CollegeStreet Import & Export Co. Ltd. v. XL x HF LLC

Background

CollegeStreet filed this breach-of-contract action in Alameda County Superior Court. Defendants removed it to federal court, relying on diversity jurisdiction under 28 U.S.C. § 1332. The court vacated the scheduled Zoom hearing on defendants’ motion to dismiss because it had questions about whether federal subject-matter jurisdiction existed.

Jurisdictional Concern

Federal courts must independently confirm that they have subject-matter jurisdiction before reaching a case’s merits, even when no party challenges jurisdiction. The defendants, as the parties invoking federal jurisdiction, had the burden of establishing it.

The court explained that limited liability companies and other unincorporated entities are citizens of every state where their owners or members are citizens. When an LLC is a member of another LLC, the analysis may extend through the members of both entities.

The notice of removal did not allege facts identifying the membership or member citizenship of the LLC parties. Instead, it alleged their places of formation and principal places of business, which the court noted is the test for corporations and does not establish an LLC’s citizenship.

The complaint and other filings also appeared to indicate that CollegeStreet, or its sole owner, Jin Zhang, had been a member of Loyalist, LLC since 2019. The court therefore stated that it appeared defendants could not establish complete diversity, which generally requires that no plaintiff share citizenship with any defendant.

Order

The court ordered defendants to show cause in writing by August 18, 2023, why the case should not be remanded—that is, returned—to Alameda County Superior Court for lack of subject-matter jurisdiction. The court did not yet order remand, rule on defendants’ motion to dismiss, or decide the underlying contract dispute.