Gilroy et al v. Rappaport Management Company et al

Filing 53

MEMORANDUM OPINION. Signed by Judge Theodore D. Chuang on 4/24/2015. (kw2s, Deputy Clerk)

UNITED STATES DISTRICT COURT
IlISTRICT OF MARYLAND

MOREEN ELIZABETH GILROY,
as mother and next friend of William Seamus
McLaughlin, a minor,
WILLIAM SEAMUS MCLAUGHLIN,

a minor, surviving son of Sean Francis
J.\fcLaughlin, Deceased, by Moreen Elizabeth
Gilroy, his mother and next friend.
JUSTUS JOSEPH MCLAUGHLIN,
surviving son of Sean Francis McLaughlin,
Deceased,
and
ELIZABETH ANNE MCLAUGHLIN,
surviving mother of Sean Francis McLaughlin,
Deceased,

Civil Action No. TDC-14-0297

•

Plaintiffs,
v.
RAPPAPORT MANAGEMENT COMPANY,
SVF RIVA ANNAPOLIS, LLC,
and
CEC ENTERTAINMENT, INC.,
Defendants.

MEMORANDUM

OPINION

Federal courts are courts of limited jurisdiction.

They "possess only that power

authorized by Constitution and statute, which is not to be expanded by judicial decree."
Kokkonen v. Guardian Life Ins. Co. of Am .. 511 U.S. 375, 377 (1994) (internal citations omitted).
A court must therefore presume "that a cause [of action] lies outside this limited jurisdiction, and
the burden of establishing the contrary rests upon the party asserting jurisdiction." ld. Here,
Plaintiffs have filed this negligence and premises-liability action in federal court against

defendants Rappaport Management Company ("Rappaport"),

SVF Riva Annapolis, LLC, and

CEC Entertainment, Inc. ("CEC") on the hasis of diversity jurisdiction, 28 U.S.C.

9

1332. Am.

Compl. at 3, ECF No. 15. Because Plaintiffs chose to file this case in federal court, the burden of
establishing this Court's subject-matter jurisdiction is theirs.

Robb Evans & Assoc., LLC v.

Ho/ibaugh, 609 F.3d 359, 362 (4th Cir. 2010). Even in the ahsence of a challenge to jurisdiction,
federal courts "have an independent obligation to detennine whether subject~matter jurisdiction
existsl.J" Hertz Corp. v. Friend, 559 U.S. 77, 94 (2010).
Pursuant to 28 U.S.C. ~ 1332, federal courts have original jurisdiction

over "all civil

actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of
interest and costs, and is between ... citizens of different States."

28 U.S.C.

9

1332(a), (a)(I).

The phrase "between citizens of different states" has been interpreted as requiring complete
diversity, meaning that no party on one side of a suit

CRn

be a citizen of the same state as a party

on the other side. Lincoln Property Co. v. Roche, 546 U.S. 81, 89 (200S).

As to the amount in

controversy, Plaintiffs in their Complaint ask for $5,000,000 in damages.

Am. Compl. at 12,

ECF No. 15. As to the citizenship of the parties, Plaintiffs indicate that they all are citizens of
Maryland, and assert that Rappaport is incorporated in Delaware and has its principal office in
Washington D.C., that SVF Riva Annapolis, LLC is a Delaware limited liability company with
its principal office in Washington D.C., and that CEC is incorporated in Kansas and has its
principal place of business in Texas. Am. Compl. ~ 2-9.
Plaintiffs' pleadings as to the citizenship of SVF Riva Annapolis, LLC are insufficient to
establish

diversity

between

the parties.

unincorporated association-such

For diversity

purposes,

as a limited liability company-is

the citizenship

of an

determined by looking not

at where the association was formed or is headquartered, but at the citizenship of all its members.

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Carden v. Arkoma Associates, 494 U.S. 185, 195 (1990) ("[Djiversity jurisdiction in a suil by or
against [an unincorpor.tted] entity depends on the citizenship of 'all the members .. ,''') (citing
Chapman v. Barney, 129 U.S. 677, 682 (1889)); Central West Virginia Energy Co. Inc. v.
Mountain State Carbon, LLC, 636 F.3d 101, 103 (4th Cir. 2011) ("For purposes of diversity
jurisdiction, the citizenship of a limited liability company ... is determined by the citizenship of
all of its members[.]").

Accordingly,

on March 25, 2015, the Court ordered SVF Riva

Annapolis, LLC to identify all of its members as of the date this suit was filed and, if any of its
members was also an unincorporated association, to identify that association's

members.

ECF

Nos. 45 & 49. In response, SVF Riva Annapolis, LLC informed the Court that on the date this
suit was filed: (1) its sole member was SVF Holding Real Estate Investment Trust ("SVF
Holding"), a Maryland real estate investment trust; (2) SVF Holding had three trustees, all of
whom were California residents, and a sole common-stock shareholder: American Core Realty
Fund, LLC; and (3) American Core Realty Fund, LLC's members included over 250 pension
funds, at least 10 of which have their principal offices in Maryland, and one of which is the
Employees'

Retirement System of the City of Baltimore.

Disclosure at

I

1-3. ECF No. 48;

Supplemental Disclosure Ex. I, ECF No. 50-I.
The fact that SVF Riva Annapolis, LLC's sole member is a real estate investment trust
raises the question whether the citizenship of a business trust is determined by the citizenship of
its trustees. its members (shareholders), or both.

In Belle View Apartments v. Realty ReFund

Trust, 602 F. 2d 668 (4th Cir. 1979), the United States Court of Appeals for the Fourth Circuit
held that, for diversity purposes, a real estate investment trust is an unincorporated association
and that it is a citizen of any state in which one of its members resides. See id. at 669 (citing
Riverside Memorial Mausoleum Inc. v. UMETTrust, 581 F. 2d 62, 65 (3rd Cir. 1978) (affirming

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the district court's determination that a federal court "must look to the citizenship of the [real
estate investment trust] investors and not simply that of the trustees" when determining if there is
diversity jurisdiction)).

The Fourth Circuit explained that its holding was an application of the

rule announced by the United States Supreme Court in Chapman v. Barney, 129 U.S. 677 (1889),
and reiterated in United Stee/work£rs v. R.H. Bouligny, Inc., 382 U.S. 145 (1965), that, for
purposes of diversity jurisdiction, the citizenship of an unincorporated association is "determined
by reference to the citizenship of each of its members." Belle View, 602 F. 2d at 669.
The Chapman rule as it relates to business trusts was arguably called into question by
Navarro Savings Association v. Lee, 446 U.S. 458 (1980), a case involving trustees of a business
trust who. filing suit in their own names, commenced a breach of contract action in federal court
on the basis of diversity jurisdiction.

Id. at 459-60. The defendants challenged jurisdiction on

the premise that, while there was complete diversity between themselves and the trustees, there
was not complete diversity between themselves and the trust beneficiaries, and that it was the
latter analysis that was determinative.

Id. at 460-61. The Supreme Court rejected that challenge,

holding that because the trustees, not the trust beneficiaries.

were the real parties to the

controversy, it was the trustees' citizenship that controlled. Id. at 464.65.
In the wake of Navarro, some Circuits, the Fourth not among them, adopted the rule that
the citizenship of a business trust for diversity purposes was determined by looking only to the
citizenship of the trustees. See, e.g., Goldstick v. ICM Realty, 788 F.2d 456, 458 (7th Cir. 1986)
(citing Navarro for the proposition that the citizenship of a real estate investment trust is
"determined

for purposes

of diversity jurisdiction

by the citizenship

of the trustee[s]").

However, in Carden v. Arkoma Associates. 494 U.S. 185 (1990), a case that required the Court to
determine the citizenship ofa limited partnership, the Supreme Court clarified that "Navarro had

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nothing to do with the citizenship of [a] 'trust,' since it was a suit by the trustees in their own
names." Id. at 192-93. lbe Carden Court therefore "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." Jd. at 195. The Court instead adhered to the "oftrepeated rule" for unincorporated entities "that diversity jurisdiction in a suit by or against the
entity depends on the citizenship of 'all the members[.]'" Id. at 195-96 (quoting Chapman v.
Barney, 129 U.S. 677, 682 (1889)). The Eleventh Circuit has since followed this approach and

held that the citizenship of a business trust is based on the citizenship of its shareholders. Riley
v. Merrill Lynch, Pierce. Fenner & Smith, inc., 292 FJd 1334, 1337-38 (lIth Cir. 2002). The
Third Circuit has held that, under Carden, an incorporated business trust is a citizen for diversity
purposes of each state of which one of its trustees or beneficiaries (shareholders) is a citizen.
Emerald Investors Trust v. Gaunt Parsippany Partners, 492 F.3d 192, 203 (3d Cir. 2007).

In light of Carden, the Fourth Circuit's holding in Belle View, which applied Chapman to
determine the citizenship of real estate investment trusts specifically, remains good law.
Accordingly, because SVF Holding is a real estate investment trust, Belle View requires that the
Court look to the citizenship of all of SVF Holding's shareholders to determine if there is
diversity. That examination quickly draws this Court's subject-matter jurisdiction into question.
The sale shareholder of SVF Holding is American Core Realty Fund, LLC, which, in tum. is
composed of more than 250 pension funds, at least 10 of which have their principal place of
business in Maryland, and at least one of which, the Employees' Retirement System of the City
of Baltimore, almost certainly has beneficiaries who are Maryland residents. Although the
parties have not submitted specific information identifying the organizational structure of these
pension funds, they have not asserted that they are corporations, so there is a substantial

5

likelihood that they are unincorporated trusts or associations. I Under Carden and Belle View,
therefore, their citizenship would be based on the citizenship of all of their members. Carden,
494 U.S. at 195-96; Belle View, 602 F.2d at 669.

The parties have not identified the specific

citizenship of any members of these pension funds, but considering the sheer number of pension
funds that are members of American Core Realty Fund, LLC, as well as the numerous
acknowledged ties to Maryland amongst those funds-both

in tenns of where the plans are

administered and whom the plans benefit-there is significant doubt whether there is complete
diversity between Plaintiffs and Defendants.
Accordingly, on April 6, 2015, the Court issued a Show Cause Order pointing Plaintiffs
to the relevant case law and instructing them to establish that there was diversity between the
parties. ECF NO.5!.

On April 10,2015, Plaintiffs indicated that "they hard] no substantive

response" to the Court's Order. ECF No. 52. It is Plaintiffs' burden to establish that this Court
has subject.matter jurisdiction. Robb Evans, 609 FJd at 362. In providing no substantive
response to the Court's Show Cause Order, the Plaintiffs have failed to resolve the Court's
substantial doubts about whether there is diversity between the parties. Because this Court
presumes that it does not have jurisdiction over a case until the party asserting that jurisdiction
demonstrates otherwise, Kokkonen, 511 U.S. at 377, and because Plaintiffs have not made that
showing, the Court must dismiss this case for lack of subject.matter jurisdiction.

I Other courts have analyzed pension funds as unincorporated trusts for diversity purposes. See,
e.g. May Dept. Stores Co. v. Federal Ins. Co., 305 F.3d 597, 599 (7th Cir. 2002); Lenon v. St.
Paul Mercury Insurance Company, 136 F.3d 1365, 1371 (lOth Cir. 1998).

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CONCLUSION
For the foregoing reasons, this case is DISMISSED.

A separate Order follows.

Date: April 24, 2015
~
United States

7

District Judge