individual trustees?” Zoroastrian Ctr. & Darb-E-Mehr of
Metro. Wash., D.C. v. Rustam Guiv Found. of N.Y., 822 F.3d
739, 749 (4th Cir. 2016).
12
Even before Americold Realty, the law distinguished
between traditional and business trusts in general and for
purposes of tax treatment, see Restatement (Second) of Trusts
§ 1 cmt. b (1959) (“[A] trust as a device for carrying on
business is not within the scope of the Restatement of this
Subject. ... The business trust is a special kind of business
association and can best be dealt with in connection with other
business associations.”); see also Morrissey v. Comm’r, 296
U.S. 344, 357 (1935) (“In 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.”), but not explicitly for jurisdictional purposes. After
Americold Realty, courts have provided more guidance. See
infra Section II.C.2 (distinguishing traditional and business
trusts).
18
Circuit and the D.C. Circuit have concluded the same. See
Raymond Loubier Irrevocable Tr. v. Loubier, 858 F.3d 719,
722 (2d Cir. 2017) (“We conclude that legal proceedings
involving such traditional trusts are effectively brought by or
against their trustees and, thus, it is the trustees’ citizenship,
not that of beneficiaries, that matters for purposes of
diversity.”); Wang ex rel. Wong v. New Mighty U.S. Tr., 843
F.3d 487, 494 (D.C. Cir. 2016) (“[T]he citizenship of a
traditional trust depends only on the trustees’ citizenship[.]”),
cert. denied, __ U.S. __, 137 S. Ct. 2266, 198 L.Ed.2d 699(2017); see also Momenian v. Davidson, 878 F.3d 381, 389
(D.C. Cir. 2017) (quoting same language from Wang ex rel.
Wong v. New Mighty U.S. Trust).
That interpretation of Americold Realty is consistent
with the larger context of the Court’s opinion, which focuses
on the distinction between traditional trusts and business trusts,
while a contrary reading is not. It would be inconsistent with
Americold Realty to say, as the Defendants urge here, that a
traditional trust cannot be brought into court but nevertheless
can sue or be sued as an entity. Wang, 843 F.3d at 494.
In sum, following the clarification in Americold Realty,
the citizenship of a traditional trust is only that of its trustee,
while that of a business entity called a trust is that of its
constituent owners. Americold Realty thus effectively
abrogates our conclusion in Emerald Investors that traditional
and business trusts need not be treated differently when
determining citizenship for diversity jurisdiction. Emerald
Investors, 492 F.3d at 198 n.10. Emerald Investors involved a
trust suing partnerships to “recover[] on two unpaid
promissory notes and foreclosure of ... mortgages securing the
notes.” Id. at 193. To determine diversity jurisdiction, the
19
district court considered the citizenship of the trust’s
beneficiary, but not that of its trustee. Id. at 198. We remanded
to the district court with instructions to determine diversity
jurisdiction based on the citizenship of both the trustee and
beneficiary. Id. at 205. In arriving at that conclusion, in light
of Carden and Navarro, we assessed four alternatives for
determining the citizenship of a trust – “(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; and (d) look to the citizenship of both the
trustee and the beneficiary.” Id. at 201. We chose option
(d) – look to the citizenship of both the trustee and beneficiary.
Id. Importantly, we declined to distinguish between traditional
and business trusts, saying, “[o]ur research ... 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.” Id. at 198 n.10.
Americold Realty, necessarily changes that conclusion.
As already explained, it instructs that there is a difference of
jurisdictional significance between traditional trusts – which
embody a fiduciary relationship – and business trusts – which,
though they bear the “trust” name, are unincorporated business
entities. Given the Supreme Court’s analysis, we now
recognize the abrogation of that part of our holding in Emerald
Investors that treated the analysis of the jurisdictional
citizenship of business trusts the same as that of traditional
trusts.
2. Distinguishing Between Traditional
And Business Trusts In This Case
20
The remaining question is how to distinguish between
traditional and business trusts. The primary point of distinction
is, again, in light of Americold Realty, that a traditional trust
exists as a fiduciary relationship and not as a distinct legal
entity. 136 S. Ct. at 1016 (citing Restatement (Second) of
Trusts § 2). Another general distinction between traditional
and business trusts is that a traditional trust facilitates a
donative transfer, whereas a business trust implements a
bargained-for exchange. See S.I. Strong, Congress and
Commercial Trusts: Dealing with Diversity Jurisdiction Post-
Americold, 69 Fla. L. Rev. (forthcoming) (manuscript at 14-
15), http://ssrn.com/abstract=2834023 (citing law review
articles for that proposition); see also Wang, 843 F.3d at 494-
95 (concluding trust at issue was a traditional trust because,
among other reasons, it was donative trust under D.C. law).
There are thus at least two inquiries a court should
undertake when deciding whether, for diversity purposes, a
trust is of the “traditional” or “business” variety. First, the
court ought to look to the law of the state where the trust was
formed to determine whether the trust has the status of a
juridical person. Raymond Loubier, 858 F.3d at 730-31
(looking to Florida state law); Wang, 843 F.3d at 494-95
(looking to D.C. law). Comparing the state law on business
trusts and more traditional trust relationships may facilitate a
determination of which type is better suited to describe the trust
at issue. Wang, 843 F.3d at 494-95. At the same time,
however, the particular labels affixed by state law are not of
themselves determinative. See Americold Realty, 136 S. Ct. at
1016 (noting that a trust entity’s membership is not limited to
only its trustees “just because the entity happens to call itself a
trust”); Navarro, 446 U.S. at 472 & n.5 (Blackmun, J.,
dissenting) (arguing that state law is “relevant” but not
21
“dispositive” to threshold questions of federal jurisdiction).
Ultimately, our jurisdiction is based on constitutional and
federal statutory authority, not state law. Penn Gen. Cas. Co.
v. Pennsylvania ex rel. Schnader, 294 U.S. 189, 197 (1935).
The second, and closely related, inquiry the court
should make focuses on the purpose of the trust – a traditional
trust facilitates a donative transfer, Wang, 843 F.3d at 495,
while a business trust implements a bargained-for exchange,
Strong, supra, at 14-15. Principles described in the Second
Restatement of Trusts, a source on which we have relied to
identify whether an express trust has been created, see In re
Penn Cent. Transp. Co., 484 F.2d 1300, 1305 (3d Cir. 1973)
(citing Restatement (Second) of Trusts § 2 (1959)), can be
informative in that inquiry. 13
Here, the Defendants argue that, even if the trusts at
issue were traditional trusts, we should still look to their
beneficiaries to determine diversity because of the trusts’
positioning within the layers of GBForefront’s ownership
structure. The Defendants point out that the trusts did not
initiate the lawsuit, and rather are relevant only for
13
The Second Restatement of Trusts describes
traditional rather than business trusts. Restatement (Second)
of Trusts § 1 cmt. b (1959) (explaining the scope of the Second
Restatement of Trusts); see supra n.12. It defines a “trust” as
“a fiduciary relationship with respect to property, subjecting
the person by whom the title to the property is held to equitable
duties to deal with the property for the benefit of another
person, which arises as a result of a manifestation of an
intention to create it.” Restatement (Second) of Trusts § 2
(1959).
22
jurisdictional purposes because they are limited partners of a
limited partnership that in turn is a limited partner of the
partnership that actually initiated the lawsuit. See supra note 1
(describing GBForefront’s ownership structure). According to
the Defendants, Americold Realty, Carden, and Navarro can
be distinguished as applying only when the trust or trustee was
the party that sued or was sued. Thus, they argue, the trust
entities are involved in the lawsuit through the layers of
GBForefront’s ownership structure, so their beneficiaries are
necessarily involved too. We disagree.
The rules for determining citizenship do not change
depending on whether a trust is embedded within another
business entity. See Lincoln Benefit Life Co., 800 F.3d at 105
n.16 (stating rule to trace citizenship through “however many
layers of partners or members there may be” (citation
omitted)); cf. Johnson v. SmithKline Beecham Corp., 724 F.3d
337, 348-49 (3d Cir. 2013) (determining citizenship of plaintiff
LLC, whose sole member was a corporation, as the states of
incorporation and principal place of business of the
corporation). Given the Supreme Court’s decision in
Americold Realty, the jurisdictional citizenship of a traditional
trust is only that of its trustee. That rule is definitive.
Unfortunately, the record on appeal is insufficient for us
to apply that rule to resolve the Defendants’ factual challenge
to diversity jurisdiction in this case. In particular, the record is
insufficient because GBForefront comprised five trusts but the
record only contains the trust instrument for one of them. We
must, therefore, remand to the District Court with instructions
for it to determine, based on the foregoing guidance, whether
23
the trusts at issue are traditional or business trusts and thus
whether there is diversity jurisdiction. 14
III. CONCLUSION
Accordingly, we will vacate the District Court order
dismissing the case for lack of diversity jurisdiction and
remand for further proceedings consistent with this opinion.
14
Other arguments that GBForefront raised on appeal
are moot in light of our holding.
24