An Illinois federal district court recently concluded that, under the Class Action Fairness Act (CAFA), the “citizenship” of a limited liability company is determined by reference to its principal place of business and state of organization. See Calchi v. TopCo Associates, LLC, 2023 WL 3863355 (N.D.Ill. June 7, 2023).
The court originally dismissed plaintiff’s complaint, which asserted that the court had jurisdiction under CAFA, because she did not allege the citizenship of each of the defendant LLC’s members in her complaint, which is how a LLC’s citizenship is typically determined for jurisdictional purposes. At the parties’ request, however, the court reconsidered its decision and concluded it had erred. The court explained that “most of the time, the citizenship of a LLC does not turn on where it is organized and where it has its principal place of business. Instead, an LLC typically has the citizenship of each of its members.” Under CAFA, however, “Congress chose a different rule and picked a different jurisdictional yardstick.” This is because CAFA specifies that “an unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it is organized.” 28 U.S.C. § 1332(d)(1).
The court observed that district courts in the Seventh Circuit, as well as courts in other jurisdictions, have “widely held” that an LLC is an “unincorporated association” within the meaning of section 1332(d)(1).
The court also reasoned that this principle was consistent with the Seventh Circuit’s prior description of LLCs as “unincorporated enterprises,” concluding that “if an LLC is an ‘unincorporated enterprise,’ then it is not much of a stretch to conclude that it is an ‘unincorporated association.’ That’s exactly what an LLC is. It is an association of members, and it is not incorporated.”
The court summarized that “[i]n a non-CAFA case, an LLC is a citizen where its members are citizens. But in a CAFA case, an LLC is a citizen of its state of organization and the state where it has its principal place of business. Sometimes an LLC is like a corporation, and sometimes it isn’t. It’s a strange animal in the corporate kingdom.”