Diversity Jurisdiction for LLCs

Abstract:     
Is an LLC more like a corporation or a partnership?

In the early days of the modern U.S. limited liability company, lawyers and judges often had to examine that question. Although the question has different answers in different legal contexts, for most contexts, it is now settled.

Nowhere is the question more emphatically settled than in the context of federal diversity jurisdiction, whose purpose is to protect out-of-state parties from potential prejudice in local courts. In Belleville Catering Co. v. Champaign Marketplace, LLC, 350 F.3d 691, 692 (7th Cir. 2003), a case involving an Illinois corporation and a Delaware LLC, the Seventh Circuit bluntly chastised the lawyers for both parties for a jurisdictional statement that was transparently incomplete and incorrect and for an insouciance toward the requirements of federal jurisdiction [which] has caused a waste of time and money.

Vacating the district court judgment (which had followed a jury trial) and remanding with instructions to dismiss ... for want of subject-matter jurisdiction, the court also admonished the lawyers that:

The costs of a doomed foray into federal court should fall on the lawyers who failed to do their homework, not on the hapless clients.... The best way for counsel to make the litigants whole is to perform, without additional fees, any further services that are necessary to bring this suit to a conclusion in state court, or via settlement. That way the clients will pay just once for the litigation. This is intended not as a sanction, but simply to ensure that clients need not pay for lawyers' time that has been wasted for reasons beyond the clients' control.

Number of Pages in PDF File: 6

Keywords: Diversity, jurisdiction, limited liability company, LLC, federal

JEL Classification: K19, K39, K40, K41

Accepted Paper Series