Filing a case in federal rather than state court, or removing a state case to federal court, requires federal jurisdiction based generally on either federal-law subject matter in the case, or “diversity of citizenship” meaning the parties to the case are not considered citizens of the same state.
The Ninth Circuit Court of Appeal has now ruled as a matter of first impression, that “like a partnership, an LLC is a citizen of every state of which its owners/members are citizens” (Johnson v. Columbia Properties Anchorage, LP, 9th Cir. No. 04-35671, February 10, 2006). The Ninth Circuit ruling is consistent with rulings from several other federal circuits, and with a U.S. Supreme Court decision treating a limited partnership as having the citizenship of all its members. The court’s rationale is questionable, however, in finding LLCs to be similar to an unincorporated association, although an LLC is a distinct legal entity comparable to a corporation (which would be treated as a citizen only of the state where it was formed, and where its principal place of business is located). Notably, in corporate structures involving combinations of LLCs and limited partnerships, as in this case, the citizenship of a party may include all of the states where any of its constituent LLCs and LPs were formed, and also those of any corporate and individual owners thereof, making diversity harder to establish.