800 F.3d 99 (3rd Cir. 2015), 14-2660, Lincoln Benefit Life Co. v. Aei Life, LLC

Docket Nº:14-2660
Citation:800 F.3d 99
Opinion Judge:FUENTES, Circuit Judge.
Party Name:LINCOLN BENEFIT LIFE COMPANY, Appellant v. AEI LIFE, LLC; ALS CAPITAL VENTURES, LLC; JOEL JACOB; INNOVATIVE BROKERS; JRJ SERVICES, INC
Attorney:Jason P. Gosselin, ARGUED, Katherine L. Villanueva, Drinker Biddle & Reath LLP, Philadelphia, PA, Attorneys for Appellant. Ira S. Lipsius, Esq., ARGUED, Lipsius-BenHaim Law LLP, Kew Gardens, New York, Attorney for Appellee Innovative Brokers.
Judge Panel:Before: AMBRO, FUENTES, and ROTH, Circuit Judges. AMBRO, Circuit Judge, with whom FUENTES and ROTH, Circuit Judge join, concurring. AMBRO, Circuit Judge, with whom FUENTES and ROTH, Circuit Judge join, concurring.
Case Date:September 02, 2015
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
SUMMARY

Lincoln Benefit Life sought a declaratory judgment voiding two $6.65 million life insurance policies, which, it alleged, were procured by fraud and for the benefit of third-party investors who have no prior relationship to the individual whose life was insured. The defendants included a corporation, which procured the policies, and two LLCs that were the record owners and beneficiaries. Federal... (see full summary)

 
FREE EXCERPT

Page 99

800 F.3d 99 (3rd Cir. 2015)

LINCOLN BENEFIT LIFE COMPANY, Appellant

v.

AEI LIFE, LLC; ALS CAPITAL VENTURES, LLC; JOEL JACOB; INNOVATIVE BROKERS; JRJ SERVICES, INC

No. 14-2660

United States Court of Appeals, Third Circuit

September 2, 2015

Argued: January 14, 2015.

Page 100

[Copyrighted Material Omitted]

Page 101

On Appeal from the United States District Court for the District of New Jersey. (D.C. Civ. No. 3-13-cv-04117). District Judge: Honorable Freda L. Wolfson.

Jason P. Gosselin, ARGUED, Katherine L. Villanueva, Drinker Biddle & Reath LLP, Philadelphia, PA, Attorneys for Appellant.

Ira S. Lipsius, Esq., ARGUED, Lipsius-BenHaim Law LLP, Kew Gardens, New York, Attorney for Appellee Innovative Brokers.

Before: AMBRO, FUENTES, and ROTH, Circuit Judges. AMBRO, Circuit Judge, with whom FUENTES and ROTH, Circuit Judge join, concurring.

Page 102

OPINION

FUENTES, Circuit Judge.

A plaintiff who files suit in federal court may face significant difficulties when jurisdiction is premised on diversity and the defendant is an unincorporated association such as a partnership or limited liability company (" LLC" ). The members of the association determine its citizenship, but these members may be unknown to the plaintiff even after a diligent pre-filing investigation. The plaintiff may tentatively assert that complete diversity exists, but whether this assertion survives a motion to dismiss depends entirely on the pleading standard that the court chooses to apply. We hold that a plaintiff need not affirmatively allege the citizenship of each member of an unincorporated association in order to get past the pleading stage. Instead, if the plaintiff is able to allege in good faith, after a reasonable attempt to determine the identities of the members of the association, that it is diverse from all of those members, its complaint will survive a facial challenge to subject-matter jurisdiction. If the defendant thereafter mounts a factual challenge, the plaintiff is entitled to limited discovery for the purpose of establishing that complete diversity exists.

I. Background

Lincoln Benefit Life Company filed a federal complaint seeking a declaratory

Page 103

judgment voiding two $6.65 million life insurance policies. Lincoln Benefit alleges that these policies were procured by fraud and for the benefit of third-party investors who have no prior relationship to the individual whose life is the subject of the policies. According to the complaint, this sort of " stranger originated life insurance" or " STOLI" scheme generally violates state insurable-interest laws and the public policy against wagering on human life.

The defendants identified in Lincoln Benefit's complaint included a corporation named Innovative Brokers, which was involved in the procurement of the policies, and two LLCs that were the record owners and beneficiaries of the policies: AEI Life, LLC and ALS Capital Ventures, LLC.

Federal subject-matter jurisdiction was premised on diversity of citizenship. Accordingly, Lincoln Benefit included the following allegations in its complaint:

7. Plaintiff Lincoln Benefit is a citizen of the State of Nebraska. Lincoln Benefit is a life insurance company organized and existing under the laws of Nebraska, with its principal place of business at 2940 South 84th Street, Lincoln, N.E. 68506.

8. Upon information and belief, Defendant AEI Life, LLC is a citizen of and is domiciled in New York, and Defendant AEI Life, LLC maintains its principal address at 1428 36th Street, Ste. 219, Brooklyn, New York 11218. Defendant AEI Life, LLC is the record owner of Policy No. 01N1404934. 9. Upon information and belief, Defendant ALS Capital Ventures, LLC is a citizen of and domiciled in the State of Delaware. Defendant ALS Capital Ventures is the record owner of Policy No. 01N1404844.1

The defendants filed motions to dismiss for, among other things, lack of subject-matter jurisdiction. Their primary argument was that Lincoln Benefit had failed to adequately plead diversity jurisdiction: an LLC's citizenship is determined by the citizenship of its members, and Lincoln Benefit had not alleged the citizenship of the members of the LLC defendants.

In response, Lincoln Benefit pointed out that none of the defendants had asserted that it was a citizen of Nebraska. It further argued that because " information concerning the citizenship of the members of the defendant-LLCs is not available to Lincoln Benefit," it should not be required to plead that information with specificity.2 Lincoln Benefit's counsel responded that it " was unable to discern the identity and/or citizenship of Defendant AEI Life, LLC and Defendant ALS Capital Ventures, LLC. Counsel for Lincoln Benefit searched public databases, civil dockets, and various business-related search engines, including the New York Secretary of State website." 3 Lincoln Benefit reiterated, however, that " based on publicly available information, none of the defendants is a citizen of Nebraska." 4

In support of this allegation, Lincoln Benefit provided the District Court with certain documents it had consulted. The New York Department of State record for AEI Life, LLC indicated that it was organized

Page 104

in New York, and the only addresses and business associates listed were located in New York. Similarly, the Delaware Secretary of State record for ALS Capital Ventures, LLC indicated connections only to Delaware. Lincoln Benefit explained that because it " did not have first-hand knowledge of the information supporting the citizenship designations ( i.e., its allegations were based on public records), Lincoln Benefit prefaced its allegations 'upon information and belief.'" 5 It contended that in light of the above, it had adequately pleaded diversity. In the alternative, it requested leave for limited jurisdictional discovery.

The District Court granted the defendants' motions in part and dismissed the complaint without prejudice for lack of subject-matter jurisdiction. Citing Johnson v. SmithKline Beecham Corp.,6 it held that Lincoln Benefit was required to allege the citizenship of each member of each defendant LLC in order to plead complete diversity. In addition, it denied the request for jurisdictional discovery, reasoning that it would waste judicial resources and amount to an impermissible exercise of jurisdiction to order discovery when the plaintiff had not adequately alleged jurisdiction in the first place.

On appeal, Lincoln Benefit maintains that its jurisdictional allegations were sufficient and that the District Court erroneously imposed a heightened pleading standard. Only Innovative Brokers filed a brief defending the District Court's decision; neither the LLCs nor any other defendant has chosen to participate in this appeal.7

II. Discussion

A. General Principles of Diversity Jurisdiction

" The principal federal statute governing diversity jurisdiction, 28 U.S.C. § 1332, gives federal district courts original jurisdiction of all civil actions 'between . . . citizens of different States' where the amount in controversy exceeds $75,000." 8 For over two hundred years, the statute has been understood as requiring " complete diversity between all plaintiffs and all defendants," even though only minimal diversity is constitutionally required.9 This means that, unless there is some other basis for jurisdiction, " no plaintiff [may] be a citizen of the same state as any defendant." 10

" Most rules of citizenship are well established. A natural person is deemed to be a citizen of the state where he is domiciled. A corporation is a citizen both of the state where it is incorporated and of the state where it has its principal place of business." 11 But unlike corporations,

Page 105

unincorporated associations such as partnerships " are not considered 'citizens' as that term is used in the diversity statute." 12 Instead, " the citizenship of partnerships and other unincorporated associations is determined by the citizenship of [their] partners or members." 13 The state of organization and the principal place of business of an unincorporated association are legally irrelevant.14 " Accordingly, the citizenship of an LLC is determined by the citizenship of its members." 15 For complete diversity to exist, all of the LLC's members " must be diverse from all parties on the opposing side." 16

B. Challenges to Subject-Matter Jurisdiction

The burden of establishing federal jurisdiction rests with the party asserting its existence.17 " Challenges to subject matter jurisdiction under Rule 12(b)(1) may be facial or factual." 18 A facial attack " concerns 'an alleged pleading deficiency' whereas a factual attack concerns 'the actual failure of [a plaintiff's] claims to comport [factually] with the jurisdictional prerequisites.'" 19

" In reviewing a facial attack, the court must only consider the allegations of the complaint and documents referenced therein and attached thereto, in the light most favorable to the plaintiff." 20 By contrast, in reviewing a factual attack, " the court must permit the plaintiff to respond with rebuttal evidence in support of jurisdiction, and the court then decides the jurisdictional issue by weighing the evidence. If there is a dispute of a material fact, the court must conduct a plenary hearing on the contested issues prior to determining jurisdiction." 21

If the defendants here had challenged the factual existence of jurisdiction, Lincoln Benefit would have been required to prove by a preponderance of the evidence, after discovery, that it was diverse from every member of both defendant LLCs.

Page 106

Instead, however, the defendants mounted a facial challenge to the adequacy...

To continue reading

FREE SIGN UP