Supreme Court Holds that Unincorporated Entities Share Citizenship with all their Members for Purposes of Diversity Analysis

In Americold Realty Trust v. Conagra Foods, Inc., et al.,[1] the U.S. Supreme Court held that unincorporated business entities, including statutory business trusts, could not solely claim the citizenship of their state of domicile for purposes of diversity jurisdiction analysis, but rather shared citizenship with all of their “members,” an expansive term including all manner of equity holders.  The unanimous decision begins by outlining the history of diversity jurisdiction doctrine:

Exercising its powers under Article III [of the U.S. Constitution], the First Congress granted federal courts jurisdiction over controversies between a “citizen” of one State and “a citizen of another State.” 1 Stat. 78. For a long time, however, Congress failed to explain how to determine the citizenship of a nonbreathing entity like a business association. In the early 19th century, this Court took that silence literally, ruling that only a human could be a citizen for jurisdictional purposes. Bank of United States v. Deveaux, 5 Cranch 61, 86–91 (1809). If a “mere legal entity” like a corporation were sued, the relevant citizens were its “members,” or the “real persons who come into court” in the entity’s name. Id., at 86, 91. This Court later carved a limited exception for corporations, holding that a corporation itself could be considered a citizen of its State of incorporation. See Louisville, C. & C. R. Co. v. Letson, 2 How. 497, 558 (1844). Congress etched this exception into the U. S. Code, adding that a corporation should also be considered a citizen of the State where it has its principal place of business. 28 U. S. C. §1332(c) (1958 ed.). But Congress never expanded this grant of citizenship to include artificial entities other than corporations, such as joint-stock companies or limited partnerships. For these unincorporated entities, we too have “adhere[d] to our oft-repeated rule that diversity jurisdiction in a suit by or against the entity depends on the citizenship of ‘all [its] members.’” Carden, 494 U. S., at 195–196 (quoting Chapman v. Barney, 129 U. S. 677, 682 (1889)).[2]

The Court rejected arguments that the Maryland real estate investment trust (“REIT”)at issue had diversity of citizenship in a dispute with one of its “shareholders,” notwithstanding that the applicable statute treats a real estate investment trust as a “separate legal entity” that can sue or be sued in its own right.[3]

The implications of this holding are significant. REITs and other business trusts often have hundreds or even thousands of equity holders of various classes, to say nothing of the myriad of limited liability companies, limited partnerships, and other unincorporated entities that have members and partners scattered across the country.  Diversity jurisdiction is frequently invoked to remove commercially important cases from state courts where such cases may be heard very slowly or by judges unfamiliar with the critical issues to federal courts, which are presumed to be better equipped to handle such cases.[4]  The holding may cause litigants to be forced to litigate issues before state courts they would not otherwise have chosen to be the venues for their dispute resolution.

It should, however, be noted that the venue state court would still have to exercise personal jurisdiction over the parties.  We are dubious that, considering the requirement of personal jurisdiction, an unincorporated entity could be haled into court on the sole basis of an equity holder’s residence, when none of the actions underlying the suit took place in that state, and the company in question had no operations or other presence there.  Doubtless, the day when that proposition is tested cannot be far off.

Hat tip: Scott Swenson


[1] Americold Realty Trust v. Conagra Foods, Inc., et al., 136 S.Ct. 1012 (2016).
[2] Americold Realty Trust, 136 S.Ct. at 1013.
[4] Note, however, that diversity jurisdiction is rarely invoked in cases before specialized courts deemed to have significant expertise in business issues, such as the Delaware Court of Chancery.