Opinion
Civil Action No. 20-cv-01430-PAB-NRN
01-29-2021
W2 KAUAI, LLC, FRED RICKMAN, and STEVE BARDWELL, Plaintiffs, v. LIFESTYLE ASSET MANAGEMENT, LLC, LIGITA GIDOOMAL REVOCABLE TRUST, THOMAS BURNS, CAPITAL OPPORTUNITIES LLC, MP TAVILL REVOCABLE TRUST, JONATHAN B EAGER FAMILY TRUST, WENDY EAGER REVOCABLE TRUST, DAVID M HULTGREN LIVING TRUST, MARY SMITH, and MARIO ARROZ, Defendants.
SECOND ORDER TO SHOW CAUSE
The Court takes up this matter sua sponte on plaintiffs' Amended Complaint [Docket No. 17]. Plaintiff asserts that this Court has jurisdiction pursuant to 28 U.S.C. §§ 1331, 1332. Docket No. 17 at 4, ¶¶ 18, 19.
Magistrate Judge N. Reid Neureiter issued an order to show cause regarding subject matter jurisdiction on January 14, 2021. Docket No. 52. This order does not supersede Magistrate Judge Neureiter's order to show cause, but rather states additional concerns with plaintiffs' allegations concerning the parties' citizenship.
Plaintiffs' sole assertion of federal-question jurisdiction is their claim for declaratory relief brought under the Declaratory Judgment Act, 28 U.S.C. § 2201. Docket No. 17 at 25. The Declaratory Judgment Act, however, does not confer jurisdiction upon federal courts. Skelly Oil Co. v. Phillips Petrol. Co., 339 U.S. 667, 671 (1950); Chandler v. O'Bryan, 445 F.2d 1045, 1054 (10th Cir. 1971); Cardtoons, L.C. v. Major League Baseball Players Ass'n, 95 F.3d 959, 964 (10th Cir. 1996).
As Judge Neureiter explained, a federal court must satisfy itself as to its own jurisdiction and, absent an assurance that jurisdiction exists, a court may not proceed in a case. Docket No. 52 at 1-2. In addition, it is the burden of the party invoking federal jurisdiction to establish the such jurisdiction. Id. at 2 (citing Radil v. Sanborn W. Camps, Inc., 384 F.3d 1220, 1224 (10th Cir. 2004)). Plaintiff asserts that this Court has diversity jurisdiction under 28 U.S.C. § 1332. Docket No. 17 at 4, ¶ 18. Pursuant to that section, "district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of different States." 28 U.S.C. § 1332(a). "For purposes of federal diversity jurisdiction, an individual's state citizenship is equivalent to domicile." Smith v. Cummings, 445 F.3d 1254, 1259 (10th Cir. 2006). "To establish domicile in a particular state, a person must be physically present in the state and intend to remain there." Id. at 1260. Along with Judge Neureiter's concerns regarding the citizenship of the LLC parties, the facts presently alleged are insufficient to establish the citizenship of plaintiffs Fred Rickman and Steve Bardwell and defendants Ligita Gidoomal Revocable Trust, Thomas Burns, MP Tavill Revocable Trust, Jonathan B Eager Family Trust, Wendy Eager Revocable Trust, David M Hultgren Living Trust, Mary Smith, and Mario Arroz.
The amended complaint alleges that Mr. Rickman is a resident of North Carolina and that Mr. Bardwell is a resident of Texas. Docket No. 17 at 3, ¶¶ 4, 5. The amended complaint also alleges that Mr. Burns is a resident of California, id., ¶ 8, that Ms. Smith is a resident of Louisiana, id. at 4, ¶ 14, and that Mr. Arroz is a resident of California. Id., ¶ 15. These allegations establish only residency, which is not synonymous with an individual's domicile. See Miss. Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48 (1989) ("'Domicile' is not necessarily synonymous with 'residence,' and one can reside in one place but be domiciled in another.") (citations omitted)). Only the latter is determinative of a party's citizenship. See Whitelock v. Leatherman, 460 F.2d 507, 514 (10th Cir. 1972) ("[A]llegations of mere 'residence' may not be equated with 'citizenship' for the purposes of establishing diversity."). Plaintiffs' allegations are therefore insufficient to establish the citizenship of Mr. Rickman, Mr. Bardwell, Mr. Burns, Ms. Smith, and Mr. Arroz.
Plaintiffs allege that the Ligita Gidoomal Revocable Trust is a "Florida-based entity" and that, upon information and belief, it may be served through its agent, Ligita Gidoomal, who is a Florida resident. Docket No. 17 at 3, ¶ 7. Plaintiffs allege that the MP Tavill Revocable Trust is a "California-based entity" and that its agent, Mark Tavill, is, upon information and belief, a California resident. Id., ¶ 10. Plaintiffs state that the Jonathan B Eager Family Trust is a "California-based" entity that, upon information and belief, may be served through its agent, Jonathan B. Eager, who is a California resident. Id., ¶ 11. The Wendy Eager Revocable Trust, plaintiffs allege, is an "Illinois-based entity" that may be served, upon information and belief, through its agent, Wendy Eager, who is an Illinois resident. Id. at 4, ¶ 12. The David M Hultgren Living Trust, plaintiffs allege, is an "Iowa-based entity" that may be served, on information and belief, through its agent, David M. Hulgren, who is an Iowa resident. Id., ¶ 13.
The amended complaint makes no explicit reference to the citizenship of the trusts. While, for diversity purposes, "a corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business," 28 U.S.C. § 1332(c)(1), "Congress never expanded this grant of citizenship to include artificial entities other than corporations." Americold Realty Trust v. ConAgra Foods, Inc., 136 S. Ct. 1012, 1015 (2016).
In Americold, the Supreme Court held that the citizenship of a real estate investment trust, like the citizenship of other unincorporated entities, depends on the citizenship of all its members. 136 S. Ct. at 1016. "[W]hen a trustee files a lawsuit in her name, her jurisdictional citizenship is the State to which she belongs - as is true of any natural person." Id. Thus, Americold appears to establish rules for determining a party's citizenship depending on whether the party is a trustee or the trust itself. However, the Court further explained:
Americold's confusion regarding the citizenship of a trust is understandable and widely shared. The confusion can be explained, perhaps, by tradition. Traditionally, a trust was not considered a distinct legal entity, but a "fiduciary relationship" between multiple people. Such a relationship was not a thing that could be haled into court; legal proceedings involving a trust were brought by or against the trustees in their own name. And when a trustee files a lawsuit or is sued in her own name, her citizenship is all that matters for diversity purposes. For a traditional trust, therefore, there is no need to determine its membership, as would be true if the trust, as an entity, were sued. Many States, however, have applied the "trust" label to a variety of unincorporated entities that have little in common with this traditional template. . . . So long as such an entity is unincorporated, we apply our "oft-repeated rule" that it possesses the citizenship of all its members. But . . . this rule [does not] limit[] an entity's membership to its trustees just because the entity happens to call itself a trust.Id. (internal citations omitted). Although this language is open to interpretation, this Court has adopted the interpretation of at least six circuits that Americold establishes, "in contrast to a business trust, the citizenship of a traditional trust is determined solely by the citizenship of its trustees." Woodward, Inc. v. ZHRO Solutions, LLC, No. 18-cv-01468-PAB, 2018 WL 4697324, at *2 (D. Colo. June 26, 2018) (citing GBForefront, L.P. v. Forefront Mgmt. Grp., LLC, 888 F.3d 29, 34 (3d Cir. 2018)); see also Alliant Tax Credit 31, Inc. v. Murphy, 924 F.3d 1134, 1143 (11th Cir. 2019); Bank of New York Mellon as Tr. for Benefit of Certificate Holders of CWABS, Inc., Asset Backed Certificates, Series 2004-2 v. Thunder Properties, Inc., 778 F. App'x 488, 488 (9th Cir. 2019) (unpublished); Doermer v. Oxford Fin. Grp., Ltd., 884 F.3d 643, 647 (7th Cir. 2018); Raymond Loubier Irrevocable Trust v. Loubier, 858 F.3d 719, 729 (2d Cir. 2017); Wang ex rel. Wong v. New Mighty U.S. Trust, 843 F.3d 487, 494 (D.C. Cir. 2016). Thus, in order to demonstrate a trust's citizenship, a party must allege facts demonstrating that the trust is either a traditional trust or a business trust. If the trust is a traditional trust, the party must then trace the citizenship of all of its trustees; if the trust is a business trust, the party must trace the citizenship of all of its members.
There are two principal distinctions between a traditional trust and a business trust. See Woodward, 2018 WL 4697324, at *2 (citing GB Forefront, 888 F.3d at 40-41). First, "a traditional trust exists as a fiduciary relationship," while a business trust is treated as a distinct legal entity. GB Forefront, 888 F.3d at 40. Second, "a traditional trust facilitates a donative transfer, whereas a business trust implements a bargained-for exchange." Id. The Ninth Circuit has identified additional factors to consider when defining a trust, including "the nature of the trust as defined by the applicable state law, whether the trust has or lacks juridical person status, whether the trustee possesses real and substantial control over the trust's assets, and the rights, powers, and responsibilities of the trustee, as described in the controlling agreement." Demarest, 920 F.3d at 1229-30 (internal citations omitted).
Here, the amended complaint lacks information from which the Court could properly analyze whether the trusts are "business trusts" or "traditional trusts." The amended complaint does not identify the trustees or beneficiaries of the trusts. Thus, the Court is unable to determine the citizenship of the trusts.
Because the allegations are presently insufficient to allow the Court to determine the citizenship of certain parties and therefore whether the Court has jurisdiction, see United States ex rel. General Rock & Sand Corp. v. Chuska Dev. Corp., 55 F.3d 1491, 1495 (10th Cir. 1995) ("The party seeking the exercise of jurisdiction in his favor must allege in his pleading the facts essential to show jurisdiction." (internal quotation marks omitted)), it is
ORDERED that, on or before February 26, 2021, plaintiffs shall show cause why this case should not be dismissed for lack of subject matter jurisdiction.
DATED January 29, 2021.
BY THE COURT:
/s/_________
PHILIP A. BRIMMER
Chief United States District Judge