Limited Liability Companies. Gloria Duchin, a Rhode Island resident, was the sole shareholder and chief executive officer of Gloria Duchin, Inc (Duchin, Inc), which manufactured metallic Christmas ornaments and other novelty items. The firm was

Question

incorporated in Rhode Island. Duchin Realty, Inc, also incorporated in Rhode Island, leased real estate to Duchin, Inc The Duchin entities hired Gottesman Co to sell Duchin, Inc, and to sign with the buyer a consulting agreement for Gloria Duchin and a lease for Duchin Realty's property. Gottesman negotiated a sale, a consulting agreement, and a lease with Somerset Capital Corp James Mitchell, a resident of Massachusetts, was the chairman and president of Somerset, and Mary Mitchell, also a resident of Massachusetts, was the senior vice president. The parties agreed that to buy Duchin, Inc, Somerset would create a new limited liability company, JMTR Enterprises, L.L.C., in Rhode Island, with the Mitchells as its members. When the deal fell apart, JMTR filed a suit in a Massachusetts state court against the Duchin entities, alleging, among other things, breach of contract. When the defendants tried to remove the case to a federal district court, JMTR argued that the court did not have jurisdiction because there was no diversity of citizenship between the parties: all of the plaintiffs and defendants were citizens of Rhode Island. Is JMTR correct? Why or why not?

Answer 1

Limited liability companies
The court held that there was diversity of citizenship between the parties. The court recognized that JMTR was organized in Rhode Island but emphasized that JMTR was a limited liability company (LLC). "Other courts considering the question [of an LLC's citizenship for purposes of diversity jurisdiction] have held that a limited liability company is a citizen of the state or states of which its members are citizens. A limited liability company is not a citizen of the state in which it was organized, unless one its members is a citizen of that state. This Court concurs with the reasoning set forth in those cases, and adopts their holding as its own." In those cases, LLCs were compared to limited partnerships. In this case, the court noted that "JMTR Enterprises' Articles of Organization . . . explains that ‘[t]he limited liability company has the purpose of engaging in any business which a limited partnership may carry on except the provision of professional services.' " The court also explained that "there is no justification for treating a limited liability company like a corporation. The unique status of corporations as citizens of the state in which they were created hails from Congress. The [United States] Supreme Court has declined to extend this special rule to other entities. Thus, unless and until Congress speaks as to the citizenship of limited liability companies, they are taken to be citizens of the state or states of which their members are citizens." The Mitchells, JMTR's members, were citizens of Massachusetts. "Consequently, JMTR Enterprises is a citizen of Massachusetts. All three defendants are citizens of Rhode Island. Diversity is thus complete."