Wheels Up Partners LLC v. Exclusive Jets, LLC

Background

Wheels Up Partners LLC sued Exclusive Jets, LLC, doing business as FlyExclusive, over an agreement under which Wheels Up chartered customer flights with FlyExclusive. The agreement was dated November 1, 2021, and FlyExclusive terminated it on June 30, 2023. Wheels Up’s complaint asserted breach-of-contract claims.

Wheels Up first filed a related action in federal court, then voluntarily dismissed it. It filed this action in New York County Supreme Court on August 23, 2023. Exclusive Jets removed the case to the U.S. District Court for the Southern District of New York based on diversity jurisdiction. Exclusive Jets also moved to dismiss the complaint or, alternatively, transfer the case to the U.S. District Court for the Eastern District of North Carolina. Wheels Up moved to remand the case to state court.

Diversity Jurisdiction

For diversity jurisdiction, an LLC has the citizenship of each of its members, and courts trace membership through any LLC members that are themselves LLCs. The parties agreed that Exclusive Jets was a citizen of North Carolina through the members of its LLC. They also agreed that Wheels Up’s sole member was Wheels Up Partner Holdings LLC, whose members included Wheels Up MIP LLC, and that at least one North Carolina citizen held a profits interest in MIP.

The court held that the profits-interest holder was a member of MIP for purposes of determining citizenship. MIP was organized under Delaware law, and its LLC agreement defined a member as a person who validly owned an interest. The agreement also stated that profit interests were limited liability company interests under Delaware law. The court therefore concluded that the Employee, who was domiciled in North Carolina and held the profits interest when Wheels Up filed its state-court complaint, was a member of MIP.

The Employee’s North Carolina citizenship was consequently attributed to Wheels Up for diversity purposes. Because both Wheels Up and Exclusive Jets were North Carolina citizens, complete diversity was lacking and the federal court did not have subject-matter jurisdiction.

Court’s Ruling

The court rejected Exclusive Jets’ arguments that profit interests did not qualify as LLC interests and that contractual membership was different from membership for federal diversity purposes. It concluded that Delaware law and the MIP LLC agreement controlled the membership question.

Judge Vernon S. Broderick granted Wheels Up’s motion to remand the action to the New York County Supreme Court. Because the court lacked subject-matter jurisdiction, it denied the remaining pending motions as moot, directed the clerk to terminate the motions at Docs. 8, 17, and 52, and directed that the case be remanded to state court.