Why LLCs Can Be Problematic for Removal Based on Diversity Jurisdiction
When a party wants to remove a case based on federal diversity jurisdiction, 28 U.S.C. § 1332 requires that: (1) the amount in controversy exceeds $75,000; and (2) the parties’ citizenship is completely diverse (i.e., no plaintiff is a citizen of any state where a defendant is a citizen). The party removing a case to federal court has the burden to demonstrate diversity of citizenship.
The burden to prove complete diversity may become complicated when an LLC is a party. To determine the citizenship of an LLC (or other unincorporated entity), a party must look to the citizenship of each member of the LLC. LLC member information and/or citizenship often is not set forth in initial pleadings, however. To make matters more complicated, this information may also not be publicly available. Therefore, a removing party is often faced with the prospect of filing removal papers without complete knowledge of the citizenship and diversity of the other parties, even though it is the removing party’s duty to demonstrate complete diversity.
There are three main steps you can take to demonstrate to the court that you have performed due diligence and attempted to discern the LLC members and their citizenship.
Step 1: Reach Out to Opposing Counsel
When you receive the initial pleadings, and they do not allege LLC members or their citizenship, the first thing you can do is reach out to opposing counsel. You can send a quick e-mail that requests information about each LLC member and their citizenship.
You might not receive a response to this e-mail or might not receive a complete response within the timeframe you have allotted prior to the removal deadline, but this demonstrates to the court that you reached out to opposing counsel and sought this information, and it was not provided to you prior to removal.
Step 2: Research Publicly Available Information
Next, you should conduct a wide search of publicly available information and include a summary of this research in your removal papers. For example, you might be able to locate the Articles of Organization for the LLC. The Articles of Organization might not list the members of the LLC, but you can attach that to an affidavit with your removal papers to demonstrate that you have looked at all the publicly available information you could find and still could not determine the member information.
Step 3: Plead “Upon Information and Belief”
In your removal papers, after the above background research, you can now allege that “upon information and belief,” the LLC members are not citizens of the states in which the removing party is a citizen. Given that it is the removing party’s duty to demonstrate citizenship, and you still do not know the members or their citizenship for certain, this will at least demonstrate to the court that you have done all you could to locate the LLC members’ citizenship prior to removal.
Lastly, this is an area of law that is ever-changing. It is always good to perform an updated search on this issue in case there is a more specific approach preferred in your jurisdiction.