In order for a federal court to have jurisdiction over a lawsuit, there are several requirements that must be met. Failing to establish these requirements leaves a lawsuit open to an easy dismissal. Unless the cause of action is brought under a federal statute, the amount in controversy in the lawsuit must be more than $75,000, and there must be complete diversity of citizenship between the parties. This is most simply illustrated as two individuals that are citizens of two different states. However, as any first year law student, citizenship of a company gets more complicated.
While the statute 28 U.S.C. § 1332 simplified the law regarding diversity jurisdiction of corporations, limited liability companies (“LLC”) are different than a traditional corporation in many ways. According to § 1332, traditional corporations are deemed to be a citizen of any state which it has been incorporated and the state in which it has its principal place of business. LLCs, however, are not governed by the same two step analysis afforded to traditional corporations. The Seventh Circuit has established that the citizenship of LLCs are more akin to partnerships than corporations. In Wise v. Wachovia Securities LLC, 450 F.3d 265 (7th Cir. 2006), the Seventh Circuit stated that citizenship of an LLC is the citizenship of each of its members. Thus, where your business is headquartered and how it was created matters when it comes to lawsuits.
Even though this ruling is ten years old, many attorneys, even seasoned ones, still fail to recognize this distinction. In a recent case the Plaintiff in Baymont Franchise Systems v. Calu Hospitality LLC, filed a $78,444.00 breach of contract case in the Northern District of Illinois based on Baymont’s principal place of business being in New Jersey, and Calu having a principal place of business in Illinois. By failing to state the correct citizenship for diversity jurisdiction, most federal judges would have dismissed the case outright, but U.S. District Judge Miltion I. Shadur outlined an innovative procedure that would allow the plaintiff to cure the mistake without having to file the case with another “bulky” complaint.
Judge Shadur’s novel approach was to have the plaintiff to pay another $400 (the cost of refiling the complaint) and to allow the plaintiff to amend the deficient complaint under Fed. R. Civ. P. 59(e) if the plaintiff is capable of establishing the required jurisdictional facts within the Rule 59(e) timeframe. This procedure would circumvent the appellate case law that requires plaintiff’s complaint and action be dismissed while promoting judicial efficiency. In effect, this procedure does the same thing as if the plaintiff’s complaint were dismissed and refiled, without the plaintiff having to leap over the hurdles imposed by the applellate case law.
Jurisdictional jurisprudence can often be used as an advantage by plaintiffs and defendants alike. In order to ensure your legal concerns are handled with the care and knowledge of seasoned legal professionals, contact the attorneys at Rock Fusco & Connelly.