February 22, 2019

Unincorporated Business Organizations and Diversity Jurisdiction: Who Is a “Member”?

Written By

Thomas E. Rutledge
Member, Stoll Keenon Ogden PLLC

In order to assess, for purposes of diversity jurisdiction (28 U.S.C § 1332), the citizenship of an unincorporated business organization (e.g., partnership, limited partnership, LLC, business trust, etc.), there will be attributed the citizenship of each of the members. This is in contrast to the rule applicable to the citizenship of corporations, which are the citizens of the states in which they are incorporated and maintain the principal place of business. Who, then, is a member? Although resolving this question typically will be rather straightforward, there are of course cases on the margins of the analysis. In a recent case from Kentucky, the court was called upon to determine whether a “nonequity” partner’s citizenship to the firm, in this instance organized as a limited liability partnership, would be attributed to it. EQT Production Co. v. Vorys, Sater, Seymour & Pase, LLP, 2018 WL 6790486 (E.D. Ky. Dec. 26, 2018).

In this case, there was no dispute that an LLP has the citizenship of each of its partners. The question turned on whether the citizenship of a particular “nonequity partner” resident in Pennsylvania would be attributed to the partnership. The court held that it would be. The EQT Production court wrote that Carden v. Arkonia Assocs., 110 S. Ct. 1015 (1990), “‘reject[ed] the contention that to determine, for diversity purposes, the citizenship of an artificial entity, the court may consult the citizenship of less than all of the entity’s members.”’

Eschewing further consideration, it was held that “[i]nstead, under Carden, nominal partner status—i.e., status vel non as ‘partner’—is the sockdolager.” This author had to look up the definition of “sockdolager”; it is “something that settles a matter.” In the end, the “partner” title was enough, and consideration of rights in the partnership are not to be of issue.

It bears noting that there is not consistency across all of the courts with respect to this question. For example, in Morson v. Kreindler & Kreindler, LLP, 616 F. Supp. 2d 171 (D. Mass. 2009), the citizenship of a “contract partner” who had no voting rights in the firm was compensated on the basis of a Form W-2, did not share in the profits and losses, and was classified as an employee who would not be attributed to the partnership. The EQT Production decision distinguished the Morson decision on the basis that it “is thinly reasoned” and was based upon partner status under Title VII rather than partnership law. In Passavant Memorial Area Hospital Ass’n v. Lancaster Pollard & Co., 2012 WL 1119402 (C.D. Ill. Apr. 3, 2012), the citizenship of certain “contract partners,” who had no equity interest in the partnership, did not share in the firm’s profits and losses, did not have voting rights in the partnership, and were paid a fixed amount by contract, were not “partners” whose citizenship would be attributed to the partnership.

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