Altruis Group, LLC v. Prosight Specialty Management Company, Inc.

Background

Altruis Group, LLC brought a breach-of-contract action against ProSight Specialty Management Company, Inc., New York Marine and General Insurance Company, and Gotham Insurance Company. Altruis invoked diversity jurisdiction under 28 U.S.C. § 1332, which allows federal courts to hear qualifying disputes between citizens of different states.

The original Complaint did not identify the citizenship of Altruis’s members. After the court ordered Altruis to explain why the case should not be dismissed for lack of subject matter jurisdiction, Altruis filed amended pleadings alleging that it had four members who were Florida citizens and that the defendants were New York citizens. The case then proceeded through discovery, motions, and trial preparation.

Shortly before the scheduled trial, a proposed joint pretrial order stated that the Beneducci Family Legacy Trust was Altruis’s sole member. The defendants also informed the court that the defendants were citizens of both New York and New Jersey. The court ordered Altruis to address the resulting jurisdictional problem and separately directed it to address possible sanctions for the alleged misrepresentations and delay. This opinion resolves the jurisdiction issue; the conclusion addresses dismissal and does not state a separate disposition of the possible sanctions issue.

Jurisdictional standard

For complete diversity, every plaintiff must be a citizen of a different state from every defendant, and the party invoking federal jurisdiction bears the burden of proving that requirement. An LLC’s citizenship is based on the citizenship of each of its members, rather than its state of formation or principal place of business. If an LLC’s member is another noncorporate entity, the court must trace ownership and identify the citizenship of the relevant persons and entities.

The parties agreed that the defendants were citizens of New York and New Jersey. Therefore, Altruis could not be a citizen of either state if complete diversity was to exist.

Trust citizenship

The court determined that the trust was a traditional trust, rather than a business trust. For a traditional trust, the citizenship of the trustees who hold the legal right to sue for the trust is relevant for diversity purposes.

The trust documents named Joseph Beneducci Sr., a Florida citizen, and Brian E. Raftery, a New Jersey citizen, as trustees. Altruis asked the court to disregard Raftery’s citizenship and consider only Beneducci’s citizenship, arguing that Beneducci had the real authority to bind the trust.

The court rejected that argument. The trust gave Raftery substantial powers, including the power to sue or be sued for the trust, retain property, participate in business entities, sign contracts and other documents, and exercise other lawful powers. The court also noted that the trust gave some powers to either trustee and some powers specifically to Raftery. The court concluded that Raftery’s claimed limited or nominal role did not justify ignoring his citizenship.

Disposition

Because Raftery was a New Jersey citizen and the defendants were also citizens of New Jersey, Altruis did not establish complete diversity. The court therefore dismissed the case for lack of subject matter jurisdiction and requested that the Clerk of Court close the case.