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There’s No Place Like “Home”: Challenging General Jurisdiction When an LLC Is a Citizen of the Forum State

June 1, 2017

Defense Digest, Vol. 23, No. 2, June 2017

By Michael A. Salvati, Esq.*

Key Points:

  • Even if an LLC defendant is a citizen of the forum state, it may be able to challenge general jurisdiction.
  • The tests for citizenship and for general jurisdiction are distinct.
  • Like a corporation, an LLC should only be subject to general jurisdiction where it is “at home.”

 

Can a limited liability company that is a citizen of Pennsylvania for diversity jurisdiction purposes successfully challenge a Pennsylvania court’s general jurisdiction over it? In a recent case, the Philadelphia Court of Common Pleas answered that question, “Yes.”

As a quick refresher, personal jurisdiction comes in two varieties: general and specific. If a court has general, or “all purpose,” jurisdiction over a defendant, it can hear any case involving that defendant, no matter where the cause of action arose. Specific, or “case-linked,” jurisdiction requires that the cause of action arise from the defendant’s contacts with the forum state.

For many years, courts evaluated general jurisdiction by quantifying a defendant’s business contacts with the proposed forum, asking whether the defendant company engaged in “a substantial, continuous, and systematic course of business” in the forum. In 2014, the U.S. Supreme Court rejected that as a rationale for general jurisdiction over a corporation in the case of Daimler AG v. Bauman, 571 U.S. __, 134 S. Ct. 746, 760-61 (2014). For a defendant to be subject to general jurisdiction in a state—that is, for it to be subject to suit on any and every cause of action—it must be “at home” in the forum state. As the Supreme Court explained, a corporation that does business all over the country can hardly be said to be “at home” in every state. Rather, the Court endorsed a simpler jurisdictional test: a corporation is at home in the state where it is incorporated and the state where it has its principal place of business.

Because the holding in Daimler applied specifically to corporations, the question naturally arises: how is general jurisdiction established over an LLC? The question is more nuanced than it might appear because of the way citizenship of these entities is determined. According to 28 U.S.C. §1332, the statute governing diversity jurisdiction for purposes of removal to federal court, a corporation is a citizen of its state of incorporation and the state where it has its principal place of business. A corporation is, therefore, a citizen of at most two states. Of course, these are the same two states where the corporation is “at home” under Daimler.

For LLCs, the test is different and slightly more complicated. In the Third Circuit (and elsewhere), an LLC’s citizenship is determined by the citizenship of its members. Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412 (3d Cir. 2010). If one of the members of the LLC is itself an LLC, the members of that LLC must be evaluated, and so on up through the business structure, until an individual or a corporation is found to establish citizenship. In this way, an LLC with many members, or with a complicated ownership structure, can be a citizen of far more than two states. Should it be subject to general jurisdiction in all of them?

This brings us back to the Philadelphia County decision mentioned at the start of the article. In that case, the plaintiff was injured in an accident in Texas and sought to hold our client, a product manufacturer, responsible for an alleged defect in the vehicle. The plaintiff was a resident of Pennsylvania and brought suit in federal court here. It was determined that the defendant manufacturer, an LLC, was a citizen of Pennsylvania because its sole member was a corporation that was a Pennsylvania citizen. Therefore, diversity of citizenship did not exist, and the case had to be re-filed in Pennsylvania state court.

However, the manufacturer, despite being a citizen of Pennsylvania for diversity purposes, was not “at home” in Pennsylvania under the Daimler test because it was formed and had its headquarters in other states. We moved to dismiss on jurisdictional grounds: specific jurisdiction did not exist over this accident; if Daimler applied, then general jurisdiction did not exist either. The plaintiff’s response referred to the earlier dismissal from federal court and asked how the manufacturer could be a citizen of Pennsylvania but not be subject to general jurisdiction here

Our reply addressed the subtle yet significant differences between the test for citizenship and the test for general jurisdiction. General jurisdiction asks where a defendant has such deep roots that it may properly be held to answer for any claim, no matter where it arises. The term “at home” is an apt descriptor. This concept overlaps with corporate citizenship, but it falls apart when applied to an LLC. It would be inequitable for a manufacturer with its operations in other jurisdictions to be subject to general jurisdiction in Pennsylvania simply because a different corporation is based there. Further, an LLC may have many members, sprawled across the country. Just as a nationwide corporation cannot be considered at home everywhere it does business (per Daimler), an LLC should not be considered at home everywhere it has a member.

Although no Pennsylvania appellate level decision has addressed the application of Daimler to LLCs, at least two federal district court cases have held that Daimler should be so extended and that LLCs should only be subject to general jurisdiction in their state of formation and the state where they have their principal place of business. Finn v. Great Plains Lending, LLC, 2016 U.S. Dist. LEXIS 21558, *7 n.3 (E.D. Pa. Feb. 23, 2016) (Daimler “applies with equal force” to both corporations and LLCs); Carruth v. Michot, 2015 U.S. Dist. LEXIS 145224, *19-*20 (W.D. Tex. Oct. 26, 2015) (the tests for citizenship and general jurisdiction are distinct). The Philadelphia Court of Common Pleas agreed with this position and dismissed the plaintiff’s claims against the manufacturer.

The plaintiff immediately appealed, so this is not the last word on this issue. But, for the time being, at least, there is no place like “home” for establishing jurisdiction over a defendant, whether a corporation or an LLC.

*Mike is an associate in our Philadelphia, Pennsylvania office. He can be reached at 215.575.4552 or masalvati@mdwcg.com.

 

Defense Digest, Vol. 23, No. 2, June 2017. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2017 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.

Affiliated Attorney

Michael A. Salvati
Associate
(215) 575-4552
masalvati@mdwcg.com

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