U.S. Supreme Court Holds that, for Purposes of Diversity Jurisdiction, a Real Estate Investment Trust’s Citizenship is Based on the Citizenship of its Shareholders

SUMMARY

The Supreme Court reiterated today in Americold Realty Trust v. ConAgra Foods, Inc.1 that, for purposes of federal diversity jurisdiction, the citizenship of legal entities other than corporations is determined by the citizenship of their members. At issue in Americold was a real estate investment trust (“REIT”) formed under Maryland law. Because Maryland provides that a REIT’s members are the beneficial owners of its shares, the Court held that Americold is a citizen of all states in which its shareholders reside. The Court rejected Americold’s argument that a trust takes the citizenship of its trustees; that rule, the Court explained, applies only when individual trustees sue or are sued in their own name.

BACKGROUND

ConAgra Foods and other corporations sued Americold Realty Trust in Kansas state court seeking compensation for damages caused by a 1991 warehouse fire. Americold, a REIT organized under Maryland law, removed the case to federal district court in Kansas on the basis of diversity jurisdiction under 28 U.S.C. § 1332(a), given that the corporate plaintiffs were citizens of Delaware, Nebraska, and Illinois. No one challenged the removal, and the district court accepted jurisdiction and ruled in favor of Americold on the merits.

On appeal, however, the Tenth Circuit raised the issue and ultimately held that it lacked subject-matter jurisdiction. The court explained that “[t]he citizenship of a trust, just like the citizenship of all other artificial entities except corporations, is determined by examining the citizenship ‘of all the entity’s members.’”2 Because there was nothing in the record establishing the citizenship of Americold’s members, the court concluded that it had not established subject-matter jurisdiction.3  

THE SUPREME COURT’S DECISION

In a short, unanimous decision, the Supreme Court held that, for purposes of diversity jurisdiction under 28 U.S.C. § 1332(a), an unincorporated legal entity has the citizenship of its “members.”4 Maryland law defines a REIT as “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.’”5 Drawing parallels to shareholders of a joint-stock company and partners in a limited partnership, the Court concluded that Americold’s “members” were its shareholders, and thus that Americold was a citizen of any state in which one of its shareholders resided.6

The Court rejected Americold’s contention, relying on Navarro Savings Ass’n v. Lee, 7 that “anything called a ‘trust’ possesses the citizenship of its trustees alone, not its shareholder beneficiaries as well.”8 The Court noted that trusts traditionally had not been considered distinct legal entities that could be haled into court, but instead were simply sets of fiduciary relationships between individuals.9 Under that view, only the trustees themselves could sue or be sued in their own name. Thus, the Court held, 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.”10 But the Court observed that Maryland, like many other states, applies the “trust” label to entities bearing little resemblance to traditional trusts, and “treats a [REIT] as a ‘separate legal entity’ that itself can sue or be sued.”11 As a result, when an unincorporated entity itself is a party to litigation—even if labeled a “trust”—that entity possesses the citizenship of each of its members.12

The Court also rejected the invitation of an amicus curiae to treat unincorporated entities like corporations and consider them citizens only of the States in which they are incorporated or maintain their principal places of business.13 That “doctrinal wall” was longstanding, the Court held, and it is “up to Congress” to change that rule for diversity jurisdiction purposes.14

IMPLICATIONS

The Supreme Court’s decision in Americold reaffirms the rule that unincorporated legal entities have the citizenship of their “members” or owners, including shareholders, for purposes of establishing diversity jurisdiction in federal courts; there is no separate rule for trusts that act in their own capacity in litigation. Whether unincorporated legal entities named as defendants in litigation can remove a case to federal court based on diversity jurisdiction will depend on the citizenship of each of their members—thus making removal difficult for larger entities. Trusts with broad shareholder bases seeking to file suit in federal court may wish to consider bringing suit in the name of their trustees, rather than on behalf of the entity itself.