The Volokh Conspiracy
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"The Most Gullible Man in Cambridge" and 28 U.S.C. § 1332(a)
Professor Bruce Hay sued an LLC in diversity jurisdiction, but failed to note the citizenship of each member of the LLC.
Yesterday, Eugene blogged about Hay v. New York Media LLC. This case is premised on a New York Magazine article, titled "The Most Gullible Man in Cambridge." Harvard Law School Professor Bruce Hay filed this suit, pro se, in the U.S. District Court for the Southern District of New York.
Hay, a professor at Harvard, is a citizen of Massachusetts. He asserted diversity jurisdiction.
The complaint lists three defendants. First, Kera Bolonik, a former editor at New York magazine, is a citizen of New York. Second, David Koreznik, counsel to New York Media, is a citizen of New York. If these were the only parties, and the amount in controversy was satisfied, then Hay could rely on 28 U.S.C. § 1332(a) to establish diversity jurisdiction. That is, there is complete diversity of citizenship between the parties.
However, Hay added a third defendant: New York Media LLC, a Delaware LLC that is headquartered in New York. Does this additional defendant defeat diversity? Perhaps.
28 U.S.C.§ 1332(c) provides that "a corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business." In Hertz v. Friend, the Court adopted the so-called "nerve center" to decide where a corporation has its "principal place of business." If New York Media LLC were a corporation, then its headquarters in New York would likely render it a New York corporation.
But New York Media LLC is not a corporation. It is, as the name suggests, a limited liability corporation. And LLCs are treated differently than corporations for purposes of diversity jurisdiction. LLCs do not fall under 28 U.S.C.§ 1332(c). Instead, they fall under 28 U.S.C. § 1332(a). And an LLC takes the citizenship of each of its members. Here is a relevant precedent from SDNY:
"A complaint premised upon diversity of citizenship must allege the citizenship of natural persons who are members of a limited liability company and the place of incorporation and principal place of business of any corporate entities who are members of the limited liability company." New Millennium Capital Partners, III, LLC v. Juniper Grp. Inc., 2010 WL 1257325, at *1 (S.D.N.Y. Mar. 26, 2010)
Hay pleaded the fact that New York Media LLC was incorporated in Delaware. This fact is irrelevant. He will need to plead the citizenship of each member of that LLC. On its face, this complaint fails to establish subject matter jurisdiction. It is possible that at least one of the members is a citizen of Massachusetts. In that case, then diversity is defeated.
Delaware does not publicize the citizenship of members. Therefore, it is difficult for Hay to know for sure at this point that all defendants are non-diverse. Therefore, courts may permit limited discovery to determine the citizenship of the LLC's members.
The Third Circuit addressed this issue in a 2015 decision:
A plaintiff who files suit in federal court may face significant difficulties when jurisdiction is premised on diversity and the defendant is an unincorporated association such as a partnership or limited liability company ("LLC"). The members of the association determine its citizenship, but these members may be unknown to the plaintiff even after a diligent pre-filing investigation. The plaintiff may tentatively assert that complete diversity exists, but whether this assertion survives a motion to dismiss depends entirely on the pleading standard that the court chooses to apply. We hold that a plaintiff need not affirmatively allege the citizenship of each member of an unincorporated association in order to get past the pleading stage. Instead, if the plaintiff is able to allege in good faith, after a reasonable attempt to determine the identities of the members of the association, that it is diverse from all of those members, its complaint will survive a facial challenge to subject-matter jurisdiction. If the defendant thereafter mounts a factual challenge, the plaintiff is entitled to limited discovery for the purpose of establishing that complete diversity exists.
Hay stated in paragraph 21 that "there is complete diversity." I am not sure if he has to hedge, and say something like, "upon information and belief, there is complete diversity." A court will have to determine if Hay "is able to allege in good faith, after a reasonable attempt" that there are no non-diverse defendants.
H/T Elliott Davis for flagging this issue.
Update: I've revised the post to address the fact that courts employs a good-faith standard at the motion-to-dismiss stage.
