Opinion ID: 2833601
Heading Depth: 2
Heading Rank: 3

Heading: Pleading Diversity Jurisdiction

Text: The District Court held that Lincoln Benefit was required to “plead the citizenship of each member of the defendant LLCs and allege that these citizenships differ from that of [Lincoln Benefit].”22 Although it cited Johnson v. SmithKline Beecham Corp.23 for this proposition, Johnson involved a factual challenge to diversity jurisdiction and did not address pleading requirements. The requirement that a plaintiff plead the basis for federal jurisdiction appears in Federal Rule of Civil Procedure 8(a)(1), which requires the complaint to provide “a 21 McCann v. Newman Irrevocable Trust, 458 F.3d 281, 290 (3d Cir. 2006) (citations omitted). 22 (App. Vol. I at 16.) 23 724 F.3d 337. 10 short and plain statement of the grounds for the court’s jurisdiction.” Beyond stating that the jurisdictional allegations should be “short and plain,” the Rule does not specify the level of detail required to adequately plead the “grounds” for federal jurisdiction. There are, however, a number of other guideposts that we may consult in deciding the issue.24 The Appendix to the Rules contains forms that “suffice under the[] rules and illustrate the simplicity and brevity that the[] rules contemplate.”25 Form 7, entitled “Statement of 24 Supreme Court cases predating the Federal Rules of Civil Procedure suggest that a plaintiff must affirmatively plead the citizenship of each member of an unincorporated association. See Thomas v. Bd. of Trs. of Ohio State Univ., 195 U.S. 207, 217-18 (1904); Great S. Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 458 (1900); Chapman v. Barney, 129 U.S. 677, 681-82 (1889). But the case before us requires us to construe Rule 8, which represented a significant departure from the stringent pleading requirements that preceded it. See Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 573-76 (2007) (Stevens, J. dissenting); Swierkiewicz v. Sorema N. A., 534 U.S. 506, 51214 (2002). 25 Fed. R. Civ. P. 84; see also Swierkiewicz, 534 U.S. at 513 n.4. On April 29, 2015, the Supreme Court submitted to Congress its Proposed Amendments to the Federal Rules of Civil Procedure, which abrogate Rule 84 and the accompanying forms. Absent contrary congressional action, these Proposed Amendments will go into effect on December 1, 2015. Given that the forms are currently in effect, we find 11 Jurisdiction,” contains sample allegations that establish federal subject-matter jurisdiction.26 According to these samples, a plaintiff may simply allege that a party is a “citizen of [a certain state].”27 In the case of a corporation, the state of incorporation and principal place of business should be alleged, as the corporation is a citizen of both states.28 Form 7 does not, however, show how to plead the citizenship of an unincorporated association. It would certainly be enough to list the states of citizenship of each member of the unincorporated association; even the most convoluted association is, at bottom, made up of natural persons and/or corporations, for which bare allegations of citizenship suffice. But Form 7 does not indicate that such a list is required. Our precedent is more instructive, as we have previously held that a plaintiff may plead diversity jurisdiction without making affirmative allegations of citizenship. In Lewis v. Rego Co.,29 all of the plaintiffs were Pennsylvania citizens. Three of four defendants filed a removal petition, as the fourth had not yet entered an appearance. The petition affirmatively stated the citizenship of the three defendants who had entered an appearance. In addition, on the basis of information obtained from the fourth it useful to consider them, but we do not rely on them in reaching our ultimate conclusion. 26 Fed. R. Civ. P. Form 7. 27 Id. 28 See id.; 28 U.S.C. § 1332(c)(1). 29 757 F.2d 66 (3d Cir. 1985). 12 defendant, the petition alleged “on information and belief” that the fourth defendant was not a citizen of Pennsylvania. We held that these allegations sufficed to establish diversity.30 Thus, rather than affirmatively alleging the citizenship of a defendant, a plaintiff may allege that the defendant is not a citizen of the plaintiff’s state of citizenship.31 Permitting 30 See id. at 68-69. The fact that this was a removal case makes no difference, as the relevant language of the removal statute tracks the language of Rule 8(a). See Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547, 553 (2014) (noting that both 28 U.S.C. § 1446(a) and Rule 8(a) require “a short and plain statement of the grounds” for federal jurisdiction); Lewis, 757 F.2d at 68 (noting that the version of § 1446(a) then in force required “a short and plain statement of the facts which entitled [the defendant] to removal”). 31 In a later case, we noted that “in a diversity action, the plaintiff must state all parties’ citizenships such that the existence of complete diversity can be confirmed.” Chem. Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 177 F.3d 210, 222 n.13 (3d Cir. 1999). Because we did not confront the situation presented in Lewis, however, this broad statement cannot be interpreted as implicitly overruling that decision, even if that were possible. See United States v. Joseph, 730 F.3d 336, 341 (3d Cir. 2013) (holding that normally we follow the earlier of conflicting decisions). Separately, we note that in Lewis we deemed it permissible to make allegations of citizenship “on information and belief.” The motions to dismiss Lincoln Benefit’s complaint argued that these sorts of qualified 13 this sort of negative allegation makes good sense. The fact that the plaintiff and defendant do not share a state of citizenship usually establishes diversity.32 Consequently, it serves little purpose to require the plaintiff to allege the defendant’s precise state of citizenship, especially when this would entail a difficult factual investigation prior to filing.33 We see no reason why Lewis should not apply in the context of unincorporated associations. A State X plaintiff allegations were insufficient. As Innovative Brokers does not renew this argument on appeal, we need not address it. Several Courts of Appeals accept allegations “on information and belief” when the facts at issue are peculiarly within the defendant’s possession. See Carolina Cas. Ins. Co. v. Team Equip., Inc., 741 F.3d 1082, 1087 (9th Cir. 2014); Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 442-43 (7th Cir. 2011); Medical Assur. Co. v. Hellman, 610 F.3d 371 (7th Cir. 2010); Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010). As Lincoln Benefit argues, and Innovative Brokers concedes, information regarding the membership of the defendant LLCs is uniquely within their possession. 32 If, however, the other party is an American citizen domiciled abroad, he or she is “stateless” for purposes of the diversity statute and cannot be sued in federal court based on diversity jurisdiction. See Swiger, 540 F.3d at 184. 33 Cf. 5 Charles Alan Wright et al., Federal Practice and Procedure: Federal Rules of Civil Procedure § 1208 (3d ed., updated 2013) (making a similar argument with respect to alleging the principal place of business of a corporation). 14 may therefore survive a facial challenge by alleging that none of the defendant association’s members are citizens of State X.34 Significantly, however, the plaintiff is permitted to make such an allegation even if it is not certain of the association’s membership. In order to satisfy its obligations under Rule 11, a party must conduct a reasonable inquiry into the facts alleged in its pleadings.35 Thus, before alleging that none of an unincorporated association’s members are citizens of a particular state, a plaintiff should consult the sources at its disposal, including court filings and other public records. If, after this inquiry, the plaintiff has no reason to believe that any of the association’s members share its state of citizenship, it may allege complete diversity in good faith. The unincorporated association, which is in the best position to ascertain its own membership, may then mount a factual 34 To be sure, in two cases where unions were parties, we faulted the plaintiffs for asserting complete diversity while failing to identify the unions’ members and plead their citizenships. See Local No. 1 (ACA) Broad. Emps. of the Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am. v. Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am., 614 F.2d 846, 853 (3d Cir. 1980); Underwood v. Maloney, 256 F.2d 334, 338-39 (3d Cir. 1958). These cases do not govern the question presented to us, however, as the plaintiffs there did not make negative allegations of the sort we approved in Lewis or allege that they could not ascertain the unions’ memberships without discovery. 35 See Forbes v. Eagleson, 228 F.3d 471, 488 (3d Cir. 2000). 15 challenge by identifying any member who destroys diversity.36 We believe that allowing this method of pleading strikes the appropriate balance between facilitating access to the courts and managing the burdens of discovery. District courts have the authority to allow discovery in order to determine whether subject-matter jurisdiction exists.37 Rule 8(a)(1), however, serves a screening function: only those plaintiffs who have provided some basis to believe jurisdiction exists are entitled to discovery on that issue.38 36 Of course, where the unincorporated association is the proponent of diversity jurisdiction, there is no reason to excuse it of its obligation to plead the citizenship of each of its members. See, e.g., Underwriters at Lloyd’s, London v. Osting-Schwinn, 613 F.3d 1079, 1088-89 (11th Cir. 2010); Barclay Square Properties v. Midwest Fed. Sav. & Loan Ass’n of Minneapolis, 893 F.2d 968, 969 (8th Cir. 1990). 37 See Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 & n.13 (1978); Johnson, 724 F.3d at 340 n.1; Emerald Investors Trust, 492 F.3d at 208. 38 See, e.g., Baer v. United States, 722 F.3d 168, 177 (3d Cir. 2013) (affirming a Rule 12(b)(1) dismissal and the denial of jurisdictional discovery because the appellant had not adequately alleged subject-matter jurisdiction under the Federal Tort Claims Act). Moreover, although Rule 8(a)(1) does not appear to govern the pleading of personal jurisdiction, see Fed. R. Civ. P. Form 7; Caribbean Broad. Sys., Ltd. v. Cable & Wireless P.L.C., 148 F.3d 1080, 1090 (D.C. Cir. 1998); Stirling Homex Corp. v. Homasote Co., 437 16 The corollary of this principle is that a plaintiff need not allege an airtight case before obtaining discovery. Depriving a party of a federal forum simply because it cannot identify all of the members of an unincorporated association is not a rational screening mechanism. The membership of an LLC is often not a matter of public record.39 Thus, a rule requiring the citizenship of each F.2d 87, 88 (2d Cir. 1971), our decisions in the personaljurisdiction context also support the notion that jurisdictional discovery is not available merely because the plaintiff requests it. In Eurofins Pharma US Holdings v. BioAlliance Pharma SA, for example, we required sufficient allegations of personal jurisdiction in order to prevent “a fishing expedition . . . under the guise of jurisdictional discovery.” 623 F.3d 147, 157 (3d Cir. 2010). 39 Indeed, many cases note the absence of publicly available information regarding the membership of LLCs. See Carolina Cas. Ins. Co., 741 F.3d at 1087; Rooflifters, LLC v. Nautilus Ins. Co., No. 13 C 3251, 2013 WL 3975382, at  (N.D. Ill. Aug. 1, 2013); WMCV Phase, LLC v. Tufenkian Carpets Las Vegas, LLC, No. 2:12-cv-01454-RCJ, 2013 WL 1007711, at  (D. Nev. Mar. 12, 2013); Pinson v. 45 Dev., LLC, No. 2:12-CV-02160, 2012 WL 4343494, at  (W.D. Ark. Sept. 21, 2012); Chesapeake Louisiana, LP v. Creamer Prop. Mgmt., LLC, Civil Action No. 09-cv-0370, 2009 WL 653796, at  (W.D. La. Mar. 11, 2009); Ypsilanti Cmty. Utils. Auth. v. MeadWestvaco Air Sys., LLC, No. 07-CV-15280, 2008 WL 2397651, at  (E.D. Mich. June 9, 2008); see also Carter G. Bishop & Daniel S. Kleinberger, Limited Liability Companies: Tax and Business Law ¶ 1.03(3)(b)(ii)(A), 1998 17 member of each LLC to be alleged affirmatively before jurisdictional discovery would effectively shield many LLCs from being sued in federal court without their consent. This is surely not what the drafters of the Federal Rules intended. Moreover, the benefits of such a stringent rule would be modest. Jurisdictional discovery will usually be less burdensome than merits discovery, given the more limited scope of jurisdictional inquiries.40 It seems to us that in determining the membership of an LLC or other unincorporated association, a few responses to interrogatories will often suffice. So long as discovery is narrowly tailored to the issue of diversity jurisdiction and parties are sanctioned for making truly frivolous allegations of diversity, the costs of this system will be manageable. We are not the only Court of Appeals to take this position. The Ninth Circuit confronted facts remarkably similar to ours in Carolina Casualty Insurance Co. v. Team Equipment, Inc.41 Carolina Casualty Insurance Co., a citizen of Iowa and Florida, filed a diversity action seeking a declaratory judgment that it was not liable under one of its insurance policies. Two of the defendants were LLCs, but WL 1169338 at . The problem is compounded if the LLC (or other unincorporated association) has members that are themselves unincorporated associations, or even many layers of such members. See Zambelli, 592 F.3d at 420. 40 See In re Auto. Refinishing Paint Antitrust Litig., 358 F.3d 288, 303 (3d Cir. 2004). 41 741 F.3d 1082. 18 Carolina did not allege the citizenship of their members. When the district court dismissed the complaint sua sponte for lack of jurisdiction, Carolina filed a motion to alter or amend the judgment and submitted a proposed amended complaint. Carolina advised the court in its moving papers that it was unable to determine the citizenship of the LLCs, because their organizational filings did not list their members. As a result, Carolina alleged simply that the members of the LLCs were “citizens of neither Iowa nor Florida.” . . . Carolina explained in its motion . . . that it had made efforts to determine the citizenship of the two LLCs . . . but it was unable to do so from publicly available information. The business filings that Carolina submitted to the district court show[ed] that information necessary to determining the citizenship of the LLCs could not be determined from the public filings of those companies.42 The district court denied the motion, holding that the proposed amended complaint suffered from the same jurisdictional defect, among others. On appeal, the Ninth Circuit recognized that “[t]he novel issue presented by this case is how a plaintiff may allege diversity jurisdiction where the facts supporting 42 Id. at 1085, 1087. 19 jurisdiction are not reasonably ascertainable by the plaintiff.”43 It observed that “Carolina made a showing that at least some of the information necessary to establish the diversity of the parties’ citizenship was within the defendants’ control.”44 And it concluded that, under these circumstances and “at this early stage in the proceedings, a party should not be required to plead jurisdiction affirmatively based on actual knowledge.”45 Accordingly, it held that “it was sufficient for Carolina to allege simply that the defendants were diverse to it” and that “Carolina should have been permitted to plead its allegations on the basis of information and belief.”46 The decision of the Ninth Circuit is consistent with our view that a plaintiff need not affirmatively allege the citizenship of each member of a defendant LLC if it is unable to do so after a reasonable investigation.47 If the plaintiff is 43 Id. at 1087. 44 Id. 45 Id. 46 Id. 47 But see Fifty Assocs. v. Prudential Ins. Co. of Am., 446 F.2d 1187, 1190-91 (9th Cir. 1970) (citing Underwood and other authorities for the proposition that “[t]he citizenship of each member of an unincorporated association must be alleged” and rejecting as “mere guesswork” the plaintiff’s allegations that unknown John Doe defendants were not citizens of its state of citizenship). Otherwise, we are not aware of any Court of Appeals decision that expressly rejects the argument Lincoln Benefit makes here—that where the 20 able to allege in good faith that the LLC’s members are not citizens of its state of citizenship, its complaint will survive a facial challenge. D. The Sufficiency of Lincoln Benefit’s Allegations of Diversity Lincoln Benefit’s allegations satisfy this standard. Taken together, the complaint and opposition to the motions to dismiss indicate that Lincoln Benefit has a good-faith basis for alleging that the LLC defendants’ members are not citizens of Nebraska. We will exercise our discretion to consider what Lincoln Benefit said to the District Court in opposition to the motions to dismiss. Normally, “[i]n reviewing a facial attack, the court must only consider the allegations of the complaint and documents referenced therein and attached thereto, in the light most favorable to the plaintiff.”48 Affidavits and briefs in opposition do not fall in this category. But Lincoln Benefit could have amended its complaint to include the information membership of a defendant association is not reasonably ascertainable, the plaintiff is excused from identifying each member of that association. 48 Gould Elecs. Inc., 220 F.3d at 176. 21 contained in those documents,49 and we have the authority to permit such amendment on appeal.50 The information provided by Lincoln Benefit indicates that (1) the LLC defendants have connections to New York and Delaware; (2) counsel for Lincoln Benefit conducted a reasonable inquiry to determine the membership of the LLC defendants but found nothing of value; and (3) counsel for Lincoln Benefit found no connection between the LLC defendants and Nebraska. On the basis of this information, Lincoln Benefit alleges that none of the LLCs’ members are citizens of Nebraska. It is certainly possible that two LLCs organized and based in New York and Delaware have at least one member domiciled in Nebraska. This scenario is not so overwhelmingly likely, however, that Lincoln Benefit’s allegation to the contrary can be considered frivolous, especially when there is no indication that either LLC has any ties to Nebraska. Lincoln Benefit has alleged complete diversity in good faith, and this is enough to survive a facial attack. If defendants mount a factual challenge to jurisdiction on 49 We do not fault Lincoln Benefit for failing to move to amend. Given the District Court’s opinion, it would have been futile to add this information to the complaint. 50 See 28 U.S.C. § 1653 (“Defective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts.”). 22 remand, however, the District Court must permit jurisdictional discovery in order to ascertain whether complete diversity exists.