Beware a Jurisdictional Pitfall: Federal Diversity Jurisdiction and Limited Liability Companies

Our Constitution vests federal district courts with limited subject matter jurisdiction to adjudicate cases and controversies.¹ Unless the Constitution or federal statute authorizes the district court to proceed, the district court must dismiss the action or—in the case of removal— remand the matter to state court.² In addition to other grants, federal statute provides district courts original jurisdiction over civil actions between citizens of different states where the amount in controversy exceeds $75,000, exclusive of interest and costs.³ Eleventh Circuit precedent holds that a limited liability company is a citizen of any state in which a member of the company is a citizen.⁴

Generally, determining an individual’s or a corporation’s citizenship is easy. However, identifying a limited liability company’s true citizenship for jurisdictional diversity purposes requires additional analysis. Any complaint invoking federal diversity jurisdiction must allege each member’s citizenship. It is not enough to allege that the limited liability company was formed in a certain state or subject to the jurisdiction of a state’s laws. While instructive, precedent requires more to sustain an action in federal court.

The following hypothetical scenario demonstrates why it is important to recognize the constitutional limitations on the federal district courts’ subject matter jurisdiction:

Ten years after graduation, a group of five college friends decided to develop an apartment complex in Florida. The friends, who were citizens of Florida, Georgia, Alabama, New Hampshire and Arizona, respectively, decided to form a Florida limited liability company to help insulate themselves from personal liability during the project. After the development completed, a hurricane swept through the area and severely damaged the apartment complex. The friends, through their limited liability company, later sued their insurance carrier for its failure to pay the full value of their claim in federal district court. The insurer—a Georgia corporation with a head-corporate office in Atlanta that did not realize that one of the limited liability company’s members was a Georgia citizen— never filed a motion to dismiss for want of subject matter jurisdiction. A jury awarded the limited liability company the full value of the claim. On appeal, the insurer submitted several claims of error. The appellate court, however, noticed on its own review that one of the friends was a citizen of Georgia, and determined that the federal district court did not possess subject matter jurisdiction to enter judgment against the insurer. The appellate court’s mandate vacated the district court’s judgment and included instructions to dismiss the action for lack of subject matter jurisdiction.

While this does not seem to be a fair result to the friends—especially after enduring the monetary and emotional costs of litigation— there is little they can do to save the verdict. Case law is clear: parties to litigation cannot waive constitutional jurisdictional requirements by consent.⁵

When filing suit or upon receipt of a notice of removal in federal district court, it is important to ensure that each member of the limited liability company is completely diverse from the opposing party in interest. If complete diversity exists and the amount in controversy exceeds $75,000, the district court has the power to adjudicate the case. However, if one member is a citizen of the same state as the insurer, the court should either dismiss the action or remand the case back to state court absent some other jurisdictional hook (i.e., federal question jurisdiction).

Recognizing early on whether complete citizenship diversity exists can save countless headaches during litigation and can save an otherwise valid judgment from vacatur upon appellate review.

Ian Dankelman graduated cum laude from the University of Florida Levin College of Law. While in law school, he was named to the National Order of the Barristers, served as a vice president of the moot court team, and earned the highest grades in Legal Research and Writing and Trial Practice. After law school, he gained valuable litigation and trial experience as an assistant state attorney. Before joining Merlin Law Group, he served from October 2016 to September 2018 as a law clerk for a United States District Judge in the Middle District of Florida.
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¹ Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005).
² Id.; Fed. R. Civ. P. 12(h)(3); Mallory & Evans Contractors & Engineers, LLC v. Tuskegee Univ., 663 F.3d 1304, 1305 (11th Cir. 2011).
³ 28 U.S.C. § 1332.
⁴ Rolling Greens MHP, L.P. v. Comcast SCH Holdings L.L.C., 374 F.3d 1020, 1022 (11th Cir. 2004).
⁵ Mallory, 663 F.3d at 1304.