MaxBounty, ULC v. Zocdoc, Inc.

Background

MaxBounty, ULC brought a breach-of-contract action against Zocdoc, Inc. and unidentified defendants. The complaint relied on diversity jurisdiction, which allows a federal court to hear certain disputes between parties who are citizens of different states or countries. MaxBounty alleged that it was a Canadian unlimited liability corporation with its principal place of business in Ottawa, Canada. Its later filing stated that it was incorporated under British Columbia law. The complaint identified Zocdoc as a Delaware corporation with its principal place of business in New York, New York.

The court ordered MaxBounty to explain why an unlimited liability corporation should be treated like a corporation rather than like a limited liability company for jurisdictional purposes. Alternatively, the court required MaxBounty to provide information showing that all of its members were citizens different from Zocdoc. MaxBounty argued that unlimited liability corporations have articles, bylaws, shareholders, and other characteristics of ordinary corporations, and that courts had treated such entities as corporations in the few cases addressing the issue.

Jurisdictional analysis

The court explained that corporations generally have the citizenship of their place of incorporation and principal place of business. Unincorporated entities, including partnerships and limited liability companies, generally have the citizenship of all their members. The court found the two cases cited by MaxBounty unhelpful because neither meaningfully analyzed whether an unlimited liability corporation is more like a corporation or a partnership for diversity purposes.

The court rejected MaxBounty’s proposed corporate treatment. It relied on the difference between ordinary corporations, whose shareholders ordinarily are not liable for corporate debts, and unlimited liability corporations, whose shareholders can be jointly and individually liable for the company’s debts and obligations if the company is liquidated. The court concluded that this characteristic makes unlimited liability corporations more similar to partnerships than to corporations for determining diversity jurisdiction.

Because MaxBounty had not alleged the citizenship of its shareholders, the court found that it had not provided enough facts to establish diversity jurisdiction. The court therefore did not decide the breach-of-contract dispute.

Disposition

Judge Valerie Caproni dismissed the complaint for lack of subject-matter jurisdiction. The dismissal was without prejudice. The order states that, if MaxBounty has a good-faith basis for alleging facts sufficient to establish diversity jurisdiction, it must move for permission to file a second amended complaint within 30 days of the order.