Don’t waste your time: Akno 1010 Market Street and catching jurisdictional issues early

A recent decision by the U.S. Court of Appeals for the Sixth Circuit[1] illustrates the jurisdictional pitfalls that can ensnare unwary litigants – highlighting the need for attention to detail from both sides at the earliest stages of a case.

Akno 1010 Market Street St. Louis Missouri LLC v. Nahid Pourtaghi

In Akno 1010 Market Street, the plaintiff limited liability company filed suit in the U.S. District Court for the Eastern District of Michigan, invoking the court’s diversity jurisdiction. The plaintiff claimed to be “organized under the laws of Michigan,” and the defendant was a Canadian resident. The case took three years to reach a resolution by summary judgment. An appeal followed, and only after briefing and oral argument did the Sixth Circuit focus attention on the threshold issue of subject matter jurisdiction, which led to a sua sponte order for additional briefing on the question. The Sixth Circuit ultimately was “not convinced” that the parties met the statutory definition of “diverse” pursuant to 28 U.S.C. § 1332(a)(2), and it consequently vacated the District Court’s judgment and remanded the case to resolve the diversity question.

The problems arose from the distinct standards for citizenship that apply to LLCs and partnerships as compared to corporations. Had the plaintiff been a corporation, its organization under the laws of Michigan would have made it a citizen of Michigan.[2] In contrast, every circuit to address the issue has held that an LLC derives its citizenship from the citizenship of its members and sub-members.[3] And at the time the plaintiff filed its suit, its members were citizens of foreign countries – thus placing “foreign parties on both sides of the dispute,” and “destroy[ing] the complete diversity required by § 1332(a)(2).”[4]

Identify jurisdictional requirements and issues early

The result of delaying this threshold analysis was disastrous for the parties: years of wasted time and money. As the appellate court emphasized several times in its opinion, closer attention to this jurisdictional issue at the early stages of the case – including by the district court – would have saved considerable time, effort, and resources for both the parties and the courts. This significant and unnecessary expense drives home the need for plaintiffs and defendants to pay careful attention to citizenship issues in cases involving LLCs and partnerships. 

For plaintiffs (and defendants seeking to remove a case to federal court), it is essential to establish in advance the citizenship of all members of an LLC or partnership, lest it be called into question later. Conversely, defendants should take careful note of the jurisdictional requirements applicable to the parties in a case. As in this case, trial courts may not notice when an otherwise-acceptable jurisdictional allegation falls short because of a subtle – but significant – distinction like the difference between corporations and other businesses.