United States District Court, W.D. Arkansas, Fayetteville Division
OPINION AND ORDER
TIMOTHY L. BROOKS UNITED STATES DISTRICT JUDGE
Pinnacle Propane, LLC ("Pinnacle") removed the
above-captioned case to this Court on January 17, 2017, after
Plaintiff Pathfinder Transport, LLC ("Pathfinder")
sued it for breach of contract in the Circuit Court of Benton
County, Arkansas. During the parties' March 27, 2017 case
management hearing, the Court sua sponte raised a
concern about its subject-matter jurisdiction, and requested
briefing on the matter. Pinnacle filed its Brief (Doc. 13) on
April 14, 2017, contending that the Court can properly
exercise diversity jurisdiction pursuant to 28 U.S.C. §
1332. Pathfinder filed its adverse Response (Doc. 15) on
April 24, 2017, and Pinnacle filed a Reply (Doc. 16) on May
1, 2017. Having reviewed the parties' briefings, the
Court finds that it lacks subject-matter jurisdiction over
this case, and therefore REMANDS the case to
the Circuit Court of Benton County, Arkansas.
III of the Constitution vests the federal courts with
jurisdiction to hear "controversies . . . between
citizens of different states." U.S. Const, art. Ill.
§ 2, cl. 1. Congress has since granted "[t]he
district courts . . . original jurisdiction of all civil
actions where the matter in controversy exceeds the sum or
value of $75, 000 . .. and is between .. . citizens of
different States." 28 U.S.C. § 1332(a)(1). To
determine the "citizenship" of an LLC, like
Pinnacle, the Court looks to the citizenship(s) of its
underlying member(s). See GMAC Commercial Credit LLC v.
Diliard Dep't Stores, Inc., 357 F.3d 827 (8th Cir.
2004). On the parties' Joint Rule 26(f) Report, Pinnacle
reported that its sole member is a master limited partnership
("MLP") called JP Energy Partners, LP ("JP
Energy"). (Doc. 10, p. 5).
is an artificial entity that bears some characteristics of a
limited partnership, and some characteristics of a
corporation. "MLPs are similar to limited partnerships,
" on the one hand, "in that they have general
partners who manage the partnership's affairs and limited
partners (called 'unitholders') who provide
capital." Grynberg v. Kinder Morgan Energy Partners,
LP., 805 F.3d 901, 904 (10th Cir. 2015), cert,
denied, 136 S.Ct. 1714 (2016). On the other hand,
ownership units of MLPs are publicly traded, like shares of a
corporation. Id. Federal law treats MLPs as
partnerships for tax purposes, allowing them to benefit from
"pass through" taxation, when they meet certain
conditions. See 26 U.S.C. § 7704;
Grynberg, 805 F.3d at 904. MLPs realize this benefit
when "90 percent or more of the [MLPs] gross income . .
. consists of qualifying income." 26 U.S.C. §
7704(c)(2). "Qualifying income" includes, in
relevant part, "income and gains derived from the
exploration, development, mining or production, processing,
refining, transportation, or the marketing of any mineral or
natural resource, industrial source of carbon dioxide, or the
transportation or storage of [certain fuels]."
Id. at (d)(1)(E) (parentheticals omitted).
case raises the question of whether the citizenship of an MLP
should be determined based on the citizenship of its
partners-like other non-incorporated artificial entities-or
based on the place of its chartering and headquarters-like
corporations. If JP Energy is treated like a corporation,
then the Court can exercise its diversity jurisdiction
because Pinnacle would not be a "citizen" of
Arkansas. If JP Energy's citizenship depends on the
citizenship of its partners, then the Court lacks
subject-matter jurisdiction; Pinnacle has stipulated that JP
Energy has at least one limited partner in Arkansas. (Doc.
13, p. 3).
the Supreme Court has not directly addressed this issue, it
has repeatedly found that the citizenship of other forms of
non-incorporated entities must be determined by reference to
the citizenships of their members. For example, in
Chapman v. Barney, the Supreme Court reversed and
remanded a case where the citizenship of a "joint-stock
company"-a form of partnership-was alleged to be New
York. 129 U.S. 677, 682 (1889). Even though "the company
may have been organized under the laws of the state of New
York, and may be doing business in that state, ... all the
members of it may not be citizens of that state."
Id. Accordingly, diversity jurisdiction could not be
established unless it was shown that none of the
company's members were citizens of Illinois, the state of
the defendant's citizenship. Id.
more than a decade later, the Supreme Court held that a
Pennsylvania "limited partnership association"
could not be treated as a corporation for diversity
jurisdiction purposes. Great S. Fire Proof Hotel Co. v.
Jones, 177 U.S. 449 (1900). Though the rule that "a
corporation [is] to be deemed a citizen of the state creating
it has long been recognized, " no such rule "has
been applied to partnership associations Id. at 456.
This was so even though Pennsylvania recognized that limited
partnership associations had "some characteristics of a
corporation, " and could even be categorized as a
"quasi corporation." Id. at 457. Such
similarities were not "sufficient reason for regarding
[the limited partnership association] as a corporation within
the jurisdictional rule .... That rule must not be
1965, the Supreme Court held that an unincorporated
union's citizenship must be determined based on the
citizenships of its members. United Steelworkers of Am.,
AFL-CIO v. R. H. Bouligny, Inc., 382 U.S. 145 (1965).
This was so despite the fact, pointed out by courts and
commentators, that "many voluntary associations and
labor unions are indistinguishable from corporations in terms
of the reality of function and structure." Id.
at 149-50. Though criticism of the formalistic distinction
made by the Supreme Court between incorporated and
unincorporated entities was "with considerable merit,
" that criticism was "addressed to an inappropriate
forum." Id. at 150. "[P]leas for extension
of the diversity jurisdiction to hitherto uncovered broad
categories of litigants ought to be made to the Congress and
not the courts." Id. at 150-151.
with the Bouligny Court's deferential position,
in Carden v. Arkoma Associates, 494 U.S. 185 (1990),
the Supreme Court held that the citizenship of limited
partners in a limited partnership had to be taken into
account in evaluating diversity jurisdiction. Once again, the
Supreme Court recognized the formalistic nature of its
holding, admitting that it "can validly be characterized
as technical, precedent-bound, and unresponsive to policy
considerations raised by the changing realities of business
organization." Id. at 196. And, once again, the
Court decided that these criticisms were properly addressed
to Congress. Id.
anomalous case in the Supreme Court's jurisprudence is
Puerto Rico v. Russell & Co., 288 U.S. 476
(1933). That case involved a type of Puerto Rican entity
known as a "socieded en comandita." Id. at
477. An "exotic creation of the civil law, "
Bouligny, 382 U.S. at 151, the sociedad en comandita
was "consistently regarded as a juridical person"
by "the law of its creation." Russell &
Co., 288 U.S. at 481. Its juridical personality was
"so complete in contemplation of the law of Puerto
Rico" that the Supreme Court could "see no adequate
reason for holding that the sociedad has a different status
for purposes of federal jurisdiction than a corporation
organized under that law." Id. at 482.
the Bouligny and Carden Courts have
categorized Russell as being, essentially, sui
generis. The problem presented by Russell,
"was that of fitting an exotic creation of the civil law
. . . into a federal scheme which knew it not."
Bouligny, 382 U.S. at 151; see also Carden,
494 U.S. at 190 (rejecting a litigant's reliance on
Russell as being foreclosed by
Bouligny's characterization of the case). For
this reason, Russell does not supply precedent for
"look[ing] beyond the incorporated/unincorporated
dichotomy." Carden, 494 U.S. at 190 (quoting
the respondent's brief). It is instead a unique exception
to the Supreme Court's otherwise consistent policy of
deferring to Congress in extending juridical personhood to
observation is undoubtedly why every federal court (to this
Court's knowledge) asked to decide whether to treat MLPs
as corporations for jurisdictional purposes has answered that
question in the negative. E.g., Grynberg, 805 F.3d
at 901; Markwest Liberty Midstream & Res., LLC. v.
Biifinger Westcon, inc., 2016 WL 6553591 (N.D. W.Va.
Nov. 4, 2016); Cabrera v. Aboytes-Munis, 2015 WL
5093230 (S.D. Tex. Aug. 7, 2015), R&R adopted,
2015 WL 5093234 (S.D. Tex. Aug. 28, 2015); LL & E
Royalty Trust ex rel. Parsons v. Quantum Res. Mgmt, LLC,
2015 WL 4274987 (E.D. Mich. July 14, 2015); Great Lakes
Gas Transmission Ltd. P'ship v. Essar Steel Minn.,
LLC, 103 F.Supp.3d 1000 (D. Minn. 2015), vacated on
other grounds, 843 F.3d 325 (8th Cir. 2016);
Trafigura AG v. Enter. Prod. Operating LLC, 995
F.Supp.2d 641 (S.D. Tex. 2014); see also Doc. 15, p.
4 (collecting additional cases).
contention that the Court should deviate from this apparently
unanimous approach rests on unfounded justifications. Most
notably, Pinnacle contends that this case is distinguishable
from Bouligny and Carden. It posits that
the Carden Court "circumscribed Bouligny,
" (Doc. 13, p. 7), by describing that Court's
holding as applying "at least [to] common-law entities,
" which, according to Pinnacle, means that statutory
creatures like MLPs fall outside the scope of those cases.
Carden, 494 U.S. at 190. The Court disagrees with
this entire premise. First, to suggest that Carden
circumscribed Bouligny is an incorrect reading of
the former case. Carden heartily reaffirmed the two
central premises of Bouligny: (i) that
Russell was an outlier; and (ii) that "further
adjustments" to "the field of ...