Court Opinion

ID: 9396533
Source: CourtListenerOpinion
Date Created: 2023-05-22 21:00:45.940496+00
Date Added: 2024-06-11T17:19:17.709035
License: Public Domain

United States Court of Appeals
                      For the First Circuit

No. 22-1389

                       BRT MANAGEMENT LLC,

                      Plaintiff, Appellant,

                                v.

          MALDEN STORAGE LLC; PLAIN AVENUE STORAGE LLC,

          Defendants/Third-Party Plaintiffs, Appellees,

                          BRIAN WALLACE,

                Third-Party Defendant, Appellant,

                    BANNER DRIVE STORAGE LLC,

                            Defendant.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
               FOR THE DISTRICT OF MASSACHUSETTS

        [Hon. F. Dennis Saylor, IV, U.S. District Judge]

                              Before

                 Kayatta, Lynch, and Montecalvo,
                         Circuit Judges.

     John S. Davagian, II and Davagian Grillo & Semple LLP on brief
for appellant.
     Alec S. Pine, John H. Brazilian, and Butters Brazilian LLP on
brief for appellees.
May 22, 2023
           KAYATTA,      Circuit    Judge.     This   lawsuit   serves   as   a

reminder that subject matter jurisdiction cannot be taken for

granted and that special attention need be paid when attempting to

invoke diversity jurisdiction if a party is not a natural person

or a corporation.        In this particular case, after six years of

litigation culminating in a trial and an eight-figure judgment

against the plaintiff and third-party defendant, and after three

separate orders warning counsel that jurisdiction was in question,

the parties have been unable to establish that no defendant shares

state citizenship with any plaintiff.             We therefore vacate the

judgment and remand to the district court so that any party --

presumably the defendants at this point -- will have one last

chance to demonstrate that there is complete diversity.

                                       I.

           Unable to resolve a contract dispute, plaintiff BRT

Management LLC ("BRT") filed this lawsuit in federal district

court.     The details of the dispute hold no relevance to our

analysis other than to say that they present no federal question

within the meaning of 28 U.S.C. § 1331.1            Nor do they present any

possible   basis   for    federal    jurisdiction     other   than   diversity

jurisdiction under 28 U.S.C. § 1332, which BRT accordingly sought

to   invoke.   Defendants      asserted      counterclaims    that   similarly

      1 Although BRT moved to add a federal claim to the suit, its
motion was denied.

                                     - 3 -
present   no   basis   for   federal   court   jurisdiction   other   than

diversity.

           As to the citizenship of the parties, BRT's complaint

alleged only that "there is complete diversity between the parties"

because BRT was a Massachusetts limited liability company (LLC)

with a usual place of business in Massachusetts and defendants

Malden Storage LLC ("Malden"), Plain Avenue Storage LLC ("Plain"),

and Banner Drive Storage LLC ("Banner") were each Delaware LLCs

with usual places of business in Illinois.2        Defendants replied in

relevant part only by alleging substantially the same facts, i.e.,

that Malden and Plain were both Delaware LLCs with principal places

of business in Northbrook, Illinois.3           These allegations were

plainly insufficient because, as a matter of black letter law,

"[t]he citizenship of an unincorporated entity . . . is determined

by the citizenship of all of its members."          Pramco, LLC ex rel.

CFSC Consortium, LLC v. San Juan Bay Marina, Inc., 435 F.3d 51,

54–55 (1st Cir. 2006) (applying this rule to an LLC); see also

D.B. Zwirn Special Opportunities Fund, L.P. v. Mehrota, 661 F.3d

124, 125 (1st Cir. 2011) (per curiam).         But neither plaintiff nor

     2  BRT also alleged that Malden was registered to do business
in Massachusetts and that Plain was registered to do business in
New York.
     3   Defendants also alleged that Banner was not a proper party
to the suit. Banner initially moved to dismiss the claims against
it for lack of both personal jurisdiction and subject matter
jurisdiction, although it made no argument about diversity.

                                  - 4 -
defendants had yet provided any information about their members'

citizenship.

           Noticing this deficiency in the pleadings, the district

court ordered plaintiff to show cause why the action should not be

dismissed for lack of subject matter jurisdiction.             The order

pointed out    that BRT's complaint failed to "allege that the

citizenship of every member of BRT Management LLC is diverse from

the citizenship of every member of Plain Avenue Storage, LLC,

Malden Storage, LLC, and Banner Drive Storage, LLC." BRT responded

by alleging that its sole member was a natural person who was a

resident of Massachusetts, that the sole member of both Malden and

Plain was C Banner Storage LLC ("C Banner"), a "Delaware LLC," and

that the sole member of Banner was Banner Storage Holding LLC,

"also a Delaware LLC."      Although the members of all defendants

were also LLCs, BRT did not allege the citizenship of any members

of those LLCs.

           The district court then issued a second order to show

cause, pointing out that BRT's supplemental allegations were still

insufficient because they failed to identify the citizenship of

the members of the LLCs that were members of Malden, Plain, and

Banner. Because LLCs take the citizenship of all of their members,

without the members' citizenships BRT had "failed to properly

allege   diversity   jurisdiction."     Given   a   second   chance,   BRT

responded that after diligent investigation it was unable to

                                - 5 -
identify the citizenship of those members, and requested limited

jurisdictional discovery to do so.              The district court granted

BRT's request.

            Following this limited discovery, the parties filed a

"stipulation       regarding    diversity     jurisdiction"    purporting      to

"stipulate that there exists complete diversity of citizenship"

between plaintiff, defendants, and third-party defendant Brian

Wallace (the sole member of BRT).             The stipulation also detailed

several facts, including the states of organization and principal

places of business for Malden and Plain; the sole member of both

of those entities, C Banner Storage LLC; and C Banner's sole

member, B-Dev Manager LLC.4          The stipulation did not identify the

citizenship    of    the   members    of    B-Dev   Manager   LLC,   which    was

necessary     to    determine     the      citizenship   of    C Banner      and,

accordingly, defendants Malden and Plain.            The stipulation further

stated that there were "more than eighty members of Banner Drive

Storage, LLC, including various individuals, LLCs, and trusts,"5

and that at least one investor in Banner was a Massachusetts

resident.     Both parties accordingly agreed to dismiss Banner from

the action so that diversity would not be destroyed.

     4  Defendants later clarified on appeal that one of these
assertions was materially incorrect.
     5  This appears to conflict with BRT's earlier allegation that
Banner was a sole member LLC but that conflict does not appear to
be relevant for our purposes.

                                      - 6 -
          The district court held a conference with both parties,

and dismissed Banner as requested.     See 5 Charles Alan Wright &

Arthur R. Miller, Federal Practice and Procedure § 1208 (4th ed.

2023) (failure to allege complete diversity "typically may be cured

by amending the pleading"); see also Carolina Cas. Ins. Co. v.

Team Equip., Inc., 741 F.3d 1082, 1088 (9th Cir. 2014) (noting in

reversing dismissal based on lack of subject matter jurisdiction

that courts need not dismiss a complaint where the defect can be

cured by amendment, and that jurisdictional discovery may be

appropriate).   The action continued, presumably without anyone

noticing the lurking lacuna in the parties' proof of diversity.

          The lawsuit eventually led to a nine-day bench trial in

2021.   Ultimately,   the   district   court   granted   judgment   for

defendants and awarded them over ten million dollars on their

counterclaims, including attorneys' fees.      BRT timely appealed.

          Once the parties had filed their briefs on appeal, we

issued an order yet again identifying problems with subject matter

jurisdiction.   Like the district court, we pointed out that "[a]

limited liability company is deemed to be a citizen of every state

of which any of its members is a citizen." And just as the district

court had in its second order, we noted that if an LLC's member

"is itself an unincorporated entity, then the citizenship of each

of the entity's members or partners must be disclosed" as well.

We concluded that the record as it existed at that time was not

                               - 7 -
sufficient to demonstrate subject matter jurisdiction, and ordered

the parties to file affidavits of jurisdictional facts.

               BRT responded to our order by alleging, as it had below,

that as of the relevant date6 it had only one member, a natural

person who was a resident of Massachusetts.                 Defendants (who by

this       point   would   seem   to   have   had   the   greatest   interest   in

demonstrating jurisdiction) responded merely by asserting the same

facts set out in the stipulation in the district court, i.e., the

principal places of business and states of organization of their

members, and the identities of some (but not all) of their members'

members.

               BRT apparently recognized that it no longer had any

interest in the jurisdictional viability of this litigation. Along

with its sole member and third-party defendant Brian Wallace, BRT

moved to remand the case to the district court for additional

jurisdictional discovery.          It pointed out a number of defects with

defendants' appellate filing, most notably that to identify the

citizenship of the members of B-Dev Manager LLC (the sole member

of C Banner, which was the sole member of both Malden and Plain),

the affidavit alleged only that B-Dev Manager's sole member was

       6Both parties agree that for purposes of establishing
subject matter jurisdiction, the relevant citizenship is the
parties' (and their members') citizenship on January 3, 2017, when
the district court complaint was initially filed. See Bearbones,
Inc. v. Peerless Indem. Ins. Co., 936 F.3d 12, 14 (1st Cir. 2019).

                                        - 8 -
yet   another      LLC      "with     no     members          who    are        citizens     of

Massachusetts."         As BRT pointed out, a party "cannot establish

jurisdiction in the negative."               See D.B. Zwirn, 661 F.3d at 125–

26.   Based      on    this   and    other    deficiencies,            BRT      argued     that

defendants' filing failed to comply with our order, which was

addressed to both parties and required them to file affidavits of

jurisdictional        facts   "sufficient          to    show       their    citizenship,"

including    the      members   of    any     entities          that   were       themselves

unincorporated associations.

            In response to BRT's motion, Malden and Plain filed under

seal yet another affidavit of jurisdictional facts. This affidavit

corrects    an   incorrect      and    material          assertion         in    defendants'

original     jurisdictional           filings           and     provides          additional

information regarding the ownership of the LLC members of Malden

and Plain, those LLCs' members, and so on and so forth.                                     The

exhibits attached to the affidavit identify the ultimate owners of

defendants' members as individuals, corporations, and trusts.

Defendants identify the citizenship of the individuals by their

domiciles,    of      the   corporations      by        their    principal        places     of

business and states of incorporation, and the trusts by the

domiciles of their trustees. Defendants assert that this corrected

affidavit shows that there is complete diversity between all

parties.

                                           - 9 -
              We conclude that Malden and Plain's filing is still

insufficient        to   establish    subject     matter   jurisdiction.        Our

reasoning follows.

                                        II.

                                         A.

              Diversity     jurisdiction         allows    federal    courts     to

adjudicate controversies between citizens of different states.

U.S. Const. art. III, § 2, cl. 1; 28 U.S.C. § 1332.                      Under the

federal statute, as relevant here, diversity must be complete;

that is, no plaintiff may be a citizen of the same state as any

defendant.      See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267

(1806); Halleran v. Hoffman, 966 F.2d 45, 47 (1st Cir. 1992).                   "The

burden   of    establishing        federal    diversity      jurisdiction    rests

on . . . the party invoking federal jurisdiction."                   Carrozza v.

CVS Pharm., Inc., 992 F.3d 44, 51 (1st Cir. 2021).

              Key   to   establishing     diversity       jurisdiction    are   the

citizenships of the parties before the court.                Natural persons are

citizens of the state in which they are domiciled.                   See Aponte-

Dávila v. Municipality of Caguas, 828 F.3d 40, 46 (1st Cir. 2016).

But for legal entities, the Supreme Court has explained that the

relevant   citizenship       for     diversity    purposes    is   generally    the

citizenship of the entity's members. There is a "limited exception

for corporations"; a corporation is "considered a citizen of the

State where it has its principal place of business," as well as a

                                       - 10 -
citizen of its state of incorporation.                Americold Realty Tr. v.

Conagra Foods, Inc., 577 U.S. 378, 381 (2016); 28 U.S.C. § 1332(c).

"But Congress never expanded this grant of citizenship to include

artificial entities other than corporations, such as joint-stock

companies or limited partnerships."              Americold, 577 U.S. at 381.

So,   with   exceptions       not    relevant    here,7     non-corporate         legal

entities take the citizenship of all of their members.                    Id.     It is

therefore     the    members'       citizenships     that    are    relevant       for

jurisdictional purposes, not the principal place of business or

the state of organization of the entity.                  See Carden v. Arkoma

Assocs.,     494     U.S.    185,     196–97     (1990)     (noting      Congress's

designation     of       principal    place     of   business      and    state     of

incorporation       as    relevant    for     corporations,     but      that     "[n]o

provision was made for the treatment of artificial entities other

than corporations").

             It is clear in this circuit that an LLC is subject to

this rule and takes the citizenship of all of its members.                      Pramco,

      7 Under the Class Action Fairness Act ("CAFA"), in certain
class actions, an unincorporated entity does not take the
citizenship of all of its members but instead is considered "a
citizen of the State where it has its principal place of business
and the State under whose laws it is organized."        28 U.S.C.
§ 1332(d)(10). The Court has also held that a specific type of
Puerto Rico entity does not take the citizenship of its members.
See Carden v. Arkoma Assocs., 494 U.S. 185, 189–90 (1990)
(explaining that a "sociedad en comandita" is treated as a citizen
of Puerto Rico for jurisdictional purposes, but noting that the
exception is limited to that specific type of entity).

                                       - 11 -
453 F.3d at 54–55.       If the members are themselves unincorporated

associations, then those members' citizenships are relevant too;

the process is "iterative," and a party must "trace the citizenship

of any member that is an unincorporated association through however

many layers of members or partners there may be."            D.B. Zwirn, 661

F.3d at 126–27; see also West v. Louisville Gas & Elec. Co., 951

F.3d 827, 830 (7th Cir. 2020) (noting that jurisdictional statement

ultimately revealed 17 layers of ownership of LLC defendant, which

court examined to ensure that "every branch of the chain led to a

corporation that is neither incorporated in Indiana nor has a

principal place of business there").            Parties cannot establish

federal subject matter jurisdiction merely by agreeing that the

basis for jurisdiction is satisfied.           See Wis. Dep't of Corr. v.

Schact, 524 U.S. 381, 389 (1998) ("The presence of [a] nondiverse

party automatically destroys original jurisdiction:              No party need

assert the defect.       No party can waive the defect or consent to

jurisdiction."); Am. Fiber & Finishing, Inc. v. Tyco Healthcare

Grp., LP, 362 F.3d 136, 139 (1st Cir. 2004) ("[P]arties cannot

confer   subject    matter   jurisdiction      on   a   federal    court    'by

indolence, oversight, acquiescence, or consent.'" (quoting United

States v. Horn, 29 F.3d 754, 768 (1st Cir. 1994))).

                                   B.

           BRT     has   established    that     it     is   a    citizen   of

Massachusetts, because its sole member is a natural person who is

                                 - 12 -
a resident of Massachusetts.8        No further question remains about

its citizenship.    Defendants, however, are a different story.9

           Malden   and   Plain's    initial   filings      were   inadequate

because, as we stated in our order requesting jurisdictional facts,

they did not show the members of all the members of defendant LLCs;

that is, they failed to undertake the "iterative" process that is

required   to   determine   the     citizenship   of   an    unincorporated

association     whose     members     are    themselves      unincorporated

associations.    Their latest filing is still inadequate for the

same reason. Although defendants have traced back several of their

members' members to individuals and corporations, their affidavit

and exhibits reveal that some of the ultimate owners of the nested

LLCs that own the defendant LLCs are trusts.                For each trust,

     8  Although diversity jurisdiction of a natural person is
determined by domicile, there is no allegation in this case that
Brian Wallace's domicile differed from his residence when the
action was filed (or at any time since). See León v. Municipality
of San Juan, 320 F.3d 69, 70–71 (1st Cir. 2003) (holding that using
term   "resident"   in   complaint   rather   than   "citizen"   or
"domiciliary"    does   not   preclude   exercise    of   diversity
jurisdiction); see also 13E Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 3612 (3d ed. 2023) ("It is
assumed, for example, that a person's current residence is also
his domicile . . . .").
     9  As we noted above, the burden of persuasion is on any party
or parties seeking to invoke federal court jurisdiction. Here,
the defendants have asked us to affirm the judgment of the district
court.   The defendants therefore are properly treated as among
those parties seeking to invoke the jurisdiction of the federal
court.   We need not decide whether BRT at this point is also
seeking to invoke the jurisdiction of the federal court.

                                    - 13 -
defendants provided the citizenship of only the trustee without

describing the nature of the trust.                This is insufficient to

determine the trusts' citizenships.

            As the Supreme Court has explained, sometimes a trust is

treated     like   an   unincorporated       association,        taking   as    its

citizenship the citizenship of its members.               Americold Realty Tr.,

577 U.S. at 382.        In Americold, the Court attributed "confusion"

regarding      trust       citizenship       to      "tradition,"         because

"[t]raditionally, a trust was not considered a distinct legal

entity, but a 'fiduciary relationship' between multiple people,"

so "proceedings involving a trust were brought by or against the

trustees in their own name[s]," and accordingly the trustees'

citizenships were the ones that mattered.           Id. at 383.       But because

states    "have    applied    the   'trust'       label     to    a   variety    of

unincorporated entities" that can sue or be sued, those entities

"possess[] the citizenship of all [their] members."                    Id.      Many

circuit courts have interpreted this language to mean that a

"traditional" trust -- one that "exists as a fiduciary relationship

and not as a distinct legal entity" -- takes the citizenship of

its trustee, while a trust which does exist as a separate legal

entity takes the citizenship of all its members.                 See GBForefront,

L.P. v. Forefront Mgmt. Grp., LLC, 888 F.3d 29, 39 (3d Cir. 2018);

see also Wang ex rel. Wong v. New Mighty U.S. Tr., 843 F.3d 487,

494 (D.C. Cir. 2016); Raymond Loubier Irrevocable Tr. v. Loubier,

                                    - 14 -
858 F.3d 719, 729–32 (2d Cir. 2017).      To determine whether a trust

is traditional, courts have looked to whether it can sue and be

sued, and the extent to which it is otherwise treated as a

juridical person under state law.    See Americold, 577 U.S. at 382;

GBForefront, 888 F.3d at 40–41; Wang ex rel. Wong, 843 F.3d at

494–95; Loubier, 858 F.3d at 729–31; Alliant Tax Credit 31, Inc.

v. Murphy, 924 F.3d 1134, 1143 (11th Cir. 2019).       Defendants have

not provided this information, thus precluding us from even trying

to determine how to treat their trusts.

          Nor   have   defendants   provided    information   about   the

trusts' beneficiaries or members (however defined) that might moot

any need to determine whether it is necessary to look beyond the

citizenship of the trust or its trustees.       See, e.g., Zoroastrian

Ctr. & Darb-e-Mehr of Metro. Wash., D.C. v. Rustam Guiv Found. of

N.Y., 822 F.3d 739, 749–50 (4th Cir. 2016) (avoiding the need to

determine whether the trustees or beneficiaries need be considered

by showing that all of the trustees and beneficiaries were citizens

of states other than those of which the opposing parties were

citizens).

          BRT   argues   that   defendants'    submission   has   further

defects as well.       For some entities in defendants' ownership

structures, defendants do not assert what type of organization

(e.g., corporation, limited partnership, LLC) the entity is.           As

we have explained, how an entity is classified is relevant to how

                                 - 15 -
its   citizenship          is    determined        for   purposes     of     diversity

jurisdiction.       BRT also takes issue with the lack of supporting

documentation to confirm the facts stated in defendants' affidavit

(such as articles of organization or declaration of trusts), as

well as the failure to provide any information about Banner Drive

Storage LLC -- initially a defendant, but dismissed because it

would destroy diversity -- in the affidavit. We express no opinion

about these additional arguments, or any other other than to

emphasize that after several rounds of jurisdictional filings,

including an incorrect affidavit, there may well be cause to ask

for at least some supporting documentation that would otherwise

not normally be required.

               In sum, we conclude that the record is insufficient to

establish complete diversity between plaintiff and defendants

because        it   does        not    conclusively       establish        defendants'

citizenships.        The parties have now failed multiple times to

establish diversity.             Defendants' deficient second affidavit on

appeal    is    particularly          noteworthy    because   despite      prevailing

below, to the tune of millions of dollars, they have still failed

to submit facts that show their citizenships even after being

ordered to do so by this court.                    Arguably, dismissal would be

appropriate.        See Guar. Nat'l Title Co. v. J.E.G. Assocs., 101

F.3d 57, 59 (7th Cir. 1996) (dismissing case where "litigants . . .

had chance after chance to establish diversity of citizenship" but

                                          - 16 -
failed to do so (quoting America's Best Inns, Inc. v. Best Inns of

Abilene, L.P., 980 F.2d 1072, 1074 (7th Cir. 1992))).

          However, given the extent of the time and effort devoted

to this case to date, we think it best to vacate the judgment and

remand the case (while retaining jurisdiction) to give the parties

one more chance to establish that the district court has subject

matter jurisdiction.     See Bearbones, Inc. v. Peerless Indem. Ins.

Co., 936 F.3d 12, 16 (1st Cir. 2019) (remanding "to the district

court to find the facts and determine whether there was complete

diversity between the parties at the time the action was commenced"

while retaining jurisdiction); Francis v. Goodman, 81 F.3d 5, 8–9

(1st Cir. 1996) (same).       Suffice it to say, defendants should not

expect to recover fees or costs for this appeal to date or for the

proceedings on remand.

                                     C.

          We add a coda to recognize that where a plaintiff wishes

to sue an unincorporated entity, the information necessary to

establish jurisdiction may be uniquely in the possession of the

would-be defendant.     See Carolina Cas. Ins. Co., 741 F.3d at 1087

("The novel issue presented by this case is how a plaintiff may

allege   diversity    jurisdiction        where   the    facts   supporting

jurisdiction are not reasonably ascertainable by the plaintiff.").

The   proceedings    below,   at   least    initially,    illustrate   this

predicament.   After the district court's second order to show

                                   - 17 -
cause, BRT asserted that it was unable, through public record

searches, to discover anything about the defendant LLCs other than

their states of organization.

            We think sensible the approach adopted by the district

court here, which allowed limited jurisdictional discovery after

noting   that    "plaintiff   ha[d]    consulted   all    available    public

information and alleged, in good faith, that there is complete

diversity of citizenship."        If done right, limited and succinct

jurisdictional discovery to confirm diversity that is otherwise

not belied by what is known to the parties can assure the parties

and the court at an early stage of litigation that complete

diversity exists.

                                   III.

            For the foregoing reasons, we vacate the judgment and

remand this case to the district court to determine whether it has

subject matter jurisdiction.       If it does, it should re-enter the

judgment;   if    not,   it   should   dismiss   the     case   for   lack   of

jurisdiction.     The parties shall bear their own costs.

                                  - 18 -