Tuesday, July 7, 2020

The Limited Liability Corporation Returns (And It Isn't Pretty)

The dreaded "limited liability corporation" strikes again.  In today's find, the United States District Court for the North District California makes a boo boo. In assessing whether a court had jurisdiction over an LLC (limited liability company), the court proceeded through the following:
 
As to the first element, the Court agrees that the Eastern District of Michigan would have subject matter jurisdiction pursuant to the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2). The Class Action Fairness Act vests federal courts with original jurisdiction over class actions that meet the following prerequisites: (1) “the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs”; (2) the parties meet minimal requirements for diversity such that “any member of a class of plaintiffs is a citizen of a State different from any defendant”; and (3) the class equals to or exceeds 100 individuals in the aggregate. 28 U.S.C. § 1332(d). Those requirements are satisfied here. ... [A]t least one class member is a citizen of a different state from Defendant: Plaintiff Esquer is a citizen of California, id. ¶ 17, whereas Defendant is a Michigan limited liability company with its principal place of business in Michigan, id. ¶ 26; Rollins Decl. ¶ 11. Accordingly, the Eastern District of Michigan would have subject matter jurisdiction under the Class Action Fairness Act.
As to the second element, Defendant StockX, LLC would be subject to personal jurisdiction in Michigan as a Michigan limited liability corporation with its principal place of business in Michigan, as set forth above.
 
Esquer v. StockX, LLC, 19-CV-05933-LHK, 2020 WL 3487821, at *3 (N.D. Cal. June 26, 2020) (emphasis added).
 
Except that, unlike corporations, "the citizenship of an LLC is determined by the citizenship of its members." Zambelli Fireworks Mfg. Co., Inc. v. Wood, 592 F.3d 412, 420 (3d Cir. 2010). The principal place of business and the state of formation matter for corporations, not LLCs, in jurisdictional determinations.  Perhaps that slip -- calling the LLC a "limited liability corporation," instead of correctly using "limited liability company" (as the court had done previously) -- led to this mistake.  
 
This decision may be correct, if any of the LLC's members are also Michigan citizens. But the rationale is unquestionably wrong.   
 

https://lawprofessors.typepad.com/business_law/2020/07/the-dreaded-limited-liability-corporation-strikes-again-in-todays-find-the-united-states-district-court-for-the-north-dis.html

Corporations, Joshua P. Fershee, LLCs | Permalink

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