BevSource, LLC v. Innovation Ventures, LLC

Background

BevSource, LLC brought a breach-of-contract lawsuit against Innovation Ventures, LLC in state court. Innovation Ventures removed the action to the federal court, claiming that diversity jurisdiction existed. Diversity jurisdiction allows a federal court to hear certain disputes between citizens of different states, but the party seeking removal must prove that the requirement is met.

Jurisdictional issue

For diversity purposes, a limited liability company has the citizenship of all its members. If a member is itself an entity with additional members, the court must also know the citizenship of those sub-members and any further layers of ownership. Innovation Ventures therefore had to identify all members of both BevSource and Innovation Ventures, along with their citizenships, so the court could determine whether the parties were citizens of different states.

Innovation Ventures’ notice of removal did not identify any member of either company. It stated only that BevSource’s unidentified member was a Minnesota citizen and that none of Innovation Ventures’ unidentified members were Minnesota citizens. After Magistrate Judge Douglas L. Micko ordered Innovation Ventures to provide more specific information, Innovation Ventures declined, citing a complicated and confidential ownership structure. It also said some owners did not want their identities disclosed and stipulated to remand if the court would not accept its statements.

Ruling

The court held that it had an independent duty to determine whether subject-matter jurisdiction existed. It would not simply accept Innovation Ventures’ assurance that the parties had diverse citizenship, and Innovation Ventures did not provide evidence sufficient to meet its burden of proving federal jurisdiction by a preponderance of the evidence.

Judge Patrick J. Schiltz accepted Innovation Ventures’ stipulation and ordered that the action be remanded to the District Court for the Second Judicial District, County of Ramsey, State of Minnesota. The order addressed the federal court’s jurisdiction and did not decide the underlying breach-of-contract dispute.