Grynberg v. Kinder Morgan Energy Partners, L.P.

• Decision Date: 02 November 2015
• Docket Number: No. 14–1465.,14–1465.
• Citation: 805 F.3d 901
• Parties: Celeste C. GRYNBERG, individually and as Trustee on behalf of the Rachel Susan Trust, the Stephen Mark Trust, and the Miriam Zela Trust; Jack J. Grynberg, Petitioners–Appellants, v. KINDER MORGAN ENERGY PARTNERS, L.P., a Delaware Master Limited Partnership; Kinder Morgan CO2 Company, L.P., a Texas Limited Partnership, Respondents–Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

805 F.3d 901

Celeste C. GRYNBERG, individually and as Trustee on behalf of the Rachel Susan Trust, the Stephen Mark Trust, and the Miriam Zela Trust; Jack J. Grynberg, Petitioners–Appellants

v.KINDER MORGAN ENERGY PARTNERS, L.P., a Delaware Master Limited Partnership; Kinder Morgan CO2 Company, L.P., a Texas Limited Partnership, Respondents–Appellees.

No. 14–1465.

United States Court of Appeals, Tenth Circuit.

Nov. 2, 2015.

Daniel L. Abrams, Law Office of Daniel L. Abrams, PLLC, New York, N.Y. (Richard P. Barkley, The Barkley Law Firm, Englewood, CO, with him on the briefs), appearing for Appellants.

Stacy M. Neal (Guy S. Lipe, Mark C. Rodriguez, and James L. Leader, Jr., with her on the brief), Vinson & Elkins, Houston, TX, appearing for Appellee.

Before BRISCOE, MATHESON, and BACHARACH, Circuit Judges.

Opinion

MATHESON, Circuit Judge.

Celeste C. Grynberg—individually and as trustee on behalf of the Rachel Susan Trust, Stephen Mark Trust, and Miriam Zela Trust—and Jack J. Grynberg petitioned the federal district court to vacate an arbitration award that had been entered against them and in favor of Kinder Morgan Energy Partners, L.P. (“KMEP”) and Kinder Morgan CO2 Company, L.P. (“KMCO2,” and together with KMEP, “Kinder Morgan entities”).

The Grynbergs invoked the court's diversity jurisdiction. When they filed the action, the Grynbergs were citizens of Colorado, KMEP was a Delaware master limited partnership (“MLP”), and KMCO2 was a Texas limited partnership with one partner, KMEP.¹ The district court dismissed the action for lack of jurisdiction. It concluded that under Carden v. Arkoma Associates, 494 U.S. 185, 195, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990), KMEP's citizenship was the citizenship of all its unitholders, and because KMEP had at least one Colorado unitholder, its citizenship was not completely diverse from the Grynbergs'.

The Grynbergs appeal, arguing the district court improperly applied Carden. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

I. BACKGROUND

A. Overview of MLPs

This case addresses diversity jurisdiction for MLPs. MLPs are limited partnerships or limited liability companies whose ownership interests, called “common units,” are publicly traded. John Goodgame, New Developments in Master Limited Partnership Governance, 68 Bus. L. 81, 82 (2012) ; Wood v. Walton, No. WDQ–09–3398, 2010 WL 458574, at *1 n. 3 (D.Md. Feb. 2, 2010) (unpublished).² MLPs are similar to limited partnerships in that they have general partners who manage the partnership's affairs and limited partners (called “unitholders”) who provide capital. Trafigura AG v. Enter. Prods. Operating LLC, 995 F.Supp.2d 641, 643 n. 1 (S.D.Tex.2014). MLPs are classified as partnerships for federal taxation purposes, which allows them to benefit from “pass-through” taxation. Id. They are similar to corporations, however, in that MLPs are publicly traded. See id. Although MLPs are organized under state law, federal law permits federal pass-through taxation for MLPs engaged predominately in the “exploration, development, mining, or production, processing, refining, [or] transportation ... of any mineral or natural resource.” 26 U.S.C. § 7704(d)(1)(E).

B. Procedural Background

On July 1, 2014, the Grynbergs petitioned the United States District Court for the District of Colorado to vacate an arbitration award that had been entered against them and in favor of the Kinder Morgan entities. The petition alleged the district court had diversity jurisdiction because the amount in controversy exceeded $75,000 and the parties were completely diverse. See 28 U.S.C. § 1332. The petition alleged that the Grynbergs were citizens of Colorado, that KMEP was a Delaware limited partnership³ with its principal place of business in Texas, and that KMCO2 was a Texas limited partnership with its principal place of business in Texas.

On July 2, 2014, the district court issued an Order to Show Cause, which said the Grynbergs' petition did not adequately allege diversity jurisdiction because it did not properly identify the citizenship of the two limited partnerships, KMEP and KMCO2, as of the filing date. The court explained that under Carden, 494 U.S. at 195, 110 S.Ct. 1015, the citizenship of limited partnerships was the citizenship of all its unitholders. The court ordered the Grynbergs to identify all of KMEP's unitholders and KMCO2's members.

The Grynbergs responded, explaining that KMEP was a publicly traded Delaware MLP and that KMCO2 was a Texas limited partnership wholly owned by KMEP. The Kinder Morgan entities responded and explained that KMEP had unitholders who were citizens of Colorado. The Grynbergs argued that, because KMEP was an MLP and not a limited partnership, Carden was inapplicable. Instead, the Grynbergs argued, KMEP's citizenship was its principal place of business and state of formation.

The district court concluded Carden controlled and the Grynbergs had failed to establish complete diversity. It therefore dismissed the action without prejudice for lack of jurisdiction.

II. DISCUSSION

The Grynbergs appeal the district court's decision concluding it lacked diversity jurisdiction. Deciding an issue of first impression, we hold the citizenship of an MLP consists of its unitholders' citizenship and therefore affirm.

A. Standard of Review

“We review the district court's order dismissing the case for lack of subject matter jurisdiction de novo.” Lindstrom v. United States, 510 F.3d 1191, 1193 (10th Cir.2007).

B. Diversity Jurisdiction

The Constitution states, “The judicial Power shall extend to ... Controversies ... between Citizens of different States.” U.S. Const. art. III, § 2, cl. 1. Because “[t]he judicial Power of the United States, shall be vested in ... such inferior Courts as the Congress may from time to time ordain and establish,” id. art. III, § 1, Congress determines the jurisdiction of the federal district courts. Sheldon v. Sill, 49 U.S. (8 How.) 441, 12 L.Ed. 1147 (1850). “Congress first authorized the federal courts to exercise diversity jurisdiction in the Judiciary Act of 1789....” Carden, 494 U.S. at 187, 110 S.Ct. 1015. Under the current diversity statute, 28 U.S.C. § 1332, district courts have diversity jurisdiction over “all civil actions where the matter in controversy exceeds the sum or value of $75,000 ... and is between ... citizens of different States.”

Diversity jurisdiction requires complete diversity—no plaintiff may be a citizen of the same state as any defendant. See, e.g., Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806) ; Ravenswood Inv. Co., L.P. v. Avalon Corr. Servs., 651 F.3d 1219, 1223 (10th Cir.2011). “[F]or purposes of determining the existence of diversity jurisdiction, the citizenship of the parties is to be determined with reference to the facts as they existed at the time of filing.” Grupo Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567, 569–70, 124 S.Ct. 1920, 158 L.Ed.2d 866 (2004).

C. Analysis

Three reasons support our conclusion that an MLP's citizenship consists of its unitholders' citizenship. First, the long-standing rule guiding the jurisdictional citizenship of unincorporated entities, most recently stated in Carden, applies to MLPs. Second, the narrow exception to this rule does not apply. Third, the Grynbergs' policy arguments are appropriately addressed to Congress, not the courts.

1. Unincorporated Associations, the Chapman Rule, and Diversity Jurisdiction

In general, for jurisdictional citizenship, there are two types of business organizations: corporations and unincorporated associations. For diversity, a corporation is a citizen of its state of incorporation and the state where its principal place of business is located. 28 U.S.C. § 1332(c)(1) ; see also Hertz Corp. v. Friend, 559 U.S. 77, 85, 88, 130 S.Ct. 1181, 175 L.Ed.2d 1029 (2010) (citing Louisville, Cincinnati, & Charleston R.R. Co. v. Letson, 43 U.S. (2 How.) 497, 558, 11 L.Ed. 353 (1844) ). The Supreme Court has “firmly resisted extending that treatment to other entities.” Carden, 494 U.S. at 189, 110 S.Ct. 1015.

Instead, beginning with Chapman v. Barney, 129 U.S. 677, 9 S.Ct. 426, 32 L.Ed. 800 (1889), the Supreme Court has held an unincorporated entity's citizenship is typically determined by its members' citizenship (the “Chapman rule”). Carden, 494 U.S. at 189, 195–96, 110 S.Ct. 1015. The Court has characterized the Chapman rule as a “doctrinal wall,” United Steelworkers of Am., AFL–CIO v. R.H. Bouligny, Inc., 382 U.S. 145, 151, 86 S.Ct. 272, 15 L.Ed.2d 217 (1965), and has applied it to joint stock companies, Chapman, 129 U.S. at 681–82, 9 S.Ct. 426, limited partnership associations, Great S. Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 450, 454, 20 S.Ct. 690, 44 L.Ed. 842 (1900), labor unions, Bouligny, 382 U.S. at 147, 86 S.Ct. 272, and limited partnerships, Carden, 494 U.S. at 195–96, 110 S.Ct. 1015. The Tenth Circuit has further applied the rule to trusts, ConAgra Foods, Inc. v. Americold Logistics, LLC, 776 F.3d 1175, 1182 (10th Cir.2015), cert. granted, ––– U.S. ––––, 136 S.Ct. 27, 192 L.Ed.2d 997, 83 U.S.L.W. 3880 (U.S. Oct. 1, 2015) (No. 14–1382 ), and limited liability companies, Siloam Springs Hotel, L.L.C. v. Century Sur. Co., 781 F.3d 1233, 1234 (10th Cir.2015). The district court in this case, relying on Carden, applied the Chapman rule to MLPs to recognize that MLPs are unincorporated and hold that their citizenship for diversity purposes is determined by the citizenship of their unitholders.

The Grynbergs argue the district court misapplied the Chapman rule because Carden only applied the rule to limited partnerships, and any reference in that decision to other non-corporate business entities was merely dicta. We disagree. Carden was the result of case authority spanning a century of Supreme Court decisions uniformly applying the Chapman rule and holding that various forms of unincorporated associations are citizens of their members' states of citizenship. See, e.g., Chapman, 129 U.S. at...