Opinion ID: 75890
Heading Depth: 2
Heading Rank: 1

Heading: The Master Packaging Action and Growth Fund's Citizenship

Text: 7 There are two issues raised with respect to Master Packaging's appeal. The threshold issue is whether there is diversity jurisdiction. If we conclude that there is jurisdiction, we must turn to the question whether SLUSA bars Master Packaging's lawsuit. For the reasons set forth below, we conclude that the requisite diversity is lacking. Therefore we do not reach the question of whether SLUSA bars Master Packaging's lawsuit. 6 8 Master Packaging sued the Merrill Lynch defendants solely under Florida statutory law and the basis for federal jurisdiction was diversity of citizenship. In order for federal diversity jurisdiction to exist, each defendant must be diverse from each plaintiff. See Univ. of S. Ala., 168 F.3d at 412 (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806)). Merrill Lynch contends that one of the defendants, Growth Fund, is not diverse from the Florida-based Plaintiffs because some of its shareholders are Florida citizens. Regardless of the fact that the Growth Fund was organized as a business trust under Massachusetts law, Merrill Lynch argues, it should be deemed, for diversity purposes, a citizen of each state in which it has at least one shareholder. Accordingly, Merrill Lynch contends, there is no diversity jurisdiction in this case because, as a Florida citizen, the Growth Fund is not diverse from the Florida plaintiffs. The trial court, citing Carden v. Arkoma Assocs., 494 U.S. 185, 191-95, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990), agreed, and so do we. 9 In Carden the Supreme Court held that, for diversity purposes, an Arizona limited partnership was a citizen of each state in which at least one of its general or limited partners was a citizen. 7 See id. at 195, 110 S.Ct. 1015. In reaching this conclusion, the Court very clearly reaffirmed the doctrinal distinction between corporations on the one hand, and all other types of business entities on the other, stating that only corporations would be treated as citizens of their state of incorporation: While the rule regarding the treatment of corporations as `citizens' has become firmly established, we have (with an exception to be discussed presently) just as firmly resisted extending that treatment to other entities. Id. at 189, 110 S.Ct. 1015. The Court emphasized, [t]here could be no doubt ... that at least common-law entities (and likely all entities beyond the Puerto Rican sociedad en comandita ) 8 would be treated for purposes of the diversity statute pursuant to ... `[t]he tradition of the common law,' which is `to treat as legal persons only incorporated groups and to assimilate all others to partnerships.' Id. at 190, 110 S.Ct. 1015 (internal citations omitted) (second emphasis added). Thus, the Court stated, we reject the contention that to determine, for diversity purposes, the citizenship of an artificial entity, the court may consult the citizenship of less than all of the entity's members. We adhere to our oft-repeated rule that diversity jurisdiction in a suit by or against the entity depends on the citizenship of all the members. Id. at 195, 110 S.Ct. 1015 (internal quotations and citations omitted). 10 In its extended discussion of Navarro Sav. Ass'n. v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980), Carden made clear that the incorporated/unincorporated distinction applies specifically to Massachusetts business trusts, requiring their citizenship to be determined on the basis of the citizenship of their shareholders. Navarro was a case involving a Massachusetts business trust that had brought a lawsuit in the names of eight individual trustees, but not in the names of the trust itself or its shareholders. See Navarro, 446 U.S. at 465-66, 100 S.Ct. 1779. The defendants claimed that the plaintiff trust was not diverse from all of the defendants on the basis of the rule that Merrill Lynch urges here, namely, that a trust is a citizen of each state in which it has at least one shareholder. In response, the Court affirmed the general rule cited by the defendants, though it rejected its applicability in Navarro because, under the limited facts of the case, the trustees themselves were the real parties in interest. See id. In characterizing Navarro as affirming the incorporated/unincorporated distinction, the Carden Court stated: 11 Arkoma claims to have found another exception to our Chapman tradition 9 in Navarro Savings Assn. v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980). That case, however, did not involve the question whether a party that is an artificial entity other than a corporation can be considered a citizen of a State, but the quite separate question whether parties that were undoubted citizens (viz., natural persons) were the real parties to the controversy. The plaintiffs in Navarro were eight individual trustees of a Massachusetts business trust, suing in their own names. The defendant, Navarro Savings Association, disputed the existence of complete diversity, claiming that the trust beneficiaries rather than the trustees were the real parties to the controversy, and that the citizenship of the former and not the latter should therefore control. In the course of rejecting this claim, we did indeed discuss the characteristics of a Massachusetts business trust—not at all, however, for the purpose of determining whether the trust had attributes making it a citizen, but only for the purpose of establishing that the respondents were active trustees whose control over the assets held in their names is real and substantial, thereby bringing them under the rule, more than 150 years old, which permits such trustees to sue in their own right, without regard to the citizenship of the trust beneficiaries. Id., at 465-466, 100 S.Ct., at 1784. Navarro, in short, has nothing to do with the Chapman question, except that it makes available to respondent the argument by analogy that, just as business reality is taken into account for purposes of determining whether a trustee is the real party to the controversy, so also it should be taken into account for purposes of determining whether an artificial entity is a citizen. That argument is, to put it mildly, less than compelling. 12 Carden, 494 U.S. at 191-92, 110 S.Ct. 1015. In this passage, the Court clearly signals that a Massachusetts business trust — exactly like Growth Fund — is not to be accorded the status of a corporation for diversity purposes. Instead, like the limited partnership in Carden, it is to be treated as a citizen of each state in which one of its shareholders is a citizen. 13 Significantly, prior to Carden (but based on its underlying precedents) this Court has applied the incorporated/unincorporated distinction in determining the citizenship of trusts on the basis of the citizenship of their shareholders. See Laborers Local 938 Joint Health & Welfare Trust Fund v. B.R. Starnes Co. of Fla., 827 F.2d 1454, 1457 (11th Cir.1987). In B.R. Starnes, we stated that, Trust Funds, which appear to be voluntary unincorporated associations, are not citizens of any particular state; rather, the citizenship of trust fund members is determinative of the existence of diversity of citizenship. Id. (emphasis added). Accordingly, we affirmed the district court's dismissal of the complaint for lack of diversity jurisdiction. 14 Master Packaging argues that the capacity rule of Fed.R.Civ.P. 17(b), in combination with Mass. Gen. Laws ch. 182 § 6, compels us to conclude that Growth Fund is a Massachusetts Citizen for diversity purposes. We disagree. Fed.R.Civ.P. 17(b) provides that the capacity of a corporation to sue or be sued shall be determined by the law under which it is organized. (emphasis added). Mass. Gen. Laws ch. 182 § 6, under which the Growth Fund was organized, in turn states that [a]n association or trust may be sued in an action at law for debts and other obligations or liabilities ... and its property shall be subject to attachment and execution in like manner as if it were a corporation.... 15 As an initial matter, R.17(b) says nothing whatever about the status of a business trust, dealing, by its express terms, only with the right of a corporation to sue or be sued. It tells us nothing about the similar (or dissimilar) rights of a business trust. If anything, the mention solely of corporations without any reference to other types of business associations reaffirms the doctrinal distinction of Carden, distinguishing corporations from other types of business entities. 16 Mass. Gen. Laws ch. 182 § 6 also tells us nothing about the diversity question at issue here. To begin with, Massachusetts state law cannot prescribe rules to govern federal diversity jurisdiction, and the Supreme Court has clearly stated in Carden that unincorporated entities are not to be treated as corporations for diversity purposes. In any event, ch. 182 § 6 says nothing about how business trusts should be treated for purposes of citizenship, stating only that for purposes of property attachment and execution, they are to be treated in the manner of a corporation. 17 Thus, the district court correctly determined that complete diversity was lacking between Master Packaging and the Merrill Lynch defendants, requiring the dismissal of the Master Packaging class action for lack of jurisdiction. As noted, this determination eliminates the need to reach the SLUSA question with respect to Master packaging. However, in order to review the district court's denial of Performance Plan's motion to remand its action to state court (as well as its subsequent dismissal of that action), we must determine SLUSA's applicability to the Performance Plan action. 10