Penn-Star Insurance Company v. CO/Action Specialty Insurance Group

Background

The plaintiffs—Penn-Star Insurance Company, Evergreen Tiebout Housing Development Fund Corp., and Evergreen Tiebout, LLC—brought the action based on diversity of citizenship. The complaint alleged that Evergreen Tiebout, LLC had two members: Evergreen Tiebout Manager, LLC and CDT Evergreen, LLC. It alleged that Larry Hirschfield was the sole member of Evergreen Tiebout Manager, LLC and described him as a New York resident. It also alleged that CDT Evergreen, LLC had one member, Community Development Trust, L.P., while simultaneously stating that CDT Evergreen, LLC had not yet been formed as a recognized legal entity.

The complaint described CO/Action Specialty Insurance Group as organized under New Jersey law and having its principal place of business in New Jersey. But the civil cover sheet identified the defendant as a citizen of New York. The complaint also referred to Penn-Star and CO/Action Specialty as insurance companies without clearly stating their corporate forms.

Jurisdictional analysis

For a case based on diversity of citizenship, the court explained that the complaint must identify the citizenship of every natural-person member of a limited liability company or limited partnership, as well as the place of incorporation and principal place of business of corporate members. The court stated that the complaint did not properly allege Evergreen Tiebout, LLC’s citizenship.

The allegation that Larry Hirschfield was a New York resident was insufficient because residence is not the same as citizenship. The complaint also failed to identify the members and citizenship of Community Development Trust, L.P. The court said the complaint did not explain how CDT Evergreen, LLC, which it described as unformed, could participate as a plaintiff, or alternatively identify the state law under which it had been organized.

The court further found that the allegations about the corporate forms and citizenship of Penn-Star and CO/Action Specialty were unclear and inconsistent, particularly because the complaint’s description of the defendant conflicted with the civil cover sheet.

Order

Within 14 days, the plaintiffs were ordered to amend the complaint to: properly allege Larry Hirschfield’s citizenship; specify the corporate form of Penn-Star and CO/Action Specialty; clarify the defendant’s citizenship; clarify how CDT Evergreen, LLC was participating as an unformed limited liability company or identify the state law under which it was organized; and properly allege the citizenship of each member of Community Development Trust, L.P.

The court did not dismiss the action in this order. It stated that if the plaintiffs failed to amend, or could not truthfully allege diversity of citizenship, the action would be dismissed for lack of subject matter jurisdiction without further notice.