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PDP LA Mesa LLC v. LaSalle Medical Office Fund II

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA


October 12, 2010

PDP LA MESA LLC, PLAINTIFF,
v.
LASALLE MEDICAL OFFICE FUND II, ET AL., DEFENDANT.

The opinion of the court was delivered by: Hon. Dana M. Sabraw United States District Judge

ORDER GRANTING PLAINTIFF'S MOTION TO REMAND

[Docket No. 32]

This matter comes before the Court on Plaintiff's motion to remand this case to San Diego Superior Court. Defendant LaSalle Medical Office Fund II filed an opposition to the motion,*fn1 and Plaintiff filed a reply. After a thorough review of the issues, the Court grants Plaintiff's motion.

I. BACKGROUND

On June 22, 2010, Plaintiff PDP La Mesa LLC filed a Complaint in San Diego Superior Court against Defendants LaSalle Medical Office Fund II and Compass Bank. The Complaint alleges claims against Defendant LaSalle for breach of contract, specific performance, fraud and tortious interference with contractual relations, and a claim for declaratory relief against Defendants LaSalle and Compass Bank.

On July 22, 2010, Defendant LaSalle removed the case to this Court. The basis for removal was 28 U.S.C. § 1332, the diversity of citizenship statute. Defendant alleged that Plaintiff was a limited liability company organized under the laws of the State of Delaware with its principal place of business in California, Defendant LaSalle was a real estate investment trust with its principal place of business in Maryland, and Defendant Compass Bank was a corporation with its principal place of business in Alabama. (Notice of Removal ¶¶ 9-11.)

On August 11, 2010, Defendant LaSalle filed an Amended Notice of Removal. That pleading amended the allegations surrounding the citizenship of Defendant LaSalle for the purpose of diversity jurisdiction. Specifically, Defendant alleged that its headquarters were in Maryland, and it had three trustees, one being a citizen of Maryland and the others being citizens of Illinois. (Am. Notice of Removal ¶ 10.) Based on these new allegations, Defendant alleged it was a citizen of Maryland and Illinois for the purpose of diversity jurisdiction.

On August 24, 2010, Plaintiff filed the present motion to remand challenging this Court's subject matter jurisdiction. Specifically, Plaintiff argues Defendant LaSalle has not demonstrated complete diversity among the parties.

II. DISCUSSION

This case presents a question about the citizenship of a real estate investment trust for the purpose of determining whether diversity jurisdiction exists. Plaintiff argues the Court must look to the citizenship of the trustees and members of the trust, while Defendant asserts the Court should look to the citizenship of the trustees only. Neither the Supreme Court nor the Ninth Circuit has addressed this specific question. However, in light of other relevant case law, the Court agrees with Plaintiff that the proper test looks to the citizenship of the members of the trust in addition to the trustees.

There is a "generally prevailing principle that an unincorporated association's citizenship is that of each of its members." United Steelworkers of Am. v. R.H. Bouligny, Inc., 382 U.S. 145, 146 (1965). In Bouligny, the Court adhered to that principle, and declined to treat a labor union like a corporation for purposes of diversity jurisdiction. The Court traced the historical treatment of corporations for purposes of determining jurisdictional citizenship in both case law and legislation up to and including Congress's 1958 decision "to enact legislation providing that corporations are citizens both of the State of incorporation and of the State in which their principal place of business is located." Id. at 152. Although the Court recognized the arguments against the rigid distinction between corporations and other unincorporated associations for the purpose of diversity jurisdiction, it found those arguments were "addressed to an inappropriate forum, and that pleas for extension of the diversity jurisdiction to hitherto uncovered broad categories of litigants ought to be made to the Congress and not to the courts." Id. at 150-51.

In Riverside Memorial Mausoleum, Inc. v. UMET Trust, 581 F.2d 62 (3d Cir. 1978), and Belle View Apartments v. Realty ReFund Trust, 602 F.2d 668 (4th Cir. 1979), the courts extended the distinction between corporations and unincorporated associations from labor unions to real estate investment trusts. The Riverside Memorial court likened a real estate investment trust to a limited partnership, and concluded that for purposes of diversity jurisdiction, it "must look to the citizenship of the UMET investors and not simply that of the trustees." 581 F.2d at 65. The Belle View court likewise held "that a real estate investment trust is to be considered, under § 1332, a citizen of every state of which any of its members is a citizen." 602 F.2d at 668.

Seven years after Belle View, the Seventh Circuit reached the opposite conclusion about real estate investment trusts in Goldstick v. ICM Realty, 788 F.2d 456 (7th Cir. 1986). In that case, the court held "[t]he citizenship of a trust is determined for purposes of diversity jurisdiction by the citizenship of the trustee or, in this case, trustees, all of whom must be citizens of a different state from the plaintiff for the suit to be maintained under the diversity jurisdiction." Id. at 458 (citing Navarro Savings Ass'n v. Lee, 446 U.S. 458 (1980)).

In Navarro, however, the Court did not set out a citizenship test for trusts. Rather, the issue in Navarro was "whether the trustees of a business trust may invoke the diversity jurisdiction of the federal court on the basis of their own citizenship, rather than that of the trust's beneficial shareholders." 446 U.S. at 458. The Court answered that question in the affirmative based on its finding that the trustees "are active trustees whose control over the assets held in their names is real and substantial." Id. at 465. The Court found the trustees "have legal title; they manage the assets; they control the litigation. In short, they are real parties to the controversy." Id. Having met that standard, the Court held the trustees could "sue in their own right, without regard to the citizenship of the trust beneficiaries." Id. at 465-66.

The Seventh Circuit's misplaced reliance on Navarro was made evident in Carden v. Arkoma Associates, 494 U.S. 185 (1990). In that case, the Court explained that Navarro "did not involve the question whether a party that is an artificial entity other than a corporation can be considered a 'citizen' of a State, but the quite separate question whether parties that were undoubted 'citizens' (viz., natural persons) were the real parties to the controversy." Id. at 191.

In the course of rejecting this claim, we did indeed discuss the characteristics of a Massachusetts business trust - not at all, however, for the purpose of determining whether the trust had attributes making it a "citizen," but only for the purpose of establishing that the respondents were "active trustees whose control over the assets held in their names is real and substantial," thereby bringing them under the rule, "more than 150 years" old, which permits such trustees "to sue in their own right, without regard to the citizenship of the trust beneficiaries."

Id. (quoting Navarro, 446 U.S. at 465-66). After so limiting Navarro, the Court rejected "the contention that to determine, for diversity purposes, the citizenship of an artificial entity, the court may consult the citizenship of less than all of the entity's members." Id. at 195. Rather, the Court adhered to its "oft-repeated rule that diversity jurisdiction in a suit by or against the entity depends on the citizenship of 'all the members,' 'the several persons composing such association,' 'each of its members[.]'" Id. at 195-96 (citations omitted).

Defendant argues that Carden does not control this case because it involved the citizenship of a limited partnership whereas this case involves the citizenship of a trust. However, this factual distinction does not alter the legal standard applicable to this case. That standard calls for a bright-line rule between corporations and other artificial entities, whether limited partnerships, labor unions or otherwise, in which (a) the jurisdictional citizenship of the corporation is determined by its place of incorporation and principal place of business, and (b) the jurisdictional citizenship of the artificial entity is determined by the citizenship of all of its members. The nature of the artificial entity, here a real estate investment trust, does not warrant application of a different rule.

Defendant's reliance on Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894 (9th Cir. 2006), is also unavailing. Defendant relies on Johnson for the proposition that "[a] trust has the citizenship of its trustee or trustees." Id. at 899. However, the case Johnson relies on for that statement is Navarro, and as discussed above, "Navarro had nothing to do with the citizenship of the 'trust,' since it was a suit by the trustees in their own names." Carden, 494 U.S. at 192-93.

After considering the arguments and authority discussed above, this Court adopts the rule set out by the Third Circuit in Riverside Memorial, and recently affirmed in Emerald Investors Trust v. Gaunt Parsippany Partners, 492 F.3d 192 (3d Cir. 2007), "that the citizenship of both the trustee and the beneficiary should control in determining the citizenship of a trust." Id. at 205. Applying that rule to the facts of this case, there is no dispute that Plaintiff and Defendant are both citizens of California. (Opp'n to Mot. at 12 n.9, n.10.) Accordingly, complete diversity is lacking, and this case must be remanded to state court.

III.

CONCLUSION For the reasons set out above, the Court finds there is an absence of complete diversity between the parties in this case, and thus a lack of subject matter jurisdiction. Accordingly, Plaintiff's motion to remand is granted.

IT IS SO ORDERED.


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