LLCs often struggle to qualify for diversity jurisdiction

By Justin G. Bates

This article appeared as a Guest Column in The Journal Record on Jan. 27, 2021.

LLCs have quickly become the dominant legal entity of the 21st century for various reasons. Like any business entity, LLCs frequently find themselves involved in litigation. When a dispute reaches its boiling point, many businesses prefer to litigate in federal court because of, among other advantages, rigid deadlines and the assurance of a highly qualified presiding judge.

Justin G. Bates is a litigation attorney who represents individuals and both privately-held and public companies in a wide range of civil litigation matters.

However, LLCs often struggle to qualify for access to the federal judicial system via “diversity jurisdiction,” which requires the citizenship of the plaintiff and defendant to be completely diverse. In other words, no plaintiff can be from the same state as any defendant.

Existing case law deems an LLC a citizen of every state in which its members reside, and likewise for a partnership. By contrast, a corporation is a dual citizen of both: (1) its state of incorporation; and (2) its principal place of business.

For an LLC to qualify for diversity jurisdiction, federal courts require a nuanced member-by-member analysis. For a single-member or “mom and pop” LLC, determining citizenship is simple. However, larger LLCs pose complex and time-consuming difficulties. Larger LLCs often have dozens of members, including corporations, individuals, partnerships, and even other LLCs.

In such a situation, the citizenship of all entities must be determined, including any sub-entities that may have partners or members of their own, who, in turn, may have additional partners or members. The exercise is theoretically endless, and, more practically, expensive and burdensome. The more members there are, the greater the odds that complete diversity will not exist.

As a practical example, if an Oklahoma individual, invoking diversity jurisdiction, wishes to sue an LLC in federal court, and the LLC has one member who is a citizen of Oklahoma, the court will dismiss the lawsuit for lack of subject matter jurisdiction. Relatedly, if an LLC is sued and wishes to remove the case to federal court, it too must ensure that its members (and their member’s members) are completely diverse from the plaintiff.

Organizing a company as an LLC provides many advantages, and LLCs continue to represent the lion’s share of business entities incorporated in the 21st century. However, any business that anticipates finding itself in federal court should consider the issues discussed above, which can operate to their benefit (or detriment).

For more information on how the information in this article may impact your business, please call 405.552.2471 or email Justin G. Bates.

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EEOC sues Tarr and Zenith for pregnancy discrimination

Published on September 22, 2017

SAN DIEGO — Tarr, Inc. and Zenith, LLC, a San Diego-based company that sells dietary supplements, violated federal law when it fired an employee within days of learning of her pregnancy, the U.S. Equal Employment Opportunity Commission (EEOC) charged in a pregnancy discrimination lawsuit filed Sept. 7.

According to EEOC’s lawsuit, an employee who worked at Tarr, Inc. in San Diego informed the company of her pregnancy and was terminated ten days later. The EEOC also contends that the com­pany discharged other pregnant employees or refused their requests to return to work after taking maternity leave. Tarr, Inc. merged with Zenith, LLC in 2016.

Such alleged conduct violates Title VII of the Civil Rights Act of 1964, as amended by the Pregnancy Discrimination Act. The EEOC filed suit in U.S. District Court for the Southern District of California (EEOC v. Tarr, Inc., and Zenith, LLC, Case No. 3:17-cv-01660-W-WVG) after first attempting to reach a pre-litigation settlement through its conciliation process. The EEOC’s suit seeks back pay, compensa­tory and punitive damages for the female employee and a class of similarly affected employees, as well as injunctive relief intended to prevent further discrimination at the business.

“Pregnancy discrimination continues to be a persistent problem,” said Anna Park, regional attorney for the EEOC’s Los Angeles District, whose jurisdiction includes San Diego County. “Employers should be cognizant of their obligations under federal law to maintain a workplace free of discrim­ination.”

Christopher Green, director of the EEOC’s San Diego local office, added, “Women should not have to choose between their job or having children. Employers need to be aware that the EEOC takes pregnancy discrimination seriously and the agency will continue to protect the rights of pregnant employees.”

The EEOC advances opportunity in the workplace by enforcing federal laws prohibiting employment discrimination.

For more information on the EEOC, click here.

Disclaimer: This website post is intended for informational purposes only and does not constitute legal advice. Readers should not rely upon this information as a substitute for personal legal advice. If you have a legal concern, you should seek legal advice from an attorney.