Modrow v. Destination Pet, LLC

Background

Liah Modrow filed this case in Hennepin County District Court. Destination Pet, LLC, doing business as Hound Dog Hotel, removed the case to the U.S. District Court for the District of Minnesota. Destination Pet relied on diversity jurisdiction, which allows a federal court to hear certain civil cases involving citizens of different states or foreign countries when the amount in controversy exceeds $75,000.

Modrow was alleged to be a citizen of Minnesota. Destination Pet initially alleged that it was a Delaware limited liability company owned by Destination Pet Holdings, LLC, which it described as a citizen of Colorado. The court found those allegations inadequate because they did not make clear whether Destination Pet Holdings was Destination Pet’s sole member and did not identify Destination Pet Holdings’ members or their citizenship.

Destination Pet then filed an amended notice of removal. It alleged the following ownership structure: Destination Pet’s sole member was Destination Pet Holdings, LLC; Destination Pet Holdings’ sole member was L1 Pet Holdings (USA), LLC; L1 Pet Holdings’ sole member was L1 Pet S.a.r.l.; L1 Pet S.a.r.l.’s sole member was L1 Pet Intermediate Holdings SCSp; and L1 Pet Intermediate Holdings SCSp was managed by L1 Health Portfolio GP Sarl.

The court found the amended allegations insufficient. It ordered Destination Pet to file a second amended notice of removal. Destination Pet did so, but the jurisdictional allegations remained generally the same.

Legal standard

The party invoking diversity jurisdiction must specifically establish the citizenship of all relevant parties. Corporations are citizens of their state or foreign country of incorporation and the state or foreign country where they have their principal place of business. Other entities, including partnerships and limited liability companies, generally have the citizenship of all their members. When a member is itself an entity, the court must continue identifying members and citizenship through the ownership chain.

A foreign entity is treated like a corporation only if it is equivalent in all legally material respects to a corporation. The court identified relevant characteristics as perpetual existence; the ability to contract and conduct business in its own name; the ability to sue and be sued; and the ability to issue transferable shares to investors with limited liability.

Court’s analysis

The court declined Destination Pet’s request to treat all Luxembourg S.a.r.l. entities as corporations. It explained that the citizenship rules for corporations cannot automatically be extended to other types of entities and that the characteristics of the particular foreign entity must be examined.

The court concluded that Destination Pet had not shown that L1 Pet Intermediate Holdings SCSp was equivalent to a corporation. Destination Pet had previously described that entity as a special limited partnership managed by a general partner, which suggested a partnership rather than a corporation. Destination Pet also did not show that the entity had the relevant corporate characteristics. If treated as a noncorporate entity, its citizenship depended on the citizenship of all its members, which Destination Pet had not identified.

The court reached a similar conclusion about L1 Health Portfolio GP Sarl. Destination Pet had not shown that it was equivalent to a corporation or identified the citizenship of all its members if it was treated as another type of unincorporated entity. As a result, the citizenship of entities in Destination Pet’s ownership structure remained unknown.

The court also rejected Destination Pet’s reliance on a Third Circuit decision involving a plaintiff’s good-faith efforts to identify the members of a defendant limited liability company. The court explained that Destination Pet was the defendant that chose to remove the case, so it was not unduly burdensome to require Destination Pet to identify its own sub-members and their citizenship or establish that the relevant foreign entities should be treated as corporations.

Recommendation and procedural status

Judge John F. Docherty recommended that the case be remanded to Hennepin County District Court because Destination Pet had not established federal subject-matter jurisdiction. This Report and Recommendation was not an order or judgment of the District Court and was not directly appealable to the U.S. Court of Appeals for the Eighth Circuit. The notice stated that a party could file specific written objections within fourteen days and that a response to objections could be filed within fourteen days after service.