Generally speaking, pleading and establishing federal diversity jurisdiction is not a complicated affair. The rule of complete diversity is familiar to every lawyer who survived first-year civil procedure: The plaintiffs must be citizens of different states than the defendants. The corollary rules are that individuals are citizens of the state where they reside, and corporations are citizens of both the state in which they are incorporated and the state in which they have their principal place of business. In 2010, the U.S. Supreme Court clarified in Hertz Corp. v. Friend that the latter phrase means the corporation’s “nerve center.” But, what about the citizenship of a limited liability company (LLC) whose sole member is a corporation? Or what about the increasingly commonplace situation where an LLC has members composed of individuals, corporations, partnerships or other limited liability companies?
The federal circuit courts have uniformly held that the citizenship of an LLC is determined by the citizenship of each of its members. In other words, an LLC may be deemed a citizen for diversity purposes in every state in which its members are citizens. This is easy enough to determine for LLCs composed of a few individuals. The increasing structural sophistication of many businesses, however, means that in-house and outside counsel should carefully examine the citizenship of any entity involved in litigation. The failure to do so could result in a remand to state court, a costly appeal and admonishment from the court or even sanctions.