United States District Court, D. Colorado
ORDER TO SHOW CAUSE
PHILIP
A. BRIMMER UNITED STATES DISTRICT JUDGE
This
matter is before the Court on Plaintiff Woodward, Inc.'s
Response to the Court's Order to Show Cause [Docket No.
12]. Plaintiff asserts that this Court has subject matter
jurisdiction pursuant to 28 U.S.C. § 1332(a). Docket No.
11 at 4-5, ¶ 17; Docket No. 12 at 3.
On June
13, 2018, the Court issued an order to show cause identifying
several deficiencies in plaintiff's jurisdictional
allegations. Docket No. 7. Specifically, the Court found
that: (1) plaintiff's allegation, “upon information
and belief, ” that defendant ZHRO Solutions' sole
member is Advanced Green Innovations, LLC was not sufficient
to establish subject matter jurisdiction; (2) plaintiff had
failed to identify the citizenship of Roy McLester,
[1] one
of two members of Advanced Green Technologies, LLC; and (3)
plaintiff had failed to identify the citizenship of the
KL-998 Trust UTD December 28, 1999 (“KL-998
Trust”), the sole member of Cochise Investments, LLC.
See Id. at 2-4.
On June
21, 2018, plaintiff filed an amended complaint along with a
response to the Court's show cause order. See
Docket Nos. 11, 12. As stated in plaintiff's response,
the amended complaint affirmatively alleges that Advanced
Green Innovations, LLC is ZHRO's sole member without
resorting to plaintiff's “information and
belief.” Docket No. 11 at 3, ¶ 9; Docket No. 12 at
7. Additionally, the complaint asserts that both Roy
McAlister and Kenneth Losch, the trustee of KL-998 Trust, are
citizens of Arizona. Docket No. 11 at 4, ¶¶ 12-14;
Docket No. 12 at 8, 11. Plaintif f contends that this latter
allegation is sufficient to establish the citizenship of the
KL-998 Trust because, consistent with the Supreme Court's
decision in Americold Realty Trust v. Conagra Foods,
Inc., 136 S.Ct. 1012 (2016), “the inquiry for
purposes of diversity jurisdiction should focus on the
citizenship of the trustee.” Docket No. 12 at 11. The
Court disagrees.
In
Americold Realty Trust, the Supreme Court held that
the citizenship of a real estate investment trust, like the
citizenship of other unincorporated entities, depends on the
citizenship of all its members. 136 S.Ct. at 106. Relying on
the court's prior decision in Navarro Savings
Association v. Lee, 446 U.S. 458 (1980), the defendant
had argued that the citizenship of a trust is always
determined by the citizenship of its trustees alone.
Id. at 1016. The court rejected this conclusion,
explaining that Navarro merely “reaffirmed a
separate rule that when a trustee files a lawsuit in
her name, her jurisdictional citizenship is the
State to which she belongs - as is true of any natural
person.” Americold, 136 S.Ct. at 1016. Thus,
at least initially, Americold appears to establish
clear rules for determining a party's citizenship
depending on whether the party is a trustee or the trust
entity itself. However, the court further explained:
Americold's confusion regarding the citizenship of a
trust is understandable and widely shared. The confusion can
be explained perhaps, by tradition. Traditionally, a trust
was not considered a distinct legal entity, but a
“fiduciary relationship” between multiple people.
Such a relationship was not a thing that could be haled into
court; legal proceedings involving a trust were brought by or
against the trustees in their own name. And when a trustee
files a lawsuit or is sued in her own name, her citizenship
is all that matters for diversity purposes. For a traditional
trust, therefore, there is no need to determine its
membership, as would be true if the trust, as an entity, were
sued. Many States, however, have applied the
‘trust' label to a variety of unincorporated
entities that have little in common with this traditional
template. . . . So long as such an entity is unincorporated,
we apply our “oft-repeated rule” that it
possesses the citizenship of all of its members. But neither
this rule nor Navarro limits an entity's
membership to its trustees just because the entity happens to
call itself a trust.
Id. at 1016. As courts have recognized, this
language is susceptible to several interpretations. For
example, it could mean that “there is no need to
determine entity membership for diversity purposes when a
‘traditional trust' is sued as an entity.”
See Zoroastrian Ctr. & Darb-E-Mehr of Metro.
Washington, D.C. v. Rustam Guiv Found. of New
York, 822 F.3d 739, 749 (4th Cir. 2016). Alternatively,
the passage from Americold could reflect the
principle that “a trust sued as an entity must prove
entity membership because it is a separate legal person from
the individual trustees.” Id. Three circuits
have directly confronted this ambiguity. All three have
interpreted Americold as establishing that, in
contrast to a business trust, the citizenship of a
traditional trust is determined solely by the citizenship of
its trustees. See GBForefront, L.P. v. Forefront
Mgmt. Grp., LLC, 888 F.3d 29, 34 (3d Cir. 2018);
Raymond Loubier Irrevocable Trust v.
Loubier, 858 F.3d 719, 729 (2d Cir. 2017); Wang ex
rel. Wong v. New Mighty U.S. Trust, 843 F.3d 487, 494
(D.C. Cir. 2016).[2]
Although
the Tenth Circuit has not yet addressed the issue, the Court
finds the reasoning of the Second, Third, and D.C. Circuits
persuasive. However, the fact that “traditional trusts
retain the citizenship of their trustees” for purposes
of diversity jurisdiction, Docket No. 12 at 9, does not
resolve the jurisdictional issue here. Plaintiff has not
alleged that the KL-998 Trust is a traditional trust or
presented any facts from which the Court could reach that
conclusion. See, e.g., GBForefront, L.P.,
888 F.3d at 40-41 (explaining two inquiries a court should
undertake in deciding whether a trust is a
“traditional” or “business” trust for
purposes of diversity jurisdiction).[3] The Court finds that
plaintiff's response to the order to show cause, which
fails to analyze whether the KL-998 Trust is a traditional
trust or a business trust, is insufficient to enable the
Court to determine the citizenship of defendants or whether
the Court has jurisdiction.
Plaintiff
argues that, “[i]n the event that the Court believes
the citizenship of the KL-998 Trust's beneficiaries are
relevant to the jurisdictional inquiry, ” plaintiff
should be permitted “limited discovery of the KL-998
Trust to identify its current beneficiaries.” Docket
No. 12 at 11. The Court disagrees. Permitting such discovery
at the outset of a case would undermine the well-established
rule that “[t]he party invoking federal jurisdiction
bears the burden of establishing such jurisdiction as a
threshold matter.” Radil v. Sanborn W. Camps,
Inc., 384 F.3d 1220, 1224 (10th Cir. 2004); see also
Lowery v. Ala. Power Co., 483 F.3d 1184, 1216 (11th Cir.
2007) (“[S]hould the plaintiff request leave to conduct
discovery to support its assertion that the case is properly
before the court, the court would deny such a request. In
such a situation, the court would not reserve ruling on the
motion to dismiss in order to allow the plaintiff to look for
what the plaintiff should have had - but did not - before
coming through the courthouse doors, even though the court
would have the inherent power to do so.”); Celli v.
Shoell, 40 F.3d 324, 327 (10th Cir. 1994) (“[T]he
presumption is that [federal courts] lack jurisdiction unless
and until a plaintiff pleads sufficient facts to establish
it.”). The Court sees no reason to depart from its
prior rulings denying requests for jurisdictional discovery
where parties have failed to plead a sufficient basis for
federal jurisdiction at the outset of a case. See,
e.g., Nancy P. Assad Trust v. Berry Petroleum
Co., No. 13-cv-00544-PAB, 2013 WL 1151912, at *2-3 (D.
Colo. Mar. 20, 2013) (denying jurisdictional discovery where
plaintiff had failed to identify the members of the defendant
LLCs).
Plaintiff
argues that “[r]equiring a plaintiff . . . to
conclusively establish the citizenship of a private
trust's beneficiaries at the pleading stage for purposes
of subject matter jurisdiction without limited discovery
would be prejudicial” because such a plaintiff would be
forced to pursue its lawsuit in state court. Docket No. 12 at
12 n.6. But a state forum is not presumptively prejudicial.
See, e.g., Assad Trust, 2013 WL 1151912, at
*3 (finding that there had been no showing of prejudice where
“there [was] no indication that dismissing [the] case
[would] prejudice plaintiff by depriving it of a forum in
which to assert its claims”). And, as plaintiff itself
suggests, plaintiff would have the option of conducting
jurisdictional discovery in state court and then moving to
dismiss the case without prejudice to its re-filing in a
federal forum. Docket No. 12 at 12 n.6. For these reasons,
the Court finds that there is no basis to permit
jurisdictional discovery at this time. Cf. Abrego Abrego
v. The Dow Chem. Co., 443 F.3d 676, 691 (9th Cir. 2006)
(where party invoking federal jurisdiction has “failed
to present to the district court any pleading, evidence, or
admission that establishes that it is more likely than not
that jurisdiction lies, ” it is “well within the
court's discretion to remand to state court rather than
ordering jurisdictional discovery, with the knowledge that
later-discovered facts may prompt a second attempt at
removal”).
Wherefore,
it is
ORDERED
that, on or before 5:00 p.m. on July
6, 2018, plaintiff shall show cause why this case
should not be dismissed due to the Court's lack of
subject matter jurisdiction.
---------