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Removal and Diversity Jurisdiction for LLCs

December 1, 2023

Megan Demouy Champagne

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Removal and Diversity Jurisdiction for LLCs

“Is this action removable?” This is one of the first questions any defense counsel should be asking themselves upon receipt of a new case that is pending in a state court. A case is removable to federal court only if the federal court would have had subject matter jurisdiction in the first place.[1] The two bases for federal subject-matter jurisdiction are: (1) federal question jurisdiction and (2) diversity jurisdiction.

Federal question jurisdiction exists when a claim arises under or involves a federal statute or a constitutional question.[2]  Diversity jurisdiction exists when the amount in controversy exceeds $75,000 and there is complete diversity of citizenship between the parties.[3] For “complete diversity” to exist, no plaintiff can be a citizen of the same state of any defendant. When determining whether diversity of citizenship exists, remember to keep an eye out for “’fraudulent joinder,’ which involves improperly joining non-diverse “throw away” defendants – such as an individual employee - for the sole, strategic purpose of destroying diversity and keeping a litigation in the selected state court.”[4]

Another thing to keep in mind when determining whether diversity of citizenship exists are the requirements regarding non-natural persons. A corporation is “a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business.”[5] On the other hand, § 1332 citizenship of limited liability companies is determined by the citizenship of “all of its members.”[6] Therefore, a party “must specifically allege the citizenship of every member of every LLC” to establish diversity jurisdiction.[7] This notion can become even more convoluted when the member of the LLC is itself a limited liability company with multiple members that are limited liability companies. For individuals, citizenship has the same meaning as domicile and requires not only residence in fact but also the purpose to make the place of residence one’s home.[8] “Therefore, an allegation of residency alone does not satisfy the requirement of an allegation of citizenship.”[9] When removing a case, make sure to include evidence of both residence and domicile (intent to remain) in the record. Further, it is the citizenship of the parties when the suit is filed that controls.[10]

[1] Bona Law, PC, Requirements for Removing a Case from State Court to Federal Court, (July 15, 2020), https://www.bonalaw.com/insights/legal-resources/requirements-for-removing-a-case-from-state-court-to-federal-court.

[2] Allison Ng and Steven Harkins, How to Remove a Case to Federal Court, American Bar Association,  (April 1, 2021), https://www.americanbar.org/groups/litigation/committees/mass-torts/practice/2021/how-to-remove-a-case-to-federal-court/.

[3] Miller v. Target Corp., No. 20-2508, 2021 U.S. Dist. LEXIS 68291, 2021 WL 1311267, at *5 (E.D. La. April 8, 2021); see also 28 U.S.C. §1332(a).

[4] Michelle Ramirez, Morgan Branch, and Claire Lee, Fraudulent Joinder: Strategies for Removal to Federal Court, Bloomberg Law, (March 29, 2023), https://www.sidley.com/en/insights/publications/2023/03/fraudulent-joinder-strategies-for-removal-to-federal-court.

[5] Midcap Media Finance, L.L.C. v. Pathway Data, Incorporated, 929 F.3d 310, 314 (5th Cir. 2019); 28 U.S.C. § 1332(c)(1).

[6] Harvey v. Grey Wolf Drilling Co.,, 542 F.3d 1077, 1080 (5th Cir. 2008).

[7] Settlement Funding, LLC v. Rapid Settlements, Ltd., 851 F.3d 530, 536 (5th Cir. 2017).

[8] Midcap Media Finance, L.L.C., 929 F.3d at 313.

[9] Id.

[10] Grup Detaflux v. Atlas Grp., L.P.,541 U.S. 567, 569-70, 124 S.Ct. 1920, 158 L.Ed.2d 866 (2004).

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