Friday, September 4, 2015
The Third Circuit has held that a plaintiff may survive a facial attack on diversity jurisdiction in a suit against an LLC without specifically alleging the state of citizenship of each member of the LLC. Lincoln Benefit Life Co. v. AEI Life, LLC, No. 14-2660 (3d Cir. Sept. 2, 2015). The plaintiff life insurance company (incorporated and with its principal place of business in Nebraska) sought a declaratory judgment voiding two policies that it alleged were procured by fraud. Among the defendants were two LLCs.
An LLC’s citizenship for purposes of diversity jurisdiction is determined by the citizenship of its members. Not able to ascertain the citizenship of these two LLCs’ members through publicly-available sources, the plaintiff alleged “upon information and belief” that the two defendants were citizens of New York and New Jersey, respectively, based on their mailing addresses.
The defendants moved to dismiss for lack of subject matter jurisdiction, arguing that plaintiff was required to allege the citizenship of each member of the LLC defendants. The district court granted the motion to dismiss and denied plaintiff’s request for jurisdictional discovery.
The Third Circuit reversed. It distinguished between a facial attack and a factual attack when made in a 12(b)(1) motion: “A facial attack ‘concerns an alleged pleading deficiency’ whereas a factual attack concerns ‘the actual failure of [a plaintiff’s] claims to comport [factually] with the jurisdictional prerequisites.’” (some internal quotation marks omitted)
The defendants here had mounted a “facial challenge to the adequacy of the jurisdictional allegations in [the] complaint.” None of the defendants had actually alleged that it was a citizen of Nebraska (which would have destroyed diversity).
Turning to Rule 8(a)(1), which requires a complaint to make a “short and plain statement of the grounds for the court’s jurisdiction,” the court “found it useful to consider” FRCP Form 7, which illustrates the “simplicity and brevity” of pleading jurisdiction. (Rule 84.) The court recognized that Rule 84 and all the forms would be abrogated as of December 1 absent congressional action, however, and stated that it was not relying on them “in reaching our ultimate conclusion.”
The court stated:
[R]ather than affirmatively alleging the citizenship of a defendant, a plaintiff may allege that the defendant is not a citizen of the plaintiff’s state of citizenship. . . .
[B]efore alleging that none of an unincorporated association’s members are citizens of a particular state, a plaintiff should consult the sources at its disposal, including court filings and other public records. If, after this inquiry, the plaintiff has no reason to believe that any of the association’s members share its state of citizenship, it may allege complete diversity in good faith. The unincorporated association, which is in the best position to ascertain its own membership, may then mount a factual challenge by identifying any member who destroys diversity.
We believe that allowing this method of pleading strikes the appropriate balance between facilitating access to the courts and managing the burdens of discovery. District courts have the authority to allow discovery in order to determine whether subject-matter jurisdiction exists. Rule 8(a)(1), however, serves a screening function: only those plaintiffs who have provided some basis to believe jurisdiction exists are entitled to discovery on that issue.
Under these standards, the court held that the complaint alleged complete diversity in a manner sufficient to survive a facial attack, and that if the defendants mounted a factual challenge to jurisdiction, the district court was to allow jurisdictional discovery.
Hat tip: Howard Bashman.