On March 7, 2016, the Supreme Court of the United States held that the citizenship of a Maryland real estate investment trust (“REIT”), for diversity jurisdiction purposes, is based on the citizenship of all its members, including its shareholders. In Americold Realty Trust v. ConAgra Foods, Inc., No. 14-1382, 2016 WL 854159 (U.S. Mar. 7, 2016), the Court affirmed a Tenth Circuit Court of Appeals decision, which ruled that, in determining federal court diversity jurisdiction, the citizenship of a REIT hinges upon the citizenship of each trust beneficiary. The issue in this case was a simple one: How does one decide the state or states in which an unincorporated REIT is a citizen for purposes of diversity jurisdiction? This issue had split courts across the country. The Supreme Court’s resolution of this matter may affect how courts determine the citizenship of REITs and may make it challenging to rely upon federal diversity jurisdiction in lawsuits involving REITs. Accordingly, prudent consideration should be given to entity formation matters, as well as contractual agreements involving unincorporated entities that may consent or seek to sue or be sued in U.S. courts.
Background of the Case
In December 1991, a fire in an underground storage facility destroyed food owned by ConAgra Foods, Inc. ConAgra leased the facility from Americold Logistics, LLC. Americold Realty Trust, a REIT, was Americold Logistics, LLC’s parent company. In 1992, ConAgra filed suit against Americold Logistics, LLC and Americold Realty Trust in Kansas state court. Americold Logistics, LLC and Americold Realty Trust removed the case from a state court in Kansas to the United States District Court for the District of Kansas, asserting the parties were diverse. No party challenged the removal, and the district court issued a ruling on the merits of that litigation without addressing any issue relating to diversity jurisdiction. Similarly, neither party raised any jurisdictional challenges on appeal to the Tenth Circuit Court of Appeals.
The Tenth Circuit Court of Appeals, however, sua sponte, questioned whether there was full diversity of citizenship among the parties.Specifically, the judges challenged whether the citizenship of Americold Realty Trust, as a REIT, should be determined by reference to its trustees’ citizenship, or instead by reference to some broader set of factors. The Tenth Circuit held that the jurisdictional inquiry extends, at a minimum, to the citizenship of a trust’s beneficiaries in addition to its trustees’ citizenship. The Tenth Circuit, in deciding as such, wiped out diversity of citizenship among the parties in that case. As there was no record of the citizenship of the shareholders of Americold Realty Trust, the Tenth Circuit held that the district court lacked subject-matter jurisdiction. After the Tenth Circuit denied Americold’s motion for rehearing, Americold filed a petition for writ of certiorari and the Supreme Court granted cert.
Summary of Decision
The Supreme Court held that the citizenship of a Maryland REIT is based on the citizenship of all its members, including its shareholders, for purposes of diversity jurisdiction. The Court treated the case as being directly governed by existing doctrinal rules. It cited the longstanding rule treating corporations as citizens only in the states of their incorporation and their principal places of business. At the same time, it emphasized that “Congress never expanded this grant of citizenship to include artificial entities other than corporations, such as joint-stock companies or limited partnerships.” The Court then specifically noted the “oft-repeated rule” that all “artificial entities other than corporations” are citizens wherever they have “members.” 
Concluding that the “members” of a REIT are all those who own a beneficial interest in the REIT, the Court treated Americold Realty Trust as a resident of all of the states in which its owners reside. The Court looked to Maryland Law, where Americold was established, to shed some light on the question of who exactly were Americold’s “members.” Under Maryland law, the Court noted, “shareholders have ‘ownership interests’ and votes in the trust by virtue of their ‘shares of beneficial interest.’” The Court stated:
“As Americold is not a corporation, it possesses its members’ citizenship. … In Maryland, a … [REIT] … is an ‘unincorporated business trust or association’ in which property is held and managed ‘for the benefit and profit of any person who may become a shareholder.’ … As with joint-stock companies or partnerships, shareholders have ‘ownership interests’ and votes in the trust by virtue of their ‘shares of beneficial interest.’ … These shareholders appear to be in the same position as the shareholders of a joint-stock company or the partners of a limited partnership—both of whom we viewed as members of their relevant entities. … We therefore conclude that for purposes of diversity jurisdiction, Americold’s members include its shareholders.”
The Court reiterated its categorical rule that unincorporated associations, such as limited partnerships, joint stock companies and labor unions, are citizens of all the states in which any of their members is a citizen for purposes of diversity jurisdiction. The Court applied these rules to a Maryland REIT, which is also an unincorporated association under Maryland Law, and held that an unincorporated REIT is a citizen of each state in which each of its shareholders is a citizen.
The Court specifically rejected arguments that the residency of an unincorporated REIT should be determined by other methods. The Court mentioned Americold’s reliance on case law recognizing individual trustees as citizens of the states in which they reside, but found such case law irrelevant to the current case—in which the trust itself is a party, rather than its trustees. Americold attempted to use such case law to argue that anything called a “trust” possesses the citizenship of its trustees alone. In clarifying the citizenship of a REIT and in declining to apply the same rule to a REIT, sued in its organizational name, that would apply to a human trustee, sued in her personal name, the Court stated:
“Many States . . . have applied the ‘trust’ label to a variety of unincorporated entities that have little in common with this traditional template. Maryland, for example, treats a … [REIT] ... as a ‘separate legal entity’ that itself can sue or be sued. … So long as such an entity is unincorporated, we apply our ‘oft-repeated rule’ that it possesses the citizenship of all its members. … But neither this rule nor Navarrolimits an entity’s membership to its trustees just because the entity happens to call itself a trust.”
Lastly, noting the amicus brief submitted by NAREIT (the National Association of Real Estate Investment Trusts), contending that REITs resemble corporations in every practical way and should be treated as such for purposes of diversity jurisdiction, the Court rejected that argument. The Court reiterated the rule set forth in Carden: that it saw “no reason to tear … down” the “‘doctrinal wall’ between corporate and unincorporated entities.”
This case is of significance not only to litigators but also to anyone drafting agreements in which a REIT might consent or expect to sue or be sued in federal court in the United States. This especially may be the case with the rise of large publicly-traded REITs that are likely to have owners in most if not all of the states. Because federal diversity jurisdiction is available only if the states in which plaintiffs reside do not overlap with the states in which defendants reside, a rule that looks to the owners of those REITs may effectively bar the REITs from achieving diversity jurisdiction to sue or be sued in federal courts. Thus, REITs with broad shareholder bases seeking federal diversity jurisdiction should consider asserting legal proceedings on behalf of their members or shareholders. This issue is significant not only for litigators but also for anyone drafting entity formation documents or commercial agreements in which an unincorporated entity might consent or expect to sue or be sued in federal court in the United States.