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Supreme Court: Realty Trusts Have Citizenship of Their Shareholders for Purposes of Diversity Jurisdiction
Americold Realty Trust v. Conagra Foods, Inc.
In a recent opinion, the Supreme Court held that the citizenship of a realty trust, a business entity created by Maryland law, is controlled by the citizenship of the trust’s shareholders for purposes of diversity jurisdiction.
Petitioner, Americold Realty Trust, is—as its name would suggest—a realty trust organized under the laws of Maryland. In 1991, a fire occurred at a warehouse owned by Americold’s predecessors in interest which caused the loss of food stored at the warehouse. Respondents, “a group of corporations whose food perished in” the fire, filed a lawsuit in Kansas state court seeking to recover their losses. Americold removed the case to federal district court in Kansas on the basis of diversity jurisdiction, and eventually obtained a verdict in its favor. Respondents appealed.
On appeal, the Tenth Circuit perceived an issue that the parties had not raised, namely, whether the District Court’s exercise of jurisdiction was appropriate. In particular, the Tenth Circuit questioned whether the parties had established the basis for diversity jurisdiction. It ultimately concluded that, because real estate trusts are not corporations, their citizenship is controlled by the citizenship of their members. Because there was no record of the citizenship of Americold’s shareholders, the Tenth Circuit held that the parties had failed to demonstrate diversity of citizenship and it reversed the judgment of the District Court.
The Supreme Court affirmed. Justice Sotomayor, writing for the Court explained that the rule regarding the citizenship of corporations originally developed as an exception to the general rule that the citizenship of a business organization was determined by the citizenship of its members. Congress later codified the exception for corporations at 28 U.S.C. § 1332(c), but it did not change the general rule for other business entities. As a result, because Americold is not a corporation, its citizenship is controlled by the citizenship of its members.
The Court noted, however, that it had never defined the term “members” in the context of a realty trust. Consequently, it looked to Maryland law, which defines a realty trust as an “unincorporated business trust or association” which holds and manages property “for the benefit and profit of any person who may become a shareholder.” The Court was persuaded that the shareholders of a realty trust held the same types of powers and interests as do shareholders in joint-stock companies and partners in partnerships. Drawing, therefore, from precedent establishing the definition of “member” for those types of organizations, the Court concluded “for purposes of diversity jurisdiction, Americold’s members include its shareholders.”
The Court distinguished the authority which Americold argued compelled the contrary conclusion. It explained that, traditionally, a trust was not a legal entity, but rather a fiduciary relationship between individuals. Consequently, suits against trusts were brought against the trustees in their own name, and it was therefore simple to determine the citizenship of the “trust.” In recent years, however, states have begun to apply the term “trust” to “a variety of unincorporated entities that have little in common with” the traditional notion of a trust. Americold was itself an example of such a recent creation, as the Maryland real estate trust is a legal entity that can sue or be sued. As a result, the Court declined to apply rules established in another era in the context of the modern day conception of a trust.
Finally, the Court declined an amicus’ invitation to abolish the distinction between corporations and other business entities for the purposes of diversity jurisdiction. Because Congress has expressly codified that distinction, the Court stated that “it is up to Congress if it wishes to incorporate other entities into 28 U.S.C. § 1332(c)’s special jurisdictional rule.”
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