DSDK Secures Important United States Supreme Court Ruling on Jurisdiction for “Trusts”

The United States Supreme Court ruled on March 7, 2016, that, for purposes of federal diversity jurisdiction, the citizenship of an unincorporated association called a “trust” under state law must be measured by its beneficial owners, not the trustees. John Duggan briefed and argued the case for ConAgra Foods, Inc.

The case began when ConAgra sued Americold Realty Trust in Wyandotte County, Kansas. Americold Realty Trust, an unincorporated association nominally called a “trust” under Maryland law, removed the suit to the Federal District Court for the District of Kansas based on diversity jurisdiction, which requires that the parties be citizens of different States. The Tenth Circuit Court of Appeals vacated the district court’s decision, ruling federal diversity jurisdiction never existed because Americold Realty Trust’s citizenship is determined by consulting, at minimum, its non-diverse shareholder-beneficiaries.

In the U.S. Supreme Court, Mr. Duggan argued the Tenth Circuit correctly determined Americold Realty Trust’s citizenship utilizing the bright-line “doctrinal wall” announced and applied by the Court for over a Century: that, for all entities other than corporations, courts must consult all the entity’s members for diversity jurisdiction purposes.

The Court’s unanimous decision adopted ConAgra’s arguments that, for diversity purposes, Americold possesses the citizenship of “all its members,” which included those persons owning beneficial interests. The Court also declined to breach its longstanding “‘doctrinal wall’” between corporations and unincorporated entities to treat Americold as a corporation—namely, to consider it a citizen of only its State of incorporation and principal place of business.

The Americold decision will likely have limited impact on real estate investment trusts, because many choose to be organized as corporations whose diversity citizenship will still be determined by its State of incorporation and principal place of business. Americold, however, will have broad application to all unincorporated associations. That is, the Americold Court’s unanimous reaffirmation of its bright-line “doctrinal wall” between corporations and all other entities signals the Court will similarly treat all unincorporated entities, however varied and disparate across the United States, as possessing the citizenship of all their members or owners. So, for limited liability companies, other statutory trusts under newly adopted uniform laws, and other artificial non-corporate entities under state law, the Americold ruling likely ends any uncertainty regarding those entities’ treatment—they will be considered non-corporate entities measuring citizenship by their beneficial owners.

But Americold leaves undisturbed the Court’s diversity jurisdiction precedent for traditional common law trusts. Common law trusts are not distinct legal entities; thus, legal proceedings involving a trust must be brought by or against the trustees in their own name. The Supreme Court has previously decided that, in such a lawsuit, the trustees’ citizenship alone is determinative of diversity jurisdiction, and the Americold decision does not impact that rule. However, under Americold, where states create artificial entities nominally labelled “trusts,” such entities’ diversity citizenship is determined by their beneficial owners, not by persons the statute may label “trustees.”

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