FD Special Opportunities V, LLC v. Silver Arch Capital Partners, LLC

Background

The plaintiffs filed a complaint and later an amended complaint. The court previously found that they had not properly alleged the citizenship of all parties for purposes of diversity jurisdiction and ordered them to supplement those allegations. The plaintiffs responded with a letter and affidavit. The defendants identified a remaining problem: the plaintiffs had not verified the citizenship of the beneficiary members of 15 trusts that were members of one plaintiff limited liability company.

The plaintiffs alleged that Defendant Silver Arch Capital Partners, LLC was owned by Mr. Wolfer and/or his wife, whom the plaintiffs identified as citizens of New Jersey. The court construed the allegations, together with the defendants’ response, as alleging that those individuals were the only members of Silver Arch Capital Partners, LLC. The court therefore treated that defendant as a citizen of New Jersey.

The plaintiffs described the membership of their two limited liability companies—FD GP Investment, LLC and FD Special Opportunities V, LLC—as including individuals, limited liability companies, and trusts. They alleged generally that none of those members had New Jersey citizenship and listed several states where the plaintiffs claimed to be citizens. They did not specifically identify the members and their citizenship throughout the ownership chain.

Court’s Analysis

Complete diversity requires that no plaintiff and no defendant be citizens of the same state. A limited liability company is a citizen of every state where its members are citizens. When an LLC’s members include other non-corporate entities, the party invoking federal jurisdiction must identify and allege the citizenship of members throughout the ownership chain.

The court also explained that a trust’s citizenship depends on the type of trust. For a traditional trust, citizenship is based on the citizenship of its trustees. For a non-traditional trust, citizenship generally depends on the citizenship of all its members, including beneficiaries.

The court held that the plaintiffs’ allegations were conclusory because they did not positively identify the members of the plaintiff LLCs or establish each member’s citizenship. The allegations listing states and asserting that no member was a New Jersey citizen did not provide the specific facts needed to determine whether complete diversity existed. The lack of information also made it impossible to determine the identities and types of the trusts that were members of FD Special Opportunities V, LLC, and therefore which citizenship rules applied to those trusts.

Ruling and Disposition

The court found the plaintiffs’ supplemental allegations insufficient to establish subject-matter jurisdiction. It did not dismiss the action in this order. Instead, Judge Jennifer L. Rochon gave the plaintiffs one more opportunity to meet their burden.

The plaintiffs were ordered to file, by November 16, 2022, a letter supported by one or more sworn affidavits identifying and establishing the citizenship of the members of the plaintiff LLCs and trusts, as well as the members of those entities, throughout the ownership chain. The court stated that if the plaintiffs could not allege a good-faith basis for complete diversity by that date, the action would be dismissed for lack of subject-matter jurisdiction, without further notice.