Siloam Springs Hotel, L. L.C. v. Century Sur. Co.

• Decision Date: 31 March 2015
• Docket Number: No. 14–6119.,14–6119.
• Citation: 781 F.3d 1233
• Parties: SILOAM SPRINGS HOTEL, L.L.C., Plaintiff–Appellant, v. CENTURY SURETY COMPANY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

781 F.3d 1233

SILOAM SPRINGS HOTEL, L.L.C., Plaintiff–Appellant

v.CENTURY SURETY COMPANY, Defendant–Appellee.

No. 14–6119.

United States Court of Appeals, Tenth Circuit.

March 31, 2015.

Tom E. Mullen (Sterling E. Pratt with him on the briefs), Fenton, Fenton, Smith, Reneau & Moon, Oklahoma City, OK, for Plaintiff–Appellant.

Phil R. Richards (Randy Lewin with him on the briefs), Richards & Connor, Tulsa, OK, for Defendant–Appellee.

Before BRISCOE, Chief Judge, MURPHY, and MATHESON, Circuit Judges.

MURPHY, Circuit Judge.

I. INTRODUCTION

This case requires that we decide how to determine the citizenship, for purposes of diversity jurisdiction, of a limited liability company (“LLC”). Like every other circuit to consider this question, this court concludes an LLC, as an unincorporated association, takes the citizenship of all its members. See Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 419–20 (3d Cir.2010) (citing cases from eight circuits for the proposition that “every federal court of appeals to address the question has concluded that a limited liability company, as an unincorporated business entity, should be treated as a partnership for purposes of establishing citizenship”); see also ConAgra Foods, Inc. v. Americold Logistics, LLC, 776 F.3d 1175, 1180 (10th Cir.2015) (holding Supreme Court precedent “dictates that the citizenship of any non-corporate artificial entity is determined by considering all of the entity's members”). Because the materials before this court do not demonstrate that complete diversity of citizenship existed at the time of the filing of the complaint, Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 570–71, 124 S.Ct. 1920, 158 L.Ed.2d 866 (2004), the matter is remanded to the district court for further proceedings.

II. BACKGROUND

Siloam Springs Hotel, LLC (“Siloam Springs”), operates a Hampton Inn hotel in Siloam Springs, Arkansas. It purchased a general liability insurance policy (the “Commercial Lines Policy”) from Century Surety Company (“Century Surety”) covering the Hampton Inn for the period of November 13, 2012, through November 13, 2013. Siloam Springs purchased the Commercial Lines Policy through Century Surety's agent, RCI Insurance Group of Claremore, Oklahoma.

On January 21, 2013, several guests at the Hampton Inn suffered bodily injury due to a sudden, accidental leak of carbon monoxide from the heating element of an indoor swimming pool. Siloam Springs sought coverage under the Commercial Lines Policy. Century Surety denied coverage, relying on an exclusion set out in the Commercial Lines Policy. That provision (the “Indoor Air Exclusion”) excludes from coverage “ ‘[b]odily injury’ ... arising out of, caused by, or alleging to be contributed to in any way by any toxic, hazardous, noxious, irritating, pathogenic or allergen qualities or characteristics of indoor air regardless of cause.”

In response to Century Surety's denial of coverage, Siloam Springs filed suit in Oklahoma state court seeking a declaration that the Commercial Lines Policy provides coverage for the bodily injuries suffered by the Hampton Inn guests as a result of the carbon monoxide leak. Century Surety filed a notice of removal, removing the case from state court to the United States District Court for the Western District of Oklahoma.See 28 U.S.C. §§ 1441, 1446. As the basis for removal, Century Surety asserted the existence of complete diversity of citizenship and an amount in controversy exceeding $75,000. See id. §§ 1332(a), 1441(b). With regard to diversity of citizenship, Century Surety asserted (1) it is “a corporation organized under the laws of Ohio, with its principal place of business in Michigan,” and (2) Siloam Springs is “a corporation organized under the laws of Oklahoma, with its principal place of business in Arkansas.” No one questioned the propriety of removal or the existence of diversity jurisdiction in the district court.

After Century Surety removed the case to federal court, the parties filed cross-motions for summary judgment. In its motion, Century Surety asserted that because the insurance contract was to be performed in Arkansas, Oklahoma choice-of-law rules made Arkansas law applicable. It further argued that the Indoor Air Exclusion unambiguously excluded coverage for the carbon-monoxide-based injuries to the guests at the Hampton Inn. For its part, Siloam Springs “decline[d] to contest” Century Surety's assertion that Arkansas law applied because, it asserted, “Arkansas law does not differ from Oklahoma law in any way material to [the] coverage dispute.” As to the merits, Siloam Springs asserted the Indoor Air Exclusion was ambiguous and, as such, had to be construed in favor of coverage. Without definitively resolving whether Oklahoma or Arkansas law applies, but relying on precedent from Arkansas, the district court granted summary judgment to Century Surety. In so doing, it concluded the Indoor Air Exclusion unambiguously excluded coverage for bodily injuries resulting from sudden, accidental exposure to carbon monoxide. But cf. Century Sur. Co. v. Casino W., Inc., 329 P.3d 614, 618–19 (Nev.2014) (holding, on materially indistinguishable facts, that identical exclusion was ambiguous and did not bar coverage because a policyholder “could reasonably expect that the indoor air quality exclusion applies only to continuously present substances that render the air harmful, and that the policy allows recovery for an unexpected condition that temporarily affects the air quality inside of a building”).

Siloam Springs brought this timely appeal challenging the district court's conclusion that the Indoor Air Exclusion unambiguously excluded coverage under the facts of this case. After the parties filed their merits briefs, this court recognized a potential jurisdictional defect in the notice of removal. Century Surety's notice of removal labeled Siloam Springs a “corporation” and asserted Siloam Springs was organized under Oklahoma law and had its principal place of business in Arkansas. Cf. 28 U.S.C. § 1332(c) (setting out corporate citizenship rules for purposes of diversity and removal statutes). In contrast to this assertion, however, Siloam Springs is not a corporation; it is an Oklahoma limited liability company. See generally Okla. Stat. tit. 18, §§ 2000 to 2060 (setting out the Oklahoma Limited Liability Company Act).

On January 8, 2015, this court issued to Century Surety an order to show cause noting this discrepancy. The order further noted that although this court had yet to address the issue, every circuit to consider the citizenship of an LLC for purposes of diversity jurisdiction has held that an LLC's citizenship is determined by reference to the citizenship of each and every one of its members. See Zambelli Fireworks, 592 F.3d at 420 (collecting cases). Finally, the order indicated that if this court were to adopt the unanimous approach of the other circuits, Century Surety's notice of removal would not establish the required complete diversity of citizenship because it does not set out the citizenship of the members of Siloam Springs. See Full Life Hospice, LLC v. Sebelius, 709 F.3d 1012, 1016 (10th Cir.2013) (“[B]ecause the jurisdiction of federal courts is limited, there is a presumption against [federal] jurisdiction, and the party invoking federal jurisdiction bears the burden of proof.” (alteration and quotation omitted)). Accordingly, this court ordered Century Surety to file a supplemental brief addressing the following two questions:

1. How should this court determine the citizenship of an LLC for purposes of determining the existence of complete diversity?

2. Assuming the citizenship of an LLC for purposes of diversity jurisdiction is properly determined by reference to all members of an LLC, what is the citizenship of Siloam Springs, LLC?

In its supplemental brief, Century Surety asserts this court should treat LLCs like corporations for diversity purposes and determine an LLC's citizenship by reference to its state of organization and principal place of business. Alternatively, Century Surety argues that if this court determines the citizenship of an LLC for purposes of diversity jurisdiction must be determined by reference to all members of the LLC, this court should conclude Siloam Springs is a citizen of Oklahoma, Florida, New York, North Carolina, and Texas. For the reasons set out below, Century Surety's arguments in these regards are unpersuasive.

III. ANALYSIS

Century Surety asserts this court should treat LLCs like corporations for purposes of diversity jurisdiction citizenship. In so arguing, Century begins by noting that in Shell Rocky Mountain Production, LLC v. Ultra Resources, Inc., 415 F.3d 1158, 1162 (10th Cir.2005), this court stated that because a party was a Delaware LLC with its principal place of business in Houston, it was a citizen of both Delaware and Texas. The problem with Century Surety's reliance on Shell is that Shell did not definitively state (or even remotely analyze) the question whether this is the appropriate standard to be used in determining an LLC's citizenship. An exercise of jurisdiction by this court without any analysis of whether that action is proper does not constitute binding precedent for the proposition that jurisdiction must exist when this court is again faced with a similar set of facts. Lewis v. Casey, 518 U.S. 343, 352 n. 2, 116 S.Ct. 2174, 135 L.Ed.2d 606 (1996) (collecting cases for proposition that “the existence of unaddressed jurisdictional defects has no precedential effect”); HealthTrio, Inc. v. Centennial River Corp. (In re HealthTrio, Inc.), 653 F.3d 1154, 1162 n. 8 (10th Cir.2011) (holding that lack of analysis of, or actual decision on, a jurisdictional issue precludes stare decisis effect on the jurisdictional point). Thus, Shell does not require that this court treat an LLC like a corporation for purposes of determining citizenship in a diversity case.

Alternatively, Century Surety...