Lincoln Benefit Life Co. v. AEI Life, LLC

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 14-2660

LINCOLN BENEFIT LIFE COMPANY,

Appellant

v.

AEI LIFE, LLC; ALS CAPITAL VENTURES, LLC; JOEL

JACOB; INNOVATIVE BROKERS; JRJ SERVICES, INC.

_____________

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civ. No. 3-13-cv-04117)

District Judge: Honorable Freda L. Wolfson

_____________

Argued: January 14, 2015

Before: AMBRO, FUENTES, and ROTH, Circuit Judges

(Opinion Filed: September 2, 2015)

Jason P. Gosselin ARGUED

Katherine L. Villanueva

Drinker Biddle & Reath LLP

One Logan Square, Suite 2000

Philadelphia, PA 19103

Attorneys for Appellant

Ira S. Lipsius, Esq. ARGUED

Lipsius-BenHaim Law LLP

80-02 Kew Gardens Road, Suite 1030

Kew Gardens, New York 11415

Attorney for Appellee Innovative Brokers

OPINION OF THE COURT

FUENTES, Circuit Judge.

A plaintiff who files suit in federal court may face

significant difficulties when jurisdiction is premised on

diversity and the defendant is an unincorporated association

such as a partnership or limited liability company (“LLC”).

The members of the association determine its citizenship, but

these members may be unknown to the plaintiff even after a

diligent pre-filing investigation. The plaintiff may tentatively

assert that complete diversity exists, but whether this

assertion survives a motion to dismiss depends entirely on the

pleading standard that the court chooses to apply. We hold

that a plaintiff need not affirmatively allege the citizenship of

each member of an unincorporated association in order to get

past the pleading stage. Instead, if the plaintiff is able to

allege in good faith, after a reasonable attempt to determine

the identities of the members of the association, that it is

diverse from all of those members, its complaint will survive

a facial challenge to subject-matter jurisdiction. If the

defendant thereafter mounts a factual challenge, the plaintiff

2

is entitled to limited discovery for the purpose of establishing

that complete diversity exists.

I. Background

Lincoln Benefit Life Company filed a federal

complaint seeking a declaratory judgment voiding two $6.65

million life insurance policies. Lincoln Benefit alleges that

these policies were procured by fraud and for the benefit of

third-party investors who have no prior relationship to the

individual whose life is the subject of the policies. According

to the complaint, this sort of “stranger originated life

insurance” or “STOLI” scheme generally violates state

insurable-interest laws and the public policy against wagering

on human life.

The defendants identified in Lincoln Benefit’s

complaint included a corporation named Innovative Brokers,

which was involved in the procurement of the policies, and

two LLCs that were the record owners and beneficiaries of

the policies: AEI Life, LLC and ALS Capital Ventures, LLC.

Federal subject-matter jurisdiction was premised on

diversity of citizenship. Accordingly, Lincoln Benefit

included the following allegations in its complaint:

7. Plaintiff Lincoln Benefit is a citizen of the

State of Nebraska. Lincoln Benefit is a life

insurance company organized and existing

under the laws of Nebraska, with its principal

place of business at 2940 South 84th Street,

Lincoln, NE 68506.

3

8. Upon information and belief, Defendant AEI

Life, LLC is a citizen of and is domiciled in

New York, and Defendant AEI Life, LLC

maintains its principal address at 1428 36th

Street, Ste. 219, Brooklyn, New York 11218.

Defendant AEI Life, LLC is the record owner

of Policy No. 01N1404934.

9. Upon information and belief, Defendant ALS

Capital Ventures, LLC is a citizen of and

domiciled in the State of Delaware. Defendant

ALS Capital Ventures is the record owner of

Policy No. 01N1404844.1

The defendants filed motions to dismiss for, among

other things, lack of subject-matter jurisdiction. Their primary

argument was that Lincoln Benefit had failed to adequately

plead diversity jurisdiction: an LLC’s citizenship is

determined by the citizenship of its members, and Lincoln

Benefit had not alleged the citizenship of the members of the

LLC defendants.

In response, Lincoln Benefit pointed out that none of

the defendants had asserted that it was a citizen of Nebraska.

It further argued that because “information concerning the

citizenship of the members of the defendant-LLCs is not

available to Lincoln Benefit,” it should not be required to

plead that information with specificity.2 Lincoln Benefit’s

1

(App. Vol. II at 2-3.)

2

(Resp. to Innovative Broker’s Mot. to Dismiss, ECF No. 26

at 7.) All ECF citations refer to the District Court’s docket.

4

counsel responded that it “was unable to discern the identity

and/or citizenship of Defendant AEI Life, LLC and

Defendant ALS Capital Ventures, LLC. Counsel for Lincoln

Benefit searched public databases, civil dockets, and various

business-related search engines, including the New York

Secretary of State website.”3 Lincoln Benefit reiterated,

however, that “based on publicly available information, none

of the defendants is a citizen of Nebraska.”4

In support of this allegation, Lincoln Benefit provided

the District Court with certain documents it had consulted.

The New York Department of State record for AEI Life, LLC

indicated that it was organized in New York, and the only

addresses and business associates listed were located in New

York. Similarly, the Delaware Secretary of State record for

ALS Capital Ventures, LLC indicated connections only to

Delaware. Lincoln Benefit explained that because it “did not

have first-hand knowledge of the information supporting the

citizenship designations (i.e., its allegations were based on

public records), Lincoln Benefit prefaced its allegations ‘upon

information and belief.’”5 It contended that in light of the

above, it had adequately pleaded diversity. In the alternative,

it requested leave for limited jurisdictional discovery.

The docket number assigned by the District of New Jersey to

this action is 3:13-cv-04117.

3

(Aff. of Katherine Villanueva, ECF No. 26-1 at 2 ¶ 6.)

4

(Resp. to AEI Life, LLC’s Mot. to Dismiss, ECF No. 34 at

2.)

5

(Id. at 5.)

5

The District Court granted the defendants’ motions in

part and dismissed the complaint without prejudice for lack of

subject-matter jurisdiction. Citing Johnson v. SmithKline

Beecham Corp.,6 it held that Lincoln Benefit was required to

allege the citizenship of each member of each defendant LLC

in order to plead complete diversity. In addition, it denied the

request for jurisdictional discovery, reasoning that it would

waste judicial resources and amount to an impermissible

exercise of jurisdiction to order discovery when the plaintiff

had not adequately alleged jurisdiction in the first place.

On appeal, Lincoln Benefit maintains that its

jurisdictional allegations were sufficient and that the District

Court erroneously imposed a heightened pleading standard.

Only Innovative Brokers filed a brief defending the District

Court’s decision; neither the LLCs nor any other defendant

has chosen to participate in this appeal.7

II. Discussion

A. General Principles of Diversity Jurisdiction

“The principal federal statute governing diversity

jurisdiction, 28 U.S.C. § 1332, gives federal district courts

6

724 F.3d 337 (3d Cir. 2013).

7

“We have jurisdiction pursuant to 28 U.S.C. § 1291 over a

dismissal for lack of subject matter jurisdiction, and our

review for lack of subject matter jurisdiction is plenary.”

Swiger v. Allegheny Energy, Inc., 540 F.3d 179, 180 (3d Cir.

2008).

6

original jurisdiction of all civil actions ‘between . . . citizens

of different States’ where the amount in controversy exceeds

$75,000.”8 For over two hundred years, the statute has been

understood as requiring “complete diversity between all

plaintiffs and all defendants,” even though only minimal

diversity is constitutionally required.9 This means that, unless

there is some other basis for jurisdiction, “no plaintiff [may]

be a citizen of the same state as any defendant.”10

“Most rules of citizenship are well established. A

natural person is deemed to be a citizen of the state where he

is domiciled. A corporation is a citizen both of the state where

it is incorporated and of the state where it has its principal

place of business.”11 But unlike corporations, unincorporated

associations such as partnerships “are not considered

‘citizens’ as that term is used in the diversity statute.”12

Instead, “the citizenship of partnerships and other

8

Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89 (2005)

(alteration in original) (quoting 28 U.S.C. § 1332).

9

Id. Although challenges to subject-matter jurisdiction may

be raised at any time, whether diversity exists is determined

by the citizenship of the parties at the time the action is filed.

See Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567,

570-71 (2004).

10

Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 419

(3d Cir. 2010).

11

Id. (citations omitted).

12

Swiger, 540 F.3d at 182 (citing Carden v. Arkoma Assocs.,

494 U.S. 185, 187-92 (1990)).

7

unincorporated associations is determined by the citizenship

of [their] partners or members.”13 The state of organization

and the principal place of business of an unincorporated

association are legally irrelevant.14 “Accordingly, the

citizenship of an LLC is determined by the citizenship of its

members.”15 For complete diversity to exist, all of the LLC’s

members “must be diverse from all parties on the opposing

side.”16

13

Zambelli, 592 F.3d at 420; see also Emerald Investors

Trust v. Gaunt Parsippany Partners, 492 F.3d 192, 200 (3d

Cir. 2007). The “one exception” identified by the Supreme

Court is “the entity known as a sociedad en comandita,

created under the civil law of Puerto Rico, [which is] treated

as a citizen of Puerto Rico for purposes of determining

federal-court jurisdiction.” Carden, 494 U.S. at 189-90.

14

See Carden, 494 U.S. at 192; Johnson, 724 F.3d at 348.

15

Zambelli, 592 F.3d at 420; see also Johnson, 724 F.3d at

348.

16

Swiger, 540 F.3d at 185. Depending on the membership

structure of the LLC, this inquiry can become quite

complicated. “[A]s with partnerships, where an LLC has, as

one of its members, another LLC, ‘the citizenship of

unincorporated associations must be traced through however

many layers of partners or members there may be’ to

determine the citizenship of the LLC.” Zambelli, 592 F.3d at

420 (quoting Hart v. Terminex Int’l, 336 F.3d 541, 543 (7th

Cir. 2003)).

8

B. Challenges to Subject-Matter Jurisdiction

The burden of establishing federal jurisdiction rests

with the party asserting its existence.17 “Challenges to subject

matter jurisdiction under Rule 12(b)(1) may be facial or

factual.”18 A facial attack “concerns ‘an alleged pleading

deficiency’ whereas a factual attack concerns ‘the actual

failure of [a plaintiff’s] claims to comport [factually] with the

jurisdictional prerequisites.’”19

“In reviewing a facial attack, the court must only

consider the allegations of the complaint and documents

referenced therein and attached thereto, in the light most

favorable to the plaintiff.”20 By contrast, in reviewing a

factual attack, “the court must permit the plaintiff to respond

with rebuttal evidence in support of jurisdiction, and the court

then decides the jurisdictional issue by weighing the

17

DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342 n.3

(2006).

18

Common Cause of Pa. v. Pennsylvania, 558 F.3d 249, 257

(3d Cir. 2009) (quoting Taliaferro v. Darby Twp. Zoning Bd.,

458 F.3d 181, 188 (3d Cir. 2006)).

19

CNA v. United States, 535 F.3d 132, 139 (3d Cir. 2008)

(alterations in original) (quoting United States ex rel.

Atkinson v. Pa. Shipbuilding Co., 473 F.3d 506, 514 (3d Cir.

2007)).

20

Gould Elecs. Inc. v. United States, 220 F.3d 169, 176 (3d

Cir. 2000).

9

evidence. If there is a dispute of a material fact, the court

must conduct a plenary hearing on the contested issues prior

to determining jurisdiction.”21

If the defendants here had challenged the factual

existence of jurisdiction, Lincoln Benefit would have been

required to prove by a preponderance of the evidence, after

discovery, that it was diverse from every member of both

defendant LLCs. Instead, however, the defendants mounted a

facial challenge to the adequacy of the jurisdictional

allegations in Lincoln Benefit’s complaint. We therefore turn

to the pleading requirements for diversity jurisdiction.

C. Pleading Diversity Jurisdiction

The District Court held that Lincoln Benefit was

required to “plead the citizenship of each member of the

defendant LLCs and allege that these citizenships differ from

that of [Lincoln Benefit].”22 Although it cited Johnson v.

SmithKline Beecham Corp.23 for this proposition, Johnson

involved a factual challenge to diversity jurisdiction and did

not address pleading requirements.

The requirement that a plaintiff plead the basis for

federal jurisdiction appears in Federal Rule of Civil

Procedure 8(a)(1), which requires the complaint to provide “a

21

McCann v. Newman Irrevocable Trust, 458 F.3d 281, 290

(3d Cir. 2006) (citations omitted).

22

(App. Vol. I at 16.)

23

724 F.3d 337.

10

short and plain statement of the grounds for the court’s

jurisdiction.” Beyond stating that the jurisdictional allegations

should be “short and plain,” the Rule does not specify the

level of detail required to adequately plead the “grounds” for

federal jurisdiction. There are, however, a number of other

guideposts that we may consult in deciding the issue.24

The Appendix to the Rules contains forms that “suffice

under the[] rules and illustrate the simplicity and brevity that

the[] rules contemplate.”25 Form 7, entitled “Statement of

24

Supreme Court cases predating the Federal Rules of Civil

Procedure suggest that a plaintiff must affirmatively plead the

citizenship of each member of an unincorporated association.

See Thomas v. Bd. of Trs. of Ohio State Univ., 195 U.S. 207,

217-18 (1904); Great S. Fire Proof Hotel Co. v. Jones, 177

U.S. 449, 458 (1900); Chapman v. Barney, 129 U.S. 677,

681-82 (1889). But the case before us requires us to construe

Rule 8, which represented a significant departure from the

stringent pleading requirements that preceded it. See Ashcroft

v. Iqbal, 556 U.S. 662, 678-79 (2009); Bell Atlantic Corp. v.

Twombly, 550 U.S. 544, 573-76 (2007) (Stevens, J.

dissenting); Swierkiewicz v. Sorema N. A., 534 U.S. 506, 512-

14 (2002).

25

Fed. R. Civ. P. 84; see also Swierkiewicz, 534 U.S. at 513

n.4. On April 29, 2015, the Supreme Court submitted to

Congress its Proposed Amendments to the Federal Rules of

Civil Procedure, which abrogate Rule 84 and the

accompanying forms. Absent contrary congressional action,

these Proposed Amendments will go into effect on December

1, 2015. Given that the forms are currently in effect, we find

11

Jurisdiction,” contains sample allegations that establish

federal subject-matter jurisdiction.26 According to these

samples, a plaintiff may simply allege that a party is a

“citizen of [a certain state].”27 In the case of a corporation, the

state of incorporation and principal place of business should

be alleged, as the corporation is a citizen of both states.28

Form 7 does not, however, show how to plead the citizenship

of an unincorporated association. It would certainly be

enough to list the states of citizenship of each member of the

unincorporated association; even the most convoluted

association is, at bottom, made up of natural persons and/or

corporations, for which bare allegations of citizenship suffice.

But Form 7 does not indicate that such a list is required.

Our precedent is more instructive, as we have

previously held that a plaintiff may plead diversity

jurisdiction without making affirmative allegations of

citizenship. In Lewis v. Rego Co.,29 all of the plaintiffs were

Pennsylvania citizens. Three of four defendants filed a

removal petition, as the fourth had not yet entered an

appearance. The petition affirmatively stated the citizenship

of the three defendants who had entered an appearance. In

addition, on the basis of information obtained from the fourth

it useful to consider them, but we do not rely on them in

reaching our ultimate conclusion.

26

Fed. R. Civ. P. Form 7.

27

Id.

28

See id.; 28 U.S.C. § 1332(c)(1).

29

757 F.2d 66 (3d Cir. 1985).

12

defendant, the petition alleged “on information and belief”

that the fourth defendant was not a citizen of Pennsylvania.

We held that these allegations sufficed to establish diversity.30

Thus, rather than affirmatively alleging the citizenship

of a defendant, a plaintiff may allege that the defendant is not

a citizen of the plaintiff’s state of citizenship.31 Permitting

30

See id. at 68-69. The fact that this was a removal case

makes no difference, as the relevant language of the removal

statute tracks the language of Rule 8(a). See Dart Cherokee

Basin Operating Co., LLC v. Owens, 135 S. Ct. 547, 553

(2014) (noting that both 28 U.S.C. § 1446(a) and Rule 8(a)

require “a short and plain statement of the grounds” for

federal jurisdiction); Lewis, 757 F.2d at 68 (noting that the

version of § 1446(a) then in force required “a short and plain

statement of the facts which entitled [the defendant] to

removal”).

31

In a later case, we noted that “in a diversity action, the

plaintiff must state all parties’ citizenships such that the

existence of complete diversity can be confirmed.” Chem.

Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 177 F.3d

210, 222 n.13 (3d Cir. 1999). Because we did not confront the

situation presented in Lewis, however, this broad statement

cannot be interpreted as implicitly overruling that decision,

even if that were possible. See United States v. Joseph, 730

F.3d 336, 341 (3d Cir. 2013) (holding that normally we

follow the earlier of conflicting decisions).

Separately, we note that in Lewis we deemed it

permissible to make allegations of citizenship “on

information and belief.” The motions to dismiss Lincoln

Benefit’s complaint argued that these sorts of qualified

13

this sort of negative allegation makes good sense. The fact

that the plaintiff and defendant do not share a state of

citizenship usually establishes diversity.32 Consequently, it

serves little purpose to require the plaintiff to allege the

defendant’s precise state of citizenship, especially when this

would entail a difficult factual investigation prior to filing.33

We see no reason why Lewis should not apply in the

context of unincorporated associations. A State X plaintiff

allegations were insufficient. As Innovative Brokers does not

renew this argument on appeal, we need not address it.

Several Courts of Appeals accept allegations “on information

and belief” when the facts at issue are peculiarly within the

defendant’s possession. See Carolina Cas. Ins. Co. v. Team

Equip., Inc., 741 F.3d 1082, 1087 (9th Cir. 2014); Pirelli

Armstrong Tire Corp. Retiree Med. Benefits Trust v.

Walgreen Co., 631 F.3d 436, 442-43 (7th Cir. 2011); Medical

Assur. Co. v. Hellman, 610 F.3d 371 (7th Cir. 2010); Arista

Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010). As

Lincoln Benefit argues, and Innovative Brokers concedes,

information regarding the membership of the defendant LLCs

is uniquely within their possession.

32

If, however, the other party is an American citizen

domiciled abroad, he or she is “stateless” for purposes of the

diversity statute and cannot be sued in federal court based on

diversity jurisdiction. See Swiger, 540 F.3d at 184.

33

Cf. 5 Charles Alan Wright et al., Federal Practice and

Procedure: Federal Rules of Civil Procedure § 1208 (3d ed.,

updated 2013) (making a similar argument with respect to

alleging the principal place of business of a corporation).

14

may therefore survive a facial challenge by alleging that none

of the defendant association’s members are citizens of State

X.34 Significantly, however, the plaintiff is permitted to make

such an allegation even if it is not certain of the association’s

membership. In order to satisfy its obligations under Rule 11,

a party must conduct a reasonable inquiry into the facts

alleged in its pleadings.35 Thus, before alleging that none of

an unincorporated association’s members are citizens of a

particular state, a plaintiff should consult the sources at its

disposal, including court filings and other public records. If,

after this inquiry, the plaintiff has no reason to believe that

any of the association’s members share its state of citizenship,

it may allege complete diversity in good faith. The

unincorporated association, which is in the best position to

ascertain its own membership, may then mount a factual

34

To be sure, in two cases where unions were parties, we

faulted the plaintiffs for asserting complete diversity while

failing to identify the unions’ members and plead their

citizenships. See Local No. 1 (ACA) Broad. Emps. of the Int’l

Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of

Am. v. Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen &

Helpers of Am., 614 F.2d 846, 853 (3d Cir. 1980);

Underwood v. Maloney, 256 F.2d 334, 338-39 (3d Cir. 1958).

These cases do not govern the question presented to us,

however, as the plaintiffs there did not make negative

allegations of the sort we approved in Lewis or allege that

they could not ascertain the unions’ memberships without

discovery.

35

See Forbes v. Eagleson, 228 F.3d 471, 488 (3d Cir. 2000).

15

challenge by identifying any member who destroys

diversity.36

We believe that allowing this method of pleading

strikes the appropriate balance between facilitating access to

the courts and managing the burdens of discovery. District

courts have the authority to allow discovery in order to

determine whether subject-matter jurisdiction exists.37 Rule

8(a)(1), however, serves a screening function: only those

plaintiffs who have provided some basis to believe

jurisdiction exists are entitled to discovery on that issue.38

36

Of course, where the unincorporated association is the

proponent of diversity jurisdiction, there is no reason to

excuse it of its obligation to plead the citizenship of each of

its members. See, e.g., Underwriters at Lloyd’s, London v.

Osting-Schwinn, 613 F.3d 1079, 1088-89 (11th Cir. 2010);

Barclay Square Properties v. Midwest Fed. Sav. & Loan

Ass’n of Minneapolis, 893 F.2d 968, 969 (8th Cir. 1990).

37

See Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351

& n.13 (1978); Johnson, 724 F.3d at 340 n.1; Emerald

Investors Trust, 492 F.3d at 208.

38

See, e.g., Baer v. United States, 722 F.3d 168, 177 (3d Cir.

2013) (affirming a Rule 12(b)(1) dismissal and the denial of

jurisdictional discovery because the appellant had not

adequately alleged subject-matter jurisdiction under the

Federal Tort Claims Act). Moreover, although Rule 8(a)(1)

does not appear to govern the pleading of personal

jurisdiction, see Fed. R. Civ. P. Form 7; Caribbean Broad.

Sys., Ltd. v. Cable & Wireless P.L.C., 148 F.3d 1080, 1090

(D.C. Cir. 1998); Stirling Homex Corp. v. Homasote Co., 437

16

The corollary of this principle is that a plaintiff need not

allege an airtight case before obtaining discovery.

Depriving a party of a federal forum simply because it

cannot identify all of the members of an unincorporated

association is not a rational screening mechanism. The

membership of an LLC is often not a matter of public

record.39 Thus, a rule requiring the citizenship of each

F.2d 87, 88 (2d Cir. 1971), our decisions in the personal-

jurisdiction context also support the notion that jurisdictional

discovery is not available merely because the plaintiff

requests it. In Eurofins Pharma US Holdings v. BioAlliance

Pharma SA, for example, we required sufficient allegations of

personal jurisdiction in order to prevent “a fishing expedition

. . . under the guise of jurisdictional discovery.” 623 F.3d 147,

157 (3d Cir. 2010).

39

Indeed, many cases note the absence of publicly available

information regarding the membership of LLCs. See Carolina

Cas. Ins. Co., 741 F.3d at 1087; Rooflifters, LLC v. Nautilus

Ins. Co., No. 13 C 3251, 2013 WL 3975382, at *4 (N.D. Ill.

Aug. 1, 2013); WMCV Phase, LLC v. Tufenkian Carpets Las

Vegas, LLC, No. 2:12-cv-01454-RCJ, 2013 WL 1007711, at

*3 (D. Nev. Mar. 12, 2013); Pinson v. 45 Dev., LLC, No.

2:12-CV-02160, 2012 WL 4343494, at *3 (W.D. Ark. Sept.

21, 2012); Chesapeake Louisiana, LP v. Creamer Prop.

Mgmt., LLC, Civil Action No. 09-cv-0370, 2009 WL 653796,

at *1 (W.D. La. Mar. 11, 2009); Ypsilanti Cmty. Utils. Auth.

v. MeadWestvaco Air Sys., LLC, No. 07-CV-15280, 2008 WL

2397651, at *3 (E.D. Mich. June 9, 2008); see also Carter G.

Bishop & Daniel S. Kleinberger, Limited Liability

Companies: Tax and Business Law ¶ 1.03(3)(b)(ii)(A), 1998

17

member of each LLC to be alleged affirmatively before

jurisdictional discovery would effectively shield many LLCs

from being sued in federal court without their consent. This is

surely not what the drafters of the Federal Rules intended.

Moreover, the benefits of such a stringent rule would

be modest. Jurisdictional discovery will usually be less

burdensome than merits discovery, given the more limited

scope of jurisdictional inquiries.40 It seems to us that in

determining the membership of an LLC or other

unincorporated association, a few responses to interrogatories

will often suffice. So long as discovery is narrowly tailored to

the issue of diversity jurisdiction and parties are sanctioned

for making truly frivolous allegations of diversity, the costs of

this system will be manageable.

We are not the only Court of Appeals to take this

position. The Ninth Circuit confronted facts remarkably

similar to ours in Carolina Casualty Insurance Co. v. Team

Equipment, Inc.41 Carolina Casualty Insurance Co., a citizen

of Iowa and Florida, filed a diversity action seeking a

declaratory judgment that it was not liable under one of its

insurance policies. Two of the defendants were LLCs, but

WL 1169338 at *29. The problem is compounded if the LLC

(or other unincorporated association) has members that are

themselves unincorporated associations, or even many layers

of such members. See Zambelli, 592 F.3d at 420.

40

See In re Auto. Refinishing Paint Antitrust Litig., 358 F.3d

288, 303 (3d Cir. 2004).

41

741 F.3d 1082.

18

Carolina did not allege the citizenship of their members.

When the district court dismissed the complaint sua sponte

for lack of jurisdiction, Carolina filed a motion to alter or

amend the judgment and submitted a proposed amended

complaint.

Carolina advised the court in its moving papers

that it was unable to determine the citizenship

of the LLCs, because their organizational filings

did not list their members. As a result, Carolina

alleged simply that the members of the LLCs

were “citizens of neither Iowa nor Florida.” . . .

Carolina explained in its motion . . . that it had

made efforts to determine the citizenship of the

two LLCs . . . but it was unable to do so from

publicly available information. The business

filings that Carolina submitted to the district

court show[ed] that information necessary to

determining the citizenship of the LLCs could

not be determined from the public filings of

those companies.42

The district court denied the motion, holding that the

proposed amended complaint suffered from the same

jurisdictional defect, among others.

On appeal, the Ninth Circuit recognized that “[t]he

novel issue presented by this case is how a plaintiff may

allege diversity jurisdiction where the facts supporting

42

Id. at 1085, 1087.

19

jurisdiction are not reasonably ascertainable by the

plaintiff.”43 It observed that “Carolina made a showing that at

least some of the information necessary to establish the

diversity of the parties’ citizenship was within the defendants’

control.”44 And it concluded that, under these circumstances

and “at this early stage in the proceedings, a party should not

be required to plead jurisdiction affirmatively based on actual

knowledge.”45 Accordingly, it held that “it was sufficient for

Carolina to allege simply that the defendants were diverse to

it” and that “Carolina should have been permitted to plead its

allegations on the basis of information and belief.”46

The decision of the Ninth Circuit is consistent with our

view that a plaintiff need not affirmatively allege the

citizenship of each member of a defendant LLC if it is unable

to do so after a reasonable investigation.47 If the plaintiff is

43

Id. at 1087.

44

Id.

45

Id.

46

Id.

47

But see Fifty Assocs. v. Prudential Ins. Co. of Am., 446

F.2d 1187, 1190-91 (9th Cir. 1970) (citing Underwood and

other authorities for the proposition that “[t]he citizenship of

each member of an unincorporated association must be

alleged” and rejecting as “mere guesswork” the plaintiff’s

allegations that unknown John Doe defendants were not

citizens of its state of citizenship). Otherwise, we are not

aware of any Court of Appeals decision that expressly rejects

the argument Lincoln Benefit makes here—that where the

20

able to allege in good faith that the LLC’s members are not

citizens of its state of citizenship, its complaint will survive a

facial challenge.

D. The Sufficiency of Lincoln Benefit’s Allegations of

Diversity

Lincoln Benefit’s allegations satisfy this standard.

Taken together, the complaint and opposition to the motions

to dismiss indicate that Lincoln Benefit has a good-faith basis

for alleging that the LLC defendants’ members are not

citizens of Nebraska.

We will exercise our discretion to consider what

Lincoln Benefit said to the District Court in opposition to the

motions to dismiss. Normally, “[i]n reviewing a facial attack,

the court must only consider the allegations of the complaint

and documents referenced therein and attached thereto, in the

light most favorable to the plaintiff.”48 Affidavits and briefs

in opposition do not fall in this category. But Lincoln Benefit

could have amended its complaint to include the information

membership of a defendant association is not reasonably

ascertainable, the plaintiff is excused from identifying each

member of that association.

48

Gould Elecs. Inc., 220 F.3d at 176.

21

contained in those documents,49 and we have the authority to

permit such amendment on appeal.50

The information provided by Lincoln Benefit indicates

that (1) the LLC defendants have connections to New York

and Delaware; (2) counsel for Lincoln Benefit conducted a

reasonable inquiry to determine the membership of the LLC

defendants but found nothing of value; and (3) counsel for

Lincoln Benefit found no connection between the LLC

defendants and Nebraska. On the basis of this information,

Lincoln Benefit alleges that none of the LLCs’ members are

citizens of Nebraska.

It is certainly possible that two LLCs organized and

based in New York and Delaware have at least one member

domiciled in Nebraska. This scenario is not so

overwhelmingly likely, however, that Lincoln Benefit’s

allegation to the contrary can be considered frivolous,

especially when there is no indication that either LLC has any

ties to Nebraska.

Lincoln Benefit has alleged complete diversity in good

faith, and this is enough to survive a facial attack. If

defendants mount a factual challenge to jurisdiction on

49

We do not fault Lincoln Benefit for failing to move to

amend. Given the District Court’s opinion, it would have

been futile to add this information to the complaint.

50

See 28 U.S.C. § 1653 (“Defective allegations of jurisdiction

may be amended, upon terms, in the trial or appellate

courts.”).

22

remand, however, the District Court must permit

jurisdictional discovery in order to ascertain whether

complete diversity exists.

III. Conclusion

For the foregoing reasons, we will vacate the District

Court’s order dismissing the complaint and remand for

further proceedings.

23

Lincoln Benefit Life Co. v. AEI Life, LLC, et al.

No. 14-2660

_________________________________________________

AMBRO, Circuit Judge, with whom FUENTES and ROTH,

Circuit Judge join, concurring.

As we are unanimous in the Court’s opinion, we are as

well in this concurrence urging the Supreme Court, when

defining the citizenship of limited liability companies (LLCs),

to return to the path it started to mark for unincorporated

business organizations in Puerto Rico v. Russell & Co., 288

U.S. 476, 480 (1933). In its more recent punt to Congress of

all questions relating to the citizenship of business

associations, the Court recognized that it laid down a rule

“unresponsive to policy considerations raised by the changing

realities of business organization.” Carden v. Arkoma

Associates, 494 U.S. 185, 196 (1990). As Congress has not

accepted the invitation of the Court to craft a workable law of

business citizenship, the latter should step into the breach.

There is no good reason to treat LLCs differently from

corporations for diversity-of-citizenship purposes. A

corporation is an entity that exists in law for the benefit of its

owners—shareholders. Principal features of corporations

include limited liability, access to equity markets, and the

directors’ fiduciary obligations of care and loyalty to

stockholders.

An LLC—an entity owned by members often referred

to as unitholders—is in most respects similar to a corporation.

Among the primary differences are that there are far fewer

statutory default rules for LLCs (for example, “[t]he

Delaware statute does not provide any manager or member

standards of conduct [with respect to fiduciary duties] and

1

instead defers to the operating agreement,” Wayne M. Gazur,

The Limited Liability Company Experiment: Unlimited

Flexibility, Uncertain Role, 58 L. & Contemp. Probs. 135,

151 (1995)), and an LLC can elect to be taxed as a

partnership or a corporation.

What do these differences have to do with diversity of

citizenship? Nothing. The kinds of business activities that

can be carried on by LLCs are identical to those in which

corporations may engage. 6 Del. Code § 18–106. And by

picking corporate-style default rules in a membership

agreement, an LLC could function in exactly the same way as

a corporation for all purposes except diversity of citizenship.

Just as treating LLCs as citizens of every state of

which its members are citizens defies logic, it also takes the

wrong lesson from our experience of assigning citizenship to

business organizations. Under Bank of United States v.

Deveaux, 9 U.S. (5 Cranch) 61, 86, 91–92 (1809),

corporations were citizens of each state where each

stockholder was a citizen. By 1844, the Supreme Court

recognized the impracticality of that rule and held that a

corporation is a citizen of the state in which it is incorporated.

Louisville, C. & C.R. Co. v. Letson, 43 U.S. (2 How.) 497,

558 (1844). That rule remained unchanged until 1958 when

Congress added in 28 U.S.C. § 1332(c) that corporations are

also citizens of their principal places of business. See

Carden, 494 U.S. at 196.

Carden, where the Supreme Court held that

unincorporated associations are citizens of the states where

their members are citizens, came down in 1990, when LLCs,

then a creature of only some states’ laws, languished in “near

obscurity.” Rodney D. Chrisman, LLCs Are the New King of

the Hill: An Empirical Study of the Number of New LLCs,

Corporations, and LPs, 25 Fordham J. Corp. & Financial L.

2

459, 460 (2010). At the time of Carden, the Internal Revenue

Service’s ruling that an LLC could be taxed as a partnership

was just two years old, see Rev. Ruling 88-76, and it was not

until 1996 that every state had an LLC law. Just as when

Deveaux was decided in 1809, the Court in 1990 could not

have predicted the unwieldiness of its rule. But since the turn

of the millennium, LLCs have become the dominant vehicle

for doing business in the United States, and LLC formation

outpaces corporation formation by a wide margin. See, e.g.

Chrisman, supra, at 460. We need a Letson for the LLC era,

and we urge the Supreme Court to write it.

To see why it is impractical to require investigation

into the citizenship of every member of any LLC, consider

trying to sue Linn Energy, LLC, in federal court for a state-

law violation. As of the last available information we

reviewed, Linn is traded on the NASDAQ exchange, has a

market capitalization of $902 million, and has 355.2 million

outstanding units. The LLC is 40% owned by insiders; the

remaining membership is dispersed. Approximately 240

institutional unitholders combine to own a mere 10% of the

company. To identify Linn’s citizenship, we need to know

the citizenship of all those unitholders, many of which are

undoubtedly LLCs themselves with their own unwieldy

structure—and we still have 50% of the units to account for.

Would it not make more sense simply to ask where Linn was

formed (Delaware) and where its principal place of business

is located (Texas)?

The Court opened the door to a sensible understanding

of corporate citizenship, one that would not require discovery

and time-consuming inquiries into corporate structure, in

Russell, when it analyzed the sociedad en comandita, an

unincorporated business association formed under the laws of

Puerto Rico. Although the Court noted the difference

between legal personality in the common and civil-law

3

contexts, it took a functional approach to deciding whether a

business form was a juridical person and thus had citizenship

in the place it was formed (as opposed to borrowing its

citizenship(s) from its members). The Court wrote:

In the law of its creation, the sociedad is

consistently regarded as a juridical person. It

may contract, own property, and transact

business, sue and be sued in its own name and

right. . . . It is created by articles of association

filed as public records. Where the articles so

provide, the sociedad endures for a period

prescribed by them, regardless of the death or

withdrawal of individual members. Powers of

management may be vested in managers

designated by the articles from among the

members whose participation is unlimited, and

they alone may perform acts legally binding on

the sociedad. Its members are not primarily

liable for its acts and debts, and its creditors are

preferred with respect to its assets and property

over the creditors of individual members,

although the latter may reach the interests of the

individual members in the common capital. . . .

These characteristics under the Codes of Puerto

Rico give content to their declaration that the

sociedad is a juridical person. That personality

is so complete in contemplation of the law of

Puerto Rico that we see no adequate reason for

holding that the sociedad has a different status

for purposes of federal jurisdiction than a

corporation organized under that law. In neither

case may nonresidents of Puerto Rico, who

have taken advantage of its laws to organize a

juridical entity for the purpose of carrying on

4

business there, remove from the insular courts

controversies arising under local law.

Russell, 288 U.S. at 481–82 (citations omitted). Replace

“sociedad” with “LLC,” and “Puerto Rico” with any state

under which an LLC is formed, and none of the opinion’s

logic is lost.

The law of citizenship for unincorporated associations

receives frequent criticism. Johnson v. SmithKline Beecham

Corp., 724 F.3d 337, 360–61 & n.28 (3d Cir. 2013) (Ambro,

J., concurring in part and concurring in the judgment) (citing

Christine M. Kailus, Note, Diversity Jurisdiction and

Unincorporated Businesses: Collapsing the Doctrinal Wall,

2007 U. Ill. L. Rev. 1543; Debra R. Cohen, Limited Liability

Company Citizenship: Reconsidering an Illogical and

Inconsistent Choice, 90 Marq. L. Rev. 269 (2006); Robert J.

Tribeck, Cracking the Doctrinal Wall of Chapman v. Barney:

A New Diversity Test for Limited Partnerships and Limited

Liability Companies, 5 Widener J. Pub. L. 89 (1995)). We

add that the criticism is apt: there is no reason to treat LLCs

differently from corporations merely because their organic

statutes have some distinctions and they are subject to

different tax regimes. Despite some cracks in Carden’s

wall—circuit courts are divided over how to determine the

citizenship of trusts, and some circuits treat professional

corporations, which function much like LLCs, as traditional

corporations, see Wright, Miller, et al., 13F Fed. Prac. &

Proc. § 3630.1 (3d ed. 2015))—it remains a formidable

bulwark against a coherent policy with respect to the

citizenship of LLCs. We thus urge the Supreme Court to

bring back Russell’s approach.

5