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GBForefront, L.P. v. Forefront Management Group, LLC

United States Court of Appeals, Third Circuit

April 19, 2018

GBFOREFRONT, L.P., Appellant

          Argued January 11, 2018

          On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 2-11-cv-07732) District Judge: Hon. Mitchell S. Goldberg

          Kenneth B. Danielsen, Esq. Christopher Nucifora, Esq. [ARGUED] Kaufman Dolowich & Voluck, Eileen M. Ficaro, Esq. Kaufman Dolowich & Voluck, Gary P. Lightman, Esq. Glenn A. Manochi, Esq. Lightman & Manochi Counsel for Appellant

          Sean L. Corgan, Esq. Francis J. Grey, Jr., Esq. Ricci Tyrrell Johnson & Grey, Gary M. Fellner, Esq. [ARGUED] Porzio Bromberg & NewmanCounsel for Appellees

          Before: JORDAN and ROTH, Circuit Judges, and MARIANI, [*] District Judge.


          JORDAN, Circuit Judge.

         This case requires us to consider whether, in assessing diversity-of-citizenship jurisdiction under 28 U.S.C. § 1332(a), the citizenship of a traditional trust is determined differently than that of a business trust. In light of the Supreme Court's decision in Americold Realty Trust v. Conagra Foods, Inc., 136 S.Ct. 1012 (2016), we conclude that the citizenship of a traditional trust is based only on the citizenship of its trustee. In so holding, we acknowledge that Americold Realty abrogates part of our opinion in Emerald Investors Trust v. Gaunt Parsippany Partners, 492 F.3d 192 (3d Cir. 2007), which stated that it was unnecessary to distinguish between types of trusts when determining diversity jurisdiction. Id. at 198 n.10, 205.

         Based on the distinction we recognize today between traditional trusts and business trusts, we will vacate the District Court order dismissing this case for lack of jurisdiction. Because the record on appeal is insufficient for us to proceed further, we will remand the case with instructions to determine whether the trusts at issue are of the traditional or business variety and whether there is diversity jurisdiction. We also instruct the District Court to give leave to further amend the complaint within a reasonable time to cure defective jurisdictional allegations.

         I. Background

         Following an investment opportunity gone awry, the details of which are immaterial at this point, GBForefront, L.P., filed suit in the District Court against Forefront Management Group, LLC ("FMG"); Forefront Capital Management, LLC; Forefront Capital Markets, LLC; and Forefront Advisory, LLC, (collectively, the "Defendants") for breach of contract and unjust enrichment. Initially, GBForefront, which is a limited partnership, had sued only FMG, a limited liability company (or "LLC"), and alleged that the Court had diversity jurisdiction under 28 U.S.C. § 1332 because, among other things, GBForefront's general partner was an LLC whose sole member was a "resident" of Pennsylvania and "none of [FMG's] members are residents of Pennsylvania."[1] (J.A. at 50, 719-20.)

         After years of litigation, GBForefront accepted an offer of judgment made by the Defendants pursuant to Federal Rule of Civil Procedure 68. The District Court accordingly entered judgment in favor of GBForefront and against the Defendants. Later, when a difficulty arose with satisfaction of the judgment, the parties submitted a joint motion to amend the judgment to effectuate a new settlement agreement. Pursuant to the terms of that agreement, GBForefront and the Defendants signed a consent judgment against Forefront Capital Markets, and they agreed that, in the event of any default by the Defendants in satisfying the settlement, GBForefront could immediately file a motion to enter that consent judgment. The District Court granted the joint motion, and everyone thought the case was over.

         It was not. GBForefront soon alleged that "[c]ertain Forefront entities"[2] had defaulted on the terms of the settlement agreement, and it thus moved for entry of the consent judgment. (J.A. at 923). With the assistance of new counsel, the Defendants cross-moved to dismiss the case for lack of subject matter jurisdiction, claiming that GBForefront had not adequately pled the citizenship of FMG and that complete diversity was lacking when the lawsuit was initially filed. The parties briefed the issue of diversity jurisdiction, but then came a twist. The Supreme Court issued its opinion in Americold Realty, specifically dealing with the citizenship of trusts.

         After holding a hearing and considering the parties' supplemental briefing on the new precedent, the District Court granted the Defendants' motion to dismiss because the Court determined the membership of GBForefront included at least three trusts whose beneficiaries were citizens of New Jersey[3]and FMG also had a member who was a citizen of New Jersey.[4]

         The Court reasoned that Emerald Investors instructed it not to distinguish between traditional trusts and business trusts for jurisdictional purposes, and that Americold Realty required the citizenship of a business trust to include all its members, including its beneficiaries.

         GBForefront timely appealed the dismissal.

         II. Discussion[5]

         On appeal, GBForefront argues that the Americold Realty holding described by the District Court applies only to business trusts, while the trusts composing GBForefront are traditional trusts whose citizenship is based only on the citizenship of their trustees. The Defendants of course disagree, asserting that Americold Realty requires that the citizenship of trust beneficiaries always be accounted for when determining diversity jurisdiction. The Defendants further assert that GBForefront comprises a series of trusts whose beneficiaries' citizenship prevents subject matter jurisdiction based on diversity. The resolution of this jurisdictional dispute accordingly turns on the Supreme Court's Americold Realty opinion. In our view, that case instructs that, for purposes of diversity jurisdiction, the citizenship of a traditional trust must be determined by the citizenship of its trustee alone.[6]

         A. General Principles of Diversity Jurisdiction

         It is fundamental that federal courts must have subject matter jurisdiction before reaching the merits of a case, and, as its name indicates, jurisdiction based on diversity of citizenship requires that opposing parties be citizens of diverse states. Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 418 (3d Cir. 2010). Under the dictates of 28 U.S.C. § 1332(a), for diversity jurisdiction to exist, "no plaintiff [may] be a citizen of the same state as any defendant[, ]" and the amount in controversy must exceed $75, 000.[7] Id. at 419. A challenge to subject matter jurisdiction may be raised at any point in the litigation, and, when the jurisdictional basis is diversity of citizenship, diversity is assessed as of the time the complaint was filed. Grupo Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567, 570-71 (2004).

         Most rules for determining the citizenship of natural persons and business entities are well-established. Zambelli Fireworks, 592 F.3d at 419. The citizenship of a natural person is the state where that person is domiciled. Id. The citizenship of a corporation is both its state of incorporation and the state of its principal place of business. Id. A partnership, as an unincorporated business entity, assumes the citizenship of all its partners. Id. Likewise, a limited liability company is a citizen of all the states of its members. Id. at 420. But, as this case demonstrates, there are still some rules in flux. Hence the challenge to jurisdiction we address here.

         When a party raises an issue regarding a jurisdictional defect, courts must determine whether the challenge is a facial attack or a factual attack. Constitution Party of Pa. v. Aichele, 757 F.3d 347, 357 (3d Cir. 2014). "A facial attack ... is an argument that considers a claim on its face and asserts that it is insufficient to invoke subject matter jurisdiction of the court because, for example, ... there is no indication of a diversity of citizenship among the parties[.]" Id. at 358.

         "A factual attack, on the other hand, is an argument that there is no subject matter jurisdiction because the facts of the case ... do not support the asserted jurisdiction." Id. To resolve a factual challenge, the "[c]ourt may look beyond the pleadings to ascertain the facts[.]" Id. Again, "for example, while diversity of citizenship might have been adequately pleaded by the plaintiff, the defendant can submit proof that, in fact, diversity is lacking." Id. The defendant has the initial burden of production to raise a factual challenge. See Washington v. Hovensa LLC, 652 F.3d 340, 345 & n.2 (3d Cir. 2011) (distinguishing between burden of proof and burden of production, in that the latter "determines which party must first present evidence sufficient to raise a given issue as pertinent"). Once a factual challenge has been raised, ...

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