Arnegard Holdings, LLC et al v. Tri-State Consulting Engineers, Inc. et al

Filing 32

ORDER Requiring Additional Disclosure by Plaintiffs. By Magistrate Judge Charles S. Miller, Jr.(KT) Distributed on 1/13/2014. (rh)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
SOUTHWESTERN DIVISION
Arnegard Holdings, LLC, and
Arnegard WW Holdings, LLC,
Plaintiffs,
vs.
Tri-State Consulting Engineers, Inc.,
Steven W. Syrcle, Advanced Wastewater
Engineering, P.C., and George Miles,
Defendants.

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ORDER REQUIRING ADDITIONAL
DISCLOSURE BY PLAINTIFFS

Case No. 1:13-cv-124

Pending before the court is plaintiffs’ motion to remand the above-entitled action to state
court. For the reasons stated below, before ruling on the motion, the court will require plaintiffs to
disclose the identities and citizenship of the beneficiaries of the trusts discussed below, both (1) at
the time of the commencement of this action in state court and (2) at the time of removal.
I.

BACKGROUND
Defendants removed this action to federal court on October 22, 2013, asserting that this

court has federal diversity jurisdiction pursuant to 28 U.S.C. § 1332. On October 24, 2013, plaintiffs
Arnegard Holdings, LLC and Arnegard WW Holdings, LLC (“plaintiffs” or “plaintiff LLCs”) filed
a motion to remand to state court for lack of subject matter jurisdiction, arguing that plaintiffs had
failed to show complete diversity between the parties. On December 11, 2013, the court issued an
order deferring ruling on the motion to remand and requiring plaintiffs to disclose the identities and
citizenship of the members of the plaintiff LLCS. The order explained that the disclosure was
required because the court had sufficient information to determine that all defendants were Idaho
citizens but lacked sufficient information to determine plaintiffs’ citizenship. On December 20,

2013, plaintiffs filed a “Statement of Members and Citizenship of the Plaintiffs” in accordance with
the court’s order.
According to plaintiffs’ statement, the members of the two plaintiff LLCs are identical. Each
of the plaintiff LLCs has two members. Those members are also LLCs (“second-tier LLCs”). The
members of the second-tier LLCs are two additional LLCs (“third-tier LLCs”).1 Each third-tier LLC
has one distinct member, a trust organized and existing under Arizona law (“member trusts”). The
trustee of each member trust is identified as “an individual domiciled in the State of Arizona.”
II.

DISCUSSION
Under 28 U.S.C. § 1332(a), federal district courts have subject matter jurisdiction over civil

actions between parties with complete diversity of citizenship where the amount in controversy
exceeds $75,000. Complete diversity exists when no defendant is a citizen of the same state as any
plaintiff. OnePoint Solutions, LLC v. Borchert, 486 F.3d 342, 346 (8th Cir. 2007).
As stated in the court’s previous order, for purposes of diversity jurisdiction, a limited
liability company’s citizenship is determined by the citizenship of each of its members. GMAC
Commercial Credit LLC v. Dillard Dep’t Stores, Inc., 357 F.3d 827, 829 (8th Cir. 2004). The
method for determining a trust’s citizenship for purposes of diversity jurisdiction is less clear. The
courts that have decided the issue are split, and neither the United States Supreme Court nor the
Eighth Circuit has directly addressed the issue.
Courts determining a trust’s citizenship for diversity purposes have relied primarily upon two
United States Supreme Court decisions, Navarro Savings Association v. Lee, 446 U.S. 458 (1980)
and Carden v. Arkoma Associates, 494 U.S. 185 (1990). In Navarro, the Court addressed the issue
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One of the third-tier LLCs is a member of both second-tier LLCs. The other third-tier LLC is a member of
one second-tier LLC.

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of whether eight individual trustees of a business trust, suing in their own names, could invoke a
federal court’s diversity jurisdiction based on their citizenship and without regard to the citizenship
of the trust’s beneficial shareholders. 446 U.S. at 458. Relying on the proposition established early
in the Court’s history that “the ‘citizens’ upon whose diversity a plaintiff grounds jurisdiction must
be real and substantial parties to the controversy,” the Court concluded that diversity could be
established based on the citizenship of the trustees, provided that the trustees were the real parties
to the controversy. Id. at 460-62 (citing McNutt v. Bland, 2 How. 9, 15, 11 L.Ed. 159 (1844);
Marshall v. Baltimore & Ohio R. Co., 16 How. 314, 328-329, 14 L.Ed. 953 (1854); Coal Co. v.
Blatchford, 11 Wall. 172, 177, 20 L.Ed. 179 (1871)). The Court then reaffirmed its decision in
Bullard v. Cisco, 290 U.S. 179, 189 (1933), “that a trustee is a real party to the controversy for
purposes of diversity jurisdiction when he possesses certain customary powers to hold, manage, and
dispose of assets for the benefit of others[,]” and concluded that diversity could be established based
on the citizenship of the eight trustees because they possessed the requisite powers. Navarro, 446
U.S. at 464-65.
Ten years later, in Carden, the Court addressed the issue of whether, in a diversity suit
brought by a limited partnership, the limited partnership’s citizenship could be established based on
the citizenship of the general partners without consideration of the citizenship of the limited
partners. 494 U.S. at 186. The Court rejected the argument that the “real party to the controversy”
test applied to determine a limited partnership’s citizenship and concluded that its prior precedent
required that the citizenship of “all of the members” must be considered when determining the
citizenship of a non-corporate artificial entity for diversity purposes. Id. at 192-96. Accordingly,
the Court held that the citizenship of both the general and limited partners had to be considered. Id.

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at 195-96. In the decision, the Court distinguished Navarro, stating that “Navarro had nothing to
do with the citizenship of the ‘trust,’ since it was a suit by the trustees in their own names.” Carden,
494 U.S. at 192-93.
Following Navarro and Carden, lower courts have reached mixed results when determining
a trust’s citizenship for diversity purposes. Some, relying on Navarro, have concluded that a trust’s
citizenship is that of its trustees. E.g., Hicklin Engineering, L.C. v. Bartell, 439 F.3d 346, 348 (7th
Cir. 2006) (stating that business trust has the citizenship of its trustees); Johnson v. Columbia
Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006) (same); Homfeld II, L.L.C. v. Comair
Holdings, Inc., 53 F. App’x 731, 732 (6th Cir. 2002) (same). Others have concluded that under
Carden, the citizenship of the beneficiaries must be considered - at least when the trust is a party.
E.g., Emerald Investors Trust v. Gaunt Parsippany Partners, 492 F.3d 192, 205 (3d Cir. 2007)
(“Emerald Investors”); Riley v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 292 F.3d 1334, 1337
(11th Cir. 2002), overruled on other grounds, Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit,
547 U.S. 71, 88-89 (2006)); Yueh-Lan Wang ex rel. Wong v. New Mighty U.S. Trust, 841 F. Supp.
2d 198, 203 (D.D.C. 2012).
In fact, the Third Circuit in Emerald Investors identified four different positions that have
been taken by courts or suggested by commentators for determining the citizenship of a trust when
it is a party in light of the Supreme Court’s decisions Navarro and Carden:
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consider only the citizenship of the trustees;

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consider only the citizenship of the beneficiaries;

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apply a control-based test to determine whether the citizenship of the trustees or the
beneficiaries should apply; or

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4.

consider the citizenship of both the trustees and the beneficiaries.

492 F.2d at 201-204. After reviewing these different possibilities, the Third Circuit adopted the
fourth one, i.e, the court must look to the citizenship of both the trustees and the beneficiaries when
the trust is a party. Id. at 205.
While the Eighth Circuit has not yet taken a position, at least one federal district court within
the circuit has concluded that the Eighth Circuit would likely follow the Third Circuit’s approach
in Emerald Investors. Crews & Associates, Inc. v. Nuveen High Yield Municipal Bond Fund, 783
F. Supp. 2d 1066, 1069 (E.D. Ark. 2011). After reviewing the Eighth Circuit cases applying Carden
and Navarro, the court concluded:
Accordingly, it would appear that the correct approach is to determine diversity
based on whether the trust or the trustee is the party to the suit. If the business trust
itself is the party to the suit, then, as an unincorporated entity, its citizenship is
determined by all of its members. If, on the other hand, the trustees sue in their own
names and are thus the real parties to the controversy, diversity is determined by
their citizenship.
Because Crews has brought its action for declaratory judgment against the
Nuveen Trusts and not against the individual trustees, the citizenship of both the
trustees and the beneficiaries determines the citizenship of the trusts for purposes of
diversity jurisdiction. Neither party appears to seriously dispute that the Nuveen
Trusts have beneficiaries who are citizens of Arkansas. As such, there is not
complete diversity among the parties and there is no diversity jurisdiction.
Id. (italics added). Arguably, if the court adopted this approach here, it would have to consider the
citizenship of the beneficiaries of the member trusts in question, particularly since it is the trusts who
are the members of the third-tier LLCs.
Given this split of authority and the lack of controlling Eighth Circuit precedent, the court
finds the most appropriate and expeditious course at this point is to require plaintiffs to disclose the
identities and citizenship of the beneficiaries of the member trusts. If no beneficiary of the member
trusts is an Idaho resident, it will be unnecessary for the court to decide the issue of how the trusts’
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citizenship is determined because the complete diversity requirement will be satisfied regardless of
which test is applied.2
III.

ORDER
Based on the foregoing, the court ORDERS that Plaintiffs shall file with the court and

disclose to defendants on or before January 21, 2014, a supplement identifying all beneficiaries of
the member trusts and each beneficiary’s citizenship, both at the time of the commencement of this
action in state court and at the time of removal. If plaintiffs believe this information is confidential,
they may move to file the document under seal and may request the issuance of a protective order
before disclosing the information to defendants.
IT IS SO ORDERED.
Dated this 13th day of January, 2014.
/s/ Charles S. Miller, Jr.
Charles S. Miller, Jr., Magistrate Judge
United States District Court

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Plaintiffs initially did not voluntarily provide the membership of the plaintiffs LLCs and likely now will not
be very happy about disclosing the identity of the beneficiaries of the trusts that are members of the third-tier LLCs in
question. However, this court’s need to know the information trumps any interest of the plaintiffs in that regard. See,
e.g., Emerald Investors, 492 F.3d at 207 n.22.

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