The opinion of the court was delivered by: KAPLAN
MEMORANDUM OPINION (Corrected)
LEWIS A. KAPLAN, District Judge.
This motion presents the novel question as to the citizenship of a New York limited liability partnership for purposes of federal diversity jurisdiction.
Plaintiff Mudge Rose Guthrie Alexander & Ferdon ("Mudge") is a New York limited liability partnership ("LLP") and formerly a major New York law firm. It was organized as a general partnership and became a limited liability partnership on June 30, 1995. On October 2, 1995, the firm elected to cease operations effective December 15, 1995 and appointed a Liquidation Committee to wind up its affairs. All of its limited liability members resigned from the firm as of December 15, 1995.
On September 18, 1997, Mudge commenced this action to recover damages for alleged non-payment of legal fees. The defendants all are citizens of Maryland and, in one case, also of Georgia. Apart from a conclusory allegation that diversity of citizenship exists, the complaint contains no allegations as to the plaintiff's citizenship save that it asserts that Mudge is a New York LLP and maintains its principal place of business in New York.
Certain of the defendants have moved to dismiss the action for lack of subject matter jurisdiction. They contend that the complaint does not adequately allege the requisite complete diversity of citizenship. In any case, they maintain, certain of Mudge's members, or partners, at the time of its purported dissolution were citizens of Maryland (a fact not disputed by Mudge) and that complete diversity therefore in fact does not exist.
Section 1332(a) of the Judicial Code confers subject matter jurisdiction on the district courts on the basis of diversity of citizenship, insofar as is relevant here, in suits involving the requisite amount in controversy "between ... citizens of different states ...."
The statute provides that a corporation is deemed to be a citizen of the state in which it is incorporated and in which it maintains its principal place of business.
The statute is silent as to the citizenship of partnerships and other such organizations, but it long has been established that partnerships, joint ventures, joint stock companies, voluntary associations and other such entities are not citizens at all and therefore must be regarded as citizens of every state of which any of its partners or members is a citizen.
In Carden v. Arkoma Associates,4 the Supreme Court extended the rule to limited partnerships, thus making these entities citizens of every state of which any of their limited partners is a citizen notwithstanding the fact that limited partners have no role in management of and virtually no liability for the debts of the partnership.
An LLP is not a corporation so the express terms of the statute do not explicitly control the outcome of this motion. Moreover, the proper characterization of such an entity presents a federal question, so its characterization by state law is not dispositive.
Nevertheless, there are substantial bases for concluding that an LLP is not a citizen and that it therefore must be treated for diversity purposes as a citizen of every state of which any of its members is a citizen.
To begin with, Carden makes clear the Supreme Court's view that the determination as to which of the variety of forms of business organizations created by generations of lawyers and legislatures are to be regarded as citizens for diversity purposes is a "question more readily resolved by legislative prescription that by legal reasoning" and that the matter is one for decision by Congress.
Mudge's contention that an LLP is more similar to a corporation than to a limited partnership, even if it were correct in the relevant sense, thus is entirely beside the point. The Court has made clear that it is for Congress to make that judgment, not the courts.
Assuming arguendo that it were appropriate for this Court to embark on the analysis Mudge urges, defendants have the better of the argument for several reasons.
First, while the determination whether a business association is a citizen within the meaning of Section 1332 is a federal question, the characterization of the organization under state law does not support Mudge. The New York Partnership Law expressly defines "partnership" to include LLPs and defines an LLP as "a partnership."
Thus, the explicit language of the statute creating this new form of business organization, to whatever extent it is relevant to the determination of the federal issue, indicates that Mudge should be characterized as a partnership for diversity of citizenship purposes.
Second, Mudge's contention that New York LLPs are more similar to corporations than to limited partnerships does not sweep the boards. Mudge points to Section 26 of the Partnership Law, which provides that "no partner [of an LLP] is liable or accountable, directly or indirectly ... for any debts, obligations or liabilities of, or chargeable to, the [LLP] or each other ... which are incurred, created or assumed by such partnership ...."
It relies upon a memorandum of the state Executive Department indicating that this was intended to created a "standard of liability [which] is the same as that accorded to shareholders of a professional corporation ...."
But the standard of liability by which the actions of members of an LLP are to be measured has little bearing on the proper characterization of the organization for diversity purposes. Indeed, limited partners, in close if imperfect parallel to members of LLPs, ordinarily are not liable for the debts of the organization.