Are Federal Courts Trying to Remove Diversity Jurisdiction Using LLCs?
According to Internal Revenue Service (IRS) statistics, since 2004, the Limited Liability Company (LLC) has gradually become the preferred business entity in the United States. As the number of LLCs grows, so does the number of LLC litigants in our courts. Recently, several district courts across the country have, upon filing a new complaint (or removal action), issued voluntary orders requiring diversity complainants (or removal defendants) to change their complaints to specifically identify the citizenship of each member of any limited liability company named in their brief. Additionally, if a member of an LLC is another LLC or partnership, the citizenship of those members or partners must also be identified. Whether it is an intentional maneuver to deal with the backlog of cases, without the need for congressional action, or simply the innocent and unintended byproduct of an attempt to strictly control its jurisdictional boundaries, it has indeed thrown an almost insurmountable obstacle in the way of many litigants who would prefer to have their case heard in federal court.
Chip away until he’s gone?
Federal courts have the power to adjudicate matters “arising under the Constitution, statutes, or treaties of the United States.” In addition to this, they are vested with subject matter jurisdiction over cases where the amount in dispute exceeds $75,000 and is between citizens of different states (or between citizens of one state and subjects of a foreign state ). See 28 USC Sections 1331, 1332(a)(1)-(2). This is called the “diversity jurisdiction”. The roots of diversity jurisdiction go back to the fears of our founding fathers that nonresident litigants could potentially experience bias when pursuing or defending claims in state courts against resident opponents. Diversity-based jurisdiction was first codified in the Judiciary Act of 1789 and is – and always has been – an integral part of the fabric of our federal judicial system.