Diversity Jurisdiction And Jurisdictional Discovery: The Third Circuit Holds That 'Hiding The Ball' Will Not Work

Federal diversity jurisdiction, 28 U.S.C. § 1332, requires that the dispute both involve more than $75,000 and that there be complete diversity, i.e., that no defendant be a citizen of any state of which a plaintiff is a citizen. While corporations, consequent to specific legislative designation, are deemed to be citizens of the jurisdiction of incorporation and the jurisdiction in which is located the corporation's principal place of business, an unincorporated association such as a partnership, limited partnership or LLC is deemed to be a citizen in which any of its partners/members are citizens to the effect that, for example, if a member of an LLC is itself another LLC or a partnership, citizenship must be tracked through all layers until there are reached either natural persons or corporations. A plaintiff bringing an action in federal court, or a defendant seeking to remove an action to federal court, is required to plead facts demonstrating that diversity exists. This obligation can be at best difficult to satisfy when one considers that the membership of partnerships and LLCs is almost never of public record. How then, can either the plaintiff or the defendant seeking to enlist diversity jurisdiction adequately plead its existence?

This dilemma was recently faced and addressed by the Third Circuit Court of Appeals. In this case, the plaintiff brought an action in federal court against defendants including LLCs. Those defendants moved to dismiss the action on the basis that diversity jurisdiction had not been adequately pled. Of course, the information as to the membership of those defendant LLCs was uniquely within their control. As such, the plaintiff had pled diversity jurisdiction on the basis of "information and belief." Ultimately, the Third Circuit would confirm that "information and belief" pleading is at least initially sufficient. Lincoln Benefit Life Company v. AEI Life, LLC, No. 14-2660, 2015 WL 5131423, ___ F.2d__ (3rd Cir. Sept. 2, 2015).

Lincoln Benefit brought suit in order to have declared void two life insurance policies, alleging they were procured by fraud or for the benefit of third-party investors (i.e., "Stranger Originated Life Insurance" or "STOLI"). AEI Life, LLC and ALS Capital Ventures, LLC were identified as the record owners and beneficiaries of those two policies. In its Complaint, originally filed in New Jersey, Lincoln Benefit alleged that it is a citizen of Nebraska based upon its organization and...