On the eve of trial in the United States District Court for the Southern District of New York, Fishkin Lucks obtained dismissal of a lawsuit against its clients, several affiliated insurance companies, by successfully convincing the district court that it lacked subject matter jurisdiction over the dispute. The plaintiff, an insurance agency, had originally asserted claims seeking millions of dollars in connection with our clients' alleged breach of the parties' agreement, which had required the insurance agency to perform certain administrative services in exchange for commission payments. After we successfully moved for partial dismissal of the plaintiff's claims for breach of the implied covenant of good faith and fair dealing, violation of New York's General Business Law § 349, and for a declaration under the Declaratory Judgment Act related to certain intellectual property generated during the parties' relationship, the case was set to proceed to trial.
Just days before trial, the plaintiff, which is an LLC, disclosed in a proposed joint pretrial order that its sole member was a trust. Yet eighteen months earlier, in response to an order to show cause entered by the court after the lawsuit had been filed ordering it to disclose its members, the plaintiff alleged that it had four individual members, all of whom lived in Florida. Because an LLC takes the citizenship of its members, and because subject matter jurisdiction was based on diversity of citizenship between the parties, the identity of the plaintiff’s members was critical in establishing whether the court had jurisdiction.
Based on the pre-trial disclosure of the trust as sole member, we argued that there was no longer true diversity between the parties because a traditional trust takes the citizenship of its trustees, and one of the two trustees shared a state of residence with our clients. Plaintiff opposed our arguments, claiming that the at-issue trustee had no true authority and that his citizenship should therefore be disregarded when assessing diversity jurisdiction. After extensive briefing and argument, including analysis of recent Second Circuit jurisprudence and the underlying trust documents, the court issued an order dismissing the action for lack of subject matter jurisdiction.