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Third Circuit: No Diversity Jurisdiction over Partnership with U.S. Citizen Partner Domiciled Abroad; Dual Citizenship

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The plaintiff in Swiger v. Allegheny Energy, Inc., 2008 U.S. App. LEXIS 18139 (3d Cir. Aug. 25, 2008), sued three corporations and a large law firm, one of whose partners was a dual U.S. and U.K. citizen domiciled in the U.K.

[No Diversity Jurisdiction.] Whether a federal district court has diversity jurisdiction over a lawsuit involving a partnership that has among its partners an American citizen domiciled in a foreign state is an issue of first impression in this Circuit. To our knowledge, however, all courts that have addressed this issue have held that such an entity does not qualify for diversity jurisdiction. ... [W]e agree***

[F]or purposes of diversity jurisdiction, we consider only the American citizenship of a dual American-foreign national.

Partnerships and other unincorporated associations..., unlike corporations, are not considered "citizens" as that term is used in the diversity statute. See Carden v. Arkoma Assocs., 494 U.S. 185, 187-92 (1990) (holding that a limited partnership is not a citizen under the jurisdictional statute); see also Lincoln Prop. Co. v. Roche, 546 U.S. 81, 84 n.1 (2006) ("[F]or diversity purposes, a partnership entity, unlike a corporation, does not rank as a citizen[.]"); ... 15 James Wm. Moore, Moore's Federal Practice § 102.57[1] (3d ed. 2006) ... ("[A] partnership is not a 'citizen' of any state within the meaning of the statutes regulating jurisdiction[.]").

Given that partnerships are not citizens for diversity purposes, the Supreme Court has long applied the rule of Chapman v. Barney: that courts are to look to the citizenship of all the partners (or members of other unincorporated associations) to determine whether the federal district court has diversity jurisdiction. See Lincoln Prop. Co., 546 U.S. at 84 n.1***

Further, in the context of partnerships, the complete diversity requirement demands that all partners be diverse from all parties on the opposing side. See Lincoln Prop. Co., 546 U.S. at 84 n.1***

Partnerships which have American partners living abroad pose a special problem. "In order to be a citizen of a State within the meaning of the diversity statute, a natural person must be both a citizen of the United States and be domiciled within the State." Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 828 (1988). An American citizen domiciled abroad, while being a citizen of the United States is, of course, not domiciled in a particular state, and therefore such a person is "stateless" for purposes of diversity jurisdiction.... Thus, American citizens living abroad cannot be sued (or sue) in federal court based on diversity jurisdiction as they are neither "citizens of a State," see 28 U.S.C. § 1332(a)(1), nor "citizens or subjects of a foreign state," see § 1332(a)(2). See Newman-Green, 490 U.S. at 826.

Putting these principles together, that is, that the citizenship of the individual partners must be shown to be wholly diverse from that of the opposing party (or those of the opposing parties) and that American citizens living abroad cannot sue (or be sued) in federal court based on diversity jurisdiction, our sister circuits and other federal courts have concluded that if a partnership has among its partners any American citizen who is domiciled abroad, the partnership cannot sue (or be sued) in federal court based upon diversity jurisdiction. See Herrick Co. v. SCS Commc'ns, Inc., 251 F.3d 315, 322 (2d Cir. 2001); ***see also 15 Moore's Federal Practice § 102.37[16] ("If a member of a partnership is a United States citizen permanently living abroad, there can be no diversity of jurisdiction because the member is neither a citizen of a state nor a citizen of a foreign country."). ***

[No Alienage Jurisdiction.] Swiger argues that even if jurisdiction based on diversity of state citizenship is lacking, the district court nevertheless had diversity jurisdiction under 28 U.S.C. § 1332(a)(2), because Lubar, as a dual citizen of the United States and the United Kingdom would still be a "citizen[] or subject[] of a foreign state," and as such, Lubar would be diverse from Swiger within the meaning of § 1332(a)(2). *** After this appeal was briefed, but before oral argument, we decided this question in Frett-Smith [v. Vanterpool, 511 F.3d 396, 400 (3d Cir. 2008)], in which we held "that for purposes of diversity jurisdiction, only the American nationality of a dual national is recognized." *** Because Lubar is a United States citizen, any reliance on § 1332(a)(2)'s alienage jurisdiction would be in error.

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New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

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