RTP LLC v. ORIX Real Estate Capital, Inc.

• Decision Date: 01 July 2016
• Docket Number: Nos. 14-3671 & 15-1153,s. 14-3671 & 15-1153
• Parties: RTP LLC and RSCD Opportunity Fund I, LLC (formerly known as Inheritance Capital Group, LLC ), Plaintiffs–Appellants, v. ORIX Real Estate Capital, Inc., Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

827 F.3d 689

RTP LLC and RSCD Opportunity Fund I, LLC (formerly known as Inheritance Capital Group, LLC ), Plaintiffs–Appellants

v.ORIX Real Estate Capital, Inc., Defendant–Appellee.

Nos. 14-3671 & 15-1153

United States Court of Appeals, Seventh Circuit.

Argued September 29, 2015

Decided July 1, 2016

Rehearing and Rehearing En Banc Denied July 29, 2016.

Paula K. Jacobi, Attorney, Barnes & Thornburg LLP, Chicago, IL, for Plaintiffs–Appellants.

David T. Audley, Michael T. Benz, Attorneys, Chapman & Cutler LLP, Chicago, IL, Defendant–Appellee.

Before Wood, Chief Judge, and Easterbrook and Ripple, Circuit Judges.

Easterbrook

, Circuit Judge.

ORIX Real Estate Capital made a loan of about $41 million to RTP, enabling it to buy a commercial building in North Carolina. The loan is nonrecourse, but both RTP and Inheritance Capital Group signed conditional guarantees that take effect if the borrower commits a default. (Inheritance has a new name, but we use the original, which appears throughout the litigation and the underlying documents.) The loan papers specify in detail what defaults activate the guarantees.

When the real estate market turned down, the building's sole tenant decided not to renew its lease. RTP did not find a new tenant willing to pay as much. Contending that several events of default had occurred, ORIX accelerated the loan and demanded that RTP and Inheritance make good the outstanding debt. They replied with this suit, which seeks a declaration that they do not owe ORIX anything beyond what can be paid out of the building's assets. Ruling in ORIX's favor, the district court ordered RTP and Inheritance to pay about $30 million. 2014 WL 4414512, 2014 U.S. Dist. LEXIS 124654 (N.D. Ill. Sept. 8, 2014)

. RTP, a special-purpose vehicle formed for this transaction, does not have any assets beyond the building. But Inheritance does. It is a subsidiary of Detroit's retirement plans (both general civil-service employees and the police and fire departments), which contain billions of dollars.

This suit began in a state court of Illinois. ORIX removed it under the diversity jurisdiction of 28 U.S.C. § 1332(a)(1)

. See 28 U.S.C. § 1441(a). ORIX, a corporation, has two citizenships: Delaware (where it is incorporated) and Texas (where it has its principal place of business). 28 U.S.C. § 1332(c)(1) ; Hertz Corp. v. Friend , 559 U.S. 77, 130 S.Ct. 1181, 175 L.Ed.2d 1029 (2010). Both RTP and Inheritance are limited liability companies, which have the citizenships of their members. See Cosgrove v. Bartolotta , 150 F.3d 729 (7th Cir. 1998) ; see also Carden v. Arkoma Associates , 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990). Inheritance has two members: the General Retirement System of the City of Detroit, and the Police and Fire Retirement System of the City of Detroit. RTP has multiple members, all of them undoubtedly citizens of Michigan or New York except for ICG Ellis Road, LLC, which has the retirement funds as members. So whether this suit was removable depends on the citizenships of these two funds.

Both retirement funds are organized as trusts under Michigan law but can sue and be sued in their own names. ORIX relies on May Department Stores Co. v. Federal Insurance Co. , 305 F.3d 597, 599 (7th Cir. 2002)

, and Hicklin Engineering, L.C. v. Bartell , 439 F.3d 346, 348 (7th Cir. 2006), both of which understood Navarro Savings Ass'n v. Lee , 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980), to stand for the proposition that the citizenship of every trust is the citizenship of its trustees. ORIX represented that all members of the funds' boards of trustees are citizens of Michigan. RTP and Inheritance did not dispute this assertion (even though the record does not contain information about the citizenship of Edsel Jenkins, who was among the trustees on the date the suit was removed). The district judge decided the merits of the controversy without discussing subject-matter jurisdiction.

After the case was argued in this court, we deferred its resolution pending the Supreme Court's decision in Americold Realty Trust v. ConAgra Foods, Inc. , ––– U.S. ––––, 136 S.Ct. 1012, 194 L.Ed.2d 71 (2016)

, which posed the question whether Navarro establishes a rule applicable to all kinds of trusts. After Americold was released, we asked the parties for their views about its effect on this case. With those views in hand, we are ready to decide this appeal.

Americold

holds that Navarro does not establish a special rule for trusts—indeed is not about trusts at all. The Justices explained that Navarro follows the normal rule that the citizenship of the litigant controls. A trust often is a fiduciary relation between two people, the trustee and the beneficiary. When the trustee sues (or is sued), the trustee's citizenship matters. And when the beneficiary sues or is sued, or a trust litigates in its own name, again the citizenship of the party controls.

So what is a trust's citizenship? Americold

has a clear answer: “While humans and corporations can assert their own citizenship, other entities take the citizenship of their members.” 136 S.Ct. at 1014. The Court added that “Navarro reaffirmed a separate rule that when a trustee files a lawsuit in her name, her jurisdictional citizenship is the State to which she belongs—as is true of any natural person.

This rule coexists with our discussion above that when an artificial entity is sued in its name, it takes the citizenship of each of its members.” Id . at 1016

(emphasis in original; citation omitted). The trusts themselves, not the trustees, are the members of the two LLCs. Detroit's two pension funds contract (and litigate) in their own names. These trusts therefore have the citizenships of their own members. The jurisdictional views expressed in Hicklin and May Department Stores (and the many similar decisions in this circuit and elsewhere) did not survive Americold.

RTP and Inheritance tell us that in 2013, when the suit was removed, 59 beneficiaries of the retirement plans resided in Texas or Delaware. Citizenship depends not on residence but on domicile, which means the place where a person intends to live in the long run. It is possible to reside in one state while planning to return to a long-term residence in another state. Although it is exceedingly unlikely that all 59 beneficiaries who lived in Texas or Delaware in 2013 were there only temporarily, RTP and Inheritance recognize that ORIX is entitled to try to prove their transience if it wants. They ask us to remand to the district court for that purpose.

ORIX opposes that proposal, contending that all members of the retirement funds must be citizens of Michigan, because workers generally live within Detroit's borders and cannot commute from Texas or Delaware. This supposes that a “member” for the purpose of Americold

is whatever the entity calls a member. Like most pension funds, Detroit's distinguish between active employees still contributing to the funds (called “members” by these funds and “participants” by some others) and persons eligible for or currently drawing benefits (usually called “beneficiaries”). ORIX wants us to hold that only current workers count as the pension funds' “members” for the jurisdictional inquiry.

Americold

observes that no statute defines “members” for the purpose of § 1332 but that “we have equated an association's members with its owners or the several...